BofA Moves to Smooth Impact of Rate Swings

Bank of America Corp.'s earnings likely will be less volatile from quarter to quarter as the result of an accounting change the bank announced Friday.

In a Securities and Exchange Commission filing, Bank of America said it would change an accounting method that has boosted its reported net interest income when long-term interest rates rise, and hurt net interest income when rates fall. BofA had said in July that it was thinking of changing its method.

The change relates to how the bank accounts for some of the mortgage-backed securities it owns. When long-term rates fall, that means more people prepay or refinance the mortgages backing those securities; when rates rise, fewer people prepay or refinance. Under BofA's current accounting method, which differs from many of its peers, the bank accounts for those changes by revising the period over which it spreads some of its costs to buy the securities. That means more or fewer costs get put into any given quarter, thus lowering or raising the bank's profits.

In the second quarter, for instance, BofA said its pretax earnings were reduced by $974 million because of the "market-related adjustments" it made as long-term rates fell. In last year's second quarter, when long-term rates went up, the bank recorded positive adjustments of $669 million.

Under its new method, BofA will account for its costs over the lives of the securities, the way other banks already do, and it will no longer have "market-related adjustments" each quarter. Both methods are permitted under accounting rules.

BofA said in its filing that the change "will reduce volatility of its reported net interest income" and align the accounting method "more closely to its peers."

Write to Michael Rapoport at [e-mail]

(END) Dow Jones Newswires

September 23, 2016 12:05 ET (16:05 GMT)

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