Pub. 5 2015-2016 Issue 6

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 May • June 2016 19 talent, while other bankers believe they are now in a position to invest in additional key talent to grow their organization. For banks that have implemented various types of compensa- tion plans, it may mean including an additional key officer in these plans. Attractive executive compensation plans include market-based salary, annual bonus based on performance, stock options or restricted stock (where applicable), reason- able contributions to a 401(k) or other qualified retirement plan, medical care and other standard benefits, change- in-control agreement and a custom-tailored nonqualified retirement plan. Another important trend is the disruption created in many markets by mergers. The purchasing bank wants to retain the top lenders and others revenue generators, but the change in ownership can cause those individuals to consider other options. Competing banks that have developed a game plan for such situations will be positioned to hire some of these talented individuals. A nonqualified plan (customized for each executive) can play a vital role in attracting and retaining these individuals. Another trend that has been taking place is an increase in the number of community banks that previously only offered salary and annual bonus plans, but are now providing more comprehensive compensation packages for key executives. This is a result of increased competition for executives as well as improved earnings. Nonqualified plans need to be tailored to meet the needs of the individual. For example, a younger officer in his or her 30s may not see the value of a retirement benefit targeted at age 67, but would see value in a plan that allows for earlier cash distributions to pay for a child’s college education or that allows for early retirement at age 55. Many organizations use a combination of plans and approaches to attract and retain their key people. Here are some examples of situations and challenges bankers have faced when contemplating com- pensation plans: 1. You have an executive in his mid-50s who has contributed to leading and growing the organization but has not yet been rewarded for his efforts. This executive’s compensa- tion focus is now being more directed at retirement and wealth building rather than solely increases in current cash compensation. Consider a supplemental executive retirement plan (SERP) plan and perhaps a long-term incentive plan. He may also be interested in deferring current salary. 2. You have young officers in their 30s and 40s who are high producers and need to be compensated for their ef- forts with more than just base salary and annual bonus amounts. Consider a performance-based nonqualified benefit plan or a combination of a SERP and perfor- mance-based nonqualified plan. It is important to tie these individuals to your bank if you remain independent, but it can also enhance the sales price if these individuals stay with the purchasing bank in the event your bank is sold. Properly designed nonqualified plans can sub- stantially increase the probabilit y they will stay in either scenario. 3. For closely held banks that would like their manage- ment team to think like owners, consider nonqualified plans using a phantom stock or stock appreciation rights approach or, if another type of deferred compensa- tion plan is adopted, consider linking the interest credited to the executive’s account to the bank’s return on equity. Summary With an improving economy and asset growth of commu- nity banks, along with a higher than normal level of merger activity, banks have been adding officers to existing long term incentive and nonqualified benefit plans or developing and implementing new plans to compete with other banks for talent. Utilizing more than one compensation strategy or plan can be an important element in attracting and retaining talent. The bank’s franchise value is dependent on its level of success in attracting and retaining key executives. n David Shoemaker, CPA/PFS, CFP®, is a principal of Equias Alli- ance, 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 Shoe- maker at 901-754-4924 or dshoemaker@equiasalliance.com. Ken Derks is a principal of Equias Alliance, which through consul- tants has assisted over 800 banks in the design of nonqualified benefit plans, performance based compensation and (BOLI). To learn more, contact Ken Derks at 469-252-1037 or kderks@ equiasalliance.com . plans. BOLI is a tax-advantaged asset whereby every $1 of p (CSV) on the bank’s balance sheet. The CSV is expected to g as non-interest income on a tax preferred basis. From a cash accrual asset that will return cash flow to the bank upon is an investment asset that currently generates a return in the expenses are deducted, which translates into a t x equivalen 38 percent tax bracket). Summary Privately held ba ks must compete with all types of organizat their level of success in att acti g and retaining key executive chosen d correctly designed, can make a major impact on Equias Alliance offers securities through ProEquities, Inc. member FINRA & SIPC David Shoemaker, CPA/PFS, CFP®, is a princip has