On Sept. 11, 2020, the SEC announced a Final Rule related to the statistical disclosures provided by bank and savings and loan registrants in public filings. This Final Rule replaces Industry Guide 3: Statistical Disclosure by Bank Holding Companies (Guide 3), and is now codified as a subpart of Regulation S-K.
The Final Rule was adopted substantially as proposed, with minor revisions in response to comments received. The Final Rule will be effective 30 days after publication in the Federal Register and Companies are required to comply with the revisions for fiscal years ending on or after Dec. 15, 2021, with early compliance permitted. Key areas included in the Final Rule include the following:
- Clarification of required disclosures and to which registrants the disclosures are applicable
- Amendment of reporting periods required in disclosures
- Amendments to disclosures to address duplicative disclosures or codify common disclosures
To demonstrate the changes to disclosures under the Final Rule, we summarized the key points in an easy-to-read chart.
Scope clarification
The disclosures provided by banking registrants are currently outlined in the SEC’s Guide 3. Since this guide isn’t a part of the SEC’s Rules, there has been some uncertainty as to whether disclosures are required. The codification of these disclosures seeks to clarify that these disclosures are required for all banking registrants.
The amendments also clarify which registrants are within the scope of the disclosure requirements to include banks, bank holding companies, savings and loan associations, and savings and loan holding companies. This is expected to enhance current guidance and isn’t anticipated to significantly change which registrants are providing the linked disclosures.
Amendments to reporting periods
The availability of historical financial information through online access and the SEC’s EDGAR System has provided an opportunity to decrease the amount of historical data required to be repeated in each filing, without decreasing the amount of information available to investors.
Current guidance requires a three-year historical period for most disclosures, with reduced disclosure periods for companies under $200 million of assets or $10 million of net worth as of the end of its latest fiscal year.
The Final Rule eliminates the five-year historical period required for credit ratios and reduces the reporting periods for all disclosures to align with the related annual periods presented in the financial statements — generally two years of balance sheets and three years of income statements. This is expected to be most impactful for smaller reporting companies (SRCs, as defined by the SEC), which only report two years for both the balance sheets and income statements.
Amendments to disclosures
The disclosure requirements outlined in Guide 3 haven’t undergone significant review since 1986. Over the last 33 years, there have been considerable changes in disclosures required under generally accepted accounting principles (U.S. GAAP) and other Commission rules, leading to duplicative or outdated disclosures in the Guide. Overall, the adopted changes would reduce the amount of required disclosures, as can be seen in the table through the link below. Some highlights of the Final Rule include:
- Increased categories of interest-earning assets and interest-bearing liabilities: In acknowledgement of the importance of liquidity in our banking system, the Final Rule requires separate presentation of the average balances and yields or costs of certain instruments used to manage short-term liquidity needs.
- Alignment of disclosures with GAAP financials: Since the publication of Guide 3, disclosures required under U.S. GAAP have been revised to require detailed breakouts of activity by classification within the investment and loan portfolios. Many of the adopted revisions to the guide are in an effort to align the categories of loans and investments used for the disclosures under the guide with those used in the GAAP financial statements, hopefully decreasing the reporting burden for corporations and enhancing the comparability of information available to investors.
- Uninsured time deposits: The guide currently requires disclosure of time deposits with a balance over $100,000. Adopted revisions would align the disclosure requirement with FDIC insurance limits, which is currently $250,000 per account.
- New credit ratio disclosures: Although the majority of the changes effected by the Final Rule reduce required disclosures, one proposed area of increased reporting is the introduction of required credit ratios, including the ratio of the allowance for loan losses to total loans, nonaccrual loans to total loans, and the allowance for loan losses to nonaccrual loans. As these ratios are commonly reported by banking registrants under current guidance, this change isn’t anticipated to significantly alter reported information; however, it should help standardize credit ratios reported to investors.
A summary of changes to detailed disclosures is available here.
The full text of the Final Rule is available from the SEC. For an overview of changes to the detailed disclosures, download our summary.
