rule was published in November 2025 with the following key components (among other things): • Independent financial statement audits are only required for institutions with over $1 billion in assets (increase from $500 million). • The establishment and composition of an audit committee. ° General Composition Requirements: The asset threshold for requiring an audit committee composed entirely of outside directors increased from $500 million to $1 billion. ° Independence Requirements: For institutions with assets between $1 billion and $5 billion, the audit committee must comprise a majority of outside directors who are independent of management. ° Enhanced Independence Requirements: For institutions with assets over $5 billion, the audit committee must comprise only outside directors who are independent of management. • Management assessment of internal control is required for institutions with over $1 billion in assets (an increase from $500 million). • A financial statement auditor opinion on internal control over financial reporting (ICFR) is required for institutions with assets over $5 billion (an increase from $1 billion). • The financial statement auditor would follow the more stringent independence standards of the Securities and Exchange Commission and Public Company Accounting Oversight Board when asset thresholds exceed $1 billion (an increase from $500 million). The rule is effective as of Jan. 1, 2026, but also provides that banks don’t have to comply with applicable part 363 requirements as of Dec. 31, 2025, if they won’t be subject to those requirements based on the updated thresholds in place as of Jan. 1, 2026. EXECUTIVE COMPENSATION: A SHIFT TOWARD STOCK-BASED ALTERNATIVES Community banks have increasingly moved away from traditional stock options in favor of alternative equity compensation structures such as restricted stock, restricted stock units (RSUs) and stock appreciation rights (SARs). This shift reflects a broader trend toward aligning executive incentives with long-term shareholder value while managing risk and complexity. RSUs have gained popularity due to their simplicity and guaranteed value upon vesting, unlike stock options, which can become worthless if the stock price falls below the strike price. SARs offer another flexible alternative, allowing executives to benefit from stock price appreciation without requiring upfront capital investment. This evolution in compensation strategy also reflects a desire to attract and retain top talent in a competitive labor market while ensuring that executive rewards are tied to sustainable performance and risk management. COMMUNITY BANK PERFORMANCE: RESILIENCE AMID HEADWINDS Despite macroeconomic pressures and uncertainties, community banks have demonstrated resilience. Capital ratios remain strong and, even though loan-to-deposit ratios have tightened due to the mix of loan demand and deposit competition, net interest income and net interest margin improved throughout 2025, approaching pre-pandemic averages. Past-due and nonaccrual rates have trended downward while reserve coverage ratios remain strong. Overall, the outlook appears cautiously optimistic. Scan the QR code for more insights from our trusted advisors. https://www.plantemoran.com/ industries/financial-services/banks?utm_ source=qrcode&utm_medium=association&utm_ campaign=PEN-FSG-2026_ICBC As the industry continues to evolve, community institutions find themselves at the intersection of innovation, regulation and resilience. INDEPENDENT REPORT | 13
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