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Should You Be Concerned About CoBiz Financial Inc’s (NASDAQ:COBZ) Risk Exposure?

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 USD $881.41M, CoBiz Financial Inc (NASDAQ:COBZ)’s 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 CoBiz Financial’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 CoBiz Financial’s a stock investment. View our latest analysis for CoBiz Financial

NasdaqGS:COBZ Historical Debt Jan 19th 18
NasdaqGS:COBZ Historical Debt Jan 19th 18

Does CoBiz Financial Understand Its Own Risks?

CoBiz Financial’s ability to forecast and provision for its bad loans indicates it has a good understanding of the level of risk it is taking on. If the level of provisioning covers 100% or more of the actual bad debt expense the bank writes off, then it is relatively accurate and prudent in its bad debt provisioning. Given its large bad loan to bad debt ratio of over 500%, CoBiz Financial has excessively over-provisioned above the appropriate minimum of 100%, indicating the bank is extremely cautious with their expectation of bad debt and should adjust their forecast moving forward.

How Much Risk Is Too Much?

CoBiz Financial’s operations expose it to risky assets by lending to borrowers who may not be able to repay their loans. Typically, loans that are “bad” and cannot be recuperated by the bank should comprise 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. Since bad loans only make up a very insignificant 0.16% of its total assets, the bank exhibits very strict bad loan management and is exposed to a relatively insignificant level of risk in terms of default.

How Big Is CoBiz Financial’s Safety Net?

Handing Money Transparent
Handing Money Transparent

CoBiz Financial 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. CoBiz Financial’s total deposit level of 90.59% 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.

Final words

With positive measures for all three ratios, CoBiz Financial shows a prudent level of managing its risky assets. It seems to have a clear understanding of how much it needs to provision each year for lower quality borrowers and it has maintained a safe level of deposits against its liabilities. The company’s sound and sensible lending strategy gives us more conviction in its ability to manage its operational risks which makes an investment in CoBiz Financial a less risky one. Keep in mind that a stock investment requires research on more than just its operational side. I’ve put together three relevant factors you should look at:

1. Future Outlook: What are well-informed industry analysts predicting for COBZ’s future growth? Take a look at our free research report of analyst consensus for COBZ’s outlook.

2. Valuation: What is COBZ 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 COBZ is currently mispriced by the market.

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.

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