Non-Accrual Processing & Sold Loan Elimination

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Non-Accrual Processing

 

The IRR-Solutions® II software provides the institution with modeling options for their non-accrual loans.  The institution has the ability through a parameter setting in the Param. Setup module, Common/Bank Info tab to project potential recoveries of income for their non-accrual loans.  This will allow the institution to model the extremes of the impact of non-accrual loans to their bottom line.

 

Options available to model the non-accrual loans are:

 

Principal Pay Down - This option is the system default and will runoff the balance of the loan given the loan's original maturity and parameters, but no income will be produced.  This option assumes the loan will runoff and be replaced with new volume/rate at maturity.

 

No Principal Pay Down - This option will retain the current balance of the loan beyond the 24 month projection periods (as if the loan is still on the books).  It will not runoff, and it will not produce income, and treats the loan as if it is a dead asset.

 

As Active - This option treats the loan as if it were an active loan, with runoff and earnings projected.  Comparing the results from this option to the results from No Principal Pay Down, allows analysis of the potential lost income on these loans.

 

Selecting Non-Accrual Options and the Results

 

 

 

Matured

Non-Matured
SinglePmt

Non-Matured
Prin/Int

Non-Matured
Prin Only

ADV INCOME

Prin Pay Down

AVG BAL = 0
EARNINGS = 0

AVG BAL = Cur Bal to maturity
EARNINGS = 0

AVG BAL= Prin paydown to maturity
EARNINGS = 0

AVG BAL= Prin paydown to maturity
EARNINGS = 0

ADV INCOME
No Prin Pay Down

AVG BAL = Cur Balance beyond projection
EARNINGS = 0

AVG BAL =  Cur Balance beyond projection
EARNINGS = 0

AVG BAL = Cur Balance beyond projection
EARNINGS =0

AVG BAL = Cur Balance beyond projection EARNINGS =0

ADV INCOME
As Active

AVG BAL = 0
EARNINGS = 0

AVG BAL = CurBal to maturity
EARNING >0

AVG BAL= Prin paydown to maturity
EARNINGS > 0

AVG BAL= Prin paydown to maturity
EARNINGS = 0 until maturity

BUDGETING

Prin Pay Down

AVG BAL = 0
EARNINGS = 0

AVG BAL = Cur Bal to maturity
EARNINGS = 0

AVG BAL= Prin paydown to maturity
EARNINGS = 0

AVG BAL= Prin paydown to maturity
EARNINGS = 0

BUDGETING
No Prin Pay Down

AVG BAL = Cur Balance beyond projection
EARNINGS = 0

AVG BAL =  Cur Balance beyond projection
EARNINGS = 0

AVG BAL = Cur Balance beyond projection
EARNINGS =0

AVG BAL = Cur Balance beyond projection EARNINGS =0

BUDGETING
As Active

AVG BAL = 0
EARNINGS = 0

AVG BAL = CurBal to maturity
EARNING >0

AVG BAL= Prin paydown to maturity
EARNINGS > 0

AVG BAL= Prin paydown to maturity
EARNINGS = 0 until maturity

EVE

Prin Pay Down

CASH FLOW:  Principal at Capture date

Rate = 0

PV one day

CASH FLOW

Principal at Maturity

Rate = 0

PV – Prin pv at maturity

CASH FLOW

PV of principal payment each month with balance at maturity

 

EVE
No Prin Pay Down

CASHFLOW:  Principal at Capture Date

Rate =0

PV one day

CASHFLOW:  Principal at Capture Date

Rate =0

PV one day

CASHFLOW:  Principal at Capture Date

Rate =0

PV one day

 

EVE
As Active

CASH FLOW:  Principal at Capture Date

Rate = Item Rate

PV one day +int

CASH FLOW= Principal at Maturity

Rate = Item Rate

PV = interest each period, prin pv at maturity

CASH FLOW= Principal and interest paid monthly (payment amount)

Rate = Item Rate

PV = prin & interest

 

 

Additional Information on Non-Accrual Processing

1.The system will not apply prepayment assumptions to the specific non-accrual loans under any option.
2.If the non-accrual loan has a maturity date that is prior to the processing date, no earnings will be projected, even with the As Active option.
3.Advanced Income Shock, Budgeting, and Advanced EVE modules all use the selected option.
4.With No Principal Pay Down, Advanced Income Shock and Budgeting set the maturity date beyond the 24 month projection periods; for Advanced EVE, the maturity date is set to the processing date and principal pays on the maturity date.
5.Individual loan results can be viewed with the View/Detail feature in the Process/Review tab.
6.No Principal Pay Down treats items as dead assets--any recovery needs to be projected in G/L only accounts set up for recoveries.

 

Sold Loan Elimination

 

The IRR-Solutions® II software provides a parameter setting to eliminate sold loans from the processed data.  Please contact FinSer Support if you would like to have this option setup for your institution.