Minimized Factors to Consider Before Investing in Atlantic Capital Bancshares, Inc. (NASDAQ: ACBI)

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As a small-cap financial security with a market capitalization of $ 478 million, the risk and profitability of Atlantic Capital Bancshares, Inc. (NASDAQ: ACBI) are largely related to the underlying economic growth of the region where he operates in the United States. To the extent that a bank benefits from the reinvestment of its clients' deposits in the form of loans, negative economic growth can lower the level of deposits and the demand for loans, which has a negative impact on its cash flows. After the GFC, a set of reforms called Basel III was imposed to strengthen regulation, supervision and risk management in the banking sector. Basel III is targeting banking regulations to improve the sector's ability to absorb shocks resulting from economic stress that could expose financial institutions such as Atlantic Capital Bancshares to vulnerabilities. Given that its financial situation may unexpectedly decline in the event of adverse macroeconomic event such as political instability, it is important to understand how careful the bank is in managing its levels of risk. Strong leverage and liquidity management could put the bank in a protected position against macro headwinds. We can evaluate Atlantic Capital Bancshares' risk-taking behavior by analyzing three leverage and liquidity indicators that I will explain to you later.

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NasdaqGS: ACBI Historical Debt, March 15, 2019

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Why is the ACBI lever important?

Low-indebted banks are exposed to lower risks in terms of their ability to repay their debts. The leverage of a bank can be thought of as the amount of assets it holds relative to the funds of its own shareholders. Financial institutions must have a certain level of safety margin to meet the required capital levels. Atlantic Capital Bancshares' 9.13x leverage level is very safe and 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 has to increase its level of debt to consolidate its capital buffer, it has enough room for maneuver to do so without deteriorating its financial situation.

How should we measure the liquidity of ACBI?

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Because of their non-liquid nature, loans are an important asset class on which we should know more. Generally, they should account for less than 70% of total assets, which is in line with the state of Atlantic Capital Bancshares, given its 58% ratio. At this loan level, the bank has maintained a reasonable level between maintaining liquidity and generating interest income on the loan.

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What is the difference in ACBI's liquidity?

Banks lend their clients' deposits in the form of loans and apply a higher interest rate. These loans can be futures and can not often be easily realized, however, customer deposits are liabilities that must be repaid on demand and within a short time. The disparity between the immediacy of the deposits and the non-liquid nature of the loans puts the financial situation of the bank at serious strain if an adverse event requires the bank to repay its depositors. Compared to the conservative 90 per cent deposit loan level in the sector, Atlantic Capital Bancshares' more than 88 per cent ratio is sufficiently small, placing the bank in a relatively safe liquidity position, as it is has not lent its deposits and has maintained an adequate level. For compliance.

Next steps:

Atlantic Capital Bancshares meets all our liquidity and leverage requirements, while exercising operational prudence. The operational risk of a bank is a fundamental principle often overlooked by investors. High liquidity and low debt position the bank in an ideal position to repay financial liabilities in adverse wind conditions. We have discussed the operational risks for ACBI in this article. But as an equity investment, you need to understand other fundamentals. Below, I've compiled three important aspects on which you should deepen your research:

  1. Future prospects: What do well-informed industry analysts predict for ACBI's future growth? Check out our free research report on analyst consensus on ACBI's outlook.
  2. Evaluation: What is ACBI worth today? Has the potential for future growth already been factored into the price? The intrinsic value infographic of our free research report helps to visualize whether ACBI 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 = "Our goal is to provide you with a long-term research analysis based on fundamental data. Note that our analysis may not take into account the latest price sensitive business announcements or qualitative information.

If you notice an error that needs to be corrected, please contact the publisher at editorial-team@simplywallst.com. This article from Simply Wall St is of a general nature. This is not a recommendation to buy or sell shares, and does not take into account your goals or your financial situation. Simply Wall St has no position on the actions mentioned. Thanks for the reading.

"data-reactid =" 68 "> Our goal is to provide you with a long-term research analysis based on fundamental data.Please note that our analysis may not take into account the latest announcements of price sensitive companies or qualitative material.

If you notice an error that needs to be corrected, please contact the publisher at editorial-team@simplywallst.com. This article from Simply Wall St is of a general nature. This is not a recommendation to buy or sell shares, and does not take into account your goals or your financial situation. Simply Wall St has no position on the actions mentioned. Thanks for the reading.