The banking sector has been experiencing growth as a result of improving credit quality from post-GFC recovery. United Bancorp Inc (NASDAQ:UBCP) is a small-cap bank with a market capitalisation of US$68.36m. 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 United Bancorp’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 United Bancorp’s a stock investment. See our latest analysis for United Bancorp NasdaqCM:UBCP Historical Debt July 4th 18
Does United Bancorp Understand Its Own Risks?
United Bancorp’s forecasting and provisioning accuracy for its bad loans indicates it has a strong understanding of its own risk levels. 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. Given its high bad loan to bad debt ratio of 152.33% United Bancorp has cautiously over-provisioned 52.33% above the appropriate minimum, indicating 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?
If United 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 United Bancorp’s profit. The bank’s bad debt only makes up a very small 0.38% to total debt which means means the bank has very strict bad debt management and faces insignificant levels of default.
How Big Is United Bancorp’s Safety Net?
United 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. Generally, the higher level of deposits a bank retains, the less risky it is deemed to be. United Bancorp’s total deposit level of 90.98% 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 UBCP’s recent acquisition impact the business going forward? Should you be concerned about the future of UBCP 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 UBCP. I’ve also used this site as a source of data for my article.
- Future Outlook: What are well-informed industry analysts predicting for UBCP’s future growth? Take a look at our free research report of analyst consensus for UBCP’s outlook.
- Historical Performance: What has UBCP’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.
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