Post-GFC recovery has led to improving credit quality and a strong growth environment for 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$59.40m, Carolina Trust BancShares Inc’s (NASDAQ:CART) 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 Carolina Trust 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 Carolina Trust BancShares’s a stock investment. View out our latest analysis for Carolina Trust BancShares
How Good Is Carolina Trust BancShares At Forecasting Its Risks?
The ability for Carolina Trust BancShares 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 bank provision covers more than 100% of what it actually writes off, then it is considered sensible and relatively accurate in its provisioning of bad debt. With a bad loan to bad debt ratio of 336%, the bank has extremely over-provisioned by 236% compared to the industry-average, which illustrates perhaps a too cautious approach to forecasting bad debt.
What Is An Appropriate Level Of Risk?By nature, Carolina Trust BancShares 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. When these loans are not repaid, they are written off as expenses which comes directly out of the bank’s profit. The bank’s bad debt only makes up a very small 0.31% to total debt which means means the bank has very strict bad debt management and faces insignificant levels of default.
How Big Is Carolina Trust BancShares’s Safety Net?Carolina Trust 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. Carolina Trust BancShares’s total deposit level of 89.38% of its total liabilities is very high and is well-above the sensible level of 50% for financial institutions. This may mean the bank is too cautious with its level of its safer form of borrowing and has plenty of headroom to take on risker forms of liability.
How will CART’s recent acquisition impact the business going forward? Should you be concerned about the future of CART and the sustainability of its financial health? Below, I’ve listed three fundamental areas on Simply Wall St’s dashboard for a quick visualization on current trends for CART. I’ve also used this site as a source of data for my article.
- Future Outlook: What are well-informed industry analysts predicting for CART’s future growth? Take a look at our free research report of analyst consensus for CART’s outlook.
- Historical Performance: What has CART’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.