Alert

SEC Modernizes Statistical Disclosures for Banking Registrants

The SEC issued final rule 33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants, on September 11, 2020. The final rule amends the statistical disclosures that bank and savings and loan registrants provide to investors. It also eliminates disclosures that overlap with SEC rules, US generally accepted accounting principles (GAAP), or international financial reporting standards (IFRS).

The amendments are effective 30 days after publication in the Federal Register and will apply to fiscal years ending on or after December 15, 2021. Early compliance is allowed.

Background

Industry Guide 3, Statistical Disclosure by Bank Holding Companies, was originally published in 1976. It provides a convenient reference to the statistical disclosures to be included in registration statements and other documents filed by bank holding companies.

Since the last substantive revision in 1986, the financial services industry has evolved; the SEC has issued updated disclosure requirements and the Financial Accounting Standards Board (FASB) has issued accounting standards updates that changed reporting requirements. As a result, some of the disclosures called for in Industry Guide 3 are now duplicative or overlap with subsequently adopted SEC rules, GAAP, and IFRS.

To help ensure that investors have access to more meaningful, relevant information, the final rule rescinds Industry Guide 3 and codifies updated disclosure requirements in new subpart 1400 of Regulation S-K.

Key Provisions

Subpart 1400 of Regulation S-K, Disclosure by Bank and Savings and Loan Registrants, is organized in a similar manner to Industry Guide 3 as follows:

  • Item 1401–General instructions
  • Item 1402–Distribution of assets, liabilities, and stockholders’ equity; interest rates and interest differential
  • Item 1403–Investments in debt securities
  • Item 1404–Loan portfolio
  • Item 1405–Allowance for credit losses
  • Item 1406–Deposits

Consistent with Industry Guide 3, the amended disclosure requirements in Subpart 1400 of Regulation S-K apply to domestic and foreign bank holding companies, banks, savings and loan holding companies, and savings and loan associations.

General Instructions

Industry Guide 3 currently calls for five years of loan portfolio and loan loss experience data and three years of all other information; registrants with less than $200 million of assets, or $10 million of net worth, are allowed to only present two years of the information.

The final rule modifies the definition of reported periods under Subpart 1400 of Regulation S-K to be consistent with the registrant’s financial statements annual reporting requirements under Regulation S-X—generally two years of balance sheets and three years of income statements.

Distribution of Assets, Liabilities, and Stockholders’ Equity; Interest Rate and Interest Differential

To provide investors with useful information in regard to the change in net interest earnings and sources of funding, Item 1402 of Regulation S-K codifies all of the balance sheet, interest and yield/rate analysis, and rate/volume analysis disclosures currently called for by Item I of Industry Guide 3.

The final rule also requires further disaggregation of categories of interest-earnings assets and interest-bearing liabilities.

Investment and Debt Securities

Item 1403 of Regulation S-K codifies the weighted average yield disclosure requirement for each range of maturities by category of debt securities currently called for by Item II of Industry Guide 3. The final rule only applies to debt securities that aren’t carried at fair value through earnings—generally available-for-sale and held-for-maturity securities.

The final rule doesn’t codify the Industry Guide 3 disclosure requirements to disclose:

  • Book value information
  • Maturity analysis of book value information
  • Associated disclosures related to investments exceeding 10% of stockholders’ equity

The SEC didn’t codify these disclosure requirements because they overlap substantially with current GAAP and IFRS disclosure requirements.

Loan Portfolio

Item 1404 of Regulation S-K codifies the maturity by loan category disclosure requirement currently called for by Item III of Industry Guide 3, but requires additional maturity categories.

The final rule also requires the disclosed categories to match the loan categories disclosed in the registrants’ GAAP or IFRS financial statements.

Additionally, the final rule codifies the Industry Guide 3 instruction stating the determination of maturities should be based on contractual terms.

The final rule doesn’t codify the remaining loan category disclosures–including disclosure of potential problem loans–the loan portfolio risk element disclosures, or the other interest bearing asset disclosures currently required by Industry Guide 3. These disclosure items weren’t codified because they overlap with, or are reasonably similar to, other disclosures already required by SEC rules, GAAP, or IFRS.

Allowance for Credit Losses

Item 1405 of Regulation S-K codifies the requirement to disclose the ratio of net charge-offs during the period to average loans outstanding and the breakdown of the allowance currently called for by Item IV of Industry Guide 3.

 The disclosure of the net charge-off ratio should be disaggregated based on the loan categories required to be disclosed in the registrant’s GAAP or IFRS financial statements. Registrants that apply or reconcile to GAAP are required to provide a tabular allocation of the allowance disclosures based on the loan categories presented in the GAAP financial statements.

The final rule also requires the disclosure of the following credit ratios along with each component used in the calculation:

  • Allowance for credit losses to total loans
  • Nonaccrual loans to total loans
  • Allowance for credit losses to nonaccrual loans
  • Net charge-offs to average loans

The final rule doesn’t codify the analysis of loss experience disclosure, or any other disclosures called for by Item IV of Industry Guide 3, that overlap with, or are reasonably similar to, other disclosures already required by SEC rules, GAAP, or IFRS.

Deposits

To provide transparency into a registrant’s source of funding and liquidity risk profile, Item 1406 of Regulation S-K codifies the majority of the deposit disclosures currently called for by Item V of Industry Guide 3 with some revisions.

The final rule requires a disclosure of the amount of time deposits in uninsured accounts. It also requires bank and savings and loan registrants to quantify the amount of uninsured deposits as of the end of each reported period.

Return on Equity and Assets and Short-Term Borrowings

The final rule doesn’t codify the performance ratios—return on assets, return on equity, dividend payout ratio, and equity to assets ratio—currently called for by Item VI of Industry Guide 3 or the short-term borrowing disclosures called for by Item VII of Industry Guide 3.

We’re Here to Help

For more information about the amended disclosure requirements for banking registrants and how it could affect your disclosures, please contact your Moss Adams professional.