Bank Analysis School Case Study

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%

20X0 Q4

20X1 Q1

20X1 Q2

20X1 Q3

20X1 Q4

20X2 Q1

20X2 Q2

20X2 Q3

20X2 Q4

20X3 Q1

20X3 Q2

20X3 Q3

20X3 Q4

20X4 Q1

20X4 Q2

20X4 Q3

20X4 Q4

20X5 Q1

20X5 Q3

20X5 Q4

20X5 Q2

Other Real Estate Gains/Losses

$100K

$95,000

(All)

$80K

20X0 Q4 20X1 Q1 20X1 Q2 20X1 Q3 20X1 Q4 20X2 Q1 20X2 Q2 20X2 Q3

$60K

$40K

$20K

$12,000

$7,000

$0

($11,000)

($12,000)

$-20K

20X0 Q4

20X1 Q4

20X2 Q4

20X3 Q4

20X4 Q4

20X5 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.