Updated SEC Disclosures for Banks Replaces Guide 3

After 30 years of bank holding companies following two different guidelines for financial reporting, the U.S. Securities and Exchange Commission (SEC) announced on Sept. 11, 2020, that they will modify disclosure requirements to align with U.S. Generally Accepted Accounting Principles (GAAP) guidelines. This effort will modernize and align the guidance with the industry guides of U.S. GAAP and International Financial Reporting Standards (IFRS). The new rules, which will replace Guide 3, Statistical Disclosure by Bank Holding Companies, will eliminate duplicate requirements and update statistical disclosures to reflect changes that have been made within the industry.

Overall, certain disclosure items from Guide 3 will be updated and codified in a new Subpart 1400 of Regulation S-K. They also have reduced the required years for presentation, which will be aligned to the required periods for financial statements. This includes credit ratios disclosures. The disclosures are still not required in the footnotes of financial statements; thus, disclosures outside of financial statements will not need to be audited.

Here is what you need to know:

  • Distribution of Assets, Liabilities and Stockholders’ Equity – All disclosure items, including average balance sheet, interest and yield/rate analysis and rate/volume analysis, that currently exist in Guide 3, were codified in Item 1402 of Regulation S-K. Additionally, the categories of interest-earning assets and interest-bearing liabilities will be separated going forward, and the category guidance changed from “at a minimum” to “must be included, if material.”
  • Investment Portfolio – The investment categories for the weighted average yield of maturities by category will be aligned to the categories disclosed in the footnotes of U.S. GAAP or IFRS financial statements.
  • Loan Portfolios – The loan categories for the maturity by loan category will be aligned with the loan categories required by U.S. GAAP or IFRS in the financial statements and separates the “after five years” category into two new categories: 1) five to 15 years, and 2) after 15 years. This will provide investors with more information regarding risks with potential interest rates on loans in the portfolio than was previously required.
  • Allowance for Credit Losses – The tabular allocation of the allowance disclosures by loan categories that currently exist in U.S. GAAP financial statements will be introduced to the SEC guidance, but only those applying or reconciling to U.S. GAAP and not IFRS registrants. The SEC tied the loan categories for this disclosure to the loan categories presented in U.S. GAAP, and the SEC believes the tabular allocation will provide easier analysis for investors while reviewing disclosures.
  • Credit Ratios – The modified requirements added the following credit ratios: 1) allowance for credit losses to total loans, 2) nonaccrual loans to total loans 3) allowance for credit losses to nonaccrual loans and codified net charge-offs during the period to average loan outstanding.
  • Deposits – This update replaces other time deposits equal or in excess of $100,000 with 1) U.S. time deposits in amounts in excess of the Federal Deposit Insurance Corporation (FDIC) insurance limit, and 2) time deposits that are otherwise uninsured (non-U.S. deposits) by remaining maturity.
Certain Existing Guide 3 Disclosures That Would Not Be Codified in Subpart 1400 of Regulation S-K
  • Return on Equity and Assets – Due to the specific ratios for each reported period, including return on assets or equity, a dividend payout and an equity to assets ratio were not unique to banks, savings and loan registrants, the SEC decided to not require these types of disclosures going forward.
  • Investments – 1) The book value information, 2) maturity analysis of book value information and 3) the disclosures related to investments exceeding 10 percent of stockholder’s equity will no longer be required.
  • Loans – Eliminated the loan portfolio risk element disclosures (nonaccrual, past due and restructured loans) and other interest bearing assets disclosures of Item III.C and Item III.D.
  • Allowance – Eliminated the requirement of Item IV analysis of the allowance for loan losses (replaced by above) and allocation of the allowance for loan losses. In addition, the SEC did not create any new disclosures for the new credit loss standard.
  • Short-Term Borrowings – The SEC decided to not renew the short-term borrowing disclosure items of Guide 3; instead, they will use an average balance and related average rate paid for each major category of interest-bearing liability disclosures.

The alignment of the SEC industry guide and U.S. GAAP standards will provide a substantial improvement for investors and banking registrants. The updated rules will apply to fiscal years ending on or after Dec. 15, 2021, but can be implemented early. After Jan. 1, 2023, Guide 3 will no longer be accepted. For more information about these changes, contact us at benchstrength@dhg.com.

 

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