User Guide: Additional Features > Charge Off / Non-Accrual
NLS Interface
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Charge-Off / Non-Accrual

Available in NLS 5.0.1 and later.

When a loan ages and it is apparent that the loan will be uncollectible it is common to stop the loan from accruing income by putting it in a non-accrual state. Then if it is determined that the loan is uncollectible, the loan asset is charged off. Typically a bank will set their loans to a non-accrual state after 60 to 90 days past due and will charge-off the loan when it goes beyond 90 days past due.

When a loan is put in a non-accrual state, any income accrued will be held in separate GL accounts as designated in general ledger controls. This also includes late fees and other fees no longer being recognized as earned income and may no longer accrue income on amortized fees.

When a loan is charged off the accruals are removed from the general ledger that are associated with this particular loan and the principal balance is either removed from the asset account using a write-off account or a loan loss reserve account.

Setting Up NLS

Transaction Codes

General ledger controls for Non Accrual, Entering Charge-Off, and Charge-Off are located at the bottom of the General Ledger Controls tab in Transaction Codes setup.

For receivables (e.g. Late Fee):

Code Transaction Code Debit Credit Description
### Non-accrual None None Used when the loan is in a non-accrual status.
### Entering Charge-off Loan Loss Reserve Accrued Late Fees Only active when transaction code is defined as a receivable. Used initially when a loan changes to a charge-off state.
### Charge-off None None Used when the loan is in a charged-off (written-off) status. A charge-off cannot be backdated past the date of the status change.

Note

Entering Charge-off and Charge-off are mutually exclusive so if one is active, the other will be inactive.

For payments (e.g. Late Fee Payment)

Code Transaction Code Debit Credit Description
### Non-accrual Cash Income Account Used when the loan is in a non-accrual state.
### Charge-off Cash Loan Loss Recovery Used when the loan is in a charged-off (written-off) state. A charge-off cannot be backdated past the date of the status change.

Note

Entering Charge-off is disabled as it is used for a receivable type transaction code.

Transaction code 490 – Total Charge Off Balance: This is included to be used solely for Metro 2 file. Does not affect any balances or general ledger accounts.

Loan Group

GL Placeholders for non-accrual

Non Accrual Interest If not being used, set to NONE. Debit this account to track accrued interest.
Non Accrual Interest Income If Non Accrual Interest is not used, set to NONE. Credit this account to track accrued interest.
Non Accrual Late Fee  
Non Accrual Late Fee Income  
Non Accrual Fee  
Non Accrual Fee Income  

NLS 5.9 and later

See the section on Loan Group setup for the option of unwinding accrued interest for non-accrual.

GL Placeholders for charge-off

Charge-Off Loan Loss For loan loss account.
Charge-Off Loan Loss Recovery For loan loss recovery account.
Charge-Off Principal  
Charge-Off Interest  
Charge-Off Def Interest For deferred interest.
Charge-Off Late Fee  
Charge-Off Other Fee  
Charge Off UDB1 – Charge Off UDB10  
Status Codes

There are two predefined status codes used for placing loans in a non-accrual and charge-off states; GL NON ACCRUAL and GL CHARGE OFF. These status codes cannot be deleted but can be disabled by turning off its active status.

GL Non Accrual Set when the loan is to be in a non-accrual state.
GL Charge Off Set when the loan is in a charge-off state.

Status codes will be listed at the top of the list if the Hide on Loan Screen option is not selected.

Loan View

To change a loan’s status, query the loan and select Actions > Modify Loan Status, select a new status for the loan and click OK.

When viewing a loan in a non-accrual status, moving the cursor over the Interest, Fees, and Late Charges fields on the Main tab will display a tooltipA small box that appears next to the cursor displaying additional information about the item the cursor is hovering over. showing the field’s balance breakdown.

