UPDATE 3-Bank of America board backs CEO after Merrill loss

* Lead director says board supports Lewis

* Bank expands board to 19 with three Merrill additions

* Pennsylvania settles with Countrywide over mortgages

* Bank calls report on bonuses "not entirely accurate"

* Shares close 13.7 pct higher (Adds board support for CEO Lewis, byline)

By Jonathan Stempel

NEW YORK, Jan 28 (Reuters) - Bank of America Corp's (BAC.N) board of directors on Wednesday expressed support for embattled Chief Executive Kenneth Lewis, a move that may for now reduce speculation about his job security following the acquisition of Merrill Lynch & Co.

"The board today, during their regular meeting, expressed support for Ken Lewis and the management team, noting their experience in managing through challenging environments and in assimilating mergers," lead outside director O. Temple Sloan Jr., who runs an auto parts company, said in a statement.

Separately, the board expanded to 19 members by adding three former Merrill directors: Virgis Colbert, 69, a retired Miller Brewing Co executive; Adm. Joseph Prueher, 66, a former U.S. ambassador to China; and Charles Rossotti, 67, a senior adviser at private equity firm Carlyle Group [CYL.UL] and former Internal Revenue Service commissioner.

Mounting turmoil stemming from the Jan. 1 purchase of Merrill has increased scrutiny on Lewis and the board, which has long backed his efforts to build Charlotte, North Carolina-based Bank of America into the nation's largest bank.

Some critics have called for Lewis, 61, to be removed or to give up his chairman position. The latter would recall similar moves last year at Wachovia Corp and Washington Mutual Inc (WAMUQ.PK) as those lenders suffered from soaring loan losses.

Lewis ousted former Merrill chief John Thain last week after Merrill awarded large bonuses just days before the merger closed, and following huge losses that led Bank of America to obtain $20 billion of government aid to absorb Merrill. The bank said Merrill lost $15.31 billion in the fourth quarter.

Thain and J. Steele Alphin, Bank of America's chief administrative officer, have been subpoenaed by New York Attorney General Andrew Cuomo over the bonuses, leading to speculation Lewis may eventually be called to testify.

Bank of America faces many shareholder lawsuits over Lewis' failure to sooner disclose Merrill's problems and talks with the government.

The bank's stock is down by close to half from its level in mid- to late December. Lewis has said Merrill's losses became apparent around that time. Thain has said the "vast majority" of losses came from positions taken much earlier.

Lewis announced plans on Wednesday to release quarterly reports on lending activities, including a new 10-year, $1.5 trillion program to help lower-income borrowers. Bank of America has taken $45 billion of taxpayer funds from the U.S. government's Troubled Asset Relief Program.

COUNTRYWIDE SETTLES; BONUSES AT ISSUE

Separately, Pennsylvania Attorney General Tom Corbett said Countrywide Financial Corp, which Bank of America now owns, has agreed to provide $150 million of relief and cash assistance to more than 10,000 borrowers to settle a state lawsuit.

The state accused Countrywide of steering borrowers into home loans, including subprime mortgages, that they could neither understand nor afford. Countrywide has settled or faced similar charges in several other U.S. states.

Meanwhile, the Financial Times said Bank of America capital markets and investment banking employees eligible for bonuses of $50,000 or higher will not get them in February as usual, but will have to wait until February 2010 before getting the first third, and until 2011 and 2012 to obtain the rest. That report cited executives familiar with the matter.

Bank of America spokesman Scott Silvestri said: "We traditionally don't comment on our compensation plans, particularly in advance of sharing details with our associates. The media report ... is not entirely accurate."

Bank of America shares closed up 89 cents, or 13.7 percent, at $7.39. The Standard & Poor's Financials Index .GSPF rose 13 percent. (Reporting by Jonathan Stempel, additional reporting by Gina Keating; editing by Andre Grenon and Matthew Lewis)