Bank Analysis School Case Study eBook

Sunny State Bank

OTHER REAL ESTATE OWNED

Other Real Estate Owned / Average Total Assets

1.40%

1.30% 1.35%

1.24%

1.31%

1.20%

1.23%

0.96%

1.00%

0.96%

0.86%

0.85% 0.84%

0.82%

0.95%

0.87%

0.76%

0.89%

0.80%

Metrics

0.65%

0.80% 0.81%

0.74%

0.73%

0.60%

Bank State All Banks

0.49%

0.52%

0.36%

0.50%

0.34%

0.40%

0.35%

0.35%

0.20%

20X9Q2

20X9Q3

20X9Q4

20X0Q1

20X0Q2

20X0Q3

20X0Q4

20X1Q1

20X1Q2

20X1Q3

20X1Q4

20X2Q1

20X2Q2

20X2Q3

20X2Q4

20X3Q1

20X3Q2

20X3Q3

20X3Q4

20X4Q1

20X4Q2

20X4Q3

20X4Q4

20X5Q1

20X5Q2

20X5Q3

20X5Q4

Other Real Estate Gains/Losses

$100K

$95,000

(All)

$80K

20X9Q2

$64,000

$60K

20X9Q3

$40K

20X9Q4

20X0Q1

$20K

$12,000

$7,000

20X0Q2

$0

$0

20X0Q3

($11,000)

($12,000)

$-20K

20X0Q4

20X1Q1

20X9Q4

20X0Q4

20X1Q4

20X2Q4

20X3Q4

20X4Q4

20X5Q4

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.