Calculating Dividends Using ADB

Related Topics

Average daily balance refers to the application of a periodic rate to the average daily balance in the account for the period. The average daily balance is determined by adding the balance in the account for each day in the month and dividing that amount by the number of days in the month. For those accounts that pay dividends quarterly, the dividend for each of the three months is then added together to arrive at the dividend for the quarter. If the account is overdrawn, resulting in a negative balance, the balance for that day is considered to be 0.00 for the purpose of dividend and APYE calculations.

The Shares - Activity tab displays the average daily balance for each month on the specified share type if the dividend calculation method is ADB. All months except the current month contain the average balance for the month. The current month contains a zero balance until the month-end cycle when Portico calculates the average balance and stores it in this field.

How it Works

The average daily balance method uses a daily dividend amount and a daily dividend date to keep track of the average daily balance amount. The Accumulated Balance field on the Shares - General tab maintains a running total of each day's ending balance. This amount is adjusted as deposits to and withdrawals from the account occur. A change to the share account's balance causes Portico to multiply the number of days the account balance remained the same by the balance. The Next Calculation Start Date field on the Shares - General tab displays the first day that will be included in the next calculation for the period. When a change to the account balance occurs, the system calculates the number of days between the date in the Next Calculation Start Date field and the effective date of the current transaction. The number of days is then multiplied by the balance in the account prior to the current transaction. The following table shows the calculation used by Portico to arrive at the average daily balance:

Effective Date Transaction Amount Balance Computation Average Daily Balance Amount
01/01/16   150.00    
01/03/16 - 25.00 125.00 2 x 150.00 = 300.00 300.00
01/10/16 + 40.00 165.00 7 x 125.00 = 875.00 1175.00
01/25/16 - 50.00 115.00 15 x 165.00 = 2475.00 3650.00
01/29/16 + 100.00 215.00 4 x 115.00 = 460.00 4110.00
01/31/16   215.00 3 x 215.00 = 645.00 4755.00

Using the above example, the average daily balance for January is calculated as follows: 4755.00 ÷ 31 = 153.39

To calculate the dividend amount, Portico uses the following formula: (ADB) x (Rate) ÷ (365) x (Number of Days in the Month) = Dividend Amount

Assuming that the dividend rate is 3%, Portico would calculate the dividend as follows: 153.39 x .03 ÷ 365 x 31 = 0.3908263 or 0.39

Portico carries out dividend calculations to seven positions past the decimal point and rounds to the nearest penny (0.3908263 becomes 0.39). Portico will post a dividend of $.39 to the member's account effective 01/31/16 or 02/01/16 depending on the option selected in the Dividend Effective Date field on the Credit Union Profile - Credit Union tab.

While dividend calculations for ADB and DOD/DOW methods with a flat rate differ, the end results are the same. Differences in the calculation only occur if daily compounding or rate option 5 or 6 is used.

Manually Calculating ADB Dividends

To manually calculate a member's dividend, using the member's statement if the effective date is printed on the statement or using the member's transaction history, gather the following information:

  • The beginning and ending dates of the dividend period.
  • The effective date of each transaction occurring during the dividend period.
  • The different ending balances during the dividend period .
  • The dividend rate(s) and plateau balances.
  • The rate option.
  • The minimum average daily balance in order to earn dividends.
  • The number of days in the month.

Note: If you are calculating dividends for the month the member first opened the account, or for the month the member closed the account, you should use the number of days the account was actually open, not the actual days in the month when figuring the average daily balance.

Complete the following steps to calculate the dividend:

  1. Determine the last time dividends were paid on the account.
  2. Determine if the account had different daily ending balances during the period.
  3. Determine the number of days from the last time dividends were paid to the first time activity on the account resulted in a different ending balance.
  4. Determine the number of days between each different daily ending balance.
  5. Multiply each different daily ending balance by the number of days the account was at that balance.
  6. Add the calculated amounts together.
  7. Divide this total by the number of days in the month. This amount will be the average daily balance for the month.
  8. Perform the following calculation to arrive at the dividend amount for the specified month:
    Average Daily Balance x (Rate ÷ 365) x Number of Days in the Month

Complete steps 1 – 8 for each month in the quarter if the dividend frequency is quarterly. Add the dividend amounts together to arrive at the total dividend amount for the period.

