| ACCOUNTING STANDARDS UPDATE |
ACCOUNTING STANDARDS UPDATE
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Accounting standards adopted in current period |
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Standard |
Summary of guidance |
Effects on financial statements |
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ASU 2014-09 - Revenue from Contracts with Customers (Topic 606).
Issued May 2014
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- Topic 606 supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance.
- Requires an entity to recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
- Also requires additional qualitative and quantitative disclosures relating to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.
- Guidance sets forth a five step approach for revenue recognition.
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- Huntington adopted the new guidance on January 1, 2018 using the modified retrospective approach.
- The update did not have a material impact on Huntington’s Consolidated Financial Statements.
- See Note 13 for further detail impact on adoption.
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ASU 2016-01 - Recognition and Measurement of Financial Assets and Financial Liabilities.
Issued January 2016
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- Makes targeted improvements related to certain aspects of recognition, measurement, presentation and disclosures for financial instruments including requiring an entity to:
(a) Measure its equity investments with changes in the fair value recognized in the income statement.
(b) Present separately in OCI the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments (i.e., FVO liability).
(c) Use the exit price notion when measuring the fair value of financial instruments for disclosure purposes.
(d) Assess deferred tax assets related to a net unrealized loss on AFS securities in combination with the entity’s other deferred tax assets.
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- Huntington adopted the new guidance on January 1, 2018 using the modified retrospective approach.
- Amendments were applied as a cumulative-effect adjustment to the balance sheet as of January 1, 2018.
- Huntington reclassified $19 million of equity securities from AFS Securities to Other Securities on the Consolidated Balance Sheets and reclassified unrealized gains of $1 million from AOCI to Retained Earnings. Prior periods have been adjusted to present these securities as Other Securities to facilitate comparison.
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ASU 2016-15 - Classification of Certain Cash Receipts and Cash Payments.
Issued August 2016
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- Clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows.
- Provides consistent principles for evaluating the classification of cash payments and receipts in the statement of cash flows to reduce diversity in practice with respect to several types of cash flows.
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- Huntington adopted the new guidance on January 1, 2018.
- The update did not have a material impact on Huntington’s Consolidated Financial Statements.
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ASU 2017-07 - Improving the Presentation of Net Periodic Pension Cost and Periodic Postretirement Benefit Cost.
Issued March 2017
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- Requires that an employer report the service cost component of the pension cost and postretirement benefit cost in the same line items as other compensation costs arising from services rendered by the pertinent employees during the period.
- Other components of the net benefit cost should be presented or disclosed separately from the service cost component in the income statement.
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- Huntington adopted the new guidance on January 1, 2018.
- The update did not have a material impact on Huntington’s Consolidated Financial Statements.
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Standard |
Summary of guidance |
Effects on financial statements |
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ASU 2017-09 - Stock Compensation Modification Accounting.
Issued May 2017
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- Reduces the current diversity in practice and provides explicit guidance pertaining to the provisions of modification accounting.
- Clarifies that an entity should account for effects of modification unless the fair value, vesting conditions and the classification of the modified award are the same as the original awards immediately before the original award is modified.
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- Huntington adopted the new guidance on January 1, 2018.
- The update did not have a material impact on Huntington’s Consolidated Financial Statements.
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ASU 2017-12 - Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities.
Issued August 2017
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- Aligns the entity’s risk management activities and financial reporting for hedging relationships.
- Requires an entity to present the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is reported.
- Refines measurement techniques for hedges of benchmark interest rate risk.
- Eliminates the separate measurement and reporting of hedge ineffectiveness.
- Allows stated amount of assets in a closed portfolio to be fair value hedged by excluding proportion of hedged item related to prepayments, defaults and other events.
- Eases hedge effectiveness testing including an option to perform qualitative testing.
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- For cash flow and net investment hedges, the cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness should be recognized in AOCI with a corresponding adjustment to retained earnings.
- Huntington adopted the new guidance on January 1, 2018. Except as mentioned in the paragraph below, the update did not have a material impact on Huntington’s Consolidated Financial Statements.
