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Improving credit quality as a result of post-GFC recovery has led to a strong environment for growth in the banking sector. 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$612m, Flushing Financial Corporation’s (NASDAQ:FFIC) 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 Flushing Financial’s bottom line. Today I will take you through some bad debt and liability measures to analyse the level of risky assets held by the bank. Looking through a risk-lens is a useful way to assess the attractiveness of Flushing Financial's a stock investment.
How Good Is Flushing Financial At Forecasting Its Risks?
Flushing Financial’s forecasting and provisioning accuracy for its bad loans indicates it has a strong understanding of its own risk levels. If the bank provisions for more than 100% of the bad debt it actually writes off, then could be considered to be relatively prudent and accurate in its bad debt provisioning. With a non-performing loan allowance to non-performing loan ratio of 128.87%, the bank has cautiously over-provisioned by 28.87%, which may suggest the bank is anticipating additional non-performing loans.
What Is An Appropriate Level Of Risk?
By nature, banks like Flushing Financial are exposed to risky assets, by lending to borrowers who may not be able to repay their loans. Generally, loans that are “bad” and cannot be recovered by the bank should make up less than 3% of its total loans. Bad debt is written off when loans are not repaid. This is classified as an expense which directly impacts Flushing Financial’s bottom line. The bank's bad debt only makes up a very small 0.29% to total debt which suggests the bank either has strict risk management - or its loans haven't started going bad yet.
Is There Enough Safe Form Of Borrowing?
Flushing Financial 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. As a rule, a bank is considered less risky if it holds a higher level of deposits. Flushing Financial’s total deposit level of 78% of its total liabilities is within the sensible margin for for financial institutions which generally has a ratio of 50%. This indicates a prudent level of the bank's safer form of borrowing and a prudent level of risk.
How will FFIC’s recent acquisition impact the business going forward? Should you be concerned about the future of FFIC and the sustainability of its financial health? I’ve bookmarked FFIC’s company page on Simply Wall St to stay informed with changes in outlook and valuation. This is also the source of data for this article. The three main sections I’d recommend you check out are:
- Future Outlook: What are well-informed industry analysts predicting for FFIC’s future growth? Take a look at our free research report of analyst consensus for FFIC’s outlook.
- Valuation: What is FFIC 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 FFIC 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.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.