Bank Analysis School Case Study eBook

Sunny State Bank

EARNINGS - PROVISIONS & BOND GAINS/LOSSES

Provisions/Average Assets

0.28%

0.25%

20X9Q2

0.24%

0.24%

20X9Q3

0.20%

20X9Q4

Metrics

0.15%

0.15%

0.16%

20X0Q1

Bank State All Banks

20X0Q2

0.12%

20X0Q3

0.08%

20X0Q4

0.04%

0.06%

0.04%

20X1Q1

0.03%

20X1Q2

20X9Q4

20X0Q4

20X1Q4

20X2Q4

20X3Q4

20X4Q4

20X5Q4

20X1Q3

Realized Bond Gains/Losses to Average Assets

20X1Q4

0.40%

0.36%

0.34%

0.35%

20X2Q1

0.30%

20X2Q2

0.27%

0.25%

20X2Q3

0.20%

20X2Q4

0.15%

20X3Q1

0.13%

0.10%

20X3Q2

0.04%

0.05%

0.06%

0.00%

20X3Q3

20X9Q4

20X0Q4

20X1Q4

20X2Q4

20X3Q4

20X4Q4

20X5Q4

• 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 identifed during the examination, an inaccurate ALLL methodology, or an attempt by management to manipulate earnings. If the ALLL is deemed to be materially insufcient 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.