Sarah A. Miller
May 23, 2002
Re: Acceleration of Periodic Report Filing Dates and Disclosure Concerning Website Access to Reports, File No. S7-08-02, 67 Federal Register 19896 (April 23, 2002).
Dear Mr. Katz:
The American Bankers Association ("ABA") appreciates the opportunity to comment on the proposal issued by the Securities and Exchange Commission ("Commission") to accelerate the filing of quarterly and annual reports under the Securities Exchange Act of 1934 and to require certain disclosures regarding Internet access to company reports on Forms 10-K, 10-Q and 8-K. The proposal is intended to modernize the periodic reporting system and improve the usefulness of quarterly and annual reports to investors.
The ABA is very interested in the Commission's proposal. The ABA brings together all categories of banking institutions to best represent the interests of this rapidly changing industry. Its membership - which includes community, regional, and money center banks and bank holding companies, as well as savings associations, trust companies, and savings banks - makes ABA the largest banking trade association in the country. Many of our members are impacted by the Commission's proposal as a result of being traded on a national securities exchange or due to their asset size and number of shareholders are Section 12(g) filers under the Exchange Act. Indeed, 1,643 banks and thrifts are either publicly-traded or owned by publicly-traded holding companies and, as such, are subject to the Exchange Act's periodic reporting requirements.1
In addition, our members rely extensively on the information disclosed in these reports by other publicly-traded firms. For example, our members rely on the Forms 10-K, 10-Q, and 8-K in determining whether or not to engage in credit and other similar transactions with publicly-traded companies. Bank2 trust departments 3 and bank-affiliated brokerage and investment advisory firms rely on these reports in determining whether or not the securities of these companies are appropriate investments in which to invest client assets or to recommend to their clients. Consequently, any efforts undertaken by the Commission to improve the usefulness of these reports is strongly supported by the ABA.
We would, however, like to the offer the following suggestions for the Commission's consideration.
The Commission has proposed to accelerate the required filing date for the Form 10-K from the current 90 calendar days to 60 calendar days after the company's fiscal year end and, for the Form 10-Q, to accelerate the required filing date from the current 45 calendar days to 30 calendar days after the end of a quarter. The proposed changes are intended to shorten the gap between company earnings announcements and the filing of more extensive information in company periodic reports. As the Commission notes, year-end earnings announcements are, on average, issued 43 days after fiscal year-end, and quarterly earnings announcements are, on average, issued 27 days after the quarter's end.
While our members appreciate the Commission's desire to close the time and information gap between earnings announcements and the more robust disclosures found in the periodic reports, many of our members, both large and small, believe that it will be quite costly and burdensome to comply with the proposed accelerated filing deadlines. Their reasons are several.
While it is true, as the Commission suggests, that technological advances in information delivery have improved dramatically over the last 30 years, the ABA does not believe that that fact alone justifies accelerating filing deadlines along the lines proposed by the Commission. Equal attention must be paid to the complexities of both current financial reporting requirements and of the banking business itself.
For example, every time a new accounting pronouncement is issued, extra time is needed to conform the periodic reports to those pronouncements. In the last 17 years, there have been at least 85 new accounting standards issued by the Financial Accounting Standards Board ("FASB"). Other authorities, such as the Emerging Issues Task Force and the Commission itself, also have issued, over the last several years, numerous documents addressing significant accounting and reporting issues. New accounting pronouncements not only result in increased time devoted to financial reporting issues but also, significantly increase the complexity of the accounting literature. Given the current increased focus on accounting issues, we do not anticipate that either the rate of issuance or complexity of these accounting pronouncements will subside.
Consideration should also be given to just how complex the business of banking has become. Most banks impacted by the Commission's proposal have moved beyond managing interest spreads between deposits and loans for a limited geographic area. Now banks are operating in a global economy and offering their increasingly diverse customer base a range of products and services that even a few years ago would have been unthinkable.
In addition to the complexities of both the accounting literature and the business itself, practical difficulties will inevitably surface as a result of accelerated filing requirements. For example, many filers now incorporate by reference to their proxy statement. Until such time as the proxy statement is accelerated (not that we are, in any way, suggesting that it should be accelerated), filers will need to recreate much of the information, e.g., information on officers and directors, contained in the proxy, and include it any Form 10-K filed on an accelerated basis. Shortened time periods also will compress the time that the printer/filing agent will not have to process filings of clients, particularly those that file on a calendar-year basis. Turnaround time periods now needed by the printer/filing agent will have to be expanded in order to accommodate more filers within a shorter time period, leaving even less time for management review of the company's periodic report.
If, after reviewing the public comments, the Commission still believes that the benefits to be gained by closing the gap between earnings announcements and the filing of periodic reports outweigh the burdens for filing companies, the ABA would suggest that the Commission adopt less aggressive accelerated filing requirements for company periodic reports. For the Form 10-K, 75 days, as opposed to the proposed 60 days, would be optimum. For the Form 10-Q, 40 days would be appropriate.
Many of our members have studied their current 10-K/10-Q production schedules and believe that they could accelerate the filings as suggested above. This alternative assumes, of course, that the required content of the current forms stays the same. Obviously, if less complex and burdensome information were to be required in the Forms 10-K and 10-Q, a more ambitious filing schedule might be appropriate.
