September 2024 financial reporting, governance, and risk management

FDIC issues banking profile for second quarter 2024

On Sept. 5, 2024, the FDIC released the quarterly banking profile covering the second quarter of 2024. In an accompanying statement, FDIC Chair Martin Gruenberg again highlighted the resilience of the banking industry and generally favorable asset quality metrics. However, Gruenberg also noted the “significant downside risks from uncertainty in the economic outlook, market interest rates, and geopolitical events.”

FDIC-insured banks and savings institutions reported $71.5 billion second quarter net income, an increase of $7.3 billion (11.4%) from the prior quarter. The increase in net income was driven primarily by several nonrecurring items – including a reduction in reported expense related to the FDIC special assessment, significant gains on equity security transactions by large banks, and the sale of one institution’s insurance division – in conjunction with higher noninterest income and a decline in noninterest expense. These items were partially offset by higher provision expenses and losses on bond portfolio sales.

The report provides these additional statistics:

• Net interest income totaled $171.7 billion in the second quarter of 2024, a decrease of 1.5% compared to $174.3 billion in the second quarter of 2023. Net interest margin decreased 1 basis point in the second quarter to 3.16%.
• Aggregate return-on-assets ratio was 1.20% in the second quarter, compared to 1.08% in the prior quarter and 1.21% in the second quarter of the prior year.
• Total loans and lease balances increased $125.8 billion (1.0%) from the prior quarter, and $244.5 billion (2.0%) from the prior year. The increase was driven primarily by credit card loans and adjustable rate 1-4 family residential mortgage loans. Loans to non-depository financial institutions also grew significantly, although much of this is attributable to reclassifications from other loan categories.
• Domestic deposits decreased $197.7 billion (1.1%) from the prior quarter. Savings and transaction deposits and brokered deposits all declined from the prior quarter, with the majority of the overall decline in deposits attributable to banks with more than $250 billion in assets.
• Share of noncurrent loans (90 days or more past due or in nonaccrual status) remained unchanged from prior quarter at 0.91%. The noncurrent rate for non-owner occupied commercial real estate loans of 1.77% is the highest since the third quarter of 2013, primarily attributable to office portfolios at the largest banks.
• Unrealized losses on securities totaled $512.9 billion in the second quarter, a decrease of $3.6 billion (0.7%) from the prior quarter. This decrease was primarily driven by significant realized losses upon the sale of bonds by several large banks, partially offset by modest increases in interest rate which put downward pressure on bond prices.
• Community banks’ second quarter net income totaled $6.4 billion, an increase of $72.6 million, or 1.1%, from the prior quarter.
• The Deposit Insurance Fund balance totaled $129.2 billion at quarter-end, an increase of $3.9 billion from the beginning of the quarter.

The total number of FDIC-insured commercial banks and savings institutions that filed call reports declined by 29 to 4,539 at the end of the second quarter. During the quarter, three banks were sold to credit unions and 26 institutions merged with other banks. One bank failed (but had not submitted a call report in the prior quarter). The number of banks on the FDIC’s problem bank list increased by 3 to 66 at quarter-end, representing 1.5% of total banks. Total assets increased to $83.4 billion, an increase of $1.3 billion from prior quarter.

NCUA issues second quarter 2024 performance data

On Sept. 5, 2024, the NCUA reported quarterly figures for federally insured credit unions based on call report data submitted for the second quarter of 2024. Highlights include the following statistics:

• The number of federally insured credit unions declined to 4,533, compared to 4,686 in the second quarter of the prior year. Also in the second quarter, 2,834 federal credit unions and 1,699 federally insured, state-chartered credit unions existed.
• Total assets reported for federally insured credit unions totaled $2.3 trillion, an increase of $79 billion (3.5%) over the year ending second quarter 2024.
• Annualized net income totaled $15.7 billion, a decrease of $1.8 billion (10.1%) compared to the first half of the prior year.
• Annualized return on average assets was 69 basis points, compared to 80 basis points in the first half of the prior year.

The credit union system’s net worth totaled $249 billion, an increase of $13.3 billion (5.6%) over the year. The NCUA noted that this ratio excludes the current expected credit losses transition provision beginning in the first quarter of 2023. Net worth as a percentage of assets increased to 10.84% from 10.62% in the second quarter of the prior year.

CFPB updates small-business lending filing guide, launches test platform

In August the Consumer Financial Protection Bureau (CFPB) issued its updated filing instructions guide for small-business lending data collection, covering the period from July 18, 2025, through Dec. 31, 2025. Changes in the guide include refreshed compliance dates for this reporting period. The guide provides information on the filing process, a detailed description of data requirements, and a summary of additional resources to help filers understand and comply with the small business lending rule, which implements section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The CFPB also opened its small business data filing platform for beta testing. Users may currently upload, test, and validate data for testing purposes, but should not upload actual customer data yet. Authorized individuals employed by a financial institution with a legal entity identifier (LEI) may create an account and access the platform through the federal public access portal, login.gov.

FDIC publishes initial submission dates under new resolution plan rules

On Aug. 8, 2024, the FDIC issued a Financial Institution Letter (FIL) establishing initial submission deadlines for covered insured depository institutions (CIDIs) required to submit a resolution plan or informational filing under its final rule approved June 20 of this year. The compliance deadlines differ based on institution size and cohort, with a list of institutions within each cohort included in the more recent FIL.

Group A CIDIs, which are defined as those with $100 billion or more in total assets, are divided into three cohorts with the following initial submission deadlines:

• Cohort 1: Initial resolution plan due on or before July 1, 2025
• Cohort 2: Initial resolution plan due on or before July 1, 2026. Initial interim supplement due on or before July 1, 2025
• Cohort 3: Initial resolution plan due on or before July 1, 2026. No interim supplement due in 2025 if Title I Plan is submitted in that year by the U.S. G-SIB parent

Group B CIDIs are those with at least $50 billion but less than $100 billion in total assets. These institutions are required to submit less comprehensive informational filings by the following submission deadlines:

• Cohort 1: Initial informational filing due on or before Oct. 1, 2025
• Cohort 2: Initial informational filing due on or before April 1, 2026

FFIEC issues new development, acquisition, and maintenance booklet

On Aug. 29, 2024, the Federal Financial Institutions Examination Council (FFIEC) published an updated Development, Acquisition, and Maintenance (DA&M) booklet, part of its comprehensive Information Technology Examination Handbook. The booklet provides examiners with updated expectations to evaluate the adequacy of an entity’s DA&M programs, governance and risk management, and IT maintenance and change management practices. A concurrently issued FDIC FIL notes that while the booklet includes updated evaluation principles, procedures, and frameworks for examiners, it “does not impose new requirements on examined entities.”

FinCEN issues final rules for reporting suspicious activity for real estate and investment advisers

On Aug. 28, 2024, the Financial Crimes Enforcement Network (FinCEN) issued two final rules as part of an ongoing effort to counter illicit finance in the residential real estate and investment adviser sectors.

The final real estate rule implements record-keeping and reporting requirements for nonfinanced transfers of residential real estate to a legal entity or trust. The rule is applicable to certain industry professionals involved in real estate closings and settlements. It becomes effective Dec. 1, 2025.

The final investment adviser rule subjects certain SEC-registered investment advisers, as well as exempt reporting advisers, to requirements about anti-money laundering and countering the financing of terrorism, such as compliance programs and reporting suspicious activity requirements. It becomes effective on Jan 1, 2026.

SEC chief accountant speaks on safeguarding crypto assets

On Sept. 9, 2024, Chief Accountant Paul Munter spoke at the AICPA & CIMA Conference on Banks & Savings Institutions, providing observations from recent staff consultations on Staff Accounting Bulletin No. 121 (SAB 121), on the required accounting for an entity that has obligations to safeguard crypto assets for its platform users. While emphasizing that the staff’s views expressed in SAB 121 have not changed, Munter detailed specific fact patterns that could indicate that an entity’s arrangement does not fall within the scope of SAB 121, and therefore that the entity should not recognize a balance sheet liability associated with its safeguarding obligation.

SEC chair releases statement on AI washing

On Sept. 4, 2024, Chair Gary Gensler issued a statement on “AI washing,” the practice of overstating the role of AI, commenting on the application of fundamental securities laws to AI-related disclosures by SEC registrants. Any prospective claims related to AI must have a reasonable basis, and discussions of the related risks should not be “boilerplate.” Additionally, registrants should consider whether discussions on AI on earnings calls or with the registrant’s board of directors could indicate that AI matters are material, and therefore may be required to be publicly disclosed.

Registrants that make AI-related disclosures may need to furnish additional disclosures on their definition of AI, including details of its use, and whether it is developed internally or provided by an external party. Gensler also noted that investment advisers and broker dealer should not make misleading statements to the public as to the nature or extent of their use of AI.

SEC changes N-PORT and N-CEN reporting requirements

On Aug. 28, 2024, the SEC adopted final amendments to Forms N-PORT and N-CEN reporting requirements. Among the changes, the amendments increase the frequency of reporting on Form N-PORT, requiring funds to file monthly portfolio holdings data with the SEC on a monthly basis within 30 days after month-end. Under the amendments, each monthly report on Form N-PORT will become available to the public within 60 days after the end of the month. In addition, the amendments require open-end funds to disclose on Form N-CEN certain information on any service providers used to fulfill liquidity risk management program requirements.

In conjunction with the form amendments, the final rule also includes guidance on the liquidity rule, primarily related to “the frequency of classifying the liquidity of fund investments, the meaning of ‘cash’ in the rule, and determining and reviewing highly liquid investment minimums.”

The final rule includes a tiered approach, with larger entities required to comply with the Form N-PORT amendments for reports filed on or after Nov. 17, 2025, and smaller entities required to comply for reports filed on or after May 18, 2026. All funds will be required to comply with the Form N-CEN amendments for reports filed on or after Nov. 17, 2025.

SEC adjusts venture capital funds threshold for inflation

On Aug. 21, 2024, the SEC adopted a final rule implementing an inflation-based amendment to the dollar threshold used to define a “qualifying venture capital fund,” increasing the threshold from $10 million to $12 million. The change is made in accordance with the inflation adjustment requirements of the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018. The final rule also allows the SEC to make further adjustments based on the Personal Consumption Expenditures Chain-Type Price Index (PCE Index) every five years.

The final rule is effective Sept. 30, 2024.

Commissioners speak on PCAOB standard-setting

On Aug. 20, 2024, the SEC voted to approve three PCAOB final rules: a new auditing standard (AS) on the general responsibilities of an auditor; amendments on technology-assisted analysis in an audit; and amendments on contributory liability. More information is included in the PCAOB section. is included in the PCAOB section.

Each SEC commissioner made comments on the rulemaking activity:

• General responsibilities of an auditor (AS 1000): statements from commissioners Jaime Lizárraga, Mark Uyeda, Caroline Crenshaw, and Chair Gensler
• Technology-assisted analysis (AS 1105, AS 2301): statements from Lizárraga, Uyeda, Crenshaw, and Gensler
• Contributory liability (Rule 3502): statements from Lizárraga, Uyeda, Crenshaw, and Gensler.

Commissioner Hester Peirce issued a single statement with comments on all three items.

On Sept. 9, 2024, the SEC voted to approve an additional final standard on the quality control systems of audit firms. Lizárraga, Uyeda, Crenshaw, Peirce, and Gensler spoke on the standard.

PCAOB publishes spotlight on auditor independence inspection observations

The PCAOB on Sept. 16, 2024, issued a spotlight report, “Inspection Observations Related to Auditor Independence,” that not only details inspection observations but also describes the importance of independence, recent trends related to independence, and inspection procedures. Additionally, the publication addresses good practices and provides reminders for auditors and considerations for audit committees.

PCAOB issues report on financial reporting audits of banks

The PCAOB on Sept. 9, 2024, released a new staff spotlight report, “Bank Financial Reporting Audits,” describing the PCAOB’s inspection response to bank failures in early 2023, the effects of banking events on the PCAOB’s inspection activities, inspections observations, and good practices at audit firms in key focus areas, including investment securities, allowance for credit losses, deposit liabilities and loans and related accounts. The report highlights the continued effects of the bank failures on the banking industry and includes an overview of survey responses from U.S. audit firms on how they responded to disruptions in the banking industry, including impacts from rising interest rates, and how firms evaluated emerging and evolving risks in the banking sector.

SEC approves PCAOB’s QC 1000

On Sept. 9, 2024, the SEC approved QC 1000, “A Firm’s System of Quality Control,” the PCAOB’s new quality control (QC) standard including related amendments to its standards, rules, and forms. 

QC 1000 requires all PCAOB-registered firms to identify their risks and design a QC system that includes policies and procedures to guard against those risks. Under the standard, firms will be required to evaluate annually their QC system and report the results of their evaluation to the PCAOB on a specific form, which will be certified by key firm personnel to reinforce individual accountability. Additionally, firms that annually audit more than 100 issuers will be required to establish an external oversight function for the QC system. Responsibilities of the external function will include evaluating the significant judgments made and the related conclusions reached by the firm when evaluating and reporting on the effectiveness of its QC system.

The new standard and related amendments will be effective on Dec. 15, 2025.

PCAOB Chair Erica Y. Williams shared thoughts on the approval.

SEC approves three PCAOB final rules

On Aug. 20, 2024, the SEC approved an amendment to PCAOB Rule 3502, which addresses the liability of an associated person of a registered public accounting firm who contributes to that firm’s violations of the laws, rules, and standards that the PCAOB enforces. It renamed the rule “Governing Contributory Liability” and allows the PCAOB to hold accountable associated persons who negligently, directly, and substantially contribute to firms’ violations. The amendment will become effective on Oct. 19, 2024.

It also approved two PCAOB final rules amending the auditing standards – one addressing general responsibilities of the auditor and one for the use of technology-assisted analysis in conducting an audit.

The newly approved AS 1000, “General Responsibilities of the Auditor in Conducting an Audit,” and related amendments provide clarification of the general principles and responsibilities of auditors and the auditor’s responsibility to evaluate whether the financial statements are presented fairly. They address the engagement partner’s due professional care responsibilities by adding specificity to certain audit performance principles detailed in the standards. In addition, they note that an auditor’s professional skepticism extends to other information that is obtained to comply with PCAOB standards and rules. The new standard also shortens the documentation completion date by reducing the maximum period for the auditor to assemble a complete and final set of audit documentation from 45 days to 14 days. Applicable to all audits conducted under PCAOB standards, the new standard is effective for audits of financial statements for fiscal years beginning on or after Dec. 15, 2024, except for registered public accounting firms that provide audit opinions for 100 or fewer issuers during the calendar year ending Dec. 31, 2024. The amendment relating to the documentation completion date will take effect for audits of financial statements for fiscal years beginning on or after Dec. 15, 2025.

Additionally, the SEC approved amendments to PCAOB AS 1105, “Audit Evidence,” and AS 2301, “The Auditor’s Responses to the Risks of Material Misstatement,” that address audit procedures that involve technology-assisted analysis of information in electronic form and the responsibilities auditors have when performing procedures using such analysis. The changes specifically address the auditor’s responsibilities in using reliable information in audit procedures, using audit evidence for multiple purposes, and performing tests of details. The amendments are effective for audits of financial statements for fiscal years beginning on or after Dec. 15, 2025.

PCAOB Chair Williams issued a statement on the approvals.