Huntington National Bank 2006 Annual Report Download - page 95

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS HUNTINGTON BANCSHARES INCORPORATED
Under the modified prospective method of Statement No. 123R, compensation expense is recognized during the year ended
December 31, 2006, for all unvested stock options, based on the grant date fair value estimated in accordance with the original
provisions of Statement No. 123, Accounting for Stock-Based Compensation (Statement No. 123) and for all share-based
payments granted after January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of
Statement No. 123R. Share-based compensation expense is recorded in personnel costs in the consolidated statements of
income. Huntington’s financial results for the prior periods have not been restated.
–S EGMENT R ESULTS — Accounting policies for the lines of business are the same as those used in the preparation of the
consolidated financial statements with respect to activities specifically attributable to each business line. However, the
preparation of business line results requires management to establish methodologies to allocate funding costs and benefits,
expenses, and other financial elements to each line of business. Changes are made in these methodologies utilized for certain
balance sheet and income statement allocations performed by Huntington’s management reporting system, as appropriate.
–S TATEMENT OF C ASH F LOWS — Cash and cash equivalents are defined as ‘‘Cash and due from banks’’ and ‘‘Federal funds sold
and securities purchased under resale agreements.’’
2. NEW ACCOUNTING STANDARDS
S TANDARDS ADOPTED IN 2006:
–FASB S TATEMENT N O . 123 ( REVISED 2004), Share-Based Payment (S TATEMENT N O . 123R) — Statement No. 123R was issued
in December 2004, requiring that the compensation cost relating to share-based payment transactions be recognized in the
financial statements. That cost is measured based on the fair value of the equity or liability instruments issued. Huntington
adopted Statement No. 123R, effective January 1, 2006. The impact of adoption to Huntington’s results of operations is
presented in Note 19.
–FASB S TATEMENT N O . 154, Accounting Changes and Error Corrections —a replacement of APB Opinion No. 20 and FASB
Statement No. 3 (Statement No. 154) — In May 2005, the FASB issued Statement No. 154, which replaces APB Opinion
No. 20, Accounting Changes, and Statement No. 3, Reporting Accounting Changes in Interim Financial Statements. Statement
No. 154 changes the requirements for the accounting for and reporting of a change in accounting principle. Statement No. 154
is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The
impact of this new pronouncement was not material to Huntington’s financial condition, results of operations, or cash flows.
–FASB S TATEMENT N O . 155, Accounting for Certain Hybrid Financial Instruments —an amendment of FASB Statements
No. 133 and 140 (S TATEMENT N O . 155) — On February 16, 2006, the FASB issued Statement No. 155, which amends Statement
No. 133 to simplify the accounting for certain derivatives embedded in other financial instruments (hybrid financial
instruments) by permitting these hybrid financial instruments to be carried at fair value. Statement No. 155 also establishes a
requirement to evaluate interests in securitized financial assets, including collateralized mortgage obligations and mortgage-
backed securities, to identify embedded derivatives that would need to be separately accounted for from the financial asset.
In January 2007, the FASB issued Derivatives Implementation Group Issue No. B40 addressing application of Statement
No. 155 to collateralized mortgage obligations and mortgage-backed securities. Based on the FASB’s conclusions regarding the
applicability of Statement No. 155 to collateralized mortgage obligations and mortgage-backed securities, Management does not
believe that the implementation issue will have a significant impact to its financial position or its results of operations.
Huntington adopted Statement No. 155 effective January 1, 2006, with no impact to reported financial results.
–FASB S TATEMENT N O . 156, Accounting for Servicing of Financial Assets —an amendment of FASB Statement No. 140
(S TATEMENT N O . 156) — In March 2006, the FASB issued Statement No. 156, an amendment of Statement No. 140. This
Statement requires all separately recognized servicing rights be initially measured at fair value, if practicable. For each class of
separately recognized servicing assets and liabilities, this statement permits Huntington to choose either to report servicing
assets and liabilities at fair value or at amortized cost. Under the fair value approach, servicing assets and liabilities are
recorded at fair value at each reporting date with changes in fair value recorded in earnings in the period in which the changes
occur. Under the amortized cost method, servicing assets and liabilities are amortized in proportion to and over the period of
estimated net servicing income or net servicing loss and are assessed for impairment based on fair value at each reporting date.
Huntington elected to adopt the provisions of Statement No. 156 for mortgage servicing rights effective January 1, 2006, and
has recorded mortgage servicing right assets using the fair value provision of the standard. The adoption of Statement No. 156
resulted in an $18.6 million increase in the carrying value of mortgage servicing right assets as of January 1, 2006. The
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