Summary
Bank of America Corporation (BAC) has announced a change in its accounting method for certain debt securities, effective from the third quarter of 2016. This change pertains to how nonrefundable fees and other costs (under ASC 310-20) are handled for debt securities carried at fair value and held-to-maturity. Under the new method, BAC will amortize premiums and accrete discounts over the life of these securities. Crucially, it will then adjust these amortized/accreted amounts based on actual principal prepayments. The company states this change will align its accounting practices with industry peers and, importantly, is expected to reduce volatility in its reported net interest income.
Key Highlights
- 1Bank of America is changing its accounting method for certain debt securities (fair value and held-to-maturity) effective Q3 2016.
- 2The change impacts accounting for nonrefundable fees and other costs under ASC 310-20.
- 3Premiums will be amortized and discounts will be accreted over the life of the debt securities.
- 4Adjustments to amortized premiums and accreted discounts will be made based on actual principal prepayments.
- 5The stated goals are to align with peer accounting practices and reduce volatility in reported net interest income.
- 6A separate 8-K filing is expected before the Q3 2016 earnings announcement (October 17, 2016) to provide supplemental financial information reflecting this change for prior periods.