NLS 5.4.3 and later

Backdating a charged off loan

When a charged off loan is backdated, the effective date of the 490 transaction code created will inherit the effective date of the charge off status code. All transactions from the effective date will be unwound and re-applied. Any cash recovery transactions that are re-applied will add the 490 transaction code in the negative amount of the cash payment.

Examples

The following examples show how GL accounts are affected as a loan enters and exits non-accrual and charge-off states.

Enter non-accrual – receive cash – exit non-accrual
  1. Originate a loan of 1,000.00
  2. Accrue interest daily - 5.00
  3. Accrue interest daily - 5.00
  4. Loan enters non-accrual state
  5. Accrue interest daily - 5.00
  6. Accrue interest daily - 5.00
  7. Cash payment of 10.00 (payment is applied to the interest that was accrued prior to the loan changing to a non-acrrual state).
  8. Cash payment of 8.00
  9. Loan is changed from non-accrual state to accrual. Remaining 2.00 from non-accrual interest is moved to accrued interest.

Line numbers above correspond to row numbers below

Cash Account
1   1,000.00Originate a loan of 1,000.00
2    
3    
4    
5    
6    
7 10.00Cash payment of 10.00 (payment is applied to the interest that was accrued prior to the loan changing to a non-acrrual state)  
8 8.00Cash payment of 8.00  
9    
  18.00 1,000.00
- - 982.00
Loan Asset
1 1,000.00Originate a loan of 1,000.00  
2    
3    
4    
5    
6    
7    
8    
9    
  1,000.00  
  1,000.00  
Accrued Interest
1    
2 5.00Accrue interest daily  
3 5.00Accrue interest daily  
4    
5    
6    
7   10.00Cash payment of 10.00 (payment is applied to the interest that was accrued prior to the loan changing to a non-acrrual state)
8    
9 2.00Loan is changed from non-accrual state to accrual. Remaining 2.00 from non-accrual interest is moved to accrued interest.  
  12.00 10.00
  2.00  
Interest Income
1    
2   5.00Accrue interest daily
3   5.00Accrue interest daily
4    
5    
6    
7    
8   8.00Cash payment of 8.00
9   2.00Loan is changed from non-accrual state to accrual. Remaining 2.00 from non-accrual interest is moved to accrued interest.
    20.00
    20.00
Non Accrual Interest
1    
2    
3    
4    
5 5.00Accrue interest daily  
6 5.00Accrue interest daily  
7    
8   8.00Cash payment of 8.00
9   2.00Loan is changed from non-accrual state to accrual. Remaining 2.00 from non-accrual interest is moved to accrued interest.
  10.00 10.00
     
Non Accrual Interest Income
1    
2    
3    
4    
5   5.00Accrue interest daily
6   5.00Accrue interest daily
7    
8 8.00Cash payment of 8.00  
9 2.00Loan is changed from non-accrual state to accrual. Remaining 2.00 from non-accrual interest is moved to accrued interest.  
  10.00 10.00
     

Enter non-accrual for fees and exit non-accrual
  1. Originate a loan of 1,000.00
  2. Assess 10.00 late fee
  3. Loan enters non-accrual state
  4. Assess 8.00 late fee
  5. Payment of 10.00 for late fee
  6. Payment of 5.00 for late fee
  7. Loan is changed from non-accrual state to accrual

Line numbers above correspond to row numbers below

Cash Account
1   1,000.00Originate a loan of 1,000.00
2    
3    
4    
5 10.00Payment of 10.00 for late fee  
6 5.00Payment of 5.00 for late fee  
7    
  15.00 1,000.00
-   985.00
Loan Asset
1 1,000.00Originate a loan of 1,000.00  
2    
3    
4    
5    
6    
7    
  1,000.00  
  1,000.00  
Accrued Late Fee
1    
2 10.00Assess 10.00 late fee  
3    
4    
5   10.00Payment of 10.00 for late fee
6    
7 3.00Loan is changed from non-accrual state to accrual  
  13.00 10.00
  3.00  
Late Fee Income
1    
2   10.00Assess 10.00 late fee
3    
4    
5    
6   5.00Payment of 5.00 for late fee
7   3.00Loan is changed from non-accrual state to accrual
    18.00
     
