The banking sector has been experiencing growth as a result of improving credit quality from post-GFC recovery. Economic growth impacts the stability of salaries and interest rate level which in turn affects borrowers’ demand for, and ability to repay, their loans. As a small-cap bank with a market capitalisation of US$221.7m, FVCBankcorp Inc’s ( NASDAQ:FVCB ) profit and value are directly affected by economic activity. Risk associate with repayment is measured by the level of bad debt which is an expense written off FVCBankcorp’s bottom line. Today we will analyse FVCBankcorp’s level of bad debt and liabilities in order to understand the risk involved with investing in the bank.
Does FVCBankcorp Understand Its Own Risks?
FVCBankcorp’s forecasting and provisioning accuracy for its bad loans indicates it has a strong understanding of its own risk levels. If the level of provisioning covers 100% or more of the actual bad debt expense the bank writes off, then it is relatively accurate and prudent in its bad debt provisioning. Given its large bad loan to bad debt ratio of over 500%, FVCBankcorp has excessively over-provisioned above the appropriate minimum of 100%, indicating the bank is extremely cautious with their expectation of bad debt and should adjust their forecast moving forward.
What Is An Appropriate Level Of Risk?
FVCBankcorp is engaging in risking lending practices if it is over-exposed to bad debt. Total loans should generally be made up of less than 3% of loans that are considered unrecoverable, also known as bad debt. Bad debt is written off when loans are not repaid. This is classified as an expense which directly impacts FVCBankcorp’s bottom line. The bank’s bad debt only makes up a very small 0.098% to total debt which means means the bank has very strict bad debt management and faces insignificant levels of default.
Is There Enough Safe Form Of Borrowing?
FVCBankcorp makes money by lending out its various forms of borrowings. Deposits from customers tend to bear the lowest risk given the relatively stable amount available and interest rate. Generally, the higher level of deposits a bank retains, the less risky it is deemed to be. Since FVCBankcorp’s total deposit to total liabilities is very high at 97.4% which is well-above the prudent level of 50% for banks, FVCBankcorp may be too cautious with its level of deposits and has plenty of headroom to take on risker forms of liability.
How will FVCB’s recent acquisition impact the business going forward? Should you be concerned about the future of FVCB and the sustainability of its financial health? The list below is my go-to checks for FVCB. I use Simply Wall St’s platform to keep informed about any changes in the company and market sentiment, and also use their data as the basis for my articles.
- Future Outlook : What are well-informed industry analysts predicting for FVCB’s future growth? Take a look at our free research report of analyst consensus for FVCB’s outlook.
- Valuation : What is FVCB worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether FVCB is currently mispriced by the market.
- Other High-Performing Stocks : Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here .
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
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