Dividends

Dividend processing on Portico allows your credit union to comply with the Truth-In-Savings Act (TISA), offers various options for rate changes, dividend calculations, and posting, and provides member, credit union, and Internal Revenue Service (IRS) reporting.

Truth-in-Savings Act

The purpose of the Truth-in-Savings Act (TISA) is to assist consumers in comparing deposit accounts from one financial institution to another, primarily through the disclosure of fees, the annual percentage yield, the interest rate, and other account terms. The disclosure of this information is required upon the consumer's request, at account opening, and on periodic statements produced on a quarterly or more frequent basis.

With TISA, those share types that are subject to disclosure requirements must reflect the annual percentage yield earned (APYE) on the periodic statement. The APYE reflects the relationship between the actual dividend or interest earned during the dividend or interest period and the average daily balance for the same period that the account is open. The formula used for calculating the APYE is as follows:

100 [(1 + Dividends Earned/Balance) ^{(365/Days in Period)} -1] = APY EARNED

The annual percentage yield (APY) is an annualized rate that reflects the relationship between the amount of dividends or interest that would be earned by the member for the term of that account and the amount of principal used to calculate those dividends or interest. In determining the total dividend or interest figure to be used in the formula, assume that all principal and dividends or interest remain on deposit for the entire term and that no other transactions, such as deposits and withdrawals, will occur during the term. APY uses an assumed principal balance that is a fixed, constant amount and is used only for initial disclosures.

TISA Disclosure and Reporting Exclusions

You can exclude selected accounts, certain share types, and specific members from TISA disclosure, 1099 INT reporting, and from receiving dividends.

Certain share types such as escrow share types may be excluded from TISA disclosure. Clear the Disclose TISA Information check box on the Share Profiles - Dividends tab to exclude the share type from disclosure. Portico will not print disclosure information about this share type on the member's statement. Selected accounts, such as trust or business accounts, are also exempt from TISA disclosure. Clear the TISA Reporting check box on the Stmts/Reporting/Notices tab to exclude a member from disclosure. Portico will not print disclosure information for any of the member's accounts on the member's statement.

Portico recommends that you consult your league, compliance agency, or attorney to determine which types of accounts are exempt from TISA disclosure.

The Exempt from 1099 Reporting check box on the Stmts/Reporting/Notices tab lets you exempt a member from 1099 INT reporting. The Dividends group box on the Shares - General tab lets you exempt an individual member from ever receiving dividends or from receiving dividends for the current dividend period. The Pay Dividend on Closed Accounts check box indicates if Portico will pay dividends on closed accounts.

When are Dividends Calculated?

Dividends are calculated for the period beginning with the day after the date displayed in the Last Posted field up to and including the date in the Next Post field on the Share Profiles - Dividends tab. When Portico’s processing date equals the date in the Next Post field, Portico calculates dividends for the share type during that night's back-office cycle. After the dividend calculations are performed, the Last Posted and Next Post fields are automatically updated.

Dividends are calculated and posted to the member's account on the date specified in the Dividend Effective Date field on the Credit Union Profile - Credit Union tab. Dividends can be posted effective the last day of the current dividend period (option C) or the first day of the next period (option N). You can specify an effective date in the past on the Share Rate Change window as long as the effective date is not prior to the last dividend date on the Share Profiles - Dividends tab.

You can open a new member or share account with an effective date in the past but not for the prior dividend period. The effective date can be any date in the past if the opening share account does not specify an amount. When you close an account, Portico will not allow an effective date prior to the last transaction date.

If the member's account meets the dividend criteria, Portico will always post dividends regardless of dormancy status or a hold on the member's account. A dividend posting does not update the last financial transaction date on an account.

If the effective date of the ACH and share draft transactions is in a prior dividend period, Portico changes the effective date to the first day of the current period for the purpose of calculating dividends and the APYE. The original effective date will be displayed on the member's statement and online history. ACH and payroll postings with an effective date in the next dividend period are not included in the balance used to calculate dividends for the current dividend period.

Portico does take leap year into consideration when calculating dividends. If you are manually calculating a dividend amount during a leap year, use 365 days for ADB accounts and 366 days for DOD/DOW accounts. For non-leap years, use 365 days for both types of accounts.

Understanding Dividend Rates and Balances

The Current Dividend Rates and Balances grid on the Share Profiles - Dividends tab displays the dividend rate applied through the amount specified in the corresponding balance field. The Dividend Rate 1 field indicates a flat dividend rate, when the Maximum Balance 1 field is zero. Balance amounts are in whole dollars. For example, if the Maximum Balance 1 field is $20,000, then any balance up to $20,000.99 uses the dividend rate in the Dividend Rate 1 field.

Cyclical Dividends

Cyclical Dividends allows you to align your schedule for dividend payments on share accounts (e.g. share, share draft, money market, escrow, holiday and vacation club etc.) with your member’s statement date. The Cyclical Dividends check box on the Share Profiles - Dividends tab determines which DOD/DOW share types will be used for cyclical dividends. When the Cyclical Dividends check box is selected, the system reads the Last Posted Date and the Next Post Date fields on the Shares - General tab. If the Cyclical Dividends check box is not selected, the system reads the Last Posted and the Next Post fields on the Share Profiles - Dividends tab.