Non Accrual Late Fees
1    
2    
3    
4 8.00Assess 8.00 late fee  
5    
6   5.00Payment of 5.00 for late fee
7   3.00Loan is changed from non-accrual state to accrual
  8.00 8.00
     
Non Accrual Late Fees Income
1    
2    
3    
4   8.00Assess 8.00 late fee
5    
6 5.00Payment of 5.00 for late fee  
7 3.00Loan is changed from non-accrual state to accrual  
  8.00 8.00
     

Charge-off loan (without going through non-accrual state)
  1. Originate a loan of 1,000.00
  2. Accrue interest daily - 5.00
  3. Accrue interest daily - 5.00
  4. Accrue late fee 10.00
  5. Write off 1,000.00 principal
  6. Write off 10.00 interest
  7. Write off 10.00 late fee
  8. Receive a payment for 50.00 (46.00 principal and 4.00 interest)

Line numbers above correspond to row numbers below

Cash Account
1   1,000.00Originate a loan of 1,000.00
2    
3    
4    
5    
6    
7    
8 50.00Receive a payment for 50.00 (46.00 principal and 4.00 interest)  
  50.00 1,000.00
- - 950.00
Loan Asset
1 1,000.00Originate a loan of 1,000.00  
2    
3    
4    
5   1,000.00Write off 1,000.00 principal
6    
7    
8    
  1,000.00 1,000.00
     
Accrued Interest
1    
2 5.00Accrue interest daily - 5.00  
3 5.00Accrue interest daily - 5.00  
4    
5    
6   10.00Write off 10.00 interest
7    
8    
  10.00 10.00
     
Accrued Late Fees
1    
2    
3    
4 10.00Accrue late fee 10.00  
5    
6    
7   10.00Write off 10.00 late fee
8    
  10.00 10.00
     
Interest Income
1    
2   5.00Accrue interest daily - 5.00
3   5.00Accrue interest daily - 5.00
4    
5    
6    
7    
8    
    10.00
    10.00
Late Fee Income
1    
2    
3    
4   10.00Accrue late fee 10.00
5    
6    
7    
8    
    10.00
     
 
 
Principal Charge Off
1    
2    
3    
4    
5 1,000.00Write off 1,000.00 principal  
6    
7    
8    
  1,000.00  
     
Interest Charge Off
1    
2    
3    
4    
5    
6 10.00Write off 10.00 interest  
7    
8    
  10.00  
     
Late Fee Charge Off
1    
2    
3    
4    
5    
6    
7 10.00Write off 10.00 late fee  
8    
  10.00  
     
Loan Loss Recovery
1    
2    
3    
4    
5    
6    
7    
8   50.00Receive a payment for 50.00 (46.00 principal and 4.00 interest)
    50.00
    50.00

Charge off loan from non-accrual state
  1. Originate a loan of 1,000.00
  2. Accrue interest daily - 5.00
  3. Accrue interest daily - 5.00
  4. Loan enters non-accrual state
  5. Accrue interest daily - 5.00
  6. Accrue interest daily - 5.00
  7. Change status to charge-off – write off 1,000.00 principal
  8. Charge off 10.00 accrued interest
  9. Unwind non-accrual interest
  10. Receive a 50.00 payment (46.00 principal and 4.00 interest)

Line numbers above correspond to row numbers below

Cash Account
1   1,000.00Originate a loan of 1,000.00
2    
3    
4    
5    
6    
7    
8    
9    
10 50.00Receive a 50.00 payment (46.00 principal and 4.00 interest)  
  50.00 1,000.00
- - 950.00
Loan Asset
1 1,000.00Originate a loan of 1,000.00  
2    
3    
4    
5    
6    
7   1,000.00Change status to charge-off – write off 1,000.00 principal
8    
9    
10    
  1,000.00 1,000.00
     
