SEC Proposes to Make Significant Revisions to Disclosure Requirements for Bank and Savings and Loan Holding Companies
On September 17, 2019, the Securities and Exchange Commission (SEC) announced that it was proposing significant revisions to its Industry Guide 3, “Statistical Disclosure by Bank Holding Companies.” These proposed changes, which, if finalized, would be the most substantive revision to existing rules since 1986, are meant to eliminate disclosures that overlap with other SEC rules or with the provisions of US Generally Accepted Accounting Principles (US GAAP) or International Financial Reporting Standards (IFRS). The proposal is a result of the SEC’s 2017 Request for Comment regarding possible changes to Guide 3 as well as the SEC’s ongoing efforts to eliminate duplicative and outdated disclosure requirements. The SEC is soliciting comments on its proposal, which will be due 60 days after the proposal is published in the Federal Register.
Overview of Proposed Changes
Incorporate into Regulation S-K. Under the proposal, Guide 3 in its entirety would be eliminated, although certain of its existing provisions would be retained and would be codified as a new Subpart 1400 of Regulation S-K. The significant proposed changes are discussed more fully below.
Applicability. Guide 3 sets forth certain tabular and narrative disclosure requirements for registration statements and ongoing disclosure documents filed by bank holding companies. While Guide 3 does not reference savings and loan holding companies, these registrants also generally follow Guide 3 in their public filings. As such, the SEC has proposed formally making the new Subpart 1400 applicable to savings and loan holding companies too. Similarly, foreign registrants that are either a bank or savings and loan holding company would also need to comply with Subpart 1400, with a provision for some flexibility to recognize the differences between US GAAP and IFRS. The SEC considered expanding the applicability even further to include other registrants that may engage in lending or deposit activities, such as insurance companies or online lenders, but opted not to propose a further expansion at this time.
Reported Periods Would Be Reduced; Interim Financial Data. Guide 3 sets forth the number of years that must be included in each required table. Generally, three fiscal years must be shown, although five fiscal years of loan and loan loss experience data are required. Companies with less than $200 million in assets or a net worth of $10 million or less are required to show only two years in all cases, however. Under the proposal, the number of reported periods required to be shown would match the number of fiscal years required to be shown in a registrant’s financial statements, with one exception. Certain credit ratios would be required to be disclosed for each of the past five years in the first registration statement or offering statement under Regulation A by a new bank or savings and loan holding company registrant. The SEC has also proposed a revision to the instruction as to when interim data must be presented, but stated that the revision would not change the current obligations, instead merely eliminating duplicative language.
Average Balance; Rate/Volume Tables. The new Item 1402 of Regulation S-K would retain the existing requirement in Guide 3 to provide a table showing average balances of certain specified asset and liability categories as well as the average rate earned or paid on such assets and liabilities; and certain other data would be retained, although further disaggregation in categories would be required. Registrants would be required to separately show data for federal funds sold or purchased, repurchase transactions, and commercial paper on both the average balance and rate/volume tables.
Investment Securities. Since the last substantive revision to Guide 3, US GAAP and IFRS requirements governing accounting for investments have changed dramatically. Much of the tabular data required by Item II of Guide 3 is duplicative of what is now required financial statement disclosure. Consequently, the SEC is proposing to do away with the book value of investments table as well as the investment maturity table, except for the requirement to disclose the weighted average yield of debt securities (other than trading securities) by maturity range.
Loan Portfolio Disclosures. As with the investment securities disclosure requirements in Guide 3, many of the required loan disclosures have since been incorporated into US GAAP. As such, the SEC has proposed significant changes here as well. A table showing the breakdown of the loan portfolio by type of loan would no longer be required, although the loan maturity table would be retained. The individual line items on the table would need to match the loan categories specified by US GAAP rather than as currently required by Guide 3. The proposal would also change the way rollovers of existing loans are treated for purposes of the maturity table.
In addition, Item III(c) of Guide 3 requires the disclosure of the aggregate amount of nonaccrual, past due, and restructured loans. This requirement would not be codified in Item 1400 of Regulation S-K, as it is duplicative of other SEC and accounting disclosure requirements.
Allowance for Loan Losses. Guide 3 requires a five-year history of a registrant’s allowance for loan losses and charge-off history. If the proposal is approved, this table would be eliminated, although the obligation to disclose the ratio of net charge-offs to average loans outstanding would be retained, and would have to be shown by category of loan on the registrant’s financial statements. The table showing the allocation of the allowance for loan losses by loan type would also be retained. The SEC noted that additional changes may be proposed at a later date, in connection with the implementation of the current expected credit loss (CECL) accounting standard.
The proposal calls for the addition of a new required disclosure of credit ratios. In addition to the charge-off ratio, registrants would be required to disclose the following ratios: (i) allowance for credit losses to total loans outstanding; (2) nonaccrual loans to total loans; and (3) allowance for credit losses to nonaccrual loans. These ratios would need to be disclosed in initial registration statements and offering statements for five years, but otherwise only for the same period for which financial statements are presented. A narrative discussion of the factors that drove material changes in the ratios would also need to be included.
Deposits. The majority of the existing deposit disclosure requirements in Guide 3 would be retained in Subpart 1400 of Regulation S-K. However, in recognition that the $100,000 threshold is outdated due to subsequent increases in deposit insurance coverage, only the uninsured portion of certificates of deposit would be required to be shown. In addition, registrants would be required to quantify the amount of uninsured deposits as of the end of each reported period.
Borrowings. The proposal would eliminate the separate short-term borrowings table, although data would still be required to be shown in the average balance table. The SEC noted that significant changes in short-term borrowings may also be required to be discussed in Management’s Discussion and Analysis.
Performance Ratios. Guide 3 requires that certain ratios — including return on equity, return on assets, and dividend payout ratios — be disclosed. This would be eliminated if the proposal is finalized.
Article 9 of Regulation S-X. Currently, Article 9 of Regulation S-X only references bank holding companies. The SEC is proposing to amend this to make it explicitly applicable to savings and loan holding companies as well.