Summary of Statement No. 91

Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases—an amendment of FASB Statements No. 13, 60, and 65 and a rescission of FASB Statement No. 17 (Issued 12/86)

Summary

This Statement establishes the accounting for nonrefundable fees and costs associated with lending, committing to lend, or purchasing a loan or group of loans. This project was undertaken in response to an AICPA Issues Paper that indicated a diversity in practice in the accounting for nonrefundable fees and costs associated with lending activities.

The provisions of this Statement apply to all types of loans (including debt securities) as well as to all types of lenders (including banks, thrift institutions, insurance companies, mortgage bankers, and other financial and nonfinancial institutions). This Statement also specifies the accounting for fees and initial direct costs associated with leasing.

The Statement specifies that:

Loan origination fees shall be recognized over the life of the related loan as an adjustment of yield.

Certain direct loan origination costs shall be recognized over the life of the related loan as a reduction of the loan's yield.

All loan commitment fees shall be deferred except for certain retrospectively determined fees; commitment fees meeting specified criteria shall be recognized over the loan commitment period; all other commitment fees shall be recognized as an adjustment of yield over the related loan's life or, if the commitment expires unexercised, recognized in income upon expiration of the commitment.

Loan fees, certain direct loan origination costs, and purchase premiums and discounts on loans shall be recognized as an adjustment of yield generally by the interest method based on the contractual terms of the loan. However, prepayments may be anticipated in certain specified circumstances.

This Statement changes the practice of recognizing loan origination and commitment fees at or prior to inception of the loan. It rescinds FASB Statement No. 17, Accounting for Leases-Initial Direct Costs, and amends FASB Statements No. 13, Accounting for Leases; No. 60, Accounting and Reporting by Insurance Enterprises; and No. 65, Accounting for Certain Mortgage Banking Activities.

This Statement shall be applied prospectively to all lending and leasing transactions entered into and commitments granted in fiscal years beginning after December 15, 1987 with earlier application encouraged in fiscal years for which annual financial statements have not previously been issued. Retroactive application with restatement of the financial statements for all prior years presented is encouraged but not required.