| 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 significant impact on Huntington's Unaudited Condensed Consolidated Financial Statements.
- See Note 12 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 Unaudited Condensed 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 significant impact on Huntington's Unaudited Condensed 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 significant 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 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 significant impact on Huntington's Unaudited Condensed 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 significant impact on Huntington's Unaudited Condensed 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 2018-02 - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (Topic 220).
Issued Feb 2018
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- Allows an entity to elect a reclassification from AOCI to retained earnings for stranded tax effects resulting from the TCJA.
- The amount of that reclassification should include the effect of changes of tax rate on the deferred tax amount, any related valuation allowance and other income tax effects on the items in AOCI.
- Requires an entity to state if an election to reclassify the tax effect to retained earnings is made along with the description of other income tax effects that are reclassified from AOCI.
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- Effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years with early adoption permitted.
- Huntington early adopted the guidance effective 4Q 2017.
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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 significant impact on Huntington's Unaudited Condensed 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 lessors and lessees. 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.
- 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 intends to adopt the guidance on January 1, 2019, and has a working group comprised of associates from different disciplines, including Procurement, Real Estate, and Credit Administration, to evaluate the impact of the standard where Huntington is a lessee or lessor, as well as any impact to borrower’s financial statements.
- Management is currently assessing the impact of the new guidance on Huntington's Unaudited Condensed Consolidated Financial Statements, including working with associates engaged in the procurement of goods and services used in the entity’s operations, and reviewing contractual arrangements for embedded leases in an effort to identify Huntington’s full lease population.
- Management expects to elect certain practical expedients offered by the FASB, including adopting the standard as of the effective date, and foregoing the restatement of comparative periods. Management also expects to exclude short-term leases from the recognition of right-of-use asset and lease liabilities. Additionally, Huntington will elect the transition relief allowed by FASB in foregoing the reassessment of the following: whether any existing contracts are or contain 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 less than 1% of total assets, 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 may be impacted by assumptions around renewals and/or extensions, actual renewals and extensions before the effective date, the identification of embedded and other leases, and the interest rate used to discount those future lease obligations.
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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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Standard |
Summary of guidance |
Effects on financial statements |
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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 significant impact on Huntington's Unaudited Condensed Consolidated Financial Statements.
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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.
- The amendment is not expected to have a significant impact on Huntington's Unaudited Condensed 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.
- The amendment is not expected to have significant impact on the Huntington's Unaudited Condensed Consolidated Financial Statements.
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| Revenue Recognition |
Huntington recognizes revenue when the performance obligations related to the transfer of goods or services under the terms of a contract are satisfied. Some obligations are satisfied at a point in time while others are satisfied over a period of time. Revenue is recognized as the amount of consideration to which Huntington expects to be entitled to in exchange for transferring goods or services to a customer. When consideration includes a variable component, the amount of consideration attributable to variability is included in the transaction price only to the extent it is probable that significant revenue recognized will not be reversed when uncertainty associated with the variable consideration is subsequently resolved. Generally, the variability relating to the consideration is explicitly stated in the contracts, but may also arise from Huntington's customer business practice, for example, waiving certain fees related to customer’s deposit accounts such as NSF fees. Huntington's contracts generally do not contain terms that require significant judgement to determine the variability impacting the transaction price.
Revenue is measured as the amount of consideration Huntington expects to be entitled to in exchange for transferring goods or services. Revenue is segregated based on the nature of product and services offered as part of contractual arrangements. Revenue from contracts with customers is broadly segregated as follows:
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Service charges on deposit accounts include fees and other charges Huntington receives to provide various services, including but not limited to, maintaining an account with a customer, providing overdraft services, wire transfer, transferring funds, and accepting and executing stop-payment orders. The consideration includes both fixed (e.g., account maintenance fee) and transaction fees (e.g., wire-transfer fee). The fixed fee is recognized over a period of time while the transaction fee is recognized when a specific service (e.g., execution of wire-transfer) is rendered to the customer. Huntington may, from time to time, waive certain fees (e.g., NSF fee) for customers but generally does not reduce the transaction price to reflect variability for future reversals due to the insignificance of the amounts. Waiver of fees reduces the revenue in the period the waiver is granted to the customer.
