NEW YORK — Bank of America Corp. and Wells Fargo & Co. each set aside less money for bad loans in the fourth quarter, signaling improved forecasts for consumers' financial health, even though bad loans at both big banks continued to rise.

The two lenders' lighter provisions — or costs to offset current and future loan losses — helped each to improve its earnings during the fourth quarter.

Charlotte-based Bank of America, now led by a new chief executive, lost $194 million in the quarter before counting a $4 billion charge it swallowed to refund the U.S. Treasury's crisis-hour investment in the bank. Wells Fargo, San Francisco, earned $2.8 billion before counting its own $2.2 billion charge for re-paying U.S. taxpayers.

Both banks accepted billions of dollars in support from the federal government during the last 18 months — in Bank of America's case, twice — as public officials rushed to stabilize a reeling banking system.

In recent days, other big banks such as J.P. Morgan Chase & Co. and Citigroup Inc. improved their earnings from a year ago as financial firms gain distance on the worst days of the financial crisis last year.

Shares in Bank of America recently rose 1% to $16.48. Shares in Wells Fargo were recently up 0.4% to $28.39.

Bank of America turned in revenue of $25 billion, down for the third-straight quarter, as its one-time frothy trading revenue fell sharply but many of its consumer-focused businesses turned in roughly flat net income.

Bank of America has a strong investment bank, following its purchase of Merrill Lynch a year ago. But the company's overall performance is heavily dependent on consumers and the economy, especially unemployment, which has a direct effect on borrowers' ability to make their monthly loan payments.

The bank took permanent losses of $8.4 billion from bad loans, down 12% over the previous quarter, but the bank added another $1.4 billion to its $38.7 billion in reserves for future losses. Bank of America's levels of past-due loans rose again virtually across the board, even as the bank brightened its economic forecasts and said its costs from bad loans are likely peaking.

There are fewer signs that Wells Fargo's loan books are stabilizing, even though the bank, in a release, said it is seeing "continued signs of a positive turn in credit quality," especially in the number of loans that are 30 days past due.

Wells Fargo's losses from bad loans continued to rise, up 6% over the prior quarter to $5.4 billion, even though losses on credit-card loans declined for the second consecutive quarter. The bank's levels of nonperforming assets, or loans becoming uncollectible, rose nearly 18% over the last quarter to $27.6 billion. Wells Fargo said commercial real estate loan are showing the worst wear.

Even though its loan problems continue to rise, Wells Fargo set aside $500 million to offset future loan losses, its lowest quarterly set-aside of the year. The bank said it has already taken charges against some existing troubled loans and that 96% of its troubled loans are secured with collateral. Still, those reserves are now equal to 103% of troubled loans, down from 118% in the third quarter.

Wells Fargo also drew an $830 million boost from some hedging investments embedded in its mortgage-servicing business, which is fast becoming a significant piece of Wells Fargo's income, at $2.1 billion. The bank posted $1.5 billion in similar one-time gains in the third quarter, raising questions among analysts, since mortgage servicers don't often post large gains from hedging investments.

Those gains helped to boost Wells Fargo's revenue to a record $22.7 billion, helped in large part by the bank's 2008 purchase of crumbling rival Wachovia Corp.

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