Bank of America Corp., the second largest U.S. bank, reported a steep 77 percent drop in profits on Monday, missing Wall Street expectations and sending shares plummeting.

Shares of the bank fell $1.09, or 2.83 percent to $37.47 at 10:47 a.m. on the New York Stock Exchange.

The Charlotte, North Carolina-based bank said its first quarter net income fell 77 percent to $1.21 billion while reporting more than $5 billion in write-downs linked to the housing and credit markets.

Net income was $1.21 billion, or 23 cents per share, compared to $5.26 billion, or $1.16 per share a year earlier. Excluding merger costs, profit was 26 cents per share. Net Revenue was down 6.3 percent to $17 billion.

Analysts had expected earnings of 41 cents per share with $16.46 billion in revenue, according to a survey by Thomson Financial.

Despite revenue growth in most of our businesses, these results clearly did not meet our expectations, said Kenneth D. Lewis, chairman and chief executive officer. The weakness in the economy and prolonged disruptions in the capital markets took their toll on our performance.

Regarding the economy's effect on the outlook for the bank, Lewis said he had concerns about the housing slump, subprime issues, employment levels and food prices.

Bank of America said that it was increasing the money it set aside for losses by $4.78 billion to $6.01 billion. The higher figure is due to expectations of losses in loans, leases and commercial portfolios directly tied to housing.

The bank added that trading related losses were $1.31 billion compared with $1.66 billion in gains last year.

The bank's Tier 1 Capital ratio – a measure of the bank's ability to sustain losses -- was 7.51 percent, up from 6.87 percent at the end of last year. Regulators require at least 6 percent in Tier 1 capital to be qualified as well-capitalized.

Income included $776 million from the initial public offering of Visa Inc., the credit card network.