ADB Calculation Examples

Dividend calculations can vary depending on the processing options selected on the Share Profiles tabs for the share type, the type of activity that occurred for the member, and when the activity occurred. The examples in this section are designed to show you how to calculate dividends based on different dividend processing options and account activity scenarios.

Example 1 - Multiple Transactions on the Same Day

During the month of February member 2212003 made several deposits and withdrawals, some on the same day, to the share type 01 account.

Transaction Effective Date # of Days Since Last Transaction Transaction Amount After Balance
02/01/16 0   215.39
02/15/16 14 +4500.00 4715.39
02/15/16 0 -3000.00 1715.39
02/25/16 10 +500.00 2215.39
02/28/16 3 -1000.00 1215.39
02/28/16 1   1215.39

The following processing options were selected on the Share Profiles tabs:

Last Dividend Date Next Dividend Date Dividend Frequency Dividend Method Rate Option Minimum Balance for Dividends Rate 1 Balance 1 Pay Dividends on Closed Accounts
01/31/16 02/28/16 Monthly A O 0.00 3.000 00000 Yes

Complete the following calculations to arrive at the average daily balance.

  1. 14 x 215.39 = 3015.46
  2. 10 x 1715.39 = 17153.90
  3. 3 x 2215.39 = 6646.17
  4. 1 x 1215.39 = 1215.39
  5. 3015.46 + 17153.90 + 6646.17 + 1215.39 = 28030.92
  6. 28030.92/28 = 1001.10

Complete the following calculation to arrive at the total dividend amount of $2.30 for the period 2/01/16 through 2/28/16:

1001.10 x .03/365 x 28 = 2.3038988 or 2.30

Example 2 - No Activity for the Dividend Period

Member 2212003 had no activity on the share type 01 during the month of March.

Transaction Effective Date # of Days Since Last Transaction Transaction Amount After Balance
03/01/16 0   1217.69
03/31/16 31   1217.69

The following processing options were selected on the Share Profiles tabs:

Last Dividend Date Next Dividend Date Dividend Frequency Dividend Method Rate Option Minimum Balance for Dividends Rate 1 Balance 1 Pay Dividends on Closed Accounts
02/28/16 03/31/16 Monthly A O 0.00 3.000 00000 Yes

Because there was no activity on the account, the average daily balance would be $1,217.69, the same as the beginning and ending balance for month.

You would perform the following calculation to arrive at the total dividend amount of $3.10 for the period 3/1/16 through 3/31/16: 1217.69 x .03 365 x 31 = 3.1026071 or 3.10

Example 3 - Rate Option 5

During the month of February member 2212003 made several deposits and withdrawals, some on the same day, to the share type 05 account.

Transaction Effective Date # of Days Since Last Transaction Transaction Amount After Balance
02/01/16 0   215.39
02/15/16 14 +4500.00 4715.39
02/15/16 0 -3000.00 1715.39
02/25/16 10 +500.00 2215.39
02/28/16 4   2215.39

The following processing options were selected on the Share Profiles tabs:

Last Dividend Date Next Dividend Date Dividend Frequency Dividend Method Rate Option Minimum Balance for Dividends Pay Dividends on Closed Accounts
01/31/16 02/28/16 Monthly A 5 0.00 Yes
Rate 1 Balance 1 Rate 2 Balance 2 Rate 3 Balance 3  
5.000 00200 6.000 00300 7.000 00000  

Complete the following calculations to arrive at the average daily balance.

  1. 14 x 215.39 = 3015.46
  2. 10 x 1715.39 = 17153.90
  3. 4 x 2215.39 = 8861.56
  4. 3015.46 + 17153.90 + 8861.56 = 29030.92
  5. 29030.92/28 = 1036.82

You would perform the following calculations to arrive at the total dividend amount of $5.18 based on the average daily balance of $1,036.82:

  1. 200.00 x .05/365 x 28 = .7671216
  2. 100.00 x .06/365 x 28 = .4602724
  3. 736.82 x .07/365 x 28 = 3.9566212
  4. .7671216 + .4602724 + 3.9566212 = 5.1840152 or 5.18

Example 4 - Rate Option 6

During the month of February member 2212003 made several deposits and withdrawals, some on the same day, to the share type 06 account.

