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Should You Be Concerned About Central Valley Community Bancorp’s (NASDAQ:CVCY) Risks?

The banking sector has been experiencing growth as a result of improving credit quality from post-GFC recovery. Central Valley Community Bancorp (NASDAQ:CVCY) is a small-cap bank with a market capitalisation of US$301.16m. Its profit and value are directly impacted by its borrowers’ ability to pay which is driven by the level of economic growth. This is because growth determines the stability of a borrower’s salary as well as the level of interest rates. Risk associated with repayment is measured by bad debt which is written off as an expense, impacting Central Valley Community Bancorp’s bottom line. Since the level of risky assets held by the bank impacts the attractiveness of it as an investment, I will take you through three metrics that are insightful proxies for risk. Check out our latest analysis for Central Valley Community Bancorp

NasdaqCM:CVCY Historical Debt June 22nd 18
NasdaqCM:CVCY Historical Debt June 22nd 18

Does Central Valley Community Bancorp Understand Its Own Risks?

Central Valley Community Bancorp’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. With a bad loan to bad debt ratio of 216.56%, the bank has extremely over-provisioned by 116.56% compared to the industry-average, which illustrates perhaps a too cautious approach to forecasting bad debt.

What Is An Appropriate Level Of Risk?

By nature, Central Valley Community Bancorp is exposed to risky assets by lending to borrowers who may not be able to repay their loans. Loans that cannot be recuperated by the bank, also known as bad loans, should typically form 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. The bank’s bad debt only makes up a very small 0.44% to total debt which means means the bank has very strict bad debt management and faces insignificant levels of default.

Is There Enough Safe Form Of Borrowing?

Handing Money Transparent
Handing Money Transparent

Central Valley Community Bancorp 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. The general rule is the higher level of deposits a bank holds, the less risky it is considered to be. Since Central Valley Community Bancorp’s total deposit to total liabilities is very high at 98.29% which is well-above the prudent level of 50% for banks, Central Valley Community Bancorp may be too cautious with its level of deposits and has plenty of headroom to take on risker forms of liability.

Next Steps:

The recent acquisition is expected to bring more opportunities for CVCY, 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. Below, I’ve listed three fundamental areas on Simply Wall St’s dashboard for a quick visualization on current trends for CVCY. I’ve also used this site as a source of data for my article.

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

  2. Valuation: What is CVCY 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 CVCY 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.