BAS Case Study - March 2023

Sunny State Bank

OTHER REAL ESTATE OWNED

Other Real Estate Owned / Average Total Assets

1.40%

1.31%

1.30% 1.35%

1.24% 1.23%

1.20%

0.96% 0.95%

1.00%

0.86% 0.89% 0.82% 0.80%

0.85% 0.84%

0.96%

0.87%

0.76%

0.80%

0.81%

Metrics

0.65%

0.74%

0.73%

0.60%

Bank State All Banks

0.50%

0.40%

0.20%

2013Q4

2014Q1

2014Q2

2014Q3

2014Q4

2015Q1

2015Q2

2015Q3

2015Q4

2016Q1

2016Q2

2016Q3

2016Q4

2017Q1

2017Q2

2017Q3

2017Q4

2018Q1

2018Q2

2018Q3

2018Q4

Other Real Estate Gains/Losses

$100K

$95,000

(All)

$80K

2013Q4

$60K

2014Q1

$40K

2014Q2

2014Q3

$20K

$12,000

$7,000

2014Q4

$0

2015Q1

($11,000)

($12,000)

$-20K

2015Q2

2015Q3

2013Q4

2014Q4

2015Q4

2016Q4

2017Q4

2018Q4

Banks usually acquire other real estate owned (OREO) through foreclosure after a borrower defaults on a loan secured by real estate. Call Report Instructions state that OREO must be recorded at fair value less expected costs to sell the property. Losses on the sale of OREO could be a sign that management is not placing realistic values on properties when they are initially moved to OREO. Because most OREO properties are nonearning assets, and there are ongoing costs associated with maintaining these properties such as property taxes and insurance, management will typically try to dispose of OREO quickly.