Accrued Interest
1    
2 5.00Accrue interest daily - 5.00  
3 5.00Accrue interest daily - 5.00  
4    
5    
6    
7    
8   10.00Charge off 10.00 accrued interest
9    
10    
  10.00 10.00
     
Interest income
1    
2   5.00Accrue interest daily - 5.00
3   5.00Accrue interest daily - 5.00
4    
5    
6    
7    
8    
9    
10    
    10.00
    10.00
Non Accrual Interest
1    
2    
3    
4    
5 5.00Accrue interest daily - 5.00  
6 5.00Accrue interest daily - 5.00  
7    
8    
9   10.00Unwind non-accrual interest
10    
  10.00 10.00
     
Non Accrual Interest Income
1    
2    
3    
4    
5   5.00Accrue interest daily - 5.00
6   5.00Accrue interest daily - 5.00
7    
8    
9 10.00Unwind non-accrual interest  
10    
  10.00 10.00
     
 
 
Principal Charge Off
1    
2    
3    
4    
5    
6    
7 1,000.00Change status to charge-off – write off 1,000.00 principal  
8    
9    
10    
  1,000.00  
  1,000.00  
Interest Charge Off
1    
2    
3    
4    
5    
6    
7    
8 10.00Charge off 10.00 accrued interest  
9    
10    
  10.00  
  10.00  
Loan Loss Recovery
1    
2    
3    
4    
5    
6    
7    
8    
9    
10   50.00Receive a 50.00 payment (46.00 principal and 4.00 interest)
    50.00
    50.00

Reverse charge-off back to non-accrual
  1. Originate a loan of 1,000.00
  2. Accrue interest daily - 10.00
  3. Loan enters non-accrual state
  4. Accrue interest daily - 10.00
  5. Change to charge-off state – write off 1,000.00 principal
  6. Charge off 10.00 accrued interest and non-accrual accounts
  7. Receive a 50.00 payment (46.00 principal and 4.00 interest)
  8. Change loan from charge-off state to non-accrual state – unwind principal of 1,000.00 less 46.00 received payment
  9. Unwind the charge-off interest of 10.00 less 4.00 received payment
  10. Place 10.00 of non-accrual interest to interest income

Line numbers above correspond to row numbers below

Cash Account
1   1,000.00Originate a loan of 1,000.00
2    
3    
4    
5    
6    
7 50.00Receive a 50.00 payment (46.00 principal and 4.00 interest)  
8    
9    
10    
  50.00 1,000.00
- - 950.00
Loan Asset
1 1,000.00Originate a loan of 1,000.00  
2    
3    
4    
5   1,000.00Change to charge-off state – write off 1,000.00 principal
6    
7    
8 954.00Change loan from charge-off state to non-accrual state – unwind principal of 1,000.00 less 46.00 received payment  
9    
10    
  1,954.00 1,000.00
  954.00  
Accrued Interest
1    
2 10.00Accrue interest daily - 10.00  
3    
4    
5    
6   10.00Charge off 10.00 accrued interest and non-accrual accounts
7    
8    
9 6.00Unwind the charge-off interest of 10.00 less 4.00 received payment  
10    
  16.00 10.00
  6.00  
Interest income
1    
2   10.00Accrue interest daily - 10.00
3    
4    
5    
6    
7    
8    
9    
10    
    10.00
    10.00
Non Accrual Interest
1    
2    
3    
4 10.00Accrue interest daily - 10.00  
5    
6   10.00Charge off 10.00 accrued interest and non-accrual accounts
7    
8    
9    
10 10.00Place 10.00 of non-accrual interest to interest income  
  20.00 10.00
  10.00  
Non Accrual Interest Income
1    
2    
3    
4   10.00Accrue interest daily - 10.00
5    
6 10.00Charge off 10.00 accrued interest and non-accrual accounts  
7    
8    
9    
10   10.00Place 10.00 of non-accrual interest to interest income
  10.00 20.00
    10.00
 
