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Real Risks To Know Before Investing In Tristate Capital Holdings, Inc. (NASDAQ:TSC)

Autumn Haas

Improving credit quality as a result of post-GFC recovery has led to a strong environment for growth in the banking sector. As a small-cap bank with a market capitalisation of US$551m, Tristate Capital Holdings, Inc.’s (NASDAQ:TSC) 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 Tristate Capital Holdings’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 Tristate Capital Holdings’s a stock investment.

Check out our latest analysis for Tristate Capital Holdings

NasdaqGS:TSC Historical Debt December 24th 18
NasdaqGS:TSC Historical Debt December 24th 18

How Good Is Tristate Capital Holdings At Forecasting Its Risks?

Tristate Capital Holdings’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 level of provisioning covers 100% or more of the actual bad debt expense the bank writes off, then it is relatively accurate and prudent in its bad debt provisioning. Given its large bad loan to bad debt ratio of over 500%, Tristate Capital Holdings 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?

By nature, Tristate Capital Holdings is exposed to risky assets by lending to borrowers who may not be able to repay their loans. Total loans should generally be made up of less than 3% of loans that are considered unrecoverable, also known as bad debt. 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 0.048% to total debt which means means the bank has very strict bad debt management and faces insignificant levels of default.

How Big Is Tristate Capital Holdings’s Safety Net?

Handing Money Transparent
Handing Money Transparent

Tristate Capital Holdings 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. Generally, the higher level of deposits a bank retains, the less risky it is deemed to be. Tristate Capital Holdings’s total deposit level of 93% 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:

TSC’s acquisition will impact the business moving forward. Keep an eye on how this decision plays out in the future, especially on its financial health and earnings growth. I’ve bookmarked TSC’s company page on Simply Wall St to stay informed with changes in outlook and valuation. This is also the source of data for this article. The three main sections I’d recommend you check out are:

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

  2. Valuation: What is TSC 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 TSC 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 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.