FSG Quarterly Financial Services Update – Q1 2026

In this edition of the quarterly communication, we have provided information about financial reporting and accounting issues – some of which are currently being evaluated by regulatory agencies and not resolved at this time. We have also compiled a list of items for consideration in your financial reporting and disclosures for the first quarter and a summary of recently issued accounting pronouncements (see Appendices for summary of recently issued accounting pronouncements and the related effective dates).

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FASB Update

The Financial Accounting Standards Board (FASB) did not issue any Accounting Standards Updates (ASUs) or other significant guidance during the first quarter. A complete list of all ASUs issued or effective in 2026 is included in Appendix A.

Regulatory Update

SEC Chair Discusses AI and Disclosure Considerations

In a March 4, 2026 address, SEC Chairman Paul Atkins emphasized that AI is a transformative force for investors, markets, and regulators, and outlined the SEC’s efforts to responsibly integrate AI into risk assessment, enforcement, and disclosure review while preserving human judgment and due process. He reaffirmed a principle-based, materiality driven approach to AI disclosures and stressed the importance of ongoing dialogue between regulators and industry to keep pace with technological change and protect investors.

SEC Clarifies Crypto and the Federal Securities Laws

On March 17, 2026, the SEC issued a joint interpretation with the Commodity Futures Trading Commission (CFTC) clarifying how federal securities and commodities laws apply to crypto assets and related transactions. The interpretation establishes a token taxonomy, explains when non security crypto assets may fall in or out of investment contract treatment, and clarifies how securities laws apply to activities such as airdrops, staking, mining, and asset wrapping.

SEC Chair Lays Out Strategy to Reform SEC Rules

At the SEC Speaks conference, Chairman Paul Atkins outlined his three-pillar A-C-T strategy built around efforts to advance, clarify, and transform SEC rules to align with how markets operate today. Atkins has called for cutting back burdensome disclosure requirements and providing clarity on crypto assets. He has criticized the prior administration’s aggressive rulemaking activities.

• Advance: Atkins said the SEC will align “with the world as it is,” rather than outdated assumptions. “Advancing new regulatory frameworks means choosing a different approach. It means crafting rules that are clear enough to guide markets, flexible enough to accommodate innovation, and firm enough to protect investors.”
• Clarify: “Dually registered firms have long been forced to navigate two agencies, two regulatory regimes, two or more examination cycles, two reporting pipelines, and often two supervisory cultures, even where the underlying risks are substantially similar… Where one agency’s framework achieves comparable regulatory outcomes, then the regulator should accept the overlapping requirements of the other.”
• Transform: The SEC will trim “immaterial requirements that burden the market without a corresponding benefit to investors.” The Division of Corporation Finance (CorpFin) is leading a first-principles review of disclosure rules, and the enforcement division will prioritize “cases that provide meaningful investor protection and strengthen market integrity rather than technical rule violations in situations where investors have not been harmed.”

SEC Staff Guidance Clarifies Smaller Reporting Company Status and Rule 701 Disclosure Requirements

On March 6, 2026, CorpFin issued updated interpretive guidance under the Exchange Act and Regulation S-K addressing several technical issues. The updates focus primarily on smaller reporting company (SRC) status and Rule 701 disclosure requirements.

SRC Status and CIK Retention: The guidance clarifies that a company does not lose SRC status solely because it failed to check the SRC status box, provided the issuer otherwise qualifies. In addition, companies converting from an LLC to a C corporation may retain its existing Central Index Key (CIK), as long as EDGAR records are properly updated.

Rule 701 Guidance: Rule 701(e) disclosures are required only for option grants that exceed $10 million within a single consecutive 12 month period. In those cases, disclosures apply only to the period in which the threshold is exceeded, and failure to provide disclosures on time voids the exemption for that period only, not for earlier or later grants.

