Triumph Bancorp, Inc. — 2014 Q3 Form 10-Q
Reporting period: Three and nine months ended September 30, 2014. The filing identifies the registrant as Triumph Bancorp, Inc.; the supplied company metadata says Triumph Financial, Inc. Figures below are in U.S. dollars; financial amounts are in millions unless noted.
Business context and reporting period
Triumph Bancorp was a Dallas-based financial holding company operating community banking and nationwide commercial finance businesses, including factoring, asset-based lending, equipment lending, and healthcare finance. Its reportable segments were Banking, Factoring, and Corporate. Comparisons with 2013 are substantially affected by the October 2013 acquisition of National Bancshares/Triumph Community Bank, whose results are included in 2014 but not in the comparable 2013 periods.
Financial performance and position
- Q3 earnings: Net income was $10.3 million versus $0.4 million in Q3 2013; net income available to common stockholders was $9.5 million, or $0.96 basic and $0.91 diluted per share, versus $0.2 million and $0.03 per share.
- Nine-month earnings: Net income was $17.0 million versus $1.7 million; net income available to common stockholders was $14.9 million versus $0.5 million. Diluted EPS was $1.47 versus $0.06. Management’s adjusted diluted EPS, excluding the after-tax branch-sale gain and adjusting for preferred conversion effects, was $0.16 for Q3 and $0.71 year to date.
- Interest income and margins: Q3 net interest income was $20.4 million, up from $8.1 million; nine-month net interest income was $59.1 million, up from $21.3 million. Net interest margin fell to 6.69% from 9.06% for Q3 and to 6.71% from 8.96% year to date. Adjusted NIM, excluding specified purchase-accounting accretion, was 6.19% and 5.91%, respectively, in 2014.
- Noninterest income and costs: Noninterest income was $15.8 million for Q3 and $21.0 million year to date, including a $12.6 million pre-tax gain on the Pewaukee branch sale. Noninterest expense was $18.5 million and $49.5 million, respectively, up substantially from 2013, largely reflecting the bank acquisition, business growth, and added infrastructure. The Q3 efficiency ratio was 78.29%, compared with 72.72%.
- Cash flow: For the first nine months, operating cash flow was $13.8 million, investing cash outflow was $100.2 million, and financing cash inflow was $76.2 million. Cash and cash equivalents declined $10.2 million from year-end to $75.6 million.
- Balance sheet and funding: Total assets were $1.348 billion, loans held for investment $977.1 million, deposits $1.106 billion, and total stockholders’ equity $149.9 million at September 30. Loans rose from $881.1 million and deposits from $1.045 billion at December 31, 2013. Cash and cash equivalents were $75.6 million and available-for-sale securities were $165.5 million.
- Debt and capital: At September 30, FHLB advances were zero, the senior secured note was $11.6 million, and junior subordinated debentures were $24.4 million. The banking subsidiaries were categorized as well-capitalized; their total risk-based capital ratios were 16.9% for Triumph Savings Bank and 14.5% for Triumph Community Bank.
- Credit quality: Nonperforming loans were $17.6 million, up from $12.4 million at year-end; nonperforming assets were $27.6 million, or 2.05% of assets. The allowance for loan and lease losses was $7.3 million, or 0.75% of loans, compared with $3.6 million, or 0.41%, at year-end. Nine-month net charge-offs were $0.4 million.
Material changes versus the prior comparable period
- Triumph Community Bank’s acquisition drove much of the growth in assets, deposits, interest income, and operating expense; therefore, year-over-year growth rates are not directly comparable with the smaller 2013 company.
- Loan balances grew in commercial lending, factoring, healthcare finance, and mortgage warehouse lending. The Pewaukee branch sale transferred $78.1 million of selected loans and $36.3 million of deposits and generated $57.4 million of net cash proceeds.
- The acquisition changed the portfolio mix: reported NIM and loan yield declined, while lower-cost deposits helped reduce funding costs. Management noted that purchase-accounting loan discount accretion boosted yields and expected that benefit to decline over time.
- Nonperforming loans increased, including a purchased credit-impaired healthcare loan and a commercial relationship placed on nonaccrual after the parent company filed for bankruptcy. OREO declined to $10.0 million from $13.8 million.
Outlook, risks, contingencies, and unusual items
- Management provided no quantified earnings or revenue guidance. It expected continued growth in specialized commercial finance lending to help offset declining purchase-accounting accretion, while noting that actual results may differ and that interim results are not necessarily indicative of full-year results.
- Key disclosed risks include credit deterioration and reserve-estimation uncertainty; interest-rate and liquidity exposure; integration of recent acquisitions; concentration of factoring receivables in transportation; competition; cybersecurity and control risks; regulatory changes; and potential impairment of securities, goodwill, or intangibles.
- Management reported that the subsidiaries met “well-capitalized” thresholds. Disclosure controls were deemed effective, with no material change in internal control over financial reporting during the quarter. Management reported no material expected losses from legal claims or contingencies.
- Off-balance-sheet commitments totaled $254.5 million, primarily unused lines of credit ($234.1 million); actual funding needs may be lower because commitments can expire undrawn.
- Subsequent to quarter-end, the company completed an IPO of 7.705 million shares at $12 per share for $92.5 million gross proceeds; estimated net proceeds were approximately $83 million and not finalized. It retired the $11.3 million-principal senior secured note on November 13, 2014, and reported regulatory approval to redeem TARP preferred stock for approximately $26.2 million, anticipated around December 31, 2014.
Most important facts for investors to verify
- Confirm the legal issuer and company identity: this 2014 filing is for Triumph Bancorp, Inc.
- Assess underlying earnings excluding the $12.6 million branch-sale gain and the effects of the bank acquisition; compare GAAP and management-adjusted measures.
- Track margin trends and the remaining $12.4 million of acquired-loan purchase discount expected to accrete, alongside growth in higher-yielding commercial finance products.
- Monitor nonperforming loans, allowance adequacy, and exposures by loan type, geography, and transportation-related factoring.
- Review use of IPO proceeds, completion and cost of the preferred-stock redemption, and subsequent capital and share-count changes.