Bank of America Corporation (NYSE: BAC) is a publicly traded company headquartered in Charlotte, NC, that operates throughout the United States and in more than 30 foreign countries. The corporation provides a diverse range of banking and nonbanking financial services and products domestically and internationally through three business segments: Global Consumer & Small Business Banking, Global Corporate & Investment Banking and Global Wealth & Investment Management. Bank of America is now a member of the Dow Jones Industrial Average.

TO OUR SHAREHOLDERS, 2007 was a disappointing year for our company. While our financial performance was very strong in the first half of the year, results in the second half were severely depressed by rising credit costs and the impact of the unprecedented turbulence in the financial markets.

Despite the short-term fallout from the so-called credit crunch, I remain confident and optimistic about our competitive position and our ability to generate attractive financial results in the future. Our long-term growth strategy is working and has not changed: We are using market insight to drive innovation that creates opportunity and value for our customers and shareholders.

Our earnings power from our core business activities is strong and growing. We are bringing innovative new products to market, taking market share and expanding customer relationships across the company.

We plan to invest more in growth initiatives in 2008 than we did in 2007. And we have taken steps to build up our capital strength and liquidity, enhancing our ability to be opportunistic in the future.

This was the first down year our company has suffered during my time as chief executive officer. And although I take comfort in the fact that our diversity of income, tremendous scale and efficiency will help us weather this storm better than most, it has still been a difficult time for our company.

While the credit crunch and housing market recession in the United States have hit the entire industry hard, we offer no excuses for our performance. We escaped direct losses from subprime lending, which we had exited years ago. But we did experience large writedowns in the value of structured products backed by such loans, and our trading results were poor.

As these issues became apparent, we moved decisively to mitigate our losses and reposition our businesses for growth. In October, we launched a strategic review of our capital markets business, the results of which I discuss below.

In my career, I have not experienced a business cycle in which size, scale, revenue diversity and the ability to execute have been more important. Each of these attributes is a strength of our company. Each will play a role in determining the winners in our industry. And we are leveraging each of these strengths to our greatest advantage.

I will review some of the ways we are pursuing our vision for Bank of America in this letter, and you can read in more detail about our work in the articles that follow. First, I’d like to review our financial results and the market developments that affected our performance so profoundly.

A challenging year. The story of the 2007 subprime mortgage meltdown and credit crunch is well documented, so I won’t recount it in great detail here. Suffice it to say that over the past several years, a combination of low interest rates (which helped to create excess liquidity), looser home loan underwriting standards at many mortgage origination companies, the rapid growth of innovative and complex financial instruments in the capital markets, and ratings methodologies that often, with hindsight, did not reflect the true risks embedded in these securities led to rapid price inflation in U.S. housing — a bubble that had to burst.

Many of us had known for some time that these accelerating trends were unsustainable over the long term. We took several steps in late 2006 and the first half of 2007 to adjust our business to evolving market trends. But what we didn’t know was how and when the cycle would turn fully, and how the market adjustments would play out.

Now we know — the failure of several large hedge funds in July caused the credit markets to seize up completely in August. All market participants were impacted at the same time, and every deal was caught, as investors struggled to price risk in the market. Late in the year, ratings agencies aggressively downgraded mortgage-backed securities that had been rated AAA, which contributed to the large asset writedowns and financial losses across the industry in the fourth quarter.

Two areas that hit banks hardest were collateralized debt obligations, or CDOs, and structured investment vehicles, or SIVs. Both are financial instruments — asset-backed borrowings in the simplest view — that banks and investors have used to fund the mortgage markets. At Bank of America, our exposure in CDOs was significant. Writedowns of the value of these securities reached $5.6 billion, which was one major cause of our weak fourth-quarter performance. Our losses in SIVs, by comparison, were relatively small.

The other major cause was the continued rise in credit costs, which drove rapidly expanding provision expense — money we set aside to cover loan losses — as consumer credit quality has fallen from historically high levels to more normal levels, affecting most market segments.

These factors were evident in our financial results for the year.

In 2007, Bank of America earned $15.0 billion, down from $21.1 billion in 2006. Earnings per diluted share fell to $3.30 from $4.59; revenue fell to $68.1 billion from $73.8 billion; and return on common shareholders’ equity fell to 11.08 percent from 16.27 percent. Our efficiency ratio, which had been in our target range (under 50 percent) for the past two years, rose to 54.37 percent. Provision expense rose 67 percent to $8.4 billion from $5.0 billion, as nonperforming loans and leases and net charge-offs rose to 0.64 percent and 0.84 percent of total loans and leases, respectively.

