Yahoo Finance Have You Considered These Key Risks For Cambridge Bancorp (NASDAQ:CATC)?
The banking sector has been experiencing growth as a result of improving credit quality from post-GFC recovery. As a small-cap bank with a market capitalisation of US$352m, Cambridge Bancorp’s (NASDAQ:CATC) 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 Cambridge Bancorp’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 Cambridge Bancorp’s a stock investment.
Check out our latest analysis for Cambridge Bancorp
How Good Is Cambridge Bancorp At Forecasting Its Risks?
Cambridge Bancorp’s forecasting and provisioning accuracy for its bad loans indicates it has a strong understanding of its own risk levels. If the bank provision covers more than 100% of what it actually writes off, then it is considered sensible and relatively accurate in its provisioning of bad debt. Given its large bad loan to bad debt ratio of over 500%, Cambridge Bancorp 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.
What Is An Appropriate Level Of Risk?
If Cambridge Bancorp does not engage in overly risky lending practices, it is considered to be in good financial shape. 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 Cambridge Bancorp’s bottom line. The bank’s bad debt only makes up a very small 0.056% to total debt which means means the bank has very strict bad debt management and faces insignificant levels of default.
How Big Is Cambridge Bancorp’s Safety Net?
Cambridge 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. As a rule, a bank is considered less risky if it holds a higher level of deposits. Cambridge Bancorp’s total deposit level of 95% 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:
How will CATC’s recent acquisition impact the business going forward? Should you be concerned about the future of CATC and the sustainability of its financial health? The list below is my go-to checks for CATC. I use Simply Wall St’s platform to keep informed about any changes in the company and market sentiment, and also use their data as the basis for my articles.
Future Outlook: What are well-informed industry analysts predicting for CATC’s future growth? Take a look at our free research report of analyst consensus for CATC’s outlook.
Valuation: What is CATC 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 CATC 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.
