American Bankers Association

December 19, 2002

Jonathan G. Katz
U.S. Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549

Re: File No. S7-43-02

Dear Mr. Katz:

The American Bankers Association (ABA) appreciates the opportunity to comment on the rule proposal of the Securities and Exchange Commission (SEC), entitled "Conditions for Use of Non-GAAP Financial Measures." The ABA brings together all categories of banking institutions to best represent the interests of the rapidly changing industry. Its membership - which includes community, regional, and money center banks and holding companies, as well as savings associations, trust companies and savings banks - makes ABA the largest banking trade association in the country.

The ABA supports the SEC's efforts to improve financial reporting for users of financial statements. However, we are concerned about two specific sections of the proposal: (1) the definition of non-GAAP financial measures, and (2) the prohibition on reporting non-GAAP earnings per share (EPS).

Definition of non-GAAP financial measures

We recommend that the SEC specifically exclude from the definition of non-GAAP financial measures any information that is required to be disclosed under GAAP. Under existing GAAP, financial institutions are required to provide certain financial measures that could be viewed as falling within the definition of non-GAAP financial measures. For example, the American Institute of Certified Public Accountants' (AICPA) Audit and Accounting Guide for Banks and Savings Institutions requires that financial institutions disclose regulatory capital ratios, such as Tier 1 leverage, Tier 1 risk-based, and total risk-based capital and (for savings institutions) tangible capital. It also requires disclosure of the prompt corrective action category and certain types of qualitative disclosures that help explain the required quantitative information. Our belief is that the AICPA has thoroughly considered the qualitative disclosures that are needed to accompany and explain these measures. A requirement to reconcile to GAAP would not only be difficult, but would also simply be piling on unnecessary information.

Additionally, there are ratios that widely used and are somewhat customized for certain types of industries. The "efficiency ratio" and the "net interest margin" for financial institutions are items that should be excluded from the definition of non-GAAP financial measures.

Prohibition on disclosing non-GAAP EPS

We believe that non-GAAP EPS may be extremely useful in providing information to users of financial statements in order to prevent financial statements from being misleading. For example, in 2002, goodwill is no longer amortizable under GAAP, which can cause misleading comparisons of results in the years subsequent to adoption of rules. If management believes that non-GAAP EPS is important information, it should be a permitted disclosure. Prohibiting a disclosure that management believes is useful to users is inconsistent with the objectives of financial reporting and full and fair disclosure. Since the SEC can direct registrants to always provide a reconciliation between GAAP and non-GAAP EPS, users of financial statements will have the information necessary to understand the difference, and there should be no need to forbid the non-GAAP number.

In conclusion, we appreciate the opportunity to provide our views, and we would be pleased to work with the SEC in further developing its final rules. Please feel free to contact me at 202-663-5318 for additional information.


Donna Fisher