Triumph Bancorp,can you evict your spouse in ohio Inc.’s (

NASDAQ:TBK

) profitability and risk are largely affected by the underlying economic growth for the region it operates in US given it is a small-cap stock with a market capitalisation of US$778m. A bank’s cash flow is directly impacted by economic growth as it is the main driver of deposit levels and demand for loans which it profits from. After the GFC, a set of reforms called Basel III was imposed in order to strengthen regulation, supervision and risk management in the banking sector. These reforms target bank level regulation and aims to improve the banking sector’s ability to absorb shocks arising from economic stress which could expose financial institutions to vulnerabilities. Its financial position may weaken in an adverse macro event such as political instability which is why it is crucial to understand how well the bank manages its risks. Low levels of leverage coupled with sufficient liquidity may place Triumph Bancorp in a safe position in the face of adverse headwinds. We can measure this risk exposure by analysing three metrics for leverage and liquidity which I will take you through today.

See our latest analysis for Triumph Bancorp

NasdaqGS:TBK Historical Debt January 2nd 19

Is TBK’s Leverage Level Appropriate?

Banks with low leverage are exposed to lower risks around their ability to repay debt. A bank’s leverage can be thought of as the amount of assets it holds compared to its own shareholders’ funds. While financial companies will always have some leverage for a sufficient capital buffer, Triumph Bancorp’s leverage ratio of 7.36x is significantly below the appropriate ceiling of 20x. This means the bank exhibits very strong leverage management and is well-positioned to repay its debtors in the case of any adverse events since it has an appropriately high level of equity relative to the debt it has taken on to remain in business. If the bank needs to increase its debt levels to firm up its capital cushion, there is plenty of headroom to do so without deteriorating its financial position.

How Should We Measure TBK’s Liquidity?

Handing Money Transparent

As I eluded to above, loans are relatively illiquid. It’s helpful to understand how much of this illiquid asset makes up Triumph Bancorp’s total asset. Generally, they should make up less than 70% of total assets, however its current level of 77% means the bank has lent out 6.81% above the sensible threshold. This indicates that revenue is dependent on this particular asset but also the bank is more exposed to default compared to banks with less loans.

What is TBK’s Liquidity Discrepancy?

Banks operate by lending out its customers’ deposits as loans and charge a higher interest rate. Loans are generally fixed term which means they cannot be readily realized, conversely, on the liability side, customer deposits must be paid in very short notice and on-demand. The discrepancy between loan assets and deposit liabilities threatens the bank’s financial position. If an adverse event occurs, it may not be well-placed to repay its depositors immediately. Since Triumph Bancorp’s loan to deposit ratio of 101% is higher than the appropriate level of 90%, this level positions the bank in a risky spot given the adverse liquidity disparity between loan and deposit levels. Basically, for $1 of deposits with the bank, it lends out over $1 which is imprudent.

Story continues

Next Steps:

Keep in mind that a stock investment requires research on more than just its operational side. Below, I’ve compiled three relevant aspects you should further examine:

Future Outlook

: What are well-informed industry analysts predicting for TBK’s future growth? Take a look at our

free research report of analyst consensus

for TBK’s outlook.

Valuation

: What is TBK 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 TBK 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

[email protected]

.

View comments

• ·Here's What World Precision Machinery Limited's (SGX:B49) P/E Is Telling Us
• ·PE's lack of liquidity comes into focus as public, private markets converge
• ·Traders: Bitcoin Trend Looking Ugly, Why a Slow Drop Below $3,000 is Expected
• ·3 Hidden Costs Of Business School
• ·IMPORTANT SHAREHOLDER ALERT: The Schall Law Firm Announces the Filing of a Class Action Lawsuit Against Beyond Meat, Inc. and Encourages Investors with Losses in Excess of $100,000 to Contact the Firm
• ·Top Picks 2019- International Business Machines IBM
• ·Japan final Feb manufacturing PMI confirms fastest pace of decline in two-and-a-half years
• ·China: Anti-Crypto Central Bank Worried Cash Losing Relevance
• ·IMPORTANT SHAREHOLDER ALERT: The Schall Law Firm Announces the Filing of a Class Action Lawsuit Against Beyond Meat, Inc. and Encourages Investors with Losses in Excess of $100,000 to Contact the Firm
• ·Big Bang Theory’ Jim Parsons Believes ‘Warm’ Kaley Cuoco Will Be An ‘Incredible’ Mom
• ·What does Powerlong Real Estate Holdings Limited’s (HKG:1238) Balance Sheet Tell Us About Its Future?
• ·Kirkland & Ellis, Wachtell Advise on Bristol-Myers Squibb's $74B Celgene Acquisition
• ·Could coronavirus trigger a recession?
• ·India unveils budget aimed at wooing countryside before election
• ·Google workers support proposed U.S. laws to curb mandatory arbitration
• ·Should Jazz Pharmaceuticals plc (NASDAQ:JAZZ) Be Your Next Stock Pick?