- Huntington reclassified $2.8 billion securities eligible to be hedged under the last-of-layer method from held-to-maturity to available-for-sale and recognized $26 million of fair value loss (net of tax) within OCI.
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ASU 2018-13 - Fair Value Measurement (Topic 820).
Issued August 2018
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- Modifies the disclosure requirements on fair value measurements.
- Removes disclosures for transfers between Level 1 and Level 2, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements.
- Clarifies that the information about uncertainty in measurement in uncertainty disclosure should be as of the reporting date.
- Adds disclosures related to (a) changes in unrealized gains/losses in OCI for Level 3 fair value measurements for assets held at the end of the reporting period, and (b) the process of calculating weighted average for significant unobservable inputs used to develop Level 3 fair value measurements.
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- Effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years with early adoption permitted.
- Huntington early adopted the guidance effective 4Q 2018. The amendment did not have a material impact on Huntington’s Consolidated Financial Statements.
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ASU 2018-14 - Compensation - Retirement Benefits - Defined Benefit Plans.
Issued August 2018
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- Modifies the disclosure requirements for defined benefit pension plans.
- Removes disclosures pertaining to (a) the amounts of AOCI expected to be recognized as pension costs over the next fiscal year, (b) the amount and timing of plan assets expected to be returned to the employer, and (c) the effect of one-percentage-point change in the assumed health care trends on (i) service and interest cost and (ii) postretirement health care benefit obligation.
- Adds a new disclosure requiring an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period.
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- Effective retrospectively for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years with early adoption permitted.
- Huntington early adopted the guidance effective 4Q 2018. The amendment did not have a material impact on the Huntington’s Consolidated Financial Statements.
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Standard |
Summary of guidance |
Effects on financial statements |
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ASU 2018-15 - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.
Issued August 2018
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- Aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software as well as with hosting arrangements that include an internal-use software license.
- Requires the entity to expense the capitalized implementation costs of a hosting arrangement over the term of the hosting arrangement.
- Requires the entity to present the expense related to implementation costs in the same statement of income line and statement of cash flows line where the fees for the service contract is recognized for respective statements.
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- Effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years with early adoption permitted.
- Huntington early adopted the guidance effective 3Q 2018. The update did not have a material impact on Huntington’s Consolidated Financial Statements as the guidance was consistent with Huntington’s existing accounting treatment for such arrangements.
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Accounting standards yet to be adopted |
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Standard |
Summary of guidance |
Effects on financial statements |
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ASU 2016-02 - Leases.
Issued February 2016
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- New lease accounting model for lessees and lessors. For lessees, virtually all leases will be required to be recognized on the balance sheet by recording a right-of-use asset and lease liability. Subsequent accounting for leases varies depending on whether the lease is classified as an operating lease or a finance lease. Impact to the income statement is not expected to be material.
- Accounting applied by a lessor is largely unchanged from that applied under the existing guidance.
- Requires additional qualitative and quantitative disclosures with the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.
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- Effective for the fiscal period beginning after December 15, 2018, with early application permitted.
- Management adopted the guidance on January 1, 2019, and elected certain practical expedients offered by the FASB, including foregoing the restatement of comparative periods upon adoption. Management also excluded short-term leases from the recognition of right-of-use asset and lease liabilities. Additionally, Huntington elected the transition relief allowed by FASB in foregoing the reassessment of the following: whether any existing contracts were or contained leases, the classification of existing leases, and the determination of initial direct costs for existing leases.
- Huntington expects to recognize right-of-use assets and lease liabilities of approximately $225 million, representing substantially all of its operating lease commitments. This estimate is based, primarily, on the present value of unpaid future minimum lease payments. Additionally, that amount is impacted by assumptions around renewals and/or extensions, and the interest rate used to discount those future lease obligations.
