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It’s a one-time decision for community banks: include or exclude accumulated other comprehensive income (AOCI) in tier one capital reporting.


In or Out? Community Banks Must Decide on AOCI

  • 4/1/2015


Community banks have until April 30 to decide whether or not to include accumulated other comprehensive income (AOCI) in tier one capital reporting. Under the Federal Deposit Insurance Corporation’s (FDIC) interim final capital rules, the one-time election must be made in the March 2015 quarterly call report, which is due April 30.

In force since July 2013, the FDIC’s capital rules automatically include AOCI in tier one capital — the core measure of a bank's financial strength — beginning with the March 2015 report unless the institution elects to opt out. Tier one capital generally consists of common stock, retained earnings, and additional paid-in capital.

Once the decision is made to include or exclude AOCI, this treatment must be applied for all future call report filings.

AOCI on available-for-sale securities

The most common component of AOCI affecting banks is the unrealized gain/loss on available-for-sale securities portfolios. Historically, AOCI has not been a component of the capital included in the call report; therefore, it hasn’t been subject to the volatility of available-for-sale securities.

In a decreasing rate environment, securities generally increase in value. If a bank elects to include AOCI there will be a corresponding increase in tier one capital. On the other hand, securities generally have less value in an increasing rate environment, causing a decrease in reportable capital.

In making the decision whether to include AOCI, banks must consider their tolerance for the volatility in reportable capital resulting from securities price fluctuation.

How we can help

CLA professionals are ready to assist you in making an informed decision on this important compliance issue.