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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 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, replacing the current incurred loss framework with an expected credit loss model.
- Requires those financial assets subject to the new guidance 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 collectability of the reported amount.
- The guidance will require additional quantitative and qualitative disclosures related to the credit risk inherent in Huntington’s portfolio and how management monitors the portfolio’s credit quality.
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- Management adopted the guidance on January 1, 2020 through a cumulative-effect adjustment to retained earnings and implemented changes to relevant systems, processes, and controls where necessary.
- The adoption of ASU 2016-13 on January 1, 2020 resulted in an increase to our total ACL of $393 million. This represented an increase of 44% from the 2019 year end ACL level of $887 million. For more detail on the day 1 adoption impacts, please refer to Note 5 - Allowance for Credit Losses.
- The ASU eliminated the current accounting model for purchased-credit-impaired loans, but requires an allowance to be recognized for purchased-credit-deteriorated (PCD) assets (those that have experienced more-than-insignificant deterioration in credit quality since origination). Huntington did not have any loans accounted for as PCD upon adoption.
- At adoption, Huntington did not record an allowance with respect to HTM securities as the portfolio consists almost entirely of agency-backed securities that inherently have minimal nonpayment risk.
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ASU 2019-04 -
Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments
Issued: April 2019
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- Clarifies various implementation issues related to Recognition and Measurement of Financial Instruments (ASC Topic 825), Current Expected Credit Losses (ASC Topic 326) and Derivatives and Hedging (ASC Topic 815).
- Provides additional implementation guidance on CECL issues that include, among others, (a) measurement of credit allowance on accrued interest; (b) treatment of credit allowance upon transfers between classifications or categories for loans and debt securities; (c) inclusion of recoveries in determining credit allowance amounts; (d) using projections of rate change for variable rate instruments; (e) vintage disclosures for lines-of-credit; (f) contractual extensions and renewals; (g) consideration of prepayments in calculating effective interest rate; and (h) consideration of costs to sell if the entity intends to sell the collateral when foreclosure is probable.
- Clarifies for Topic 815, among others, that (a) only interest rate risk may be hedged in a partial-term fair value hedge; (b) amortization of fair value basis adjustment may begin before the fair value hedge is discontinued; (c) hedged AFS securities should be disclosed at amortized cost for disclosures related to hedged assets; and (d) contractually specified interest rate should be considered when applying hypothetical derivative method while assessing hedge effectiveness.
- Clarifies among others, that (a) using observable price under measurement alternative provided by ASC Topic 321 is a non-recurring fair value measurement and entities should adhere to non-recurring fair value disclosure requirements of Topic 820; and (b) equity securities without readily determinable fair value accounted for under measurement alternative should be remeasured using historical exchange rates.
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- Management adopted the amendments on January 1, 2020.
- The ASU did not have a material impact on Huntington’s Unaudited Condensed Consolidated Financial Statements.
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Standard |
Summary of guidance |
Effects on financial statements |
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ASU 2019-05 - Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief
Issued: May 2019
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- Provides entities that have certain instruments within the scope of ASC Subtopic 326-20 with an option to irrevocably elect fair value option, applied on instrument-by-instrument basis. The fair value option does not apply to held-to-maturity debt securities. |
- Management did not elect this option on any eligible instruments when adopting Topic 326 on January 1, 2020.
- The ASU did not impact Huntington’s Unaudited Condensed Consolidated Financial Statements.
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ASU 2019-08 - Compensation - Codification Improvements - Share-based Consideration Payable to a Customer
Issued: November 2019
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- The ASU requires that an entity measure and classify share-based payment awards granted to a customer by applying the guidance in Topic 718.
- The amount of share-based payment awards should be recorded as a reduction of the transaction price and is required to be measured on the basis of grant-date fair value of the share-based payment awards in accordance with Topic 718.
- The classification and subsequent measurement of the award are subject to the guidance in Topic 718 unless the share-based payment award is subsequently modified and the grantee is no longer a customer.
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- Management adopted the amendments on January 1, 2020.
- The ASU did not have a material impact on Huntington’s Unaudited Condensed Consolidated Financial Statements.
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ASU 2019-11 - Financial Instruments - Credit Losses (Topic 326): Codification Improvements to Topic 326
Issued: November 2019
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- The ASU clarifies or addresses stakeholders’ specific issues related to ASU 2016-13 as described below:
- Clarifies that the allowance for purchased financial assets with credit deterioration should include expected recoveries. If a method other than a discounted cash flow method is used to calculate allowance, expected recoveries should not result in an acceleration of the noncredit discount.
- Provides transition relief by permitting entities an accounting policy election to adjust the effective interest rate on existing TDRs using prepayment assumptions on the date of adoption of Topic 326 rather than the prepayment assumptions in effect immediately before the restructuring.
- Extends the disclosure relief for accrued interest receivable balances to additional relevant disclosures involving amortized cost basis.
- Clarifies that an entity should assess whether it reasonably expects the borrower will be able to continually replenish collateral securing the financial asset to apply the practical expedient related to collateral maintenance provision.
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- Management adopted the amendments on January 1, 2020.
- The ASU did not have a material impact on Huntington’s Unaudited Condensed Consolidated Financial Statements.
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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 2019-12 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
Issued: December 2019
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- The ASU simplifies the accounting for income taxes by removing exceptions to the:
(a) Incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items;
(b) Requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment;
(c) Ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary; and
(d) General methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year.
- The ASU also simplifies various other aspects of the accounting for income taxes.
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- The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.
- Early adoption of the ASU is permitted, including adoption in any interim period for which financial statements have not yet been issued. An entity that elects to early adopt in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period.
- The ASU is not expected to have a material impact on Huntington’s Unaudited Condensed Consolidated Financial Statements.
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ASU 2020-04 - Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
Issued: March 2020
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- The ASU provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met, including the following:
- Modifications of contracts within the scope of Topics 310, Receivables, and 470, Debt, should be accounted for by prospectively adjusting the effective interest rate.
- Modifications of contracts within the scope of Topic 842, Leases, should be accounted for as a continuation of the existing contracts with no reassessments of the lease classification and the discount rate.
- Modifications of contracts do not require an entity to reassess its original conclusion about whether that contract contains an embedded derivative that is clearly and closely related to the economic characteristics and risks of the host contract under Topic 815.
- The ASU also provides optional expedients for various hedging relationships and do not require de-designation of hedging relationships if certain criteria are met.
- An entity may make a one time election to sell, transfer, or both sell and transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform and that are classified as held to maturity before January 1, 2020.
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- The ASU is effective for all entities from the beginning of an interim period that includes or is subsequent to March 12, 2020 through December 31, 2022.
- We are evaluating the impact of the ASU on Huntington’s Unaudited Condensed Consolidated Financial Statements.
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