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Is Shore Bancshares Inc (NASDAQ:SHBI) Over-Exposed To Risk?

Bryson Sharp

The banking sector has been experiencing growth as a result of improving credit quality from post-GFC recovery. Shore Bancshares Inc (NASDAQ:SHBI) is a small-cap bank with a market capitalisation of US$250.86m. 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 Shore Bancshares’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 Shore Bancshares’s a stock investment. Check out our latest analysis for Shore Bancshares

NasdaqGS:SHBI Historical Debt June 24th 18

How Good Is Shore Bancshares At Forecasting Its Risks?

Shore Bancshares’s ability to forecast and provision for its bad loans indicates it has a good understanding of the level of risk it is taking on. If the bank provisions for more than 100% of the bad debt it actually writes off, then it is considered to be relatively prudent and accurate in its bad debt provisioning. With a bad loan to bad debt ratio of 140.28%, the bank has cautiously over-provisioned by 40.28%, which illustrates a safe and prudent forecasting methodology, and its ability to anticipate the factors contributing to its bad loan levels.

What Is An Appropriate Level Of Risk?

Shore Bancshares’s operations expose it to risky assets by lending to borrowers who may not be able to repay their loans. Total loans should generally be made up of less than 3% of loans that are considered unrecoverable, also known as bad debt. When these loans are not repaid, they are written off as expenses which comes out directly from Shore Bancshares’s profit. Since bad loans make up a relatively small 0.63% of total assets, the bank exhibits strict bad debt management and faces low risk of default.

Is There Enough Safe Form Of Borrowing?

Handing Money Transparent

Shore Bancshares 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 Shore Bancshares’s total deposit to total liabilities is very high at 93.67% which is well-above the prudent level of 50% for banks, Shore Bancshares may be too cautious with its level of deposits and has plenty of headroom to take on risker forms of liability.

Next Steps:

The recent acquisition is expected to bring more opportunities for SHBI, which in turn should lead to stronger growth. I would stay up-to-date on how this decision will affect the future of the business in terms of earnings growth and financial health. Below, I’ve listed three fundamental areas on Simply Wall St’s dashboard for a quick visualization on current trends for SHBI. I’ve also used this site as a source of data for my article.

  1. Future Outlook: What are well-informed industry analysts predicting for SHBI’s future growth? Take a look at our free research report of analyst consensus for SHBI’s outlook.
  2. Historical Performance: What has SHBI’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.
  3. 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.