Bank Analysis School - Case Study & Resources

OTHER REAL ESTATE OWNED

Sunny State Bank

Other Real Estate Owned / Average Total Assets

1.40%

1.31%

1.24%

1.20%

1.00%

0.86%

Metrics

0.87%

0.80%

0.81%

Bank

0.74%

0.60%

State

All Banks

0.40%

0.34%

0.20%

20 X9Q4

2 0X0 Q4

20 X1 Q4

2 0X2 Q4

2 0X3 Q4

20 X4Q4

20 X5Q4

Other Real Estate Gains/Losses

$100K

$95,000

$80K

$64,000

$60K

$40K

$20K

$12,000

$7,000

$0

$0

($11,000)

($12,000)

$-20K

20 X9 Q4

20 X0 Q4

20 X1 Q4

20 X2 Q4

20 X3 Q4

20 X4 Q4

20 X5 Q4

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.