Triumph Bancorp, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are primarily with Q1 2020. The filing is by Triumph Bancorp, Inc. (NASDAQ: TBK), a Dallas-based financial holding company with Banking, Factoring and Corporate segments. Dollar amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Q1 2021 | Q1 2020 or comparison |
|---|---|---|
| Interest income | $88.4 | $75.4 |
| Net interest income | $83.0 | $62.5 |
| Net interest margin | 6.06% | 5.63% |
| Credit loss expense (benefit) | ($7.8) | $20.3 expense |
| Noninterest income | $14.3 | $7.5 |
| Noninterest expense | $60.9 | $54.8 |
| Net income (loss) | $33.9 | ($4.5) |
| Net income (loss) available to common stockholders | $33.1 | ($4.5) |
| Diluted earnings (loss) per share | $1.32 | ($0.18) |
| Operating cash flow | $21.7 | $14.1 |
- Net interest income rose 32.8%, reflecting growth in average interest-earning assets and sharply lower funding costs. The average cost of interest-bearing deposits fell to 0.41% from 1.34%.
- Net interest margin increased 43 basis points. The efficiency ratio improved to 62.57% from 78.24%.
- Noninterest income increased 91.1%; a $4.7 million gain on the TFS indemnification asset was a significant contributor. Noninterest expense increased 11.2%, including higher compensation and operating costs.
- Cash and cash equivalents were $380.8 million at quarter-end, up $66.4 million from year-end. Investing cash flow was a use of $69.2 million and financing cash flow provided $114.0 million.
Financial position, debt and capital
- Total assets were $6.100 billion, up from $5.936 billion at December 31, 2020. Loans held for investment, before allowance, were $5.085 billion, up $87.7 million; deposits were $4.790 billion, up $73.1 million.
- Noninterest-bearing deposits increased $284.9 million, while interest-bearing deposits declined $211.8 million. Total stockholders’ equity increased to $764.0 million from $726.8 million.
- Loans net of the allowance for credit losses were $5.036 billion. The allowance was $48.0 million, or 0.94% of loans, versus $95.7 million, or 1.92%, at year-end.
- Reported borrowings included $180.0 million of FHLB advances, $158.8 million under the PPP Liquidity Facility, $87.6 million of subordinated notes and $40.2 million of junior subordinated debentures.
- Consolidated Tier 1 and total risk-based capital ratios were 11.3% and 13.6%, respectively. Management stated the bank exceeded regulatory well-capitalized thresholds.
- Available liquidity included $1.044 billion of unused FHLB capacity, $512.7 million of Federal Reserve discount-window capacity, and $227.5 million of unsecured federal funds lines, with no amounts drawn on the latter lines.
Material changes and unusual items
- Factoring balances grew 7.8% from year-end to $1.209 billion; commercial finance loans overall grew 7.8% to $2.021 billion. Factoring segment operating income rose to $18.8 million from $8.1 million, although its yield on average receivables fell to 13.85% from 16.13%.
- A $41.3 million charge-off of a TFS-acquired over-formula advance was fully reserved in an earlier period and did not affect Q1 credit loss expense. Covenant reimbursed $35.6 million through a draw on its secured line of credit; the amount is recorded as a performing equipment loan. The remaining $10.6 million over-formula advance balance was fully reserved.
- The company recorded a $4.7 million gain on the related indemnification asset; its carrying value fell to $5.2 million from $36.2 million at year-end. Recovery depends on the covered portfolio and Covenant’s ability to pay.
- Management attributed the broader allowance release to improved projected economic conditions, which reduced required reserves by $8.3 million. The filing cautions that worsening conditions could require additional credit loss expense.
Outlook, risks and contingencies
- No formal earnings or financial guidance is provided. Management said pandemic and macroeconomic conditions appeared to be improving as of March 31, 2021, while warning that renewed COVID-19 impacts could affect borrowers, credit costs, earnings and liquidity.
- At quarter-end, 48 COVID-related loan deferrals totaled $85.3 million, or 1.7% of loans; 69% involved three relationships. Accrued interest and fees on these deferrals were $0.5 million. Future extensions, losses and reversals of accrued income remain uncertain.
- The company carried 2,670 PPP loans with a book value of $237.3 million. It recognized $1.1 million of SBA fees during the quarter and had $6.6 million of deferred fees. Management expects most PPP loans to be forgiven; loans are reported as fully government-guaranteed.
- A $19.2 million receivable relates to payments the USPS made to a factoring customer instead of the company. The full amount was over 90 days past due and classified as nonperforming, but no allowance was recorded because management believed recovery from the USPS was probable. The USPS disputes liability; an adverse court outcome could expose the company to losses up to the receivable amount.
- On March 31, 2021, the company agreed to acquire HubTran, a transportation back-office software provider, for $97 million in cash, subject to customary conditions and regulatory approval. Closing was expected in Q2 2021; completion was not reported in this filing.
- Management cited risks from transportation-industry concentration, credit quality, interest-rate and funding-cost volatility, litigation, acquisition execution, and possible goodwill or intangible impairment. The filing reported no material change in risk factors from the 2020 Form 10-K.
Important facts for investors to verify
- Progress and potential recovery in the USPS misdirected-payment litigation, including whether any reserve becomes necessary.
- Collection outcomes for the remaining TFS over-formula advances and the value and recoverability of the Covenant indemnification asset.
- Whether COVID-related deferrals resume or extend, and whether credit quality or allowance needs deteriorate as accommodations end.
- HubTran’s closing, total acquisition cost and integration progress.
- Whether factoring growth and margins remain sustainable amid pricing pressure and transportation-market changes; assess the quarter’s charge-off metrics in light of the previously reserved TFS charge-off.
- Deposit mix, wholesale funding use, and capital and liquidity headroom as loan growth and funding needs evolve.