The Cyclical Day field on the Stmts/Reporting/Notices tab indicates the day of the month that a member will be paid dividends, charged a fee and have a statement generated. With the cyclical dividends option, statements and dividends are tied together. Cyclical dividends only applies to DOD/DOW share types and does not include IRA accounts, ADB accounts and certificates.

Accruals

Accruals are dividends owed but not paid. Accrual accounting allows you to even out expenses throughout the period to create a more accurate financial picture. There are several methods for accruing dividends. The following example describes procedures involved in the most common method of accrual performed after month-end processing.

1. After January month end, you receive the Accrued Dividends Payable Report 210. The 210 Report provides January's accrued dividends as of January 31, including dividends actually paid at month end and excluding dividends paid during the month. Dividends paid by the Share Rate Change window or maturing certificates will be excluded. The 210 Report contains the total amount to accrue by share type.
2. In February, complete the Basic Journal Voucher window with an effective date of January 31 to post January's accrued dividend amount of $25,000:
   1. Debit Dividends Expense 380000: 25,000.00
   2. Credit Dividends Payable 820000: 25,000.00
3. Complete the Basic Journal Voucher window with an effective date of February 1 to reverse January's accrual amount:
   1. Debit Dividends Payable 820000: 25,000.00
   2. Credit Dividend Expense 380000: 25,000.00
4. Run the Statement of Condition Report 290 and Statement of Income and Expense Report 300 on a credit union-determined date. By this date, you should have made all adjusting entries.
5. After one back-office cycle, the financial reports are available online via the Short Reports - Non-Critical window. The reports display the effects of your entries with a debit in 380000 and a credit in 820000 of $25,000.
6. February month end produces another dividend accrual amount. The 210 Report provides two months of dividends: January and February for $50,000. Complete the Basic Journal Voucher window in March with an effective date of February 28 to post the amount:
   1. Debit Dividend Expense 380000: 50,000.00
   2. Credit Dividends Payable 820000: 50,000.00
7. Complete the Basic Journal Voucher window with an effective date of March 1 to reverse February's accrual amount:
   1. Debit Dividends Payable 820000: 50,000.00
   2. Credit Dividend Expense 380000: 50,000.00
8. On March 31, Portico pays a dividend of $75,000 for the quarter and posts it to 380000. The dividend of $75,000 appears on the 210 Report.

Changing Dividend Methods

You can change the share type's dividend calculation method any time during the current dividend period including the day dividends are paid. However, Portico suggests that you do not change dividend methods on the first processing day of the new dividend period when the prior month end fell on Friday or Saturday and ACH was posted across month end. You should wait until after the credit union closes for business on the first processing day of the new dividend period. For example, month end falls on Saturday, and there will be ACH postings for the first. You should change the calculation method on Monday.

You should not change from DOD/DOW to ADB after you make a rate change using the Share Rate Change window with the Post in Next Back Office Cycle check box selected, because the system cannot average the ADB over the correct amount of days.

Dividends vs. Interest

State-chartered credit unions can elect to pay interest rather than dividends on share accounts. Dividends are not a guaranteed rate and are paid out of available current earnings after a transfer to allow for loan losses. If sufficient funds remain, a dividend can be paid. Interest, on the other hand, is a guaranteed rate on an account. Whether your credit union pays interest or dividends, your disclosure information must reflect the correct term, INTEREST or DIVIDEND.

The Print "Interest" instead of Dividend check box on the Share Profiles - Dividends tab lets you indicate if the share type pays interest or dividends. TISA stipulates that if a credit union pays interest rather than dividends and a periodic statement is produced more frequently than interest is paid for an account, the accrued APYE must print on the member's periodic statement. Because Portico cannot accommodate this TISA stipulation, state-chartered credit unions that choose to pay interest instead of dividends must have crediting and statement periods that are the same, for example monthly. To determine if paying interest is allowed by your state, check with your credit union league.

Note: If the state-chartered credit union pays interest and has EFT or share draft activity, the crediting period must be monthly for all share types paying interest that will be shown on the monthly member's statement.

Dividend Withholding

Portico will assess and report federal dividend withholding amounts as requested by your credit union. Portico will automatically withhold a percentage of the member's dividends at the time dividends are paid, or you can manually withhold the amount when performing an online withdrawal transaction. The Dividend Withholding check box on the Stmts/Reporting/Notices tab indicates if Portico should withhold a percentage of the member's dividends during dividend processing. The withholding amount is based on the default withholding percentage specified on the Credit Union Profile - Credit Union tab, or the override percentage specified on the on the Stmts/Reporting/Notices tab. The system calculates and posts the dividends to the member's share account, and then withdraws the withholding amount. All withholding amounts are credited to general ledger account 844000. The total amount of dividends withheld appears on the Withholding Maintenance dialog box. The Dividend Paid Report 220 lists the members and dividend amounts withheld.