Transaction Effective Date # of Days Since Last Transaction Transaction Amount After Balance
02/01/16 0   215.39
02/15/16 14 +4500.00 4715.39
02/15/16 0 -3000.00 1715.39
02/25/16 10 +500.00 2215.39
02/28/16 4   2215.39

The following processing options were selected on the Share Profiles tabs:

Last Dividend Date Next Dividend Date Dividend Frequency Dividend Method Rate Option Minimum Balance for Dividends Pay Dividends on Closed Accounts
01/31/16 02/28/16 Monthly A 6 0.00 Yes
Rate 1 Balance 1 Rate 2 Balance 2 Rate 3 Balance 3  
5.000 00200 6.000 00300 7.000 00000  

Complete the following calculations to arrive at the average daily balance.

  1. 14 x 215.39 = 3015.46
  2. 10 x 1715.39 = 17153.90
  3. 4 x 2215.39 = 8861.56
  4. 3015.46 + 17153.90 + 8861.56 = 29030.92
  5. 29030.92/28 = 1036.82

Complete the following calculation to arrive at the total dividend amount of $5.57 based on the average daily balance of $1,036.82: 1036.82 x .07/365 x 28 = 5.5675788 or 5.57

Example 5 - Minimum Balance for Dividends

The following activity occurred on share account 04 during February. The minimum balance for dividends on this share type is $250.00.

Transaction Effective Date # of Days Since Last Transaction Transaction Amount After Balance
02/01/16 0   215.39
02/15/16 14 +100.00 315.39
02/25/16 10 -200.00 115.39
02/28/16 4   115.39

The following processing options were selected on the Share Profiles tabs:

Last Dividend Date Next Dividend Date Dividend Frequency Dividend Method Rate Option Minimum Balance for Dividends Rate 1 Balance 1 Pay Dividends on Closed Accounts
01/31/16 02/28/16 Monthly A O 250.00 3.000 00000 Yes

Complete the following calculations to arrive at the average daily balance.

  1. 14 x 215.39 = 3015.46
  2. 10 x 315.39 = 3153.90
  3. 4 x 115.39 = 461.56
  4. 3015.46 + 3153.90 + 461.56 = 6630.92
  5. 6630.92/28 = 236.81857 or 236.82

Because the average daily balance of $236.82 is less than the minimum average balance for dividends amount of $250, the member would not receive a dividend for February.

Example 6 - Quarterly Dividend Calculation

The following table displays the member's activity for the first quarter of 2016:

Transaction Effective Date # of Days Since Last Transaction Transaction Amount After Balance
01/01/16 0   150.00
01/03/16 2 -25.00 125.00
01/10/16 7 +40.00 165.00
01/25/16 15 -50.00 115.00
01/29/16 4 +100.00 215.00
01/31/16 3   215.00
02/15/16 14 +4500.00 4715.00
02/15/16 0 -3000.00 1715.00
02/25/16 10 +500.00 2215.00
02/28/16 3 -1000.00 1215.00
02/28/16 1   1215.00
03/21/16 31   1215.00

The following processing options were selected on the Share Profiles tabs:

Last Dividend Date Next Dividend Date Dividend Frequency Dividend Method Rate Option Minimum Balance for Dividends Rate 1 Balance 1 Pay Dividends on Closed Accounts
12/31/15 03/31/16 Quarterly A O 0.00 3.000 00000 Yes

Calculate the average daily balance for each month separately. The examples on the prior pages show the calculations used to obtain the following average daily balances:

January: 153.39

February: 1000.71

March: 1215.00

You would perform the following calculations to arrive at the total dividend amount of $5.79 for the first quarter of 2016:

  1. 153.39 x .03/365 x 31 = .3908263
  2. 1000.71 x .03/365 x 28 = 2.3030028
  3. 1215.00 x . 03/365 x 31 = 3.095753
  4. .3908263 + 2.3030028 + 3.095753 = 5.7895821 or 5.79