Bank of America Corporation (the "Corporation") today informed its securities holders that its Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2016 has been filed with the U.S. Securities and Exchange Commission ("SEC") on November 1, 2016.
On the same day, the Corporation filed a Current Report on Form 8-K with the SEC (the "Form 8-K"), announcing that, effective July 1, 2016, the Corporation changed its accounting method under the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 310-20, Nonrefundable fees and other costs, from the prepayment method (also referred to as the retrospective method) to the contractual method.
Under the prepayment method, the Corporation's amortization of premiums and accretion of discounts related to certain debt securities was based on estimated principal prepayment assumptions on individual debt securities each reporting period. Prepayment experience, which is largely driven by interest rates, is continually evaluated to determine the estimated lives of the securities. When a change is made to the estimated lives of the securities, the related premium or discount is adjusted with a corresponding charge or benefit to interest income as if the current estimated lives had been applied since the acquisition of the securities. Accordingly, the application of the prepayment method results in a cumulative catch-up adjustment in each period, recorded in interest income.
Under the contractual method, premiums and discounts on debt securities are amortized and accreted at a constant effective yield, and no assumption is made concerning prepayments. The cumulative catch-up adjustment that occurs under the prepayment method is therefore not required under the contractual method. Instead, as principal prepayments occur, the contractual method requires the acceleration of a portion of the unamortized premium or discount be recorded in interest income such that the effective yield of the debt security remains constant throughout the life of the debt security.
The Corporation believes that the contractual method is the preferable method of accounting because it is consistent with the accounting method used by peer institutions in terms of net interest income, an important element in the statement of income. Additionally, the contractual method better aligns with the Corporation's asset and liability strategy which acts to mitigate the risk that market conditions may adversely impact the value of the Corporation's assets and liabilities, and its financial results.
Adoption of the contractual method of accounting is a voluntary change required to be adopted retrospectively. Therefore all prior periods presented herein have been restated to conform to the current period presentation.
Under the applicable bank regulatory rules, the Corporation is not required to and, accordingly, will not restate previously-filed capital metrics and ratios. The cumulative impact of the change in accounting method would have resulted in an insignificant pro forma change of the Corporation's capital ratios.
The Form 8-K and the exhibits thereto reflect a change in accounting method for the amortization of premiums and accretion of discounts related to certain debt securities as presented in the Annual Report to the extent this information is impacted by the revised accounting methodology. Portions of the following items from the Annual Report have been updated to reflect the revised presentation:
- Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (filed as Exhibit 99.1).
- Part II, Item 8. Financial Statements and Supplementary Data (filed as Exhibit 99.2).
Bank of America Corporation makes available all of its SEC filings on its website: http://investor.bankofamerica.com/phoenix.zhtml?c=71595&p=irol-irhome.
The SEC maintains a website that contains reports, proxy statements and other information regarding issuers that file electronically with the SEC. These materials may be obtained electronically by accessing the SEC's website at http://www.sec.gov. A copy of the document will also be available on the National Storage Mechanism's website at: http://www.morningstar.co.uk/uk/NSM.
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Contacts:
Bank of America
Michael Pressman, +1 980-386-5083
Assistant General Counsel
