The financial element of the BOLI strategy is truly an asset transaction

EXAMPLE:

Assume a bank has an average Tier 1 capital earnings rate of 5%. If the
bank has a 40% marginal tax rate, this translates to an earnings rate of 3% on an aftertax basis. The bank sells $1,000,000 worth of Treasuries or Agencies and uses the proceeds to pay for a single premium BOLI contract with cash value of $1,000,000 upon issue and $1,050,000 at the end of the first plan year. The bank has earned a 5% annual rate of return on its investment and books a non-taxable gain of $50,000. This compares to a gain of $30,000 that the bank would have recognized had the assets remained in traditional short term investment alternatives. This $20,000 of tax leveraged gain generated by the BOLI strategy can now finance or offset the cost of new or existing executive benefits and/or expenses.

BOLI Impact to the institution:

The core financial justification of a BOLI strategy for funding either existing or future executive benefits is it’s impact as a true repositioning of an underperforming asset:
EXAMPLE:

The following assumptions:

• No matter the rate earned on a bank’s Tier 1 regulatory capital, they will experience a average 2.5% increase in annual earnings.
  
  
• The bank sells or repositions $5,000,000 worth of Treasuries or Agencies and uses the proceeds to pay for a single premium BOLI contracts on their key executives to fund current (fringe) or designed executive benefits.
  
  
• The cash surrender value of the contracts is $5,000,000 upon issue.
  
  
• That will generate, in this example, an additional $125,000 in annual earnings.
  
  
• Assuming an average 15 Price Earnings ration, the BOLI strategy will increase the value of the institution $1,875,000.
  
  
• Assuming that a community bank is valued in today’s market at 22 to 1….that indicates an increase in value equal to $2,750,000.
  

Isn’t that a tremendous direct value to the institution and shareholders alike? How will this strategy effect your institution’s bottom line…..request your free analysis today!!!!!