BAS Case Study - March 2023

Sunny State Bank

EARNINGS - PROVISIONS & BOND GAINS/LOSSES

Provisions/Average Assets

0.28%

0.25%

2013Q4

0.24%

0.24%

2014Q1

0.20%

2014Q2

Metrics

0.15%

0.15%

0.16%

2014Q3

Bank State All Banks

2014Q4

0.12%

2015Q1

0.08%

2015Q2

0.06%

0.04%

2015Q3

0.03%

2015Q4

2013Q4

2014Q4

2015Q4

2016Q4

2017Q4

2018Q4

2016Q1

Realized Bond Gains/Losses to Average Assets

2016Q2

0.34%

0.35%

2016Q3

0.30%

0.27%

2016Q4

0.25%

2017Q1

0.20%

2017Q2

0.15%

0.13%

2017Q3

0.10%

2017Q4

0.04%

0.05%

0.06%

0.00%

2018Q1

2013Q4

2014Q4

2015Q4

2016Q4

2017Q4

2018Q4

• When assessing the amount of provisions, examiners need to determine whether the level of the ALLL is appropriate to absorb estimated credit losses inherent in the loan and lease portfolio. An ALLL that is not at an appropriate level may be due to any one or a combination of reasons. For example, an ALLL that is below an appropriate level may be caused by a decline in loan quality identified during the examination, an inaccurate ALLL methodology, or an attempt by management to manipulate earnings. If the ALLL is deemed to be materially insufficient during the examination, management will be required to take an additional provisions to bring the ALLL to an appropriate level, thereby increasing the bank’s expenses and adversely affecting earnings • Realized gains on bond sales are generally considered to be non-core earnings. When not part of a bank’s core earnings, examiners should eliminate the gains or losses adjusted for taxes so as to not distort core operating results.