Yahoo Finance Why County Bancorp Inc (NASDAQ:ICBK) May Be Riskier Than You Think
One of the biggest risk County Bancorp Inc (NASDAQ:ICBK) faces as a bank is bad loans, also known as credit risk. As a small cap stock in the heavily regulated financial services sector, its stock has many factors to consider. Small banks are directly affected by macroeconomic events as the ability for borrowers to repay their loan depends on the stability of their salary and level of interest rates. Since bad debt is written off as an expense, it impacts County Bancorp’s bottom line and shareholders’ value. Today we’re going to assess the level of bad debt and liabilities County Bancorp currently has in order to properly analyse the risk involved with investing in County Bancorp.
View our latest analysis for County Bancorp
How Good Is County Bancorp At Forecasting Its Risks?
The ability for County Bancorp to forecast and provision for its bad loans accurately serves as an indication for the bank’s understanding of its own level of risk. The bank has poorly anticipated the factors contributing to higher bad loan levels if it writes off more than 100% of the bad debt it provisioned for. This begs the question – does County Bancorp understand the risks it has taken on? County Bancorp’s low bad loan to bad debt ratio of 57.9% means the bank has under-provisioned by -42.1%, indicating either an unexpected one-off occurence with defaults or poor bad debt provisioning.
What Is An Appropriate Level Of Risk?
County Bancorp’s operations expose it 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. When these loans are not repaid, they are written off as expenses which comes directly out of the bank’s profit. With a ratio of 2.32%, the bank faces an appropriate level of bad loan, indicating prudent management and an industry-average risk of default.
How Big Is County Bancorp’s Safety Net?
County Bancorp profits from lending out its various forms of borrowings and charging interest rates. Deposits from customers tend to carry the lowest risk due to 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. County Bancorp’s total deposit level of 88% 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.
Next Steps:
We’ve only touched on operational risks for ICBK in this article. But as a stock investment, there are other fundamentals you need to understand. There are three pertinent aspects you should further examine:
Future Outlook: What are well-informed industry analysts predicting for ICBK’s future growth? Take a look at our free research report of analyst consensus for ICBK’s outlook.
Valuation: What is ICBK 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 ICBK 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.
To help readers see past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
