Improving credit quality as a result of post-GFC recovery has led to a strong environment for growth in the banking sector. As a small-cap bank with a market capitalisation of US$405m, Capital City Bank Group, Inc.’s (NASDAQ:CCBG) profit and value are directly affected by economic growth. This is because borrowers’ demand for, and ability to repay, their loans depend on the stability of their salaries and interest rates. Risk associated with repayment is measured by bad debt which is written off as an expense, impacting Capital City Bank Group’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 Capital City Bank Group’s a stock investment.
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Does Capital City Bank Group Understand Its Own Risks?
Capital City Bank Group’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 bank provisions for more than 100% of the bad debt it actually writes off, then it is considered to be relatively prudent and accurate in its bad debt provisioning. Given its large bad loan to bad debt ratio of 207.06%, Capital City Bank Group excessively over-provisioned by 107.06% above the appropriate minimum, indicating the bank may perhaps be too cautious with their expectation of bad debt.
How Much Risk Is Too Much?
By nature, Capital City Bank Group is exposed to risky assets by lending to borrowers who may not be able to repay their loans. Generally, loans that are “bad” and cannot be recovered by the bank should make up less than 3% of its total loans. Bad debt is written off when loans are not repaid. This is classified as an expense which directly impacts Capital City Bank Group’s bottom line. The bank’s bad debt only makes up a very small 0.39% to total debt which means means the bank has very strict bad debt management and faces insignificant levels of default.
How Big Is Capital City Bank Group’s Safety Net?
Capital City Bank Group 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. The general rule is the higher level of deposits a bank holds, the less risky it is considered to be. Since Capital City Bank Group’s total deposit to total liabilities is very high at 94% which is well-above the prudent level of 50% for banks, Capital City Bank Group may be too cautious with its level of deposits and has plenty of headroom to take on risker forms of liability.
The recent acquisition is expected to bring more opportunities for CCBG, which in turn should lead to stronger growth. I would stay up-to-date on how this decision will affect the future of the business in terms of earnings growth and financial health. I’ve bookmarked CCBG’s company page on Simply Wall St to stay informed with changes in outlook and valuation. This is also the source of data for this article. The three main sections I’d recommend you check out are:
- Future Outlook: What are well-informed industry analysts predicting for CCBG’s future growth? Take a look at our free research report of analyst consensus for CCBG’s outlook.
- Valuation: What is CCBG 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 CCBG is currently mispriced by the market.
- 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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