Can these factors give you an edge in early Bancorp, Inc. (NASDAQ: FNLC)?

0
5

As a small cap financial security with a market capitalization of $ 292 million, the risk and profitability of First Bancorp, Inc. (NASDAQ: FNLC) is largely tied to the underlying economic growth of the region where it operates. United States. Given that banks are reinvesting deposits in the form of loans, negative economic growth could lower the level of savings deposits and demand for loans, which would directly affect the level of their cash flow. Following the 2008 financial crisis, a package of reforms called Basel III was implemented to strengthen risk management, regulation and supervision in the financial services sector. These reforms are aimed at regulating at the bank level and aim to improve the banking sector's ability to absorb shocks resulting from economic tensions that could expose financial institutions to vulnerabilities. Its financial situation may weaken in the event of adverse macro-events such as political instability. This is why it is essential to understand how well the bank manages its risks. High liquidity and low debt could positively position First Bancorp in the face of macroeconomic difficulties. One way to measure this risk is to look at three measures of leverage and liquidity that I will explain to you today.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = " See our latest analysis for First Bancorp "data-reactid =" 28 "> See our latest analysis for First Bancorp

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Want to help shape the future of tools and investment platforms? Take the survey and participate in one of the most advanced studies of stock market investors to date."data-reactid =" 29 ">Want to help shape the future of tools and investment platforms? Take the survey and participate in one of the most advanced studies of stock market investors to date.

NasdaqGS: Historical Debt of the FNLC, January 12, 19

More

Why is the levers of the FNLC important?

Low-debt banks are better positioned to face headwinds because they have less debt to repay. A bank's leverage can be thought of as the level of its assets relative to the equity of its own shareholders. Although banks are required to have some level of reserves to meet their capital requirements, First Bancorp's level of debt of 10.73x is well below the appropriate 20x limit. This means that the bank is very much in debt and is well placed to repay its debtors in the event of adverse events because it has a sufficient level of equity. high compared to the debt contracted to stay in business. If the bank were to increase its level of debt to meet its capital needs, it would have plenty of leeway to do so.

What is the liquidity level of the FNLC?

Deliver transparent money

More

Because loans are relatively illiquid, we should know how much of the bank's total assets are made up of these loans. Generally, they should not exceed 70% of total assets, which is consistent with the state of First Bancorp, given its 62% ratio. This means that just over half of the bank's total assets are tied to illiquid borrowing, which creates a reasonable balance of interest and liquidity.

The story continues

What is the difference in liquidity of FNLC?

The FNLC takes advantage of loans from its clients in the form of a loan and receives an interest in principle. These loans can be futures and often can not be easily realized, but deposits of customers on the liabilities must be paid on demand and within a short time. The disparity between the immediacy of the deposits and the illiquidity of the loans puts the financial situation of the bank to a severe test if an adverse event requires the bank to repay its depositors. Relative to the sector's conservative 90% deposit loan level, the First Bancorp ratio, which is above 81%, is sufficiently small, which positions the bank cautiously in terms of liquidity, as it does not have the same value. has not disproportionately loaned its deposits and has maintained an adequate level of deposits. .

Next steps:

First Bancorp meets all expectations for operational prudence in terms of liquidity and leverage. These factors are often marginal compared to other fundamentals, but it is equally important to take them into account in the context of the investment thesis. High liquidity and low debt position the bank in an ideal position to repay financial liabilities in adverse wind conditions. Today we have only explored one aspect of First Bancorp, but there are many other fundamental principles to consider. I have put in place three key factors on which you should deepen your research:

  1. Future prospects: What are well-informed industry analysts predicting for the future growth of FNLC? Check out our free research report on analyst consensus on the perspectives of the FNLC.
  2. Evaluation: What is the FNLC worth today? Has the potential for future growth already been factored into the price? The intrinsic value infographic of our free research report helps to visualize whether FNLC is currently misjudged 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.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "To help readers understand the past volatility of the financial market in the short term, our goal is to provide you with a long-term research analysis based solely on fundamental data. Note that our analysis does not take into account the latest price sensitive business announcements.

The author is an independent contributor and, at the time of publication, was not positioned in the mentioned actions. For errors that need to be corrected, please contact the publisher at editorial-team@simplywallst.com.

"data-reactid =" 69 "> To help readers understand the short-term volatility of the financial market, we aim to provide you with a long-term research analysis based only on fundamental data. account of the latest price sensitive business announcements.

The author is an independent contributor and, at the time of publication, was not positioned in the mentioned actions. For errors that need to be corrected, please contact the publisher at editorial-team@simplywallst.com.