Setting Up Fee Amortization
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The New Loan - Fee Amortization Setup tab lets you enter information for FASB 91 processing. The Financial Accounting Standards Board (FASB) Statement 91 specifies that non-refundable fees charged for originating loans should be amortized over the life of the loan.
To access the New Loan - Fee Amortization Setup tab, select the Fee Amortization check box on the New Loan – Additional Information tab.
How do I? and Field Help
To set up FASB 91 information for a loan, complete the following information:
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In the Method group box, indicate which amortization formula to use to take the fees into earnings. The valid options are: I - Interest method S - Straight line method C - Cancelled - Income must be taken manually Blank - FASB 91 earnings are no longer taken For the income amount to be taken manually, the Method must be Cancelled and the required general ledger entries made to move the unamortized fees into the income general ledger account. The month-end FASB 91 calculations will bypass this loan and the loan will appear on the 649 Report. The Amortization Method field must be changed to blank to remove the loan from the 649 Report. The Amortization Method field can only be changed to No Longer Applicable when the amortization method is Cancelled. All other fields will be set to zero at the time the Method is changed to No Longer Applicable. Keyword: MT |
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The original amount of fees which will be amortized over the term of the loan. This is the net difference between the fees collected and the direct costs of originating the loan. This amount may be negative if costs are greater than fees. It cannot equal zero. This field is maintained by the credit union and will not be updated by the system. Keyword: OF Length: 9 numeric including decimal |
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The number of months that will be used to amortize the loan origination fees. Keyword: OM Length: 3 numeric |
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The amount of principal and interest applied against the Projected Balance field each month. This is used for the interest method only. Keyword: OP Length: 8 numeric including decimal |
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The original interest rate of the loan. The interest rate must be greater than zero but less than 36.500. Keyword: OR Length: 6 numeric including decimal |
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The amount of fees to be amortized over the remaining term of the loan. This amount will be automatically reduced by the system for the amount of fees amortized each month. The valid value must be greater than 10,000,000.00- and less than 10,000,000.00. Keyword: UF Length: 9 numeric including decimal |
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The number of months remaining to amortize the fees for this loan. This field is reduced by one on a monthly basis during the amortization process. The value can be equal to or less than the Number of Months field. When the Remaining Months field is 1, all unamortized fees transfer into the income general ledger account. F appears on the 649 Report when the final fee is assessed. Keyword: RM Length: 3 numeric |
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The projected balance of the loan provided the loan payments are made on schedule. The system updates this field monthly with the following calculation: Projected Balance = Previous Projected Balance - Original Payment Amount + Projected Interest This is used for the interest method only. Keyword: PB Length: 12 numeric including decimal |
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The credit union-calculated effective rate used by the amortization process to determine the amount to amortize. This field is required for the interest method of amortization. If the Fee Amount field contains a positive amount, the effective rate must be greater than the original interest rate. If the Fee Amount field contains a negative amount, the effective rate must be less than the original interest rate. The effective interest rate is calculated automatically and makes the assumption that the data being provided is for a monthly loan payment starting 30 days from the effective date. Using the following parameters the effective rate can be duplicated using a business calculator. Present Value (PV) = Projected Balance - Fee Amount Number of Payments (N) = Number of Months Payment Amount (PMT) = Payment Amount If there is a residual amount (balloon payment) on the Residual Payment Information dialog box then, Future Value (FV) = Final Payment Amount Compute (CPT) %i * 12 = Effective Rate Keyword: ER Length: 6 numeric including decimal |
Click Next to continue setting up the loan. Click Cancel to stop setting up the loan.
Amortization for FASB 91 fees occurs during the month end back-office cycle. After the monthly fee amounts for all loans have been calculated, one entry is made to debit the unamortized fee general ledger account and credit the FASB 91 fee income general ledger account.
The following descriptions of the straight line method and the interest method explain the formulas the system uses to perform the month-end amortization process.
Straight-line Method:
Amortized Fee = Original Fee Amount/Original Number of Months
Unamortized Fee = Previous Unamortized Fee – Amortized Fee
Remaining Months = Current Remaining Months – 1
The system takes the earnings each month. When the number of remaining months is one, the system credits the entire balance in the Unamortized Fee field as income to the fee income general ledger account.
Interest Method:
Projected Interest = Projected Balance x Original Rate x Number of Days/365 or 360
Effective Interest = (Projected Balance – Unamortized Fee) x Effective Rate x Number of Days/365 or 360
Amortized Fees = Effective Rate – Projected Interest
Unamortized Fees = Previous Unamortized Fee – Amortized Fee
Projected Balance = Previous Projected Balance – Original Payment Amount + Projected Interest
Remaining Months = Current Remaining Months – 1
On monthly interest loans, the system uses 30 for the number of days in the month and 360 for the number of days in a year. Otherwise, the system uses the actual number of days in the month and 365 for the number of days in the year. Monthly interest loans are loan types with the 360-Day Interest Calculation check box selected on the Loan Profiles - Rate Information tab.
Month-end calculation for the interest method includes an amortization of the loan based upon the original information on the Loans – Amortization tab. The system assumes that payments on the loan are made on a monthly basis and uses the original rate, original balance, original number of months, and the original monthly payment amount in the amortization calculation process.
The system takes the earnings each month. When the number of remaining months is one, the system credits the entire balance in the Unamortized Fee field as income to the income general ledger account.
Note: No loan fee amortization occurs if the original fee amount is positive and the projected interest is greater than the effective interest. This situation indicates an error in the original information. The code N in the EXCP CODE column on the 649 Report identifies any loans not included in the amortization calculation.
For zero balance closed-end loans, Portico will credit the balance in the Unamortized Fee field to the income general ledger account. Earnings on zero balance open-end loans will be taken on schedule regardless of the balance. If earnings need to be accelerated for these loans, change the Amortization Method field to Cancelled - Income must be taken manually and take the income manually.
The FASB 91 check box must be selected on the Credit Union Profile - Loans tab.
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- Non-Financial Transaction Register Report 030 (if maintained)
- Loan Fee Amortization Report 649: The 649 Report shows the amount amortized for each individual loan. FASB 91 fee amortization requires 649 Report Rules. The 649 Report Rules also identify the default general ledger accounts used for unamortized fees and fee income.
To reverse the transaction on the same day, perform the Reversals - Same Day Reversals tab. For a prior-day correction, perform the Reversals - Prior Day Loan Reversal tab or update the Loans – Amortization tab.
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