Triumph Bancorp, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2016. The filing registrant was Triumph Bancorp, Inc. The company is a Dallas-based financial holding company with Banking, Factoring, Asset Management, and Corporate segments.
Financial results and position
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Net interest income | $30.4 million | $23.2 million | $78.8 million | $67.6 million |
| Provision for loan losses | $2.8 million | $0.2 million | $4.2 million | $3.4 million |
| Noninterest income | $6.1 million | $6.3 million | $14.7 million | $27.7 million |
| Noninterest expense | $25.8 million | $20.5 million | $66.2 million | $61.0 million |
| Net income | $4.8 million | $5.9 million | $14.4 million | $24.6 million |
| Diluted EPS | $0.25 | $0.32 | $0.76 | $1.33 |
- Q3 operating revenue (net interest income plus noninterest income) was $36.5 million versus $29.5 million. Nine-month operating revenue was $93.6 million versus $95.3 million; excluding the prior-year bargain purchase gain and escrow recovery, the filing reports adjusted operating revenue of $93.6 million versus $80.8 million.
- Q3 net interest margin was 5.79%, down from 6.45%; nine-month margin was 6.05%, down from 6.59%. Adjusted for acquired-loan discount accretion, margins were 5.53% and 5.69%, respectively, versus 6.14% and 6.23% in 2015.
- At September 30, assets were $2.575 billion, loans held for investment were $1.960 billion, deposits were $1.951 billion, and stockholders’ equity was $284.5 million. Compared with year-end 2015, assets increased $884 million and loans increased $668 million, substantially reflecting the ColoEast acquisition.
- Cash and cash equivalents were $104.7 million. For the first nine months, operating cash flow was $21.6 million, investing cash flow was negative $214.4 million, and financing cash flow was positive $192.3 million.
- Funding included $230 million of FHLB advances, $48.7 million of subordinated notes net of issuance costs, $32.6 million of junior subordinated debentures, and $15.3 million of customer repurchase agreements. The company reported $240.1 million of unused available FHLB advances and $112.5 million of unsecured federal funds lines with no amounts drawn.
- TBK Bank exceeded regulatory “well capitalized” thresholds. At September 30, its total risk-based capital ratio was 11.4%, common equity Tier 1 ratio 10.7%, and Tier 1 leverage ratio 10.7%.
Material changes and unusual items
- ColoEast Bankshares was acquired August 1 for $70 million cash, with $10.5 million of TARP preferred stock assumed and subsequently redeemed. The acquisition added approximately $460.8 million of loans, $161.7 million of securities, and $653 million of deposits; it expanded the company into Colorado and Kansas. The company recorded provisional goodwill of $12.1 million and $1.6 million of acquisition-related costs.
- Southern Transportation Insurance Agency was acquired September 1 for $2.2 million, adding a $1.6 million intangible asset and $0.6 million goodwill.
- Prior-year earnings included a $14.2 million nontaxable bargain purchase gain from the Doral Money acquisition, materially affecting the year-over-year nine-month comparison. The company said adjusted nine-month net income, excluding specified acquisition-related items, was $15.1 million versus $10.9 million.
- Q3 2016 provision expense rose to $2.8 million from $0.2 million, with higher charge-offs and specific reserves among the cited factors. Net charge-offs were $1.7 million for the quarter and $1.9 million for nine months.
- Nonperforming loans rose to $44.1 million from $13.4 million at year-end; nonperforming assets were $52.7 million versus $18.5 million. Nonperforming loans were 2.25% of loans versus 1.03%; allowance coverage of nonperforming loans declined to 33.78% from 94.10%. Management cited deterioration in certain commercial finance equipment and asset-based loans, restructured relationships, and acquired nonaccrual loans.
- The allowance for loan and lease losses was $14.9 million, or 0.76% of loans, compared with $12.6 million, or 0.97%, at year-end. The acquired ColoEast loans were initially recorded at fair value with no transferred allowance.
- The company issued $50 million of fixed-to-floating subordinated notes due 2026. They pay 6.50% through September 2021, then three-month LIBOR plus 5.345%, and are eligible for Tier 2 regulatory capital treatment.
- The company exited residential mortgage loan production in Q4 2015. CLO management fees were affected by a CLO being called in May 2016; the company reported managing $1.5 billion of CLO assets and providing services for another $800 million.
Outlook, risks, and contingencies
- No specific earnings or financial guidance was provided. Management expected acquired-loan discount accretion to decline over time, while anticipating that growth in specialized commercial finance products could partly offset lower yields. Approximately $18 million of acquired-loan purchase discount remained to be accreted.
- Management said liquidity was adequate and that the company and bank met applicable capital requirements. The filing cautions that actual results may differ from projections and that operating results for the interim period are not necessarily indicative of full-year results.
- Key cited risks include credit deterioration and loan-loss estimation, acquisition integration, interest-rate changes, funding and liquidity, competition and pricing pressure in factoring, transportation-industry concentration, CLO-related exposure, operational and cybersecurity issues, and regulatory or capital changes.
- Off-balance-sheet commitments totaled $234.5 million, including $21.8 million of commitments to make loans, $206.1 million of unused lines, and $6.5 million of standby letters of credit. Management said commitments may expire unused.
- Management reported no legal proceedings expected to have a material adverse effect, no material change in risk factors from the 2015 Form 10-K, effective disclosure controls, and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Track whether elevated nonperforming loans, past-due balances, charge-offs, and specific reserves persist, and assess the allowance relative to the changing loan mix.
- Evaluate the quality and integration of the ColoEast acquired portfolio, the remaining provisional purchase accounting, and the realization of expected acquisition synergies.
- Compare reported and adjusted earnings and margins, including the fading contribution of acquired-loan accretion and the effects of funding costs and commercial finance pricing.
- Confirm the 2016 adjusted diluted EPS figure: the financial highlights table reports $0.84 for the nine months, while the non-GAAP reconciliation reports $0.87.
- Assess deposit stability, time-deposit maturities, reliance on FHLB advances, and the cost and terms of the new subordinated notes.