Triumph Bancorp, Inc. — Q1 2019 Form 10-Q
The filing is for the three months ended March 31, 2019; the financial statements are unaudited. The registrant is identified in the filing as Triumph Bancorp, Inc. It is a Dallas-based financial holding company with Banking, Factoring and Corporate segments, including transportation-focused factoring. Comparisons with Q1 2018 are affected by acquisitions completed in 2018 and the sale of Triumph Healthcare Finance in March 2018. Dollar amounts below are rounded to millions unless stated otherwise.
Financial performance and condition
| Metric | Q1 2019 / March 31, 2019 | Comparable period / December 31, 2018 |
|---|---|---|
| Interest income | $73.3 million | $54.1 million in Q1 2018 |
| Net interest income | $61.3 million | $47.1 million in Q1 2018 |
| Net interest margin | 6.15% | 6.06% in Q1 2018 |
| Noninterest income | $7.5 million | $5.2 million in Q1 2018 |
| Noninterest expense | $48.6 million | $34.0 million in Q1 2018 |
| Net income available to common stockholders | $14.8 million; diluted EPS $0.55 | $11.9 million; diluted EPS $0.56 in Q1 2018 |
| Operating cash flow | $20.8 million | $9.5 million in Q1 2018 |
| Total assets | $4.530 billion | $4.560 billion at December 31, 2018 |
| Loans held for investment, gross | $3.613 billion | $3.609 billion at December 31, 2018 |
| Deposits | $3.314 billion | $3.450 billion at December 31, 2018 |
| Cash and cash equivalents | $172.0 million | $234.9 million at December 31, 2018 |
| Stockholders’ equity | $646.2 million | $636.6 million at December 31, 2018 |
Net income increased 22.5% year over year, while diluted EPS declined from $0.56 to $0.55 as the weighted-average share count rose substantially, partly reflecting the 2018 stock offering. Management reported Q1 2019 return on average assets of 1.33% and return on average common equity of 9.30%. The efficiency ratio increased to 70.54% from 65.09% (66.45% on the company’s adjusted basis for Q1 2018).
Net interest income growth reflected a larger average earning-asset base, including acquired businesses and factoring growth. Interest expense rose 71% year over year; the average cost of interest-bearing deposits increased to 1.24% from 0.86%, and the cost of total funds rose to 1.28% from 0.95%. For Q1 2019, investing cash flow was negative $14.5 million and financing cash flow was negative $69.2 million; cash and equivalents decreased by $63.0 million.
At March 31, borrowings included $405.0 million of FHLB advances, up from $330.0 million at year-end, $49.0 million of subordinated notes and $39.2 million of junior subordinated debentures. The company reported $565.7 million of unused FHLB borrowing capacity and $137.5 million of available unsecured federal funds lines. Management stated that liquidity was adequate for current and future needs. Total regulatory capital to risk-weighted assets was 13.62% for the company; TBK Bank exceeded the regulatory “well capitalized” thresholds.
Material changes versus comparable periods
- Net interest income rose $14.2 million, or 30.1%, year over year; average interest-earning assets increased 28.2%. The 2018 acquisitions of First Bancorp of Durango and Southern Colorado expanded Banking, while the Interstate Capital acquisition expanded Factoring.
- Provision for loan losses fell to $1.0 million from $2.5 million. Net charge-offs were $1.0 million, compared with $1.3 million in Q1 2018. The allowance for loan and lease losses was $27.6 million, or 0.76% of loans, at quarter-end.
- Noninterest expense increased $14.5 million, or 42.7%, led by salaries and benefits, occupancy, technology and intangible amortization. Management attributed much of the increase to acquired operations, additional staff and growth initiatives.
- Deposits declined $135.9 million, or 3.9%, from year-end; FHLB advances rose $75.0 million. Gross loans increased only $4.2 million during the quarter, while commercial finance balances declined 5.5% to $1.187 billion, primarily due to lower ending factored receivables and asset-based lending.
- Nonperforming loans decreased to $34.2 million from $36.1 million at year-end; nonperforming assets were $38.2 million, or 0.84% of assets. Past-due loans were 2.33% of loans, down from 2.41%.
- The company repurchased 247,312 shares for $7.6 million at an average price of $30.51 under its authorized $25 million repurchase program.
Outlook, commentary and risks
- No specific financial guidance was provided. Management said purchased-loan discount accretion is expected to decline over time, subject to future acquisitions, and expects growth in higher-yielding specialized commercial finance products to offset some resulting yield pressure.
- Management cited improved credit quality as one factor in lower provisions, while noting increased net new specific reserves. It also described first-quarter factoring volume as seasonal; factoring receivables fell from year-end even as invoice purchases exceeded the prior-year quarter.
- Transportation-related receivables represented 76% of factored receivables at quarter-end. The filing identifies transportation-industry concentration, credit deterioration, acquisition integration, deposit and liquidity pressures, and interest-rate movements among key risks.
- The company’s modeled net interest income increased under rising-rate scenarios and declined under a 100-basis-point rate decrease; actual results may differ due to assumptions, market conditions and management actions.
- The ICC acquisition included contingent consideration valued at $21.0 million at March 31, 2019, with a contractual payout range of $0–$22.0 million and settlement tied to a transportation invoice-price index. The liability is remeasured through earnings.
- The company adopted lease accounting guidance in January 2019, recognizing $21.9 million of lease liabilities and $22.1 million of right-of-use assets at adoption. It expects to adopt CECL on January 1, 2020 and anticipates a significant impact on accounting policies, controls and disclosures; the financial impact had not yet been determined.
- Management said routine legal claims were not expected to have a material effect; no material changes to previously disclosed risk factors were reported. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether deposit outflows, higher funding costs and increased FHLB borrowing persist, and how available liquidity capacity changes.
- Whether factoring balances and transportation exposure recover or contract further, and how credit performance and reserve needs evolve.
- How acquisition integration affects recurring expenses, segment profitability and organic growth, separating these effects from acquisition-driven comparisons.
- The assumptions and eventual balance-sheet and earnings effects of CECL adoption, as well as the final ICC contingent-consideration settlement.
- How adjusted results compare with GAAP results; Q1 2018 included a $1.1 million pretax gain on the healthcare finance sale, while Q1 2019 had no such transaction gain.