Business context and reporting period
This summary covers Triumph Bancorp, Inc.’s unaudited Form 10-Q for the three months ended March 31, 2018. The filing describes a financial holding company with Banking, Factoring and Corporate segments. The request metadata names Triumph Financial, Inc., but the registrant identified in this filing is Triumph Bancorp, Inc.
The company provides community banking and nationwide commercial finance services, including transportation factoring, asset-based lending, equipment finance and premium finance. It sold Triumph Healthcare Finance (THF) on March 16, 2018 and exited healthcare asset-based lending.
Key financial metrics
Dollar amounts below are in millions unless stated otherwise. Income statement and cash-flow comparisons are year over year; balance-sheet comparisons are against December 31, 2017.
| Metric | Q1 2018 / March 31, 2018 | Comparable period / prior year-end |
|---|---|---|
| Interest income | $54.1 | $36.3 in Q1 2017 |
| Net interest income | $47.1 | $31.8 in Q1 2017 |
| Noninterest income | $5.2 | $27.3 in Q1 2017 |
| Provision for loan losses | $2.5 | $7.7 in Q1 2017 |
| Noninterest expense | $34.0 | $34.8 in Q1 2017 |
| Net income | $12.1 | $10.5 in Q1 2017 |
| Net income available to common stockholders | $11.9 | $10.3 in Q1 2017 |
| Diluted EPS | $0.56 | $0.55 in Q1 2017 |
| Total assets | $3,405.0 | $3,499.0 |
| Loans held for investment, net | $2,854.0 | $2,792.1 |
| Total deposits | $2,533.5 | $2,621.3 |
| Total stockholders’ equity | $402.9 | $391.7 |
| Cash and cash equivalents | $106.0 | $134.1 |
| FHLB advances | $355.0 | $365.0 |
| Subordinated notes and junior subordinated debentures | $87.6 combined | $87.5 combined |
| Operating cash flow | $9.5 | $3.6 in Q1 2017 |
| Net change in cash | Decrease of $28.1 | Increase of $11.6 in Q1 2017 |
Net interest margin was 6.06%, compared with 5.37% in Q1 2017; adjusted net interest margin, excluding acquired-loan discount accretion, was 5.81% versus 5.19%. The reported efficiency ratio was 65.09% versus 58.94%; adjusted efficiency ratio was 66.45% versus 77.65%. Return on average assets was 1.43% and return on average common equity was 12.30%.
The allowance for loan and lease losses was $20.0 million, or 0.70% of loans, versus $18.7 million, or 0.67%, at year-end. Nonperforming assets were $50.0 million (1.47% of assets), versus $48.5 million (1.39%). Regulatory capital ratios included 11.54% Tier 1 capital to risk-weighted assets and 13.66% total capital to risk-weighted assets; TBK Bank exceeded the stated “well capitalized” thresholds.
Material changes versus prior comparable period
- Net interest income rose $15.3 million, or 48.1%, reflecting higher average earning assets, organic lending growth, and a full quarter of contributions from the 2017 Valley and Colorado branch acquisitions. Average loan yield increased to 7.65% from 7.15%; management attributed part of the increase to acquired-loan discount accretion.
- Net income increased to $12.1 million from $10.5 million, while reported noninterest income fell sharply because Q1 2017 included a $20.9 million gain on the sale of Triumph Capital Advisors (TCA). Q1 2018 included a $1.1 million net gain on the THF sale.
- Management’s non-GAAP adjusted net income available to common stockholders was $11.1 million, or $0.52 per diluted share, versus $0.3 million, or $0.02, in Q1 2017. The prior-year adjustment removes the TCA gain and related transaction expenses; adjusted figures are not GAAP measures.
- Provision for loan losses declined to $2.5 million from $7.7 million, while net charge-offs fell to $1.3 million from $4.0 million. However, nonperforming loans and assets increased from year-end, and the company reported $20.3 million of potential problem loans.
- Factoring balances increased, and commercial finance product balances grew 4.3% from year-end to $936.5 million. Deposits fell $87.9 million and cash declined $28.1 million during the quarter.
- Available-for-sale securities declined $57.7 million to $192.9 million, reflecting sales, reclassification of equity securities under a new accounting standard, and portfolio activity. Accumulated other comprehensive loss widened to $1.7 million from $0.6 million.
Outlook, commentary, risks and unusual items
- No numerical earnings or operating guidance was provided. Management said acquired-loan discount accretion is expected to decline as acquired loans mature or run off; it expects growth in specialized commercial finance products to partly offset that effect.
- After quarter-end, the company agreed to acquire First Bancorp of Durango and Southern Colorado Corp. (combined year-end 2017 assets of $734 million) and Interstate Capital’s transportation factoring assets (year-end gross factored receivables of $112 million). These transactions remained pending in the filing.
- On April 12, 2018, the company completed a common-stock offering of 5.405 million shares at $37.50 per share, generating approximately $192.1 million in net proceeds. It intended to use a significant portion for the pending acquisitions and the remainder for general corporate purposes.
- Liquidity sources include cash flows, deposits, securities, FHLB advances and other borrowing capacity. At March 31, available FHLB advances were $380.2 million and TBK Bank had $137.5 million of available unsecured federal-funds lines. Management stated liquidity was adequate for current and future needs.
- Key disclosed risks include credit quality and loan-loss estimate uncertainty, concentration in transportation factoring and certain state economies, interest-rate exposure, deposit funding costs, acquisition completion and integration, competition, liquidity, cybersecurity and regulatory or tax changes. Simulations showed a +100-basis-point rate shock would increase projected net interest income 2.4% over the next 12 months; actual results may differ and depend on assumptions.
- The Tax Act reduced the effective tax rate to 23% from 37%; management said accounting for the law was not final and its full impact was still being evaluated. Adoption of the new revenue standard did not materially affect the statements. Management reported effective disclosure controls and no material change in internal control over financial reporting. Routine legal claims were not considered material.
Important facts for investors to verify
- Track credit trends: nonperforming assets reached $50.0 million, nonperforming loans were 1.41% of loans, and potential problem loans totaled $20.3 million; assess subsequent delinquencies, charge-offs and reserve adequacy.
- Separate recurring performance from one-time items: reconcile the THF and prior-year TCA divestiture gains, transaction-related adjustments and non-GAAP adjusted earnings.
- Assess funding and liquidity after the $87.9 million quarterly deposit decline, including deposit mix, funding costs, FHLB capacity and the effect of the subsequent equity offering.
- Monitor completion, purchase accounting, funding and integration of the announced bank and factoring acquisitions, and whether expected benefits materialize.
- Review sensitivity to interest rates, acquired-loan accretion runoff, transportation-sector concentration and the impact of the new expected-credit-loss standard, which the company was still assessing.