Pub. 3 2013-2014 Issue 2

16 O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S over 1,100 BOLI cases were sold in 2012 representing approximately $4.4 billion in assets. The 1,100 cases included banks purchasing BOLI for the first time as well as additional purchases by banks that already have BOLI on their balance sheet. • Of this $4.4 billion in assets, approximately $2 billion was attributable to one very large sale. • Excluding this large case sale, the average premium per case was approximately $2 million last year. Based on a review of FDIC data, the Equias Alliance/Michael White Bank-Owned Life Insurance Holdings Report for 2013 shows that: • Of the 7,083 banks and savings associations in the U.S., 3,782 or 53.4 percent report held BOLI assets in 2012. • Banks increased their BOLI holdings (i.e., cash surrender values) from $131.95 billion in 2011 to $137.95 billion last year. • Although the largest portion of BOLI assets was held in variable separate account polices (where the bank assumes the investment risk rather than the insurance company), more banks added hybrid separate account policies (that combines the best features of a general account and variable separate account product) in 2012 (10 percent) than any other policy type. Attractiveness of BOLI Some have asked why BOLI is still such an attractive asset choice for banks. Briefly, the tax-deferred interest generated by a fixed income BOLI policy is typically substantially higher than a bank can earn on other investments with a similar risk profile. The higher earnings from BOLI can be used to: • Help offset the rising cost of employee benefits such as healthcare and retirement programs through use of the tax-deferred income from BOLI assets. For instance, BOLI provides a competitive yield, currently in the range of 3.25 percent to 3.50 percent after all expenses are deducted, which translates into a tax equivalent yield of 5 percent to 5.4 percent. • Increase a bank’s earnings as well as shareholder value. For example, if a bank in the 38 percent tax bracket were to hypothetically invest $5 million in a BOLI fixed income account with a net yield of 3.25 percent, it would generate $162,500 in income. A similar investment of $5 million Minimize your risk with CHFA’s Cash Collateral Support program. Banks that use the CCS program will receive cash deposits as collateral for a business loan when the business cannot meet the collateral requirements. Close the deal with more customers. Contact CHFA Community Development today. look out for your small business clients 800.877. chfa (2432) www.chfainfo.com financing the places where people live and work  BOLI – continued