Triumph Financial(TFIN) - 2024 Q3 - Quarterly Results

Shareholder Letter and Quarterly Overview This section provides an overview of the company's third-quarter performance and strategic developments