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Why Bar Harbor Bankshares’s (NYSEMKT:BHB) Risk Control Makes It Attractive

Sam Bishop

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$472.48M, Bar Harbor Bankshares’s (AMEX:BHB) 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 Bar Harbor Bankshares’s bottom line. Today we will analyse Bar Harbor Bankshares’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 Bar Harbor Bankshares

AMEX:BHB Historical Debt May 21st 18

How Good Is Bar Harbor Bankshares At Forecasting Its Risks?

The ability for Bar Harbor Bankshares to forecast and provision for its bad loans accurately serves as an indication for the bank’s understanding of its own level of risk. If it writes off more than 100% of the bad debt it provisioned for, then it has poorly anticipated the factors that may have contributed to a higher bad loan level which begs the question – does Bar Harbor Bankshares understand its own risk?. With a bad loan to bad debt ratio of 62.34%, Bar Harbor Bankshares has under-provisioned by -37.66% which is below the sensible margin of error, illustrating room for improvement in the bank’s forecasting methodology.

What Is An Appropriate Level Of Risk?

By nature, Bar Harbor Bankshares is exposed to risky assets by lending to borrowers who may not be able to repay their loans. 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. Bad debt is written off when loans are not repaid. This is classified as an expense which directly impacts Bar Harbor Bankshares’s bottom line. A ratio of 0.83% indicates the bank faces relatively low chance of default and exhibits strong bad debt management.

How Big Is Bar Harbor Bankshares’s Safety Net?

Handing Money Transparent

Bar Harbor Bankshares 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. Bar Harbor Bankshares’s total deposit level of 74.12% 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.

Next Steps:

Bar Harbor Bankshares has maintained a safe level of deposits against its liabilities. Nevertheless, its imprudent bad debt management could negatively impact its cash flows. We’ve only touched on operational risks for BHB in this article. But as a stock investment, there are other fundamentals you need to understand. I’ve put together three important factors you should further examine:

  1. Valuation: What is BHB 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 BHB is currently mispriced by the market.
  2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Bar Harbor Bankshares’s board and the CEO’s back ground.
  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.