Another suggestion offered by several of our members would be to require that companies issue either core financial statements, without notes or the management's discussion and analysis section, or some sort of abbreviated financial information within some set period of time after the close of the quarter or year-end. One suggestion is to require this information within 15 business days of the close of the applicable time period.
The ABA does not believe that keying the filing of a periodic report off of a press release announcing earnings for the quarter or year, as suggested in the proposal, is workable. Most of our members believe that rather than encourage delivery of timely information to the marketplace, the proposal would have the practical effect of encouraging companies to delay the release of earnings announcements.
Accelerated Filer Definition
The requirement to file periodic reports on an accelerated basis does not apply to those Section 12 reporting companies not meeting a certain public float and reporting history requirements. Specifically, the proposal's requirements would only apply to those companies with a public float of $75 million or more as of a date within no more than 60 and no less than 30 days before the end of the company's last fiscal year.
In addition, the company must have been subject to reporting requirements of Section 13(a) or 15(d) of the Exchange Act for a period of a least 12 calendar months preceding the filing of the report; and have filed at least one annual report pursuant to Section 13(a) or 15(d) of the Exchange Act. The proposed definition of "accelerated filer" is intended to include only those companies that are the least likely to find the accelerated filing requirements overly burdensome.
While the ABA appreciates the Commission's efforts to minimize the burdens associated with its proposal, it should be clear from our discussion above that even those companies that satisfy the definition of "accelerated filer" would find the proposal extremely burdensome. In addition, we believe that the definition of "accelerated filer" could impact several of our community bank members who are ill-equipped to respond to accelerated reporting requirements. For example, there are 125 publicly-traded banks that file periodic reports with the Federal Deposit Insurance Corporation pursuant to Section 12(i) of the Exchange Act.4 Of those 125, seven would meet the $75 million in market capitalization requirement. These seven banks range in asset size from $368.7 million to $11.8 billion. Community banks are generally defined as banks with less than $1 billion in total assets.5
Community banks impacted by the Commission's proposal would have significant difficulty in complying with accelerated filing requirements. This is so because in small community banks there is usually only one person responsible for regulatory reporting of the company. In addition to having responsibility for filing the Forms 10-Q or 10-K, this individual would also be responsible for filing, on a quarterly basis, call reports with their primary regulator, as well as holding company quarterly reports (Forms FRY) with the Federal Reserve Board. Frequently, these individuals also have responsibility for internal reporting, general accounting matters, interest rate sensitivity analysis and investing. Several of our members have suggested that accelerated filing requirements will probably force the bank to hire additional personnel.
Besides the personnel issues involved in complying with an accelerated filing requirement, many community banks do not have the requisite information technology to compile these reports in any sort of automated fashion. Consequently, many of these documents are compiled using manually created spreadsheets. Shortening the current filing requirements for Exchange Act reports will not only increase the need for additional personnel but quite possibly result in increased technology expenses.
In order to ameliorate the burdens on community banks impacted by the Commission's proposal, the ABA would suggest raising the market capitalization from $75 million to $150 million. Only two of the seven banks subject to periodic reporting requirements of the FDIC would be dropped off of the list of institutions impacted by the Commission's proposal. These two banks are truly community banks with net assets of only $368.7 and $401.9 million.
In the narrative portion of the proposing release, the Commission strongly encourages companies to provide investors with website access to their Exchange Act reports in order to facilitate more ready access to information. To that end, the Commission has proposed to require a company subject to the accelerated filing deadlines to disclose in its annual report on Form 10-K where investors can obtain timely access to company filings, including whether the company provides access to its reports on Forms 10-K, 10-Q and 8-K on its Internet website, free of charge, as soon as reasonably practicable, and in any event on the same day as, these reports are electronically filed or furnished to the Commission. If the company does not provide website access in this manner, it also must disclose why it does not do so and where else investors can access these filings electronically immediately upon filing.
The ABA strongly supports any efforts that will encourage companies to providing the investing public with website access to company reports. Indeed, we understand that a large majority of firms already provide such access. We would suggest, however, that companies be permitted to post their reports within one business day of electronically filing or furnishing the report to the Commission. Due to circumstances beyond their control, companies may be forced to make a late date filing with the Commission. It would seem reasonable to allow the Company to post the same filing on its website by the following day.
Sarah A. Miller
cc: Elizabeth M. Murphy
1 Source: Sheshunoff Information Services.
2 The term "bank" is used throughout this submission to refer collectively to banks, thrifts, savings banks and trust companies.
3 Over 2,100 banks serve as either trustee or fiduciary to over 26 million accounts with a total value in excess of $23 trillion. Of the $23 trillion in fiduciary assets held by banks, over $3.4 trillion is invested in corporate equity and debt securities. Federal Financial Institutions Examination Council, Trust Assets of Financial Institutions-2000.
4 15 U.S.C. 78l(i). All forms filed with the bank regulators under authority of Section 12(i) comply, in all material respects, with the Commission's reporting regulations issued under Section 12 of the Exchange Act. See 12 CFR 11.2; 12 CFR 208.3612 CFR 335.101, and 12 CFR 563d.1.
5 See Comptroller's Handbook, Community Bank Supervision, at 1 (August 2001).