Triumph Bancorp, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. The unaudited filing identifies the registrant as Triumph Bancorp, Inc. The company operates Banking, Factoring, Payments and Corporate segments, with banking and factoring making up most revenue.
Financial performance and condition
Dollars in millions, except per-share amounts and ratios.
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net interest income | $90.3 | $64.3 | $173.3 | $126.8 |
| Credit loss expense (benefit) | $(1.8) | $13.6 | $(9.7) | $33.9 |
| Noninterest income | $13.9 | $20.0 | $28.2 | $27.5 |
| Noninterest expense | $70.8 | $52.7 | $131.7 | $107.5 |
| Net income | $28.0 | $13.4 | $61.9 | $9.0 |
| Net income available to common shareholders | $27.2 | $13.4 | $60.3 | $9.0 |
| Diluted EPS | $1.08 | $0.56 | $2.39 | $0.37 |
- Q2 net interest margin was 6.47%, up from 5.11%; the efficiency ratio was 67.96%, compared with 62.56%. Management’s adjusted efficiency ratio, excluding specified M&A-related items, was 65.09% versus 70.75%.
- Management reported adjusted diluted EPS of $1.17 for Q2 and $2.48 for the first half, excluding material acquisition/divestiture items. These are non-GAAP measures.
- At June 30, total assets were $6.016 billion, gross loans $4.831 billion, deposits $4.725 billion, and stockholders’ equity $792.4 million. Compared with year-end 2020, loans fell $165.6 million; deposits rose $8.9 million; and equity rose $65.6 million.
- Cash and cash equivalents were $444.4 million, up from $314.4 million at year-end. First-half operating cash flow was $57.5 million; investing cash flow was $87.4 million and financing cash flow was negative $14.9 million.
- Major borrowings at quarter-end included $130.0 million of FHLB advances, $139.7 million under the PPP Liquidity Facility, $87.6 million of subordinated notes and $40.3 million of junior subordinated debentures. Total liabilities were $5.223 billion. Management said liquidity was adequate and described additional available FHLB and other borrowing capacity.
- The loan allowance for credit losses was $45.7 million, or 0.95% of loans, versus $95.7 million, or 1.92%, at year-end. Nonperforming assets were 0.97% of total assets; past-due loans were 2.28% of loans.
- TBK Bank exceeded regulatory “well-capitalized” thresholds: total risk-based capital was 11.8%, common equity Tier 1 was 11.1%, and Tier 1 leverage was 10.4%.
Material changes and unusual items
- Profit improvement reflected higher net interest income and a credit-loss benefit, including improved forecasted economic assumptions. Lower funding costs and growth in higher-yielding factoring balances contributed to the margin increase.
- Factoring receivables grew 24.8% from year-end to $1.398 billion; banking loans declined 11.4% to $3.433 billion. Factoring segment Q2 operating income rose to $25.2 million from $7.2 million a year earlier, amid sharply higher invoice purchases and average funds employed.
- On June 1, the company acquired HubTran for approximately $97.1 million cash. The acquisition added $73.7 million of goodwill and $27.3 million of intangible assets; Q2 included $3.0 million of transaction costs and about $1.0 million of acquired Payments fees. Management described the deal as a strategic shift for TriumphPay from a capital-intensive lending product toward a trucking payments network focused on fee revenue. The Payments segment reported a Q2 operating loss of $7.4 million.
- The acquired TFS over-formula advance portfolio remained a significant credit matter. A $41.3 million net charge-off in the first quarter was largely covered by previously recorded reserves; Covenant reimbursed $35.6 million through its secured credit line. The remaining $10.1 million portfolio balance was fully reserved at quarter-end.
- A separate $19.4 million receivable relates to payments the USPS made to a customer instead of the company. The USPS disputes its obligation; the company has sued and recorded no allowance, citing its belief that recovery is probable. A loss could be material.
- Q2 2020 included a $9.8 million gain from selling Triumph Premium Finance, so reported year-over-year noninterest income is not directly comparable. Q2 2021 also included $1.2 million of customer early-termination fees; first-half results included a $4.7 million gain related to the TFS indemnification asset.
Outlook, commentary and risks
- The filing gives no quantitative earnings or revenue guidance. Management said freight demand, tonnage and rates were unusually strong in Q2, while noting competitive pricing pressure and lower purchase discount rates in factoring.
- Management’s credit outlook benefited from forecasts of lower unemployment and stronger retail sales, home prices and GDP. A weaker recovery or renewed COVID-19 effects could increase reserves, charge-offs and nonaccrual loans, and reverse accrued interest or fees on deferred loans.
- Ten COVID-related loan deferrals totaled $53.7 million; 98% involved three relationships. The company reported $208,000 of accrued interest and fees on these deferrals. It also held $135.3 million of PPP loans, which management believes are generally government-guaranteed and expected to be forgiven.
- Transportation exposure is material: 91% of factoring receivables were transportation-related. Other risks cited include borrower concentration and credit quality, interest-rate and funding-cost volatility, acquisition integration, goodwill and intangible impairment, and liquidity dependence on deposits and wholesale funding.
- In the company’s interest-rate simulation, a 100-basis-point increase was projected to raise net interest income 7.8% over the following 12 months; a 100-basis-point decrease was projected to reduce it 1.1%. Actual results may differ as the model depends on assumptions.
Important facts for investors to verify
- Track recovery or loss resolution for the $19.4 million USPS misdirected-payment receivable, including litigation developments and any resulting reserve.
- Monitor the remaining TFS over-formula advances, the fully reserved $10.1 million balance, and Covenant’s ability to meet indemnification obligations.
- Assess whether factoring growth and freight-market conditions persist, and whether TriumphPay can expand fee revenue while managing its operating losses and post-acquisition costs.
- Reconcile credit-loss benefits and the reduced allowance with subsequent loan performance, deferrals, charge-offs and economic forecast changes.
- Review deposit mix, borrowing costs, liquidity sources, and capital ratios as funding markets and interest rates change.