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Asset Quality

“To achieve the tax benefits of insurance, institutions must hold BOLI policies until the death of the insured. Therefore, carrier selection is one of the most critical decisions in a BOLI purchase and one that can have long-term consequences.”

“…management should have a thorough understanding of how the insurance product works and the variables that dictate the product’s performance. The variables most likely to affect product performance are the policy’s interest-crediting rate, mortality cost, and other expense charges.”

“An institution should analyze the cost and benefits of planned BOLI purchases. The analysis should include the anticipated performance of the BOLI policy and an assessment of how the purchase will accomplish the institution’s objectives. Before purchasing BOLI, an institution should analyze projected policy values (cash surrender value and death benefits)…”

During the asset selection process, EBS works with Bank management and the Bank’s Board of Directors to present information to document that the above asset quality considerations have been reviewed.

* FDIC FIL-127-2004 Dated December 7, 2004