- Existing sale and leaseback guidance, including the detailed guidance applicable to sale-leasebacks of real estate, was replaced with a new model applicable to all assets, which will apply equally to both lessees and lessors. Under the new standard, if the transaction meets sale criteria, the seller-lessee will recognize the sale based on the new revenue recognition standard when control transfers to the buyer-lessor, derecognizing the asset sold and replacing it with a right-of-use asset and lease liability for the leaseback. If the transaction is at fair value, the seller-lessee shall recognize a gain or loss on sale at that time.
- Costs related to exiting an operating lease before the end of its contractual term have been historically accounted for pursuant to ASC 420, with the recognition of a liability measured at the present value of remaining lease payments reduced by any expected sublease income upon the exit of that space. ASC 842 changed the accounting for such costs, with entities evaluating the impairment of right-of-use assets using the guidance in ASC 360. Such an impairment analysis would occur once the entity commits to a plan to abandon the space, and thus may accelerate the timing of these costs.
- The new standard defines initial direct costs as those that would not have been incurred if the lease had not been obtained. Certain incremental costs previously eligible for capitalization, such as internal overhead, will now be expensed.
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ASU 2016-13 - Financial Instruments - Credit Losses.
Issued June 2016
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- Eliminates the probable recognition threshold for credit losses on financial assets measured at amortized cost.
- Requires those financial assets to be presented at the net amount expected to be collected (i.e., net of expected credit losses).
- Measurement of expected credit losses should be based on relevant information including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount.
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- Effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018.
- Adoption will be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective.
- Management intends to adopt the guidance on January 1, 2020 and has a working group comprised of teams from different disciplines including credit, finance, and risk management to evaluate the requirements of the new standard and the impact it will have on our processes.
- Huntington is currently in the process of developing credit models as well as accounting, reporting, and governance processes to comply with the new credit reserve requirements.
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ASU 2017-04 - Simplifying the Test for Goodwill Impairment.
Issued January 2017
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- Simplifies the goodwill impairment test by eliminating Step 2 of the goodwill impairment process, which requires an entity to determine the implied fair value of its goodwill by assigning fair value to all its assets and liabilities.
- Entities will instead recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value.
- Entities will still have the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.
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- Effective for annual and interim goodwill tests performed in fiscal years beginning after December 15, 2019. Early adoption is permitted.
- The amendment is not expected to have a material impact on Huntington’s Consolidated Financial Statements.
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ASU 2018-16 - Derivatives and Hedging - Inclusion of SOFR as Benchmark Interest Rate for Hedge Accounting Purposes.
Issued October 2018
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- Permits use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to the U.S. Treasury, the LIBOR swap rate, the OIS rate based on the Fed Funds Effective Rate, and the SIFMA Municipal Swap Rate.
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- For public business entities that already have adopted the amendments in ASU 2017-12, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.
- The amendments should be adopted on a prospective basis for qualifying new or redesignated hedging relationships entered into on or after the date of adoption.
- Huntington will evaluate its risk management and may determine to hedge risk associated with OIS based on SOFR on case-to-case basis.
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ASU 2018-20 - Narrow-Scope Improvements for Lessors
Issued December 2018
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- The amendments create a lessor practical expedient applicable to sales and other similar taxes incurred in connection with a lease, and simplify lessor accounting for lessor costs paid by the lessee.
- Permits lessors, as an entity-wide accounting policy election, to present sales and other similar taxes that arise from a specific leasing transaction on a net basis.
- Requires lessors to present lessor costs paid by the lessee directly to a third party on a net basis – regardless of whether the lessor knows, can determine or can reliably estimate those costs.
- Requires lessors to present lessor costs paid by the lessee to the lessor (e.g. through direct reimbursement or as part of the fixed lease payments) on a gross basis
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- Effective date coincides with the effective date of ASU 2016-02 for Huntington (fiscal period beginning after December 15, 2018).
- Huntington elected to present sales and other similar taxes that arise from specific leasing transactions on a net basis.
- Management will present property taxes on a gross basis where such taxes are paid by Huntington and reimbursed by the lessee, and has assessed the impact of that change to Huntington’s consolidated financial statements.
- The amendment does not have a material impact on Huntington’s Consolidated Financial Statements.
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