Key clarifications include:

• $10 million threshold and repriced options. When a company reprices employee stock options at a lower exercise price within 12 months of the original grant, the company may be excluded when determining whether the $10 million issuance threshold under Rule 701 is exceeded. However, the repriced options are treated as a new sale and included in calculating the aggregate sales price or amount of securities sold in any consecutive 12-month period that includes the repricing date. If the company expects Rule 701 sales to exceed $10 million in a 12-month period, the enhanced disclosure required by Rule 701(e) must be provided to all investors in the offering—not just those purchasing securities after the threshold is crossed. Failure to provide disclosures before sales occur results in the loss of the exemption for the entire offering.
• Timing and scope of disclosures across multiple periods. Rule 701(e) disclosure obligations are based solely on whether the $10 million threshold is exceeded in a particular 12 month period. Vesting or exercise activity does not affect the analysis. Disclosures are required only for recipients who receive awards during the period in which the threshold is exceeded.
• Financial statement requirements. Companies exceeding the $10 million threshold in Rule 701 are required to provide financial statements no more than 180 days old, regardless of foreign issuer status and regardless of whether the financials are reconciled to U.S. GAAP or prepared under International Financial Reporting Standards. Practically, the 180-day rule means that financial statements must typically be available at least quarterly.
• Post-Exchange Act reporting. Companies that end Exchange Act reporting may rely on Rule 701 for employee stock options. Options granted after reporting obligations end start with a "clean slate," meaning shares underlying previously granted options are excluded when calculating the 12‑month sales limits and disclosures.
• Merger and acquisition considerations. After a merger, an acquiring company must aggregate its own Rule 701 sales with securities previously sold by the target company when determining whether the $10 million threshold has been exceeded during any consecutive 12-month period.
• Restricted stock units (RSUs). When Rule 701 RSU grants exceed the $10 million cap, the required Rule 701(e) disclosures must be delivered before grant, not at settlement, because RSUs are deemed sold on the grant date. Disclosure timing rules applicable to derivative securities do not apply.
• Ineligible issuer status. A foreign court conviction does not trigger ineligibility under “ineligible issuer” definition in Rule 405. The rule covers issuers (or their subsidiaries) convicted of certain offenses in U.S. courts within the past three years.

FDIC Quarterly Banking Profile Fourth Quarter 2025

On February 24, 2026, the FDIC released its most recent Quarterly Banking Profile covering the fourth quarter of 2025. The Quarterly Banking Profile provides the earliest comprehensive summary of financial results for all FDIC-insured institutions. The report includes data from 4,336 commercial banks. Highlights are included below:

• In the fourth quarter of 2025, net income for FDIC-insured institutions decreased by 2%, or $1.6 billion, to $77.7 billion, driven primarily by higher noninterest expense and non-recurring items at several larger institutions. Insured depository institutions reported a return on assets (ROA) of 1.24%.
• Community bank income decreased 3.8% to $7.9 billion, driven by higher noninterest expense and higher securities losses. These losses more than offset increases in net interest income compared to the prior quarter.
• Net interest income rose by $4.1 billion (2.2%) as interest expense declined at a faster rate relative to interest income. The net interest margin (NIM) increased 5 basis points to 3.39%, which is the highest level since first quarter 2019. Community bank NIM widened 4 basis points from the prior quarter to 3.77%.
• Asset quality remained generally favorable, though there were continued signs of weakness in certain portfolios.
• Loan growth increased and domestic deposits increased for the sixth consecutive quarter.
• The Deposit Insurance Fund reserve ratio climbed to 1.42%.

FDIC, OCC, Fed Announce CRA Threshold Revisions for 2026

The OCC, Federal Reserve, and FDIC announced updated 2026 Community Reinvestment Act asset-size thresholds, adjusted for inflation based on Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI W). For 2026, a “small bank” is one with assets under $1.649 billion, and an “intermediate small bank” is a small bank with assets of at least $412 million but less than $1.649 billion, effective from the later of January 1, 2026, or Federal Register publication through December 31, 2026.

OCC Proposes Heightened Standards Framework Amendments

The OCC proposes raising the asset threshold for its heightened risk governance standards from $50 billion to $700 billion, significantly narrowing their application to only the largest and most complex banks while reducing regulatory burden for others. The proposal also clarifies compliance dates, makes technical amendments, and seeks public comment on whether and how the guidelines should be revised, tailored, or partially retained.

