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As a small market capitalization bank value with a market capitalization of US $ 1.1 billion, the risk and profitability of TriCo Bancshares (NASDAQ: TCBK) are largely determined by the underlying economic growth of US regions in the US. which it operates. As banks earn money by reinvesting their clients' deposits in the form of loans, strong economic growth will determine the level of savings deposits and loan demand, which will have a direct impact on cash flows. of these banks. In the aftermath of the 2008 financial crisis, a package of reforms called Basel III was implemented to strengthen risk management, regulation and supervision in the financial services sector. Basel III is targeting banking regulations to improve the sector's ability to absorb shocks resulting from economic tensions that could expose financial institutions such as TriCo Bancshares to vulnerabilities. Unpredictable macroeconomic events, such as political instability, could weaken its financial situation. That's why it's important to understand how well the bank is managing its risk levels correctly. High liquidity and low leverage may favorably position TriCo Bancshares against macro headwinds. One way to measure this risk is to look at three indicators of leverage and liquidity that I will explain just now.

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NASDAQGS: TCBK's historical debt on February 11 19

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Is the TCBK lever level appropriate?

A low level of indebtedness exposes a bank to less risk and improves its ability to repay its debtors. Leverage can be thought of as the amount of a bank's assets relative to the funds of its shareholders. While financial companies will always be leveraged to obtain sufficient capital reserves, the TriCo Bancshares leverage ratio of 7.68x is very safe and is well below the 20x maximum limit. This means that the bank's own funds are significantly higher than those it has incurred to maintain its activities, which allows it to repay its debt in unforeseen circumstances. If the bank were to increase its level of debt to meet its capital needs, it would have plenty of leeway to do so.

What is the level of liquidity of TCBK?

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As mentioned above, loans are quite illiquid, so it is important to understand how much these loans make up the total assets of the bank. Generally, they should represent less than 70% of total assets, which is in line with the state of TriCo Bancshares, given its ratio of 63%. This ratio is reasonable and suggests that just over half of the bank's total assets are related to illiquid debt, which represents an appropriate balance between liquidity and interest income.

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Does TCBK have liquidity problems?

TCBK takes advantage of its clients' loans in the form of a loan and receives an interest in principle. These loans can be term and often can not be easily realized, in reverse of liabilities, customer deposits must be paid in a very short time and upon request. The gap between loan assets and deposit liabilities threatens the financial position of the bank. If an adverse event occurs, it may not be well placed to repay its depositors immediately. Relative to the sector's conservative level of 90% deposit loan, TriCo Bancshares' ratio of more than 74% is sufficiently small, which positions the bank cautiously in terms of liquidity, as it does not disproportionately disbursed its deposits and maintained an adequate level of deposits. .

Next steps:

TriCo Bancshares passes all our liquidity and debt checks, which shows that it is prudent to manage these factors. This gives us confidence in the operational side of the business, an important aspect to consider before investing in the stock. Its high liquidity and low level of debt mean the bank is well positioned to meet its financial obligations in the event of adverse and unpredictable macroeconomic events. We only discussed operational risks for TCBK in this article. But as an equity investment, you need to understand other fundamentals. I've put in place three key aspects that you should consider:

  1. Future prospects: What do well-informed industry analysts predict for TCBK's future growth? Check out our free research report on analyst consensus on TCBK's outlook.
  2. Evaluation: What is TCBK worth today? Has the potential for future growth already been factored into the price? The infographics of intrinsic value of our free research report helps to visualize whether TCBK is currently overvalued by the market.
  3. Other performing stocks: Are there other stocks offering better prospects with proven track records? Explore our free list of these large stocks here.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "To help readers understand the past volatility of the financial market in the short term, our goal is to provide you with a long-term research analysis based solely on fundamental data. Note that our analysis does not take into account the latest price sensitive business announcements.

The author is an independent contributor and, at the time of publication, was not positioned in the actions mentioned. For errors that need to be corrected, please contact the publisher at editorial-team@simplywallst.com.

"data-reactid =" 69 "> To help readers overcome the short-term volatility of the financial market, we aim to provide you with a long-term research analysis based solely on fundamental data. account of the latest price sensitive business announcements.

The author is an independent contributor and, at the time of publication, was not positioned in the actions mentioned. For errors that need to be corrected, please contact the publisher at editorial-team@simplywallst.com.