Triumph Bancorp, Inc. (now identified in the request as Triumph Financial, Inc.) — Q3 2021 Form 10-Q
The filing is for the quarter and nine months ended September 30, 2021. The registrant’s name in the filing is Triumph Bancorp, Inc. It reports Banking, Factoring, Payments and Corporate segments; amounts below are in U.S. dollars unless noted.
Financial performance and position
| Metric | Q3 2021 | Comparable period / position |
|---|---|---|
| Net income / diluted EPS | $24.4 million / $0.94 | Q3 2020: $22.9 million / $0.89 |
| Net interest income | $91.8 million | Up 23.4% from $74.4 million in Q3 2020 |
| Net interest margin | 6.69% | 5.83% in Q3 2020 |
| Noninterest income / expense | $12.1 million / $72.8 million | Q3 2020: $10.5 million / $55.3 million |
| Return on average assets / common equity | 1.61% / 12.13% | Q3 2020: 1.65% / 13.61% |
| Cash and cash equivalents | $532.8 million at September 30 | $314.4 million at December 31, 2020 |
| Loans held for investment, net | $4.742 billion at September 30 | $4.901 billion at December 31, 2020 |
| Deposits | $4.823 billion at September 30 | $4.717 billion at December 31, 2020 |
| Total stockholders’ equity | $820.7 million at September 30 | $726.8 million at December 31, 2020 |
For the first nine months, net income was $86.3 million and diluted EPS was $3.33, versus $31.9 million and $1.27 in 2020. Net interest income rose 31.8% to $265.1 million. Net cash provided by operating activities was $89.3 million; investing activities provided $168.3 million, including $96.9 million of net cash paid for acquisitions; financing activities used $39.2 million. Cash increased $218.4 million from year-end.
At September 30, total liabilities were $5.204 billion. Borrowings included $30.0 million of FHLB advances, $97.6 million under the PPP Liquidity Facility, $106.8 million of subordinated notes and $40.5 million of junior subordinated debentures. The company reported strong regulatory capital: total risk-based capital ratios were 13.7% for the company and 12.5% for TBK Bank; the bank remained “well capitalized.”
Changes versus prior periods
- Factoring drove much of the revenue and net interest income growth: Q3 average factoring receivables rose 77.4% year over year, while the factoring yield eased to 13.75% from 15.59%. Factoring segment operating income nearly doubled to $26.2 million.
- Banking segment operating income fell 30.2% to $15.1 million in Q3, partly reflecting lower average banking loans. Payments processed $4.2 billion in Q3, up from $1.2 billion; the Payments segment’s operating loss widened to $5.2 million as the company continued investing.
- Noninterest expense rose 31.7% year over year in Q3, including higher compensation, technology spending and intangible amortization. The efficiency ratio increased to 70.13% from 65.15%.
- The allowance for credit losses on loans declined to $41.0 million from $95.7 million at year-end; the allowance-to-loans ratio fell to 0.86% from 1.92%. Nine-month credit-loss benefit was $10.8 million, versus $33.6 million of expense in 2020. The filing attributes the change to improved economic forecasts and the reduction of acquired over-formula advances; it is not solely evidence of lower underlying risk.
- Nonperforming assets were $52.0 million, or 0.86% of assets, versus $68.5 million, or 1.15%, at year-end. Past-due loans were 2.31% of loans versus 3.22%.
Outlook, management commentary and risks
- No specific earnings or revenue guidance is provided. Management said economic conditions were improving as of September 30, but warned that renewed COVID-19 effects could worsen borrowers’ ability to pay, increase credit losses and reduce interest income. Three loans totaling $32.2 million remained in COVID-related deferral; 94% related to one borrower relationship.
- The June 2021 HubTran acquisition cost $97.1 million in cash and added $70.5 million of goodwill. Management described it as a strategic shift for TriumphPay from a capital-intensive lending product toward a trucking payments network focused more on fee revenue. The Payments segment remained loss-making while the company invested in growth and integration.
- The acquired TFS over-formula advance portfolio produced a $41.3 million charge-off in Q1, substantially covered by previously established reserves. Remaining advances were $10.1 million and fully reserved at quarter-end. The related indemnification asset was $4.8 million; Covenant had $9.4 million of remaining line availability against an indemnification balance of up to $5.0 million.
- A separate $19.4 million receivable involves payments the USPS made to a factoring customer rather than to the company. The USPS disputes liability. Triumph filed a new action in the U.S. Court of Federal Claims, recorded no allowance, and stated that an adverse ruling could result in a loss up to the full amount; recovery from the customer may also be uncertain.
- Liquidity sources included $995.3 million of unused FHLB capacity, $529.3 million of Federal Reserve discount-window capacity and $227.5 million of unsecured federal funds lines, with no amounts drawn on the latter lines. Management cautioned that wholesale funding costs and deposit outflows could pressure liquidity and net interest margin. Interest-rate simulations showed projected net interest income rising 5.4% under a 100-basis-point increase over the following 12 months; actual outcomes may differ.
- The company redeemed $50 million of 2016 subordinated notes on September 30, after issuing $70 million of new notes in August. It recorded about $0.8 million of remaining debt costs in interest expense. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Progress and legal recoverability of the $19.4 million USPS misdirected-payment claim, and any resulting reserve or collection impact.
- Credit performance and recoveries for the remaining TFS over-formula advances, including the adequacy and collectability of the related indemnification asset.
- Whether factoring growth and transportation-industry conditions can be sustained, and how charge-offs and credit-loss reserves evolve.
- HubTran integration, Payments fee growth, segment losses and the pace at which investment may translate into profitability.
- Deposit mix, funding costs, interest-rate sensitivity, liquidity capacity and capital levels as borrowing and market conditions change.
- Reported versus adjusted results: adjusted measures exclude specified acquisition-related items and are non-GAAP; Q3 2021 common earnings were $23.6 million, compared with adjusted Q3 2020 common earnings of $22.6 million.