NCUA Announces Proposed Changes to Reduce Regulatory Burden on Credit Unions

The National Credit Union Administration (NCUA) announced a second round of proposed rulemakings under its Deregulation Project, seeking public comment on four proposals aimed at clarifying guidance and removing obsolete, duplicative, or overly burdensome requirements. The proposals address surety and guarantor requirements, limits on loans to other credit unions, catastrophic act reporting, and advertising and insured status disclosures.

FDIC Approves Amendments to Guidelines on Supervisory Appeals

The FDIC is adopting revised Guidelines for Appeals of Material Supervisory Determinations that replace the Supervision Appeals Review Committee with an independent Office of Supervisory Appeals to decide supervisory appeals. The changes are intended to strengthen independence, transparency, and consistency in the appeals process while clarifying standards of review, eligible determinations, and how appeals interact with enforcement actions.

Agencies Issue Joint Proposal to Revise Calculation of Risk-Weighted Assets (Standardized Approach)

The FDIC, Federal Reserve, and OCC proposed revisions to the standardized approach for calculating risk weighted assets and regulatory capital for banks not subject to the expanded risk-based framework. The proposal updates risk weights for certain mortgage, retail, and corporate exposures and adjusts capital treatment of accumulated other comprehensive income (AOCI) and mortgage servicing assets; comments are due June 18, 2026.

Agencies Issue Joint Proposal to Revise Calculations for Category I and II Banking Organizations

The FDIC, Federal Reserve, and OCC proposed a new expanded risk-based framework to significantly revise how Category I and II banking organizations calculate risk-weighted assets across credit, operational, market, and credit valuation adjustment (CVA) risks. The proposal replaces dual capital calculations and internal models with a single, more standardized framework and allows other banking organizations to opt in; comments are due June 18, 2026.

OCC Issues Two Final Rules to Reduce Regulatory Burden for Community Banks

The OCC issued two final rules aimed at easing regulatory burden for community banks by eliminating obsolete home loan data collection requirements and simplifying licensing for corporate activities and transactions. The changes expand eligibility for streamlined filing processes, allowing community banks to devote more resources to core operations and local economic support.

On the Horizon

The following selected FASB exposure drafts and projects are outstanding as of March 31, 2026.

EITF Agenda Items

The Emerging Issues Task Force (EITF) met on March 12, 2026, and deliberated on "Mortgage Servicing Rights-Recapture."

The EITF recommended that the Board add a project to its technical agenda to clarify how an entity should consider recapture when accounting for mortgage servicing rights (MSRs). The EITF recommended that an MSR and recapture be treated as a single unit of account and, therefore, that the fair value measurement of an MSR include the effects of recapture (Vote 9-1). The EITF also recommended that:

• Recapture not be defined (Vote 10-0)
• The proposed changes apply to residential MSRs (Vote 10-0)
• The current amortization guidance for MSRs not be amended (Vote 10-0)
• No additional disclosures be required beyond those already required for MSRs under generally accepted accounting principles (GAAP) (Vote 10-0)
• The proposed changes apply to all entities (Vote 10-0)

The FASB will discuss this issue, including transition and whether early adoption would be permitted, at a public meeting to determine whether to add a project to the FASB's technical agenda.

The EITF's recommendations do not constitute an amendment to GAAP. Amendments to the Codification are made only after extensive due process and deliberations by FASB.

PCC Activities

The Private Company Council (PCC) met on March 3, 2026. Below is a summary of topics discussed by PCC and FASB members at the meeting:

• PCC Agenda Priorities: The PCC discussed its three current research projects, including: (1) subjective acceleration clauses and related debt disclosures, (2) lease accounting simplifications, and (3) debt modifications and extinguishments and troubled debt restructurings. The PCC also discussed employee stock ownership plans as a potential topic to be added to its research agenda.
  
