Three main risks for FB Financial Corporation (NYSE: FBK) to know

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The post-GFC recovery has helped improve credit quality and create a strong growth environment for the banking sector. As a small-cap bank with a market capitalization of US $ 1.1 billion, the profit and value of FB Financial Corporation (NYSE: FBK) is directly affected by economic growth. Indeed, borrowers' demand and repayment capacity depend on the stability of their wages and interest rates. Repayment risk is measured by the bad debt that is written off as an expense, which impacts FB Financial's net results. Given that the level of risk assets held by the bank affects its attractiveness as an investment, I will present three indicators that are insightful risk indicators.

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NYSE: FBK's Historical Debt, March 16, 2019

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What is FB Financial's ability to predict its risks?

FB Financial's ability to accurately forecast and fund its bad debts shows that it fully understands the level of risk it is taking. If the provisioning level covers 100% or more of the bad debt charges actually charged by the bank, then the bank may be relatively precise and conservative in its provisioning. Given its high ratio of nonperforming loan provisions to nonperforming loans of 172.98%, FB Financial prudently over-provisioned 72.98% above its current level of non-performing loans. This could indicate a conservative forecast methodology or indicate that new doubtful loans are expected.

What is an appropriate level of risk?

If FB Financial does not engage in excessively risky lending practices, its financial situation is considered relatively better. Ideally, the "bad" loans that can not be recovered by the bank should represent less than 3% of its total loans. Bad debts are written off as expenses when loans are not repaid, which has a direct impact on FB Financial's net results. The bank's bad debt accounts for only 0.46% of the total debt, suggesting that the bank has strict risk management or that its loans have not yet begun to deteriorate.

How big is FB Financial's safety net?

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FB Financial operates by lending its various forms of loans. Client deposits tend to have the least risk given the relatively stable interest rate and available amount. In general, the more a bank holds high deposits, the less risky it is. The total amount of FB Financial's deposits, which represents 93% of total liabilities, is very large and far exceeds the reasonable threshold of 50% for financial institutions. This can mean that the bank is too cautious with the level of its loan form more secure and has plenty of leeway to assume more risky forms of liability.

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Next steps:

The acquisition of FBK will have an impact on future activities. Watch for the future of this decision, especially with regard to its financial health and earnings growth. Below, I've listed three basic areas on the Simply Wall St dashboard for quick visualization of current FBK trends. I've also used this site as a data source for my article.

  1. Future prospects: What do well-informed industry analysts predict for the future growth of FBK? Check out our free research report on analyst consensus on FBK's outlook.
  2. Evaluation: What is FBK worth today? Has the potential for future growth already been factored into the price? The intrinsic value infographic of our free research report allows to visualize if the price of FBK is currently badly evaluated by the market.
  3. Other performing stocks: Are there other stocks offering better prospects with proven track records? Explore our free list of these large stocks here.

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If you notice an error that needs to be corrected, please contact the publisher at editorial-team@simplywallst.com. This article from Simply Wall St is of a general nature. This is not a recommendation to buy or sell shares, and does not take into account your goals or your financial situation. Simply Wall St has no position on the actions mentioned. Thanks for the reading.

"data-reactid =" 68 "> Our goal is to provide you with a long-term research analysis based on fundamental data.Please note that our analysis may not take into account the latest announcements of price sensitive companies or qualitative material.

If you notice an error that needs to be corrected, please contact the publisher at editorial-team@simplywallst.com. This article from Simply Wall St is of a general nature. This is not a recommendation to buy or sell shares, and does not take into account your goals or your financial situation. Simply Wall St has no position on the actions mentioned. Thanks for the reading.