Summary
Bank of America Corporation (BAC) has announced a voluntary change in its accounting method for the amortization of premiums and accretion of discounts on certain debt securities, effective July 1, 2016. The company is shifting from the 'prepayment method' to the 'contractual method'. This change means that premiums and discounts will now be amortized and accreted at a constant effective yield, without the need for periodic adjustments based on estimated prepayments. The company believes this method is preferable as it aligns with peer institutions and better reflects its asset and liability management strategy.
Key Highlights
- 1Voluntary change in accounting method for debt securities effective July 1, 2016.
- 2Shift from 'prepayment method' to 'contractual method' for amortization of premiums and accretion of discounts.
- 3Contractual method amortizes at a constant effective yield, eliminating periodic catch-up adjustments.
- 4Company believes contractual method is preferable due to peer alignment and better reflection of asset/liability strategy.
- 5Prior periods presented in financial statements have been restated to conform to the new accounting method.
- 6The change will not require a restatement of previously-filed capital metrics and ratios by bank regulatory rules.
- 7The cumulative impact of this change on capital ratios is deemed insignificant on a pro forma basis.
Frequently Asked Questions
Bank of America is changing its accounting method for how it amortizes premiums and discounts on certain debt securities. They are moving from the 'prepayment method' to the 'contractual method'.
The company believes the 'contractual method' is preferable because it aligns with the accounting methods used by most other financial institutions and better reflects their strategy for managing assets and liabilities, aiming to mitigate risks from market conditions.
Yes, the company has restated all prior periods presented to conform with the new accounting method. This change impacts how interest income is recognized from certain debt securities. However, the company noted that the cumulative impact on capital ratios would have been insignificant on a pro forma basis.
According to bank regulatory rules, Bank of America is not required to restate its previously filed capital metrics and ratios. The company also stated that the pro forma impact on these ratios would have been insignificant.