By Joe Rauch

CHARLOTTE, North Carolina (Reuters) -Bank of America Corp <BAC.N>, the largest U.S. bank by assets, said on Thursday it will hire up to 1,000 small business bankers by 2012, expanding into an area once the exclusive domain of its smaller rivals.

BofA will begin hiring bankers in Los Angeles, Dallas, Washington, D.C., and Baltimore through year's end, with plans to expand into additional cities in 2011 and 2012.

The lenders will focus on courting small business customers whose businesses earn between $250,000 and $3 million in annual revenue.

The initiative is one of the first steps taken by Joe Price, new consumer banking chief, in a continuing overhaul of BofA's consumer bank, and is the company's latest foray into an business once the dominated by smaller community and regional banks.

"This is one of the initial steps in how we want to position the business going forward," said Price.

Under the new program, small business bankers will court deposits and loans, coordinating with existing small business bankers in BofA's 5,900 U.S. branches and with the company's commercial banking arm as clients grow.

Small business banking has traditionally been avoided by the larger banks, as the profits were relatively small compared with catering to larger corporate clients. With narrower profit margins, the segment was long the domain of smaller community and regional banks.

But Price said the effort will be profitable for the bank.

"We can align our infrastructure and costs against what the customers need in a way that works," he said.

Small business loans held on Bank of America's books have shrunk since the financial crisis of 2008 and subsequent recession have stifled U.S. economic growth.

As of June 30, BofA's small business loans totaled $16 billion, down 16 percent from $19 billion in 2008. While borrowers' increased credit problems are partially to blame for the decline, Price said the biggest impediment was the U.S. economy.

"The biggest effect that will reverse that trend would be economic health, Price said, referring to the bank's shrinking small business loan portfolio.

(Reporting by Joe Rauch, editing by Dave Zimmerman)