The good news is that our core businesses continue to execute their growth strategies in the marketplace with precision and discipline. In Global Consumer & Small Business Banking, revenue rose 6 percent for the year, and noninterest income rose 13 percent. We added more than two million net new retail checking accounts for the second year in a row, opened nearly 14 million new Card Services accounts, became a leading direct-to-consumer mortgage and home equity originator and extended our leadership in the online banking and bill-pay business to lead the industry in mobile banking, with more than 600,000 active new accounts.

In Global Wealth & Investment Management, revenue was up 8 percent for the year, as record brokerage income and a 26 percent increase in asset management fees produced a 10 percent rise in noninterest income. In Premier Banking & Investments (PB&I), revenue rose 9 percent on 22 percent growth in investment and brokerage services and 19 percent growth in fee-based assets.

In Global Corporate & Investment Banking, net revenue from Business Lending rose 10 percent and average loans and leases rose 14 percent, demonstrating that we are making progress in deepening relationships with our commercial and corporate clients.

It was our company’s diverse earnings mix that enabled us to remain profitable despite extremely challenging conditions. And it is our continued profitability, liquidity and balance sheet strength that have enabled us to sustain our dividend at a time when others have not. Overall, 2007 was our 30th consecutive year of raising our quarterly dividend, which increased by 14 percent to $0.64 per share. Over that time, our dividend has increased at a compound annual rate of 13 percent.

To bolster our capital ratios in the first quarter of 2008, we raised almost $13 billion in two preferred stock offerings, and could have raised twice as much, demonstrating investors?confidence in our company. Bank of America will continue to be characterized by strong cash flow and attractive returns for shareholders, tremendous liquidity and a fortress balance sheet. And we are still focused on achieving our long-term financial goals, including 6 to 9 percent revenue growth, 2 to 4 percentage points in operating leverage and 10 percent average annual earnings-per-share growth.

Strategies for growth. Our job in 2008 is to manage through the current economic storm and use our advantages ?size, scale, revenue diversity, innovation, integration and execution ?to position the bank for rapid growth when the storm abates. Here are some highlights of plans and progress in our three major business lines.

Global Consumer & Small Business Banking (GCSBB)

I believe there are three keys to building a winning franchise in retail financial services: convenience, innovation and service quality.

Convenience is a well-known strength of Bank of America. No company is more ubiquitous ?we have by far the largest network of banking centers and ATMs in the United States, and we are No. 1 in telephone banking, online banking and bill-pay as well. Our products are also very easy for customers to use. For example, our online bill-pay product won the Webby People's Voice Award for the second year in a row based on voting by the public, and Bank of America was named twice on IndexCreditCards.com's list of top 10 consumer-friendly credit cards.

Innovation has become a great strength of our company, in part because of the huge customer base that we serve. With more than 3,000 customer transactions per second, we know a lot about customers? needs and preferences. We invest in the analytical work that turns that knowledge into actionable insight, which, in turn, helps us create new and better products and services that are attractive and meaningful to our customers.

Examples from recent years have been Keep the Change? free SafeSend?and $0 Online Equity Trades. In 2007, we continued to introduce new products with the launch of No Fee Mortgage PLUS (which eliminates most fees on conforming mortgages), Mobile Banking (which enables customers to bank with their cell phones), new Risk Free CD products (which include high fixed rates and penalty-free withdrawals) and the new BankAmericard?(which offers more rewards points, no points limits and the most flexible rewards options in the industry).

Service quality and customer satisfaction, of course, are critical. I wrote last year that after several years of consistent gains in customer satisfaction, we had reached a plateau in many of our businesses, and that each business was laying new plans to push scores even higher. Overall scores in GCSBB faced some headwinds from the expansion of our card business ?customer satisfaction in the card industry tends to be somewhat lower than in retail banking — but scores have shown a positive trend since last March.

Banking center scores finished the year at an all-time high, and overall consumer problem incidence rates from July through the end of the year were down 13 percent.

In retail financial services, the result of a customer experience marked by convenience, innovation and service quality is customer loyalty. Loyalty leads to a growing customer base and expanded relationships with existing customers — just the right recipe for the organic growth that will drive our company forward in 2008 and beyond.

Global Wealth & Investment Management (GWIM)

In many respects, Global Wealth & Investment Management is one of our greatest opportunities for growth. This business includes Premier Banking & Investments (PB&I), which serves affluent clients through Premier Banking and Banc of America Investment Services, Inc., our brokerage; U.S. Trust, Bank of America Private Wealth Management, which serves high-net-worth clients; and Columbia Management, our asset management team. In each of these groups, associates’ top priority is client relationship expansion — by working with teammates throughout GWIM and across the company.

Premier Banking serves about 850,000 clients — although more than seven million Bank of America customers or households qualify for this higher level of service. One of the most important investments we are making is to grow our distribution and service capabilities so that we can continue to move qualifying customers from the mass consumer segment into PB&I.