assisted over 800 banks in the design of non compensation and (BOLI). To learn more, contac dshoemaker@e quiasalliance.com. Ken Derks is a principal of Equias Alliance, which banks in the design of nonqualified benefit plans To learn mor e, contact Ken Derks at 469-252-10 New Policie in 2014 In 2015, IBIS Associates, Inc., an independent mark t r searc purchases last year based on information obtained from carri report: • Life insurance companies reported placing 1,175 BOLI ca premium. The 1,175 cases included banks purchasing BO by banks that lready own d BOLI. • Of the $3.21 billion in new premium, $2.48 billion (77.2 pe million (21.7 percent) into hybrid separate acc unt; nd $3 account. • Of the 1,175 cases placed, 494 (42.0 percent) were under between $1 million and $2 million; 242 (20.6 percent) were percent) were between $5 million and $15 million; and 23 The Market’s Future The near term trend in the marketplace is for higher general a and relatively few variable separate account purchases. Final banks is expected to increase annually by 3 percent to 4 pe Tags: Boli, compens tion Ken Derks is a principal of Equias Alliance, which in the design of nonqualified benefit plans, perform more, contact Ken Derks at 469-252-1037 or kder David Shoemaker, CPA/PFS, CFP®, is a principal has assisted over 800 banks in the design of nonq compensation and (BOLI). To learn more, contact D dshoemaker@equiasalliance.com. • Of the 1,175 cases placed, 494 (42.0 percent) were under between $1 million and $2 million; 242 (20.6 percent) were percent) were between $5 million and $15 million; and 23 The Market’s Fut re The near term trend in the marketplace is for higher general a and relatively few variable separate account purchases. Final banks is expected to increase annually by 3 percent to 4 pe Tags: Boli, compensation Ken Derks is a principal of Equias Alliance, which in the design of nonqualified benefit plans, perform mo e, contact Ken Derks at 469-252-1037 or kder David Shoemaker, CPA/PFS, CFP®, is a principal has assisted over 80 banks in the design of nonq compensation and (BOLI). To learn more, contact D dshoemaker@eq uiasalliance.com. rivately held banks purchase BOLI for t sam r ason, but plans. BOLI is tax- dv ntaged ass t whereby very $1 of p (CSV) o th bank’s bala ce sheet. The CSV i expected to g s non-interest income on a tax preferred basis. From a cash accrual a set th t will return cash flow to the bank upon is an investment asset that currently generates a return in the expe es a e deducted, which translate into a tax equivalen 38 percent tax bracket). Su mary Priv t ly held bank mus compete with all types of organizat their level of success i ttracting and retaining key exe utive chos n and correctly designed, can make a major impact on Equias Alliance offers securities through ProEquities, Inc. member FINRA & SIPC David Shoemaker, CPA/PFS, CFP®, is a princi has assisted over 800 ba ks in the design of non compensation and (BOLI). To learn more, contac dshoemaker@equiasalliance.com. Ke Derks is a pri cipal of Equias Alliance, which banks i he design of nonqualified benefit plans To learn more, contact Ken Derks at 469-252-10 New P licies in 2014 In 2015, IBIS Associates, Inc., an ind pendent ma k t researc purchases las year based on info mati n obtained from c rri report: • Life insuranc compani s report pl cing 1,175 BOLI ca premium. The 1,175 cases included banks purchasing BO by banks that already owned BOLI. • Of the $3.21 billio in ew premium, $2.48 billion (77.2 pe million (21.7 p rcent) int hybrid separate acc unt; d $3 account. • Of th 1,175 cases placed, 494 (42.0 percent) were und r b tw en $1 million and 2 il i n; 242 (20.6 percent) were percent) were between $5 million and $15 million; and 23 M rk t’s Future The ne r t rm trend in th marketpl ce is for higher general a and relatively few variable separate account purchases. Final banks is expected to increase annually by 3 percent to 4 pe Tags: Boli, compens tion K n Derks is a principal of Equias Allia ce, which in th design of n qualifi d b nefit plans, perform m re, contact Ken Derks at 469-252-1037 or kder D vid Sho mak r, CPA/PFS, CFP®, i a principal has assi ted over 800 banks in the design f nonq compensation and (BOLI). To learn more, contact D dshoemaker@equiasalliance.com. account. • Of the 1,175 cases placed, 494 (42.0 percent) were under b tween $1 million and 2 i ; 242 (20.6 percent) were percent) were between $5 million and $15 million; and 23 Th M rket’s Fut re The ne r t rm trend in th mar etplace is for higher general a and relatively few variable separate account purchases. Final banks is expected to i crease annually by 3 percent to 4 pe Tags: Boli, compensation Ken Derks is a principal of Equias Alliance, which in the design of nonqualifi d benefit plans, perform more, contact Ken Derks at 469-252-1037 or kder David Shoemak r, CPA/PFS, CFP®, i a principal has assisted over 80 banks in the design of nonq compens tion an d (BOLI). To le rn more , contact D dsho maker@equiasalliance.com. Reach your target audience a ordably. advertise get results DANI GORDEN Advertising Sales 801.676.9722 or 855.747.4003 dani@thenewslinkgroup.com