Securities Regulation Daily SEC updates statistical disclosure requirements for banking registrants
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Friday, September 11, 2020

SEC updates statistical disclosure requirements for banking registrants

By John M. Jascob, J.D., LL.M.

The Commission’s new rules seek to modernize the disclosures provided by banks and savings and loans while rescinding guidance last revised in 1986.

As part of its ongoing effort to review and improve disclosures for the benefit of investors and issuers, the SEC has adopted final rules that update the statistical disclosures required from bank and savings and loan registrants while eliminating items that overlap with Commission rules, U.S. GAAP, or IFRS. Codified in new subpart 1400 of Regulation S-K, the new rules reflect the evolving nature of the industry and accounting standards. The rules also rescind Industry Guide 3, Statistical Disclosure by Bank Holding Companies, which was first published in 1976 and last revised in 1986 (Update of Statistical Disclosures for Bank and Savings and Loan Registrants, Release No. 33-10835, September 11, 2020).

"Today’s rules are another example of the SEC’s commitment to improving public company disclosures for investors through retrospective review and modernization," said SEC Chairman Jay Clayton in a news release. "Guide 3 has not been substantively updated for more than 30 years. The changes we are adopting today are designed to elicit better disclosures for investors and add efficiencies to the compliance efforts of registrants."

Applicability and scope. The rules, which were adopted substantially as proposed, apply to domestic and foreign bank holding companies, banks, savings and loan holding companies, and savings and loan associations. These registrants must make the disclosures for each annual period presented and any additional interim period if a material change in the information or trend evidenced thereby has occurred.

The new rules require disclosures about the following:

  • distribution of assets, liabilities, and stockholders’ equity, the related interest income and expense, and interest rates and interest differential;
  • weighted average yield of investments in debt securities by maturity;
  • maturity analysis of the loan portfolio including the amounts that have predetermined interest rates and floating or adjustable interest rates;
  • certain credit ratios and the factors that explain material changes in the ratios, or the related components during the periods presented;
  • the allowance for credit losses by loan category; and
  • bank deposits including average amounts and rate paid and amounts that are uninsured.

Distribution of assets, liabilities, and stockholders’ equity. Item 1402 of Regulation S-K codifies all of the average balance sheet, interest and yield/rate analysis, and rate/volume analysis disclosure items currently in Item I of Guide 3, along with General Instruction 7 and Instruction 5 of Item 1 of Guide 3. The new rules also require registrants to disaggregate the categories of interest-earning assets and interest-bearing liabilities required to be disclosed. In a change from the proposal, however, the final rules only require disaggregation "if material."

Investment portfolio. Adopted as proposed, Item 1403 of Regulation S-K codifies the requirement to disclose weighted average yield for each range of maturities by category of debt securities required to be disclosed in the registrant’s U.S. GAAP or IFRS financial statements. The final rules only apply to debt securities that are not carried at fair value through earnings. They do not codify the following disclosure items in Item II of Guide 3: (1) book value information; (2) the maturity analysis of book value information; and (3) the disclosures related to investments exceeding 10 percent of stockholders’ equity because these items substantially overlap with U.S. GAAP and IFRS disclosure requirements.

Loan portfolio. Item 1404(a) of Regulation S-K codifies the requirement to disclose the maturity by loan category disclosure currently called for by Item III.B of Guide 3, with the loan categories based on the categories required by U.S. GAAP or IFRS in the financial statements. In response to comments received, the final rules also require additional maturity categories to provide investors with sufficient information on the potential interest rate risk associated with the loans in the portfolio. The final rules also codify the existing Guide 3 instruction stating the determination of maturities should be based on contractual terms and codify the language regarding the "rollover policy" for these disclosures.

Item 1404(b) of Regulation S-K codifies the disclosure items in Item III.B of Guide 3 regarding the total amount of loans due after one year that have: (1) predetermined interest rates; or (2) floating or adjustable interest rates, and specifies that this disclosure should also be disaggregated by the loan categories disclosed in the registrant’s U.S. GAAP or IFRS financial statements.

Allowance for credit losses. Item 1405(c) of Regulation S-K codifies the requirement to provide a tabular allocation of the allowance disclosures based on the loan categories presented in the U.S. GAAP financial statements for registrants applying or reconciling to U.S. GAAP. Item 1405(c) of Regulation S-K does not apply to IFRS registrants because IFRS already requires this information at a similar level of disaggregation in the financial statements.

New credit ratios disclosure. Item 1405(a) of Regulation S-K requires disclosure of the following new credit ratios on a consolidated basis, along with each of the components used in their calculation: (1) Allowance for Credit Losses to Total Loans; (2) Nonaccrual Loans to Total Loans; and (3) Allowance for Credit Losses to Nonaccrual Loans. The rules require a discussion of the factors that drove material changes in the ratios, or related components, during the periods presented.

The credit ratios are required for each annual period for which Commission rules require financial statements, and any additional interim period if there was a material change in the information or the trends evidenced thereby. The rules do not require disclosure of the ratio of nonaccrual loans to total loans or the allowance for credit losses to nonaccrual loans for IFRS registrants, as there is no concept of nonaccrual loans in IFRS.

Deposits. Item 1406 of Regulation S-K codifies the majority of the deposit disclosure items in Item V of Guide 3, with some revisions. In a slight variation from the proposal, the final rules define uninsured deposits for bank and savings and loan registrants that are U.S. federally insured depository institutions as the portion of deposit accounts in U.S. offices that exceed the FDIC insurance limit or similar state deposit insurance regimes and amounts in any other uninsured investment or deposit accounts that are classified as deposits and not subject to any federal or state deposit insurance regimes.

The final rules require foreign bank and savings and loan registrants to disclose the definition of uninsured deposits appropriate for their country of domicile. In response to concerns about how the proposed disclosure requirements would interact with overlapping regulatory regimes, the final rules specify that all registrants should determine the amount of uninsured deposits for purposes of Item 1406 based on the same methodologies and assumptions used for regulatory reporting requirements, to the extent applicable.

Changes to Article 9 of Regulation S-X. Given that the scope of Subpart 1400 of Regulation S-K includes savings and loan associations and savings and loan holding companies, the final rules amend Rule 9-01 of Regulation S-X to include these registrants within the scope of Article 9 of Regulation S-X as well. As noted in the proposal, however, if registrants other than bank and savings and loan registrants believe the Article 9 presentation would be material to an understanding of their business, the rules do not preclude that presentation for those registrants.

The final rules also delete Rule 9-03(7)(a)-(c) of Regulation S-X due to overlapping requirements with both U.S. GAAP and IFRS.

Effective date. The rules will be effective 30 days after publication in the Federal Register and will apply to fiscal years ending on or after December 15, 2021. The SEC will accept voluntary compliance with the new rules in advance of the mandatory compliance date, however. Guide 3 will be rescinded effective January 1, 2023.

The release is No. 33-10835.

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