Post-GFC recovery has led to improving credit quality and a strong growth environment for the banking sector. As a small-cap bank with a market capitalisation of US$63.64m, Anchor Bancorp’s (NASDAQ:ANCB) profit and value are directly affected by economic growth. This is because borrowers’ demand for, and ability to repay, their loans depend on the stability of their salaries and interest rates. Risk associated with repayment is measured by bad debt which is written off as an expense, impacting Anchor Bancorp’s bottom line. Today we will analyse Anchor Bancorp’s level of bad debt and liabilities in order to understand the risk involved with investing in the bank. Check out our latest analysis for Anchor Bancorp
How Good Is Anchor Bancorp At Forecasting Its Risks?
The ability for Anchor Bancorp to accurately forecast and provision for its bad loans shows it has a strong understanding of the level of risk it is taking on. 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. With a bad loan to bad debt ratio of 365.09%, the bank has extremely over-provisioned by 265.09% compared to the industry-average, which illustrates perhaps a too cautious approach to forecasting bad debt.
What Is An Appropriate Level Of Risk?
If Anchor Bancorp does not engage in overly risky lending practices, it is considered to be in good financial shape. Loans that cannot be recovered by the bank are known as bad loans and typically should make up less than 3% of its total loans. When these loans are not repaid, they are written off as expenses which comes out directly from Anchor Bancorp’s profit. Since bad loans only make up a very insignificant 0.29% of its total assets, the bank exhibits very strict bad loan management and is exposed to a relatively insignificant level of risk in terms of default.
How Big Is Anchor Bancorp’s Safety Net?
Anchor Bancorp profits from lending out its various forms of borrowings and charging interest rates. Deposits from customers tend to carry the lowest risk due to the relatively stable interest rate and amount available. Generally, the higher level of deposits a bank retains, the less risky it is deemed to be. Since Anchor Bancorp’s total deposit to total liabilities is very high at 87.02% which is well-above the prudent level of 50% for banks, Anchor Bancorp may be too cautious with its level of deposits and has plenty of headroom to take on risker forms of liability.
ANCB’s acquisition will impact the business moving forward. Keep an eye on how this decision plays out in the future, especially on its financial health and earnings growth. The list below is my go-to checks for ANCB. 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 ANCB’s future growth? Take a look at our free research report of analyst consensus for ANCB’s outlook.
- Historical Performance: What has ANCB’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 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 pass 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.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.