Business context and reporting period
Triumph Bancorp, Inc. (the registrant named in this filing; metadata identifies Triumph Financial, Inc.) filed this unaudited Form 10-Q for the quarter ended June 30, 2016. The company operates community banking, commercial finance and factoring, and CLO asset-management businesses. Figures below are in U.S. dollars; financial-statement amounts are in millions unless noted.
Financial performance and condition
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Net interest income | $25.9 | $24.6 | $48.4 | $44.4 |
| Provision for loan losses | $1.9 | $2.5 | $1.4 | $3.2 |
| Noninterest income | $3.7 | $4.8 | $8.6 | $21.4 |
| Noninterest expense | $20.3 | $19.6 | $40.4 | $40.4 |
| Net income | $4.6 | $4.7 | $9.6 | $18.7 |
| Net income available to common | $4.4 | $4.5 | $9.2 | $18.3 |
| Diluted EPS | $0.25 | $0.25 | $0.51 | $1.01 |
| Net interest margin | 6.53% | 7.20% | 6.22% | 6.67% |
| Efficiency ratio | 68.74% | 66.75% | 70.84% | 72.52% |
- Q2 return on average assets was 1.07% (1.23% prior year); return on average common equity was 6.64% (7.27%).
- At June 30, total assets were $1.783 billion, up $92 million from year-end 2015. Loans held for investment, net, were $1.397 billion, deposits $1.275 billion, and stockholders’ equity $279.8 million.
- Cash and cash equivalents were $61.8 million, down from $105.3 million at December 31. First-half operating cash flow was $13.1 million; investing cash use was $137.3 million and financing cash provided was $80.7 million, producing a $43.5 million net cash decrease.
- Funding included $180.5 million of FHLB advances, up $50.5 million since year-end, and $24.8 million carrying value of junior subordinated debentures. The company reported $110.5 million of unused FHLB capacity and $112.5 million of unused unsecured federal-funds lines.
- Regulatory capital remained above minimums: TBK Bank’s total risk-based capital ratio was 14.0% and common equity Tier 1 ratio 13.1%; the filing states the bank was well capitalized.
Material changes versus comparable periods
- Q2 net income was nearly flat year over year: higher net interest income and lower loan-loss provision were largely offset by lower noninterest income and higher expenses. A $1.2 million write-down on a former branch property was the main unusual Q2 noninterest item.
- First-half net income declined $9.1 million from 2015, largely because the prior-year period included a $12.5 million nontaxable Doral Money bargain-purchase gain. Excluding that gain and related acquisition expenses and bonus, management reported adjusted 2015 net income available to common of $6.9 million, versus $9.2 million in 2016; adjusted diluted EPS was $0.39 in 2015.
- Loan growth supported interest income: gross loans increased $118.6 million from year-end. Commercial loans rose to $574.5 million and factored receivables to $237.5 million. Commercial finance balances reached $606.9 million, up 29.8% from June 2015.
- Net interest margin compressed, with management citing lower asset yields, a shift toward lower-yielding non-transportation factoring, reduced acquired-loan discount accretion, and higher funding costs. Adjusted NIM, excluding acquired-loan discount accretion, was 5.98% in Q2 and 5.79% for the first half.
- Credit indicators weakened: nonperforming loans rose to $22.0 million from $13.4 million at year-end; nonperforming assets increased to $28.5 million from $18.5 million. Nonperforming loans were 1.56% of loans versus 1.03%; allowance coverage of nonperforming loans fell to 62.6% from 94.1%. The allowance was $13.8 million, or 0.98% of loans.
Outlook, risks and unusual items
- On August 1, 2016, after quarter-end, the company acquired ColoEast Bankshares for $70 million in cash. ColoEast had approximately $753 million in assets, $464 million in loans and $659 million in deposits at June 30; purchase accounting was not complete. Management said the acquisition expands Colorado presence and diversifies the loan, customer and deposit base.
- Management expected acquired-loan discount accretion to diminish over time, while anticipating that growth in specialized commercial-finance products could partly offset lower portfolio yields. No formal earnings or revenue guidance was provided.
- Risks highlighted include credit deterioration and reserve-estimation uncertainty, interest-rate and funding risk, transportation-industry factoring concentration, acquisition integration and execution, CLO-related risks, competition, liquidity, and operational, cybersecurity and regulatory risks. Management said liquidity was adequate and capital requirements were met.
- Interest-rate simulations showed that a 100-basis-point increase was projected to lift net interest income 0.7% over the next 12 months, while a 100-basis-point decrease was projected to reduce it 2.0%. These are model estimates, not forecasts.
- The trademark infringement lawsuit was settled without material impact. Management reported no other legal proceedings expected to have a material adverse effect, and no material change in disclosed risk factors. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Confirm the issuer identity: this filing names Triumph Bancorp, Inc., while the request metadata names Triumph Financial, Inc.
- Assess the post-quarter ColoEast acquisition’s final purchase accounting, integration costs, realized synergies, and effect on capital and funding.
- Track whether rising nonperforming loans, past-due balances and OREO lead to higher charge-offs, provisions, or further property write-downs.
- Monitor core margin trends, deposit pricing and mix, FHLB borrowing, and the sustainability of loan growth as acquired-loan accretion declines.
- Separate recurring results from the 2015 Doral bargain gain and from 2016’s property write-down and CLO warehouse investment income; review the company’s non-GAAP reconciliations.