Improving credit quality as a result of post-GFC recovery has led to a strong environment for growth in the banking sector. Glacier Bancorp Inc (NASDAQ:GBCI) is a small-cap bank with a market capitalisation of US$3.7b. Its profit and value are directly impacted by its borrowers’ ability to pay which is driven by the level of economic growth. This is because growth determines the stability of a borrower’s salary as well as the level of interest rates. Risk associated with repayment is measured by bad debt which is written off as an expense, impacting Glacier Bancorp’s bottom line. Today we will analyse Glacier Bancorp’s level of bad debt and liabilities in order to understand the risk involved with investing in the bank.
Does Glacier Bancorp Understand Its Own Risks?
The ability for Glacier 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. Given its large bad loan to bad debt ratio of 221.98%, Glacier Bancorp excessively over-provisioned by 121.98% above the appropriate minimum, indicating the bank may perhaps be too cautious with their expectation of bad debt.
What Is An Appropriate Level Of Risk?
If Glacier 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 Glacier Bancorp’s profit. A ratio of 0.73% indicates the bank faces relatively low chance of default and exhibits strong bad debt management.
Is There Enough Safe Form Of Borrowing?
Glacier Bancorp operates by lending out its various forms of borrowings. Customers’ deposits tend to carry the smallest risk given the relatively stable interest rate and amount available. As a rule, a bank is considered less risky if it holds a higher level of deposits. Since Glacier Bancorp’s total deposit to total liabilities is very high at 92% which is well-above the prudent level of 50% for banks, Glacier Bancorp may be too cautious with its level of deposits and has plenty of headroom to take on risker forms of liability.
GBCI’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 GBCI. 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 GBCI’s future growth? Take a look at our free research report of analyst consensus for GBCI’s outlook.
- Valuation: What is GBCI 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 GBCI 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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