Note 9—Bank Owned Life Insurance
At December 31, 2013 and 2012 the Company had $21.2 million and $20.6 million, respectively of Bank-Owned Life Insurance (“BOLI”). The Company recorded non-interest income associated with the BOLI policies of $617,000, $267,000, and $105,000, for the years ending December 31, 2013, 2012 and 2011, respectively. The increase in the Company’s balance in 2013 by $617,000 to $21.2 million was from the increase in the cash surrender value of the policies during 2013. The increase in the Company’s balance in 2012 of $17.9 million was the result of $14.0 million in new BOLI insurance premiums paid on new policies, $3.7 million acquired from the acquisition of PC Bancorp, and $267,000 from the increase in the cash surrender value of the policies during 2012.
BOLI involves the purchasing of life insurance by the Company on a selected group of employees where the Company is the owner and beneficiary of the policies. BOLI is recorded as an asset at its cash surrender value. Increases in the cash surrender value of these policies, as well as a portion of the insurance proceeds received, are recorded in noninterest income and are not subject to income tax, as long as they are held for the life of the covered parties. At December 31, 2013 the $21.2 million was allocated between five individual insurance companies, with balances ranging from approximately 40.3% to 1.5% of the Company’s outstanding BOLI balances. On an annual basis, the Company reviews the financial stability and ratings of all the individual insurance companies to ensure they are adequately capitalized, and that there is minimal risk to the BOLI assets.