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Cards and payment processing income includes interchange fees earned on debit cards and credit cards. All other fees (e.g. annual fees), and interest income are recognized in accordance with ASC 310. Huntington recognizes interchange fees for services performed related to authorization and settlement of a cardholder’s transaction with a merchant. Revenue is recognized when a cardholder’s transaction is approved and settled. The revenue may be constrained due to inherent uncertainty related to cardholder’s right to return goods and services but the uncertainty is resolved within a short period of time (generally within 30 days) and has been assessed as not material. Revenue is not adjusted for such variability, rather returns reduce the amount of interchange revenue in the period the return is made by the customer.
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Certain volume or transaction based interchange expenses (net of rebates) paid to the payment network reduce the interchange revenue and are presented net on the income statement. Similarly, rewards payable under a reward program to cardholders are recognized as a reduction of the transaction price and are presented net against the interchange revenue.
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Trust and investment management services includes fee income generated from personal, corporate and institutional customers. Huntington also provides investment management services, cash management services and tax reporting to customers. Services are rendered over a period of time, over which revenue is recognized. Huntington may also recognize revenue from referring a customer to outside third-parties including mutual fund companies that pay distribution (12b-1) fees and other expenses. 12b-1 fees are received upon initially placing account holder’s funds with a mutual fund company as well as in the future periods as long as the account holder (i.e., the fund investor), remains invested in the fund. The transaction price includes variable consideration which is considered constrained as it is not probable that a significant revenue reversal in the amount of cumulative revenue recognized will not occur. Accordingly, those fees are recognized as revenue when the uncertainty associated with the variable consideration is subsequently resolved, that is, initial fees are recognized in the initial period while the future fees are recognized in future periods.
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Insurance income includes agency commissions that are recognized when Huntington sells insurance policies to customers. Huntington is also entitled to renewal commissions and, in some cases, profit sharing which are recognized in subsequent periods. The initial commission is recognized when the insurance policy is sold to a customer. Renewal commission is variable consideration and is recognized in subsequent periods when the uncertainty around variable consideration is subsequently resolved (i.e., when customer renews the policy). Profit sharing is also a variable consideration that is not recognized until the variability surrounding realization of revenue is resolved (i.e., Huntington have reached a minimum volume of sales). Another source of variability is the ability of the policy holder to cancel the policy anytime and in such cases, Huntington may be required, under the terms of the contract, to return part of the commission received. The variability related to cancellation of the policy is not deemed significant and thus, does not impact the amount of revenue recognized. In the event the policyholder chooses to cancel the policy at any time, the revenue for amounts which qualify for claw-back are reversed in the period the cancellation occurs.
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Other noninterest income includes a variety of other revenue streams including capital markets revenue, consumer fees and marketing allowance revenue. Revenue is recognized when, or as, a performance obligation is satisfied. Inherent variability in the transaction price is not recognized until the uncertainty affecting the variability is resolved.
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Control is transferred to a customer either at a point in time or over time. A performance obligation is deemed satisfied when the control over goods or services is transferred to the customer. To determine when control is transferred at a point in time, Huntington considers indicators, including but not limited to the right to payment for the asset, transfer of significant risk and rewards of ownership of the asset and acceptance of asset by the customer. When control is transferred over a period of time, for different performance obligations, either the input or output method is used to determine the progress. The measure of progress used to assess completion of the performance obligation varies between performance obligations and may be based on time throughout the period of service or on the value of goods and services transferred to the customer. As each distinct service or activity is performed, Huntington transfers control to the customer based on the services performed as the customer simultaneously receives the benefits of those services. This timing of revenue recognition aligns with the resolution of any uncertainty related to variable consideration. Costs incurred to obtain a revenue producing contract is expensed when incurred as a practical expedient as the contractual period for majority of contracts is one year or less.
Revenue is recorded in the business segment responsible for the related product or service. Fee sharing arrangements exist to allocate portions of such revenue to other business segments involved in selling to, or providing service to, customers. Business segment results are determined based upon management's reporting system, which assigns balance sheet and income statement items to each of the business segments. The process is designed around Huntington's organizational and management structure and, accordingly, the results derived are not necessarily comparable with similar information published by other financial institutions.
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