Pub. 3 2013-2014 Issue 3

14 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 bank as a hedge against the obligation the bank has to the beneficiaries. The benefits are paid directly from the general assets of the bank. How Banks Use BOLI to Offset the Benefit Expense The cost of each of the above plans varies by type and design. BOLI is a tax-advantaged asset whereby every $1 of premium equates to $1 of cash value on the bank’s balance sheet. Basically, BOLI is an investment asset that generates a return currently in the range of 3.00 percent to 3.50 percent after all expenses are deducted, which translates into a tax equivalent yield of 4.84 percent to 5.65 percent (assuming a 38 percent tax bracket). From an income statement standpoint, the cash surrender value (CSV) is expected to grow every month. Increases in the CSV are booked as non-interest income on a tax preferred basis. From a cash flow perspective, BOLI is a long-term accrual as- set that will return cash flow to the bank upon the death of the respective insured(s). As an example, let’s assume a 50-year-old executive will be provided a $100,000 per year nonqualified benefit payment Customized for your bank… Outsource your SBA and business lending department to us and we’ll run it – saving your bank time, resources, and overhead. Or take advantage of our customized services including: • SBA/Commercial Lending Underwriting • SBA Loan Processing/Packaging & 1502 Reporting • SBA Portfolio Reviews • SBA Guaranty Purchases & Workouts • SBA Loan Marketing • Comprehensive Bankwide SBA Sales Training We’ll put our 200 years of combined commercial lending experience to work for you. Contact JRB! We have helped more than 200 banks establish and maintain profitable SBA & Business Lending Programs! CBA MEMBERS…LOOKING TO EXPAND YOUR BUSINESS LENDING PROGRAM? S B A L E ND I NG S P E C I A L I S T Consultants to the Business Lending Community Serving CBA Members:Vern Hansen 720.663.8431 Colorado 626.688.2125 West Coast vern@jrbrunoassoc.com for 15 years at age 65. The annual pre-retirement after-tax cost averages $47,000 per year. The bank could invest $2million into BOLI to fully offset the annual after tax benefit cost. Summary While bank challenges still remain, providing a balanced and affordable compensation plan that includes nonqualified benefit plans can helpmake a difference for growing shareholder value. Equias Alliance offers securities through ProEquities, Inc. member FINRA & SIPC. Equias Alliance is independent of ProEquities, Inc. n David Shoemaker, CPA/PFS, CFP®, is a principal of Equias Alliance, which through consultants has assisted over 800 banks in the design of nonqualified benefit plans, performance based compensation and (BOLI). To learn more, contact David Shoemaker at 901-754-4924 or dshoemaker@equiasalliance.com. Ken Derks is a principal of Equias Alliance, which through consultants has assisted over 800 banks in the design of nonqualified benefit plans, performance based compen - sation and (BOLI). To learn more, contact Ken Derks at 469-252-1037 or kderks@equiasalliance.com.  COMPENSATION PLAN – continued