 
Principal Charge Off
1    
2    
3    
4    
5 1,000.00Change to charge-off state – write off 1,000.00 principal  
6    
7    
8   954.00Change loan from charge-off state to non-accrual state – unwind principal of 1,000.00 less 46.00 received payment
9    
10    
  1,000.00 954.00
  46.00  
Interest Charge Off
1    
2    
3    
4    
5    
6 10.00Charge off 10.00 accrued interest and non-accrual accounts  
7    
8    
9   6.00Unwind the charge-off interest of 10.00 less 4.00 received payment
10    
  10.00 6.00
  4.00  
Loan Loss Recovery
1    
2    
3    
4    
5    
6    
7   50.00Receive a 50.00 payment (46.00 principal and 4.00 interest)
8    
9    
10    
    50.00
    50.00

Reverse charge-off back to normal loan
  1. Originate a loan of 1,000.00
  2. Accrue interest daily - 10.00
  3. Accrue late fee - 10.00
  4. Write off 1,000.00 principal
  5. Write off 10.00 interest
  6. Write off 10.00 late fee
  7. Receive payment for 50.00 (46.00 principal and 4.00 interest)
  8. Change loan status from charge-off to normal loan - unwind principal of 1,000.00 less 46.00 received payment
  9. Unwind charge off of interest of 10.00 less 4.00 received payment
  10. Unwind late fee of 10.00

Line numbers above correspond to row numbers below

Cash Account
1   1,000.00Originate a loan of 1,000.00
2    
3    
4    
5    
6    
7 50.00Receive payment for 50.00 (46.00 principal and 4.00 interest)  
8    
9    
10    
  50.00 1,000.00
- - 950.00
Loan Asset
1 1,000.00Originate a loan of 1,000.00  
2    
3    
4   1,000.00Write off 1,000.00 principal
5    
6    
7    
8 954.00Change loan status from charge-off to normal loan - unwind principal of 1,000.00 less 46.00 received payment  
9    
10    
  1,954.00 1,000.00
  954.00  
Accrued Interest
1    
2 10.00Accrue interest daily - 10.00  
3    
4    
5   10.00Write off 10.00 interest
6    
7    
8    
9 6.00Unwind charge off of interest of 10.00 less 4.00 received payment  
10    
  16.00 10.00
  6.00  
Accrued Late Fees
1    
2    
3 10.00Accrue late fee - 10.00  
4    
5    
6   10.00Write off 10.00 late fee
7    
8    
9    
10 10.00Unwind late fee of 10.00  
  20.00 10.00
  10.00  
Interest Income
1    
2   10.00Accrue interest daily - 10.00
3    
4    
5    
6    
7    
8    
9    
10    
    10.00
    10.00
Late Fee Income
1    
2    
3   10.00Accrue late fee - 10.00
4    
5    
6    
7    
8    
9    
10    
    10.00
    10.00
 
 
Principal Charge Off
1    
2    
3    
4 1,000.00Write off 1,000.00 principal  
5    
6    
7    
8   954.00Change loan status from charge-off to normal loan - unwind principal of 1,000.00 less 46.00 received payment
9    
10    
  1,000.00 954.00
  46.00  
Interest Charge Off
1    
2    
3    
4    
5 10.00Write off 10.00 interest  
6    
7    
8    
9   6.00Unwind charge off of interest of 10.00 less 4.00 received payment
10    
  10.00 6.00
  4.00  
Late Fee Charge Off
1    
2    
3    
4    
5    
6 10.00Write off 10.00 late fee  
7    
8    
9    
10   10.00Unwind late fee of 10.00
  10.00 10.00
     
Loan Loss Recovery
1    
2    
3    
4    
5    
6    
7   50.00Receive payment for 50.00 (46.00 principal and 4.00 interest)
8    
9    
10    
    50.00
    50.00


Updated: 2018.09.11


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