On June 23, 2009, the FDIC issued Financial Institutions Letter FIL-33-2009, which contains final amendments to Part 363 of the FDIC’s regulations regarding annual independent audit and reporting requirements for insured institutions with $500 million or more in total assets.   The amendments are intended to clarify what must be included in a Part 363 Annual Report.  The reporting obligations differ between institutions with total assets, as of the beginning of the fiscal year, between $500 million and less than $1 billion, and of $1 billion or more.   Unless otherwise noted the amendments became effective on August 6, 2009.  We summarize the main elements of Part 363, as amended, below.

Audit Report Requirements

Part 363 requires the following to be included in the Part 363 Annual Report:

For institutions with total assets between $500 million and less than $1 billion

  1. Audited comparative financial statements;
  2. The independent public accountant’s report on the audited financials; and
  3. A management report containing (i) a statement of management’s responsibilities for preparing annual financial statements, establishing and maintaining adequate internal controls, and complying with safety and soundness laws and regulations pertaining to insider loans and dividend restrictions, and (ii) a management assessment of the institution’s ability to comply with laws and regulations relating to insider loans and dividend restrictions, stating management’s conclusion on compliance with the laws and regulations.

For institutions with total assets of $1 billion or more

In addition to the items required for institutions with total assets between $500 million and less than $1 billion, institutions with total assets of $1 billion or more must provide the following:

  1. The management report must also contain an assessment by management on the effectiveness of the institution’s internal controls over financial reporting that identifies the internal control framework, states that the assessment included controls to ensure financial statements were prepared in accordance with regulatory instructions, states management’s conclusion whether this internal control is effective, and discloses any material weaknesses in these internal controls; and
  2. The independent public accountant’s attestation report concerning the effectiveness of the institution’s internal controls over financial reporting.

Filing Deadlines

For fiscal years ended on or before June 14, 2010, non-public institutions and subsidiaries of non-public institutions will have 120 days after the end of the fiscal year to file the Part 363 Annual Report.  For fiscal years ending after June 14, 2010, an institution that is a subsidiary of a public holding company but has consolidated total assets comprising less than 75% of the consolidated assets of the public holding company will have 120 days in which to file the Part 363 Annual Report.

For fiscal years ended on or before June 14, 2010, public institutions and subsidiaries of public institutions will have 90 days after the end of the fiscal year to file the Part 363 Annual Report.   For fiscal years ending after June 14, 2010, an institution that is a subsidiary of a public holding company and has consolidated total assets comprising 75% or more of the consolidated assets of the public holding company will have 90 days in which to file the Part 363 Annual Report.

An institution may file a notification of late filing if it will be unable to meet the filing deadlines, disclosing the reasons for the late filing and stating the date on which the Annual Report will be filed.

Other Requirements

— Each institution must have an independent audit committee.  For institutions with total assets between $500 million and less than $1 billion, a majority of the committee members must be outside directors.  For institutions with total assets of $1 billion or more, all committee members must be outside directors.  Boards of directors must adopt written criteria to determine the independence of outside directors by December 31, 2009.

— Institutions must file with the FDIC and appropriate federal and state banking authorities the following documents:

  1. Any management letter or other report issued by its independent public accountant, within 15 days after receipt, and
  2. A written notice of any change in or dismissal or resignation of the institution’s independent public accountant or engagement of a new independent public accountant, setting forth in reasonable details the reasons for resignation or dismissal, within 15 days after the occurrence.

— Please note that the audit committee of an institution should ensure that any engagement letter or related agreement with an independent public accountant does not (1) indemnify the accountant against claims from third parties, (2) hold harmless or release the accountant from liability for claims or potential claims that may be asserted by the institution, other than claims for punitive damages, or (3) limit the remedies available to the client institution.

If you would like to further discuss compliance with Part 363, please contact any of the attorneys in the Bryan Cave Financial Institution Group.