Why would a community bank implement BOLI?

The BOLI strategy and product are designed specifically for the banking industry. It is a high-yield, low risk investment and it is approved by the regulators.

While the regulatory intent is to provide informal funding for executive expenses and
benefits, it’s impact provides a greater return on the bank’s Tier I regulatory capital.

The benefit of BOLI to the underlying value of the bank is simple; it generates an
increase of 150 to 200 basis points in after-tax investment yield, depending on the bank’s tax rate.

The BOLI investment strategy provides a competitive return on earnings and return on assets (net investment returns range today from 3.0% to 5.20%), thus improving the earnings per share for the bank.

While the increased yield is a contributing decision factor, a pure investment cannot be the sole purpose of any bank transaction. The regulators (OCC, FDIC & OTS) mandate that the purpose of the life insurance purchase be incidental to the business of banking. As with any corporation, the utilization of life insurance as an informal funding vehicle to offset existing “fringe benefits” or additional benefit accruals and liabilities is not only permissible, but encouraged.

Banks can use BOLI to offset current &/or future benefit liability expenses in accordance with OCC 2000-23 or OTS RB 32-26.

As of the end of 2003, approximately 40% of the public and private registered financial institutions with assets between $100 million and $1 billion have reported purchases of BOLI, according to reports filed with the FDIC.

The transaction will enhance the bank’s financial performance and strength.