Triumph Bancorp, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; balance-sheet comparisons are to December 31, 2021. Amounts below are in U.S. dollars; financial statement amounts are rounded to millions unless stated otherwise. The filing describes a financial holding company with Banking, Factoring, Payments and Corporate segments, focused substantially on financial services for the trucking industry.
Financial results and position
- Revenue and earnings: Net interest income was $100.1 million, up 20.6% year over year; noninterest income was $11.1 million, down 22.2%. Net income was $24.3 million versus $33.9 million, and net income available to common stockholders was $23.5 million versus $33.1 million. Diluted EPS was $0.93 versus $1.32.
- Profitability and margins: Net interest margin rose to 7.68% from 6.06%; loan yield increased to 8.60% from 7.24%. Return on average assets was 1.69% versus 2.29%; return on average common equity was 11.41% versus 19.14%. The efficiency ratio increased to 70.65% from 62.57%.
- Cash flow: Operating cash flow was $51.1 million, investing cash flow was negative $105.5 million and financing cash flow was $84.9 million. Cash and cash equivalents ended the quarter at $413.7 million.
- Assets and loans: Total assets were $6.08 billion, up from $5.96 billion at year-end. Loans held for investment were $4.72 billion, down 2.9% from $4.87 billion. Factored receivables grew 3.8% to $1.76 billion; mortgage warehouse loans fell 9.8% to $694.4 million.
- Deposits, debt and liquidity: Deposits were $4.33 billion, down 6.8% from year-end, partly reflecting $377.7 million reclassified as held for sale. FHLB advances were $230 million, subordinated notes $107.2 million and junior subordinated debentures $40.7 million; the PPPLF balance was zero. Management reported $591.5 million in unused Federal Reserve discount-window and other borrowing capacity combined with $227.5 million in unsecured federal-funds lines, and $594.4 million in unused FHLB capacity.
- Credit and capital: The loan allowance for credit losses was $41.6 million, or 0.88% of loans. Nonperforming assets were $52.9 million, or 0.87% of assets. The company’s total risk-based capital ratio was 14.5%; TBK Bank’s was 13.4%, above the stated 10.0% well-capitalized threshold.
Material changes versus the prior comparable period
- Net income fell by $9.6 million despite higher net interest income. Management attributed the decline mainly to $17.7 million higher noninterest expense, $8.3 million higher credit-loss expense versus a prior-year benefit, and $3.2 million lower noninterest income.
- Higher factoring balances and yields drove much of the net interest income improvement. Average factoring receivables rose 53.9%; average Banking loans fell 18.5%.
- Operating expenses increased 29.0% to $78.6 million, including higher salaries and benefits, technology costs, professional fees and intangible amortization. Management linked some increases to workforce growth and continued investment in TriumphPay.
- Factoring segment operating income rose to $33.1 million from $18.8 million. Payments segment operating loss widened to $6.7 million from $2.6 million as operating costs and investment increased, despite higher invoice volumes and fees.
- Comparability is affected by the prior-year $7.8 million credit-loss benefit and $4.7 million gain on the TFS-related indemnification asset. Q1 2021 also included a $41.3 million charge-off of previously reserved over-formula advances, largely reimbursed under the Covenant indemnity arrangement.
Outlook, management commentary, risks and unusual items
- Outlook: The filing provides no specific earnings or revenue guidance. Management said trucking demand continued to exceed capacity, with elevated freight rates and supply-chain backlogs; it also noted uncertainty around carrier equipment orders and volatile commodity prices.
- Strategic changes: TriumphPay’s strategy shifted toward a trucking payments network emphasizing fee revenue following the 2021 HubTran acquisition. Q1 2022 payment fees were $3.2 million versus $0.1 million a year earlier. Management said it continued to invest in the platform.
- Planned disposals: The company decided to sell 15 branches and a portfolio of non-transportation factored receivables. At quarter-end, the branch disposal group included $179.3 million of assets and $367.3 million of deposits; the factored-receivables group included $80.8 million of assets and $10.4 million of customer-reserve deposits. Both were classified as held for sale at cost.
- USPS litigation: A $19.4 million receivable for misdirected customer payments was more than 90 days past due, classified as nonperforming, and carried no allowance. The USPS disputes its obligation to pay. The company said it believed recovery was probable, but disclosed that an adverse ruling could result in losses up to the receivable’s full amount and that its legal issues were novel.
- Other credit exposure: The remaining $9.6 million TFS over-formula advance balance was fully reserved; the related indemnification asset was $4.6 million. Management said COVID-19 had little effect on required reserves in the quarter, but warned that weaker economic conditions could increase credit losses.
- Interest-rate and funding risks: Management noted that short-term wholesale funding rates can be volatile and deposit outflows could increase reliance on more expensive funding. Its interest-rate model estimated that an immediate 100-basis-point increase would raise net interest income by 3.0% over the following 12 months; modeled outcomes depend on assumptions and are not forecasts.
- Share repurchases: The board authorized repurchases of up to $50 million over one year. The company repurchased 14,810 shares for $1.3 million during the quarter.
Important facts for investors to verify
- Progress, timing and sale terms for the branch and non-transportation factoring disposal groups, including resulting changes in deposits, assets and earnings.
- Developments in the USPS litigation and recoverability of the $19.4 million receivable; the filing states there is no reserve against it.
- Factoring portfolio credit quality, including the fully reserved TFS over-formula advances and past-due receivables.
- Whether TriumphPay’s fee growth and transaction volumes can outpace its rising operating costs and narrowing segment economics.
- Deposit trends, funding costs and capital levels as interest rates and the economic outlook change. The filing reports no specific forward earnings guidance.