Comparison of BOLI Accounting with Other Bank Eligible Investments
Most of our clients are very familiar with the accounting treatment of bank eligible investments, and less so with how Bank Owned Life Insurance (“BOLI”) is treated. For an in-depth look at accounting for BOLI, with examples, visit our Accounting for BOLI page. ***Accounting for BOLI***
BOLI Compared with Bank Eligible Securities
From a risk perspective, BOLI carries similar risks and asset characteristics as bank eligible securities. The chart below outlines some of the similarities and differences between BOLI, held to maturity securities, trading securities and available for sale securities.
BOLI Taxation Compared with Other Bank Eligible Investments
The traditional bank investment (with the exception certain municipal bonds and other bank investments) all come with detrimental effects on returns from taxes. Even if the bank has elected S-Corp or “flow-through” status, the owners, at some point, will see their returns diluted by taxes at the state and federal level.
Below is an example page from our BOLI Market reviews that we complete quarterly. It computes a small re-allocation from a bank’s current securities portfolio and compares, with the effects of taxes, where the bank would be with BOLI. As always, if you would like to request a complimentary BOLI Market Review for you bank, complete the form above.
NEXT STEP: Call Report Treatment of BOLI
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