A key measure of success in serving affluent clients is whether they choose to bring us their investing business. At the end of 2007, about one-third of our Premier Banking clients had investment accounts with us. That number grew at an annual rate of 14 percent in 2007, while client balances have grown at a rate of 11 percent and self-directed brokerage assets were up 20 percent.

One of our best opportunities to expand these relationships is retirement. The demographics are compelling: The first of the 78 million baby boomers turn 62 in 2008, and the over-69 population will increase by 55 percent by 2030. This is where the money is: $15.1 trillion in total assets and an annual profit pool of about $35 billion. We are building our team to take advantage of this opportunity.

The biggest news in our private banking business in 2007 was the acquisition of U.S. Trust Corporation. This acquisition creates the nation’s pre-eminent wealth management provider, U.S. Trust, Bank of America Private Wealth Management. The group manages more than $225 billion in assets through offices in 32 states, and we’ve been expanding the team in selected cities to better serve a growing client base. The opportunity here is large. While the group currently serves about 130,000 wealthy clients, this number represents fewer than half of the more than 300,000 wealthy families in the Bank of America footprint.

Columbia Management’s $440 billion in assets under management supported the continued growth of GWIM’s total assets under management to more than $640 billion, and the group was recognized with five Lipper Awards for its mutual funds’ performance. Columbia’s investment performance contributed to our company’s growing brand as a strong player in the wealth management industry and lent momentum to the market share gains we made across our client segments.

Global Corporate & Investment Banking (GCIB)

Early this year, we announced the results of a strategic review of our investment banking business. This study was conducted to determine the right mix of capabilities that will enable us to most effectively serve our commercial, corporate and institutional clients, and provide shareholders with the best returns.

We are aggressively implementing the recommendations of that study.

Here are the highlights:

• We will continue to serve corporate, commercial and financial-sponsor clients with debt and equity capital-raising services, strategic advice and a full range of corporate banking services.
• We will focus investment banking and global markets coverage on areas of strength, leading to reduced activity in some structured products and refocusing of our international platform on debt, cash management and trading, including rates and foreign exchange.
• We made a decision to exit the equity prime brokerage business, which provides investment banking services to hedge funds.

Our goal has always been to be the primary financial and strategic partner to our clients. That continues to be our goal today. Simply put, this business is important to us because we know it’s important to our clients. The changes outlined above will enable us to grow the business profitably and will make us a leaner and tougher competitor where we know we have the advantages necessary to win.

Even before the capital markets meltdown in the second half of the year, our team in GCIB was reorganizing to better serve clients. One important step was to consolidate accountability within Global Commercial Banking for all aspects of client relationship management, including client revenue and profitability. At the same time, we consolidated credit and treasury management product delivery in a new team called Global Product Solutions.

Client satisfaction scores in GCIB have been rising consistently — up a total of 25 percent over the past three years. We believe the combination of meaningful organizational change with the results of the strategic review will put this business — which continues to take market share — back on the right track for growth.

Other paths to growth. As I’ve written here before, we believe the best companies have the skills, knowledge, resources and will to pursue multiple paths to growth. Each of the activities I’ve highlighted below represents a key part of our overall strategy for growth — by expanding the franchise, investing in a fast-growing economic sector, claiming a leadership role in a key product category or helping to strengthen the communities in which we do business.

Acquisitions
Our acquisition of LaSalle, which closed last October, brings our company several immediate advantages. We now hold leading market positions in both Chicago and Detroit, the third and 10th largest metropolitan statistical areas (MSAs) in the United States, respectively. We can greatly expand on the range of services available to our new consumer and commercial customers in these markets. Greatly heightened visibility in these markets also creates opportunities for our wealth management business.

Our acquisition strategy over the past several years has been tightly focused on the markets that, according to extensive research, have the greatest potential to produce growth for our company in the coming years. We have methodically built leading positions in the most important wealth and growth markets, cornerstone products and key distribution areas to drive the company’s future growth. These include our acquisitions of FleetBoston (2004), MBNA (2006), U.S. Trust (2007), LaSalle (2007) and, later this year, Countrywide.

Countrywide Financial Corporation
In January, we agreed to acquire Countrywide Financial Corporation, a transaction we anticipate will close early in the third quarter of this year. This transaction will make Bank of America the nation’s leading mortgage lender and loan servicer, adding another key asset to what has become a long list of financial products and services in which we hold a lead market position.

I’ve had a lot of people ask me why we chose to do this now. My answer is that now is the time — the price is right, and the deep due diligence we performed confirmed our belief that there is great long-term value embedded in Countrywide’s business. Countrywide has excellent technology, a huge distribution network and extremely talented associates who will help us build the best mortgage business in the country. The mortgage sector is weak today, but I’m confident that home ownership in America is a market we’ll be happy to lead over the long term.

Financing the “green economy”
Earlier this year, our company announced a 10-year, $20 billion initiative to support the growth of environmentally sustainable business activity. Much of this initiative involves efforts to reduce the environmental impact of our own operations and to build “green partnerships” with environmental groups, government agencies and our friends in the business community.

What I am most excited about, though, is that the emerging and fast-growing green economy has the potential to drive future growth for our company. Fifty years from now, it’s likely that many of our current technologies will be obsolete, replaced by innovations that provide for greater sustainability. We are working with clients in existing and emerging industries to finance these new technologies, and the vast majority of our $20 billion goal is dedicated to this activity.

We believe the United States should be at the forefront of this economic change, building the new industries that will lead the world to a cleaner, greener and more prosperous future. There is huge economic opportunity embedded in this shift, and Bank of America will benefit greatly from our decision to lead.

Strong communities, strong markets
One of the most important ways we apply knowledge, insight and innovation to grow the company is through the work we do to strengthen our communities.

Through our Neighborhood Excellence Initiative™ (NEI), part of the Bank of America Charitable Foundation’s 10-year, $1.5 billion goal for giving, we are creating a new approach to corporate philanthropy, including a focus on local priorities, funding flexibility and leadership development. Our associates also showed their leadership in community support, as the bank matched more than $20 million in 2007 in volunteer grants and associate gifts. The Foundation in 2007 again donated more than $200 million overall.

We are excited about opportunities in 2008 to extend our philanthropic model into new markets in Illinois and Michigan, to sustain LaSalle’s generous level of giving, and to expand our community development work as we continue ahead of schedule on our 10-year, $750 billion community development goal. We view all these activities as the best examples of “doing well by doing good” — raising our visibility, building our brand, cultivating relationships and strengthening the neighborhoods on whose prosperity our success depends.

Looking toward the future. A leader who has been central to our success for 38 years retired in 2007 — Gene Taylor, who served most recently as president of GCIB. Gene has been one of our most valuable contributors, taking on every challenge we have thrown at him, from assimilating acquisitions to running multiple lines of business. His unwavering eye on the client and his ability to bring out the best in his teammates have inspired many of us over the years. We will miss him.

Our new head of GCIB is Brian Moynihan. Brian brings broad experience to the role, including his successful work building our wealth management business over the past three years. Moving into the leadership role in GWIM is Keith Banks, who previously served as president and chief investment officer of Columbia Management. Keith brings deep knowledge of the industry and a direct leadership style that will help us accelerate our growth in this important sector.

We have one change on our board of directors this year: Steven Jones, dean of the Kenan-Flagler School of Business at the University of North Carolina at Chapel Hill, has decided not to stand for re-election this year. Steve has provided valuable insights and counsel in his time on the board, and we appreciate his service.

2007 was a tough year for our company. That fact, however, in no way diminishes my commitment to our business model and strategy or my confidence in our future performance. I continue to believe that by offering our customers unmatched convenience and expertise, high service quality, innovative products and services and a variety of financial solutions delivered as a single relationship, we will continue to cultivate loyal customers, and Bank of America will continue to grow.

In closing, I would like to thank our customers and clients for your ongoing confidence in our ability to serve your needs; our associates, for your hard work and dedication to creating opportunity; our shareholders, for continuing to believe in our vision for growth; and our directors, for your wisdom and guidance through a very challenging year.

I am looking forward to the remainder of 2008 and to our long-term future with confidence and optimism. As always, I welcome your thoughts and suggestions.

KENNETH D. LEWIS
CHAIRMAN, CHIEF EXECUTIVE OFFICER AND PRESIDENT
MARCH 17, 2008

Download Bank of America, 2007 Annual Report

PDF format, 9.1MB, 179Pages.

View Bank of America, 2007 Annual Report Online

We are a company of more than 200,000 associates, serving a vibrant community of customers and clients around the world. Our size and scope — unmatched by any other bank — give us the insights that help us innovate and create opportunities for all.

Insights + Innovations = Opportunities

Visit Bank of America Website

Bank of America Corporation is a bank holding company. Through its banking subsidiaries (the Banks) and various non-banking subsidiaries throughout the United States and in selected international markets, Bank of America provides a diversified range of banking and non-banking financial services and products through three business segments: Global Consumer and Small Business Banking, Global Corporate and Investment Banking, and Global Wealth and Investment Management.

The Company operates in 32 states, the District of Columbia and 30 foreign countries. In the United States, it serves 59 million consumer and small business relationships with 6,100 retail banking offices, 18,500 automated teller machines (ATMs) and 24 million active online users. It offers services in 13 states.

In October 2007, it acquired ABN AMRO North America Holding Company. In July 2007, it acquired U.S. Trust Corporation. In July 2008, Bank of America acquired Countrywide Financial Corp. (Google Finance)

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