  • Subjective acceleration clauses and related debt disclosures: PCC members recommended that the FASB add a project to its technical agenda on subjective acceleration clauses in determining the classification of debt as a current or noncurrent liability in a classified balance sheet. PCC members made recommendations to the FASB to (a) remove the probability-based assessment guidance and instead, subjective acceleration clauses would affect the classification of debt only when triggered, (b) describe a trigger as when a lender demands repayment of the underlying debt because of noncompliance with a subjective acceleration clause, (c) require that long-term debt subject to a subjective acceleration clause be classified as a current liability when the subjective acceleration clause is triggered, (d) add an illustrative example on the application of subsequent events guidance, (e) make conforming changes to the intent and ability to refinance guidance so that subjective acceleration clauses only affect the classification of debt when triggered, (f) make conforming changes to the guidance on revolving credit agreements with subjective acceleration clauses to be trigger-based, (g) require disclosures in the period in which a trigger of a subjective acceleration clause occurs, including a description of the event that led to the trigger, an explanation of the trigger, the amount of the obligation subject to the trigger, and if applicable, the terms of the waiver, and (h) require prospective transition. A few PCC members indicated that retrospective application should be a permitted transition method. At a future meeting, the FASB will discuss subjective acceleration clauses and related debt disclosures.
  • Lease accounting simplifications: PCC members discussed the key takeaways from the January 2026 leases working group meeting and recent stakeholder feedback. PCC members agreed with the following recommendations of the leases working group (all from a lessee perspective):
    
    • Continue research on (a) lease modifications, (b) embedded leases, and (c) lease classification criteria
    • In combination with other lease accounting issues (rather than as a standalone project), continue research on (a) weighted-average lease disclosures and (b) related party lease disclosures
    • Discontinue research on (a) an optional single lease classification accounting model and (b) a scope exception for low value leases.
  • Debt modifications and extinguishments and troubled debt restructurings: PCC members discussed the key takeaways from the January 2026 debt modifications, extinguishments, and troubled debt restructurings working group meeting. The PCC noted concerns with the complexity of the current accounting models for debt restructurings and FASB members highlighted recent feedback received in response to the 2025 Invitation to Comment, Agenda Consultation (2025 ITC). PCC members acknowledged that the FASB plans to discuss this topic at a future meeting and agreed to postpone further research on this topic until that meeting occurs.
  • Employee stock ownership plans: PCC members discussed recent feedback received from private company stakeholders during PCC liaison meetings and in response to the 2025 ITC, which primarily focused on repurchase obligations of employee stock ownership plans from a plan sponsor perspective. PCC members added this topic as an area to research as part of their agenda priorities and requested that an education session be held in connection with an upcoming PCC meeting.
• Private Company Survey and Academic Research on Private Company Financial Reporting: An academic PCC member presented academic research on private company financial reporting based on survey responses from 542 private companies. The academic PCC member conducted that research in collaboration with academic colleagues from several universities. PCC members provided input and asked questions on various areas of the research.
• FASB Update: FASB staff noted that the Board has been discussing the feedback received in response to the 2025 ITC. FASB staff highlighted several areas for which projects were added to the technical agenda, as well as areas for which the Board decided not to add projects.
• Town Hall/Liaison Meeting Update: PCC members discussed feedback received during the recent liaison meetings with (1) the Institute of Management Accountants (IMA) Small Business Shared Interest Group, (2) the Construction Financial Management Association (CFMA) Emerging Issues Committee, and (3) representatives of the surety industry through the National Association of Surety Bond Producers (NASBP) and The Surety and Fidelity Association of America (SFAA).  PCC members will hold a town hall-style forum at the AICPA ENGAGE Conference in June 2026.
• Other Business: The PCC chair welcomed new PCC member, Wim Schaffers, whose term began on January 1, 2026, and welcomed new FAF Trustee, Mark Baer, who will observe PCC meetings. The PCC chair announced that the PCC Annual Report will be published in the coming weeks and will highlight the activities of the PCC during 2025. The PCC chair also announced that a formal call for PCC member nominations will be issued soon and that the PCC is seeking a preparer and a user for terms beginning January 1, 2027. The next PCC meeting is scheduled for Monday, June 1, and Tuesday, June 2, 2026.

Appendix A: Selected Implementation Dates (FASB/EITF/PCC)

The following table contains significant implementation dates and deadlines for standards issued by the FASB and others. View Appendix A.

Appendix B: Illustrative Disclosures for Recently Issued Accounting Pronouncements for Q1 2026

The illustrative disclosures linked are presented in plain English. Please review each disclosure for its applicability to your organization and the need for disclosure in your organization’s financial statements. For the items listed, the Company does not expect these amendments to have a material effect on its financial statements. Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows. View Appendix B.

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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 above is subject to change.