Triumph Bancorp, Inc. — 2019 Form 10-K
Business context and period. The filing covers the fiscal year ended December 31, 2019; the company is now identified in the request as Triumph Financial, Inc., but the filing is issued under Triumph Bancorp, Inc. Headquartered in Dallas, the financial holding company operated through TBK Bank and reported Banking, Factoring, and Corporate segments. Its offerings included community banking, commercial finance, transportation factoring and payments, mortgage warehouse lending, liquid credit, and premium finance.
Key financial results
| Metric | 2019 | 2018 |
|---|---|---|
| Total assets, year-end | $5.060 billion | $4.560 billion |
| Gross loans held for investment, year-end | $4.195 billion | $3.609 billion |
| Total deposits, year-end | $3.790 billion | $3.450 billion |
| Stockholders’ equity, year-end | $636.6 million | $636.6 million |
| Net interest income | $255.9 million | $227.1 million |
| Provision for loan losses | $7.9 million | $16.2 million |
| Noninterest income | $31.6 million | $23.0 million |
| Noninterest expense | $204.1 million | $167.4 million |
| Net income | $58.5 million | $51.7 million |
| Net income available to common shareholders | $58.5 million | $51.1 million |
| Diluted earnings per share | $2.25 | $2.03 |
| Net interest margin | 5.92% | 6.35% |
| Efficiency ratio | 70.99% | 66.94% |
| Return on average assets | 1.23% | 1.33% |
Cash flow, debt, and asset quality
- Operating cash flow was $72.5 million, investing cash outflow was $520.4 million, and financing cash inflow was $410.9 million. Cash and cash equivalents declined $37.1 million to $197.9 million.
- Year-end borrowings included $430.0 million of FHLB advances, $87.3 million of subordinated notes, and $39.6 million of junior subordinated debentures. The company issued $39.5 million of new subordinated notes in November 2019.
- Available FHLB borrowing capacity was $871.0 million; the company also had $137.5 million of unsecured federal funds lines with no amounts drawn.
- The allowance for loan and lease losses was $29.1 million, or 0.69% of loans. Net charge-offs were $6.4 million, or 0.17% of average loans.
- Nonperforming assets totaled $44.1 million, or 0.87% of assets, versus $38.3 million, or 0.84%, a year earlier. Nonperforming loans were 0.97% of loans, compared with 1.00%.
- Regulatory capital ratios remained above well-capitalized thresholds. At year-end, the company’s total capital ratio was 12.8%, Tier 1 ratio 10.3%, and CET1 ratio 9.5%; TBK Bank’s total capital ratio was 12.0%.
Material changes versus 2018
- Net income increased $6.8 million; net interest income rose $28.9 million, while the loan-loss provision declined $8.2 million.
- Average interest-earning assets grew 20.9%, supporting higher interest income. However, interest expense increased 53.8% as deposit and borrowing costs rose; net interest margin fell 43 basis points to 5.92%.
- Noninterest expense increased 21.9%, principally due to higher salaries, facilities, technology, and operating costs. The efficiency ratio worsened to 70.99% from 66.94%.
- Organic loan growth was $585.9 million. National lending balances rose 119.8% to $850.4 million, mainly reflecting mortgage warehouse growth and new liquid-credit activity. Commercial finance balances increased 5.6% to $1.250 billion.
- Deposits grew $339.6 million. The company repurchased 2.08 million shares for $64.4 million, largely offsetting earnings’ contribution to year-end equity.
- TriumphPay processed $975.1 million of payments in 2019, up from $328.4 million in 2018. The factoring segment’s operating income increased 43.4% to $37.4 million.
Fourth-quarter detail
Fourth-quarter 2019 net income available to common shareholders was $16.7 million, or $0.66 diluted per share, compared with $18.1 million, or $0.67 diluted per share, in fourth-quarter 2018. Fourth-quarter 2019 net interest income was $66.4 million and provision for loan losses was $0.4 million.
Outlook, commentary, risks, and unusual items
- Management described growth in transportation-focused commercial finance and TriumphPay as strategic priorities, and expected TriumphPay growth to continue. The filing provides no numerical earnings or revenue guidance. It planned to open a full-service Dallas branch in the first half of 2020.
- Management attributed margin compression to higher-cost certificates of deposit and brokered deposits, higher borrowing costs, and a shift in loan mix. It cited more traditional transportation demand in 2019 after unusually strong demand in 2018.
- Transportation was estimated to generate 30–35% of 2019 revenue. Transportation invoices represented 77% of period-end factored receivables. The filing identifies sector conditions, carrier regulation, client concentration, and fraud as material risks.
- Other principal risks include credit deterioration and unseasoned loan growth, interest-rate sensitivity, funding and deposit costs, acquisition integration, cybersecurity and operational risks, regulatory requirements, and the transition away from LIBOR.
- The company’s $8 million minority investment in Warehouse Solutions Inc. included an 8% ownership interest and warrants to purchase an additional 10%. The ICC acquisition earnout liability was $21.6 million at year-end, with a stated maximum payout of $22 million.
- The filing gives inconsistent estimates of the January 1, 2020 CECL adoption impact. MD&A estimates an approximately $0.3 million increase in the loan allowance, a $1.6 million increase in the off-balance-sheet commitment reserve, and a $1.5 million reduction in retained earnings. A note to the financial statements instead says the allowance and reserve are not expected to change materially and retained earnings are not expected to be materially adjusted.
- No material pending legal proceedings were reported. The auditor gave unqualified opinions on the financial statements and internal control over financial reporting; the allowance’s qualitative loss factors were identified as a critical audit matter.
Most important facts for investors to verify
- Reconcile management’s conflicting CECL adoption estimates and confirm the actual adoption adjustment.
- Assess whether loan growth, especially mortgage warehouse and transportation-related exposures, is producing sustainable risk-adjusted returns.
- Track deposit mix and funding costs, margin trends, and reliance on certificates of deposit, brokered deposits, and FHLB advances.
- Review nonperforming assets, classified and potential-problem loans, factoring charge-offs, and adequacy of the allowance as the portfolio seasons.
- Monitor TriumphPay transaction growth, technology reliability, client concentrations, and the financial performance of the $8 million WSI investment.
- Confirm the remaining share-repurchase authorization and consider its effect on capital, liquidity, and share count; the filing states the company did not expect to pay common dividends in the foreseeable future.