Business context and reporting period
Triumph Bancorp, Inc. (the registrant named in the filing; request metadata identifies Triumph Financial, Inc.) filed this unaudited Form 10-Q for the quarter ended June 30, 2019. The financial holding company operates Banking, Factoring and Corporate segments, with factoring concentrated in transportation. Comparisons are with Q2 and the first six months of 2018; acquisitions completed in 2018 materially affect comparability.
Key financial metrics
Amounts below are in millions of dollars unless stated otherwise.
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Interest income | $77.3 | $61.2 | $150.6 | $115.4 |
| Net interest income | $63.4 | $53.3 | $124.7 | $100.4 |
| Provision for loan losses | $3.7 | $4.9 | $4.7 | $7.5 |
| Noninterest income | $7.6 | $4.9 | $15.2 | $10.1 |
| Noninterest expense | $50.7 | $37.4 | $99.3 | $71.4 |
| Net income available to common stockholders | $12.7 | $12.2 | $27.5 | $24.1 |
| Diluted EPS | $0.48 | $0.47 | $1.03 | $1.02 |
| Net interest margin | 5.99% | 6.36% | 6.07% | 6.21% |
- Balance sheet at June 30: Total assets $4.783 billion; loans held for investment, net of allowance, $3.806 billion; deposits $3.659 billion; stockholders’ equity $643.4 million. Since December 31, 2018, assets rose $223.4 million, loans rose $227.3 million and deposits rose $208.6 million.
- Cash flow, first six months: Operating cash flow was $33.8 million; investing cash outflow was $226.3 million; financing cash inflow was $166.8 million. Cash and cash equivalents declined $25.6 million to $209.3 million.
- Funding and capital: FHLB advances were $305.0 million; subordinated notes $49.0 million; junior subordinated debentures $39.3 million. TBK Bank’s total risk-based capital ratio was 12.3%, above the 10.0% well-capitalized threshold. The filing reports $735.2 million of unused FHLB borrowing capacity and $137.5 million of unused unsecured federal funds lines.
- Credit: Allowance for loan and lease losses was $29.4 million, or 0.77% of loans. Nonperforming loans were $36.8 million (0.96% of loans); nonperforming assets were $41.0 million (0.86% of assets). Six-month net charge-offs were $2.9 million.
- Returns and efficiency: Q2 return on average assets was 1.09% and return on average common equity 7.83%; the efficiency ratio was 71.37%. Six-month figures were 1.21%, 8.55% and 70.96%, respectively.
Material changes versus comparable periods
- Q2 net income available to common holders increased about 4% year over year, but was below 2018 adjusted net income of $13.0 million (versus $12.7 million in 2019). For the first half, common net income increased from $24.1 million to $27.5 million; 2018 adjusted net income was $24.1 million.
- Net interest income grew 18.9% in Q2 and 24.2% for the first half, primarily as average earning assets expanded following acquisitions and organic loan growth. Funding costs rose faster: Q2 interest expense increased 73.7%, while the deposit cost rose to 1.14% from 0.73%.
- Noninterest expense rose 35.6% in Q2 and 38.9% in the first half, driven chiefly by staffing, facilities, technology and acquired-intangible amortization. The reported 2018 comparatives included $1.1 million of ICC acquisition costs; first-half 2018 also included a $1.1 million gain on the sale of Triumph Healthcare Finance.
- Factoring segment operating income rose 171.9% in Q2 and 110.6% in the first half, benefiting from the full-period contribution of ICC and higher average funds employed. The Factoring segment’s period-end receivables were $544.6 million, down from $577.5 million a year earlier.
- The company repurchased 838,141 shares for $24.9 million during the first half, completing its prior $25 million authorization. Shares outstanding declined to 26.2 million from 26.9 million at year-end. On July 17, 2019, the board authorized a further $25 million repurchase program.
Outlook, commentary, risks and unusual items
- The filing gives no specific earnings, revenue or margin guidance. Management said transportation demand had normalized from the record levels seen in 2018; that demand, invoice prices and utilization affect factoring balances and income.
- Management cited continued organic loan growth and growth in national lending, including mortgage warehouse balances, while noting that mortgage warehouse utilization can fluctuate materially with market conditions and seasonality.
- Management identified interest-rate risk, rising deposit costs, credit quality and charge-offs, transportation-industry concentration, acquisition integration, liquidity, competition, cybersecurity and regulatory changes among risks. The company’s rate simulation showed modeled net interest income sensitivity of +5.6% for a +100-basis-point shock over the following 12 months and -1.5% for a -100-basis-point shock; management cautioned actual outcomes may differ.
- The company planned to adopt CECL on January 1, 2020; implementation work, model development and parallel runs were ongoing. Adoption impact was not quantified in the filing.
- The ICC acquisition earnout liability was $21.3 million at June 30, 2019, with a contractual payout range of $0–$22 million and settlement at the end of a 30-month earnout period. Its fair value is remeasured and changes affect noninterest income.
- Management said it believed liquidity was adequate, TBK Bank remained well-capitalized, and identified no legal proceedings expected to have a material adverse effect. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether continued loan and factoring growth can offset deposit-cost increases and pressure on net interest margin.
- Factoring credit performance, transportation demand, receivables aging and the level of charge-offs and specific reserves.
- Expense growth and the extent to which acquisition-related staffing, technology and amortization costs translate into durable operating leverage.
- Liquidity and funding mix, including certificate and brokered deposit dependence, FHLB capacity and maturity obligations.
- CECL implementation assumptions and eventual transition impact; ICC earnout valuation and settlement; and the execution and regulatory implications of the new share repurchase authorization.
- The filing’s registrant name is Triumph Bancorp, Inc.; confirm the relationship to the Triumph Financial, Inc. name in the request metadata.