FASB — Finally — Issues Rule to Amortize Premiums on Callable Bonds to Earliest Call Date
While not technically “proper” under existing GAAP, the vast majority of depository institutions currently amortize premiums on callable bonds to the earliest call date. This ensures that the more conservative yield to-worst on these holdings is recognized until the call date, and, more importantly, there is no loss recognized if the bond is called. However, there are institutions that have been forced to amortize premiums on callables to maturity, thereby creating the potential for significant realizedlosses should these bonds be called. With this final rule, this group will now be able to move to the more logical and preferred methodology of amortizing premiums on callable bonds to earliest call date.