Whether it has been through M&A, organic growth, or a recent surge due to the Paycheck Protection Program (PPP) loans, many banks find themselves growing rapidly and potentially closer to the $1 billion asset threshold than initially expected. This increase in asset size provides additional opportunities, but also new risks, challenges, and regulatory requirements.

If a bank begins its fiscal year with total assets exceeding $1 billion, the bank must then comply with certain requirements under the Federal Deposit Insurance Corporation Improvement Act (FDICIA). Those requirements include:

  • An assessment, as well as a report from bank management on the effectiveness of the bank’s internal controls over financial reporting (ICFR);
  • An opinion from the bank’s external auditors on the effectiveness of the bank’s ICFR, in addition to the financial statement audit opinion; and
  • All audit committee members must be outside directors that are independent of management.

These management-reporting requirements, as well as the external audit requirements, have similarities to public company reporting under Sarbanes-Oxley 404(b). As a result, preparation for newly required FDICIA reporting is critical due to the significant time and effort required to ensure the bank’s control environment is FDICIA-ready. This preparation, which often begins at least a year in advance of tripping the $1 billion threshold, should include:

  • Control identification, and an assessment of controls against the Committee for Sponsoring Organization’s 2013 control framework;
  • Identification of control gaps, along with implementation of new controls;
  • Development of control testing plans; and
  • Limited testing of controls for operating effectiveness.

In addition to the FDICIA requirements, we know additional complexities arise once a bank crosses the $1 billion threshold, primarily due to regulator expectations. These include, but are not limited to:

  • Enterprise Risk Management: Regulators may expect a formalized function to exist shortly after crossing the $1 billion threshold.
  • Organizational Structure: There may be a heightened expectation and scrutiny regarding how a bank operates, including the bank’s reporting structures and staffing. If at $1 billion, a bank is operating the same way it did at $500 million, there may be an increased focus on certain areas of the bank from regulators.
  • Information Technology (IT) and Systems: A bank should consider whether it’s current IT infrastructure will allow for continued growth, as well as have the capacity to assist in improved reporting and decision making, and help the bank operate more efficiently.

We Can Help

The Elliott Davis Financial Services Group regularly assists banks throughout the United States in preparation for the requirements that arise after crossing the $1 billion threshold. If you would like to learn more about how our team can assist you in your preparation, please reach out to a member of our Financial Services Group.

The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information is subject to change as a result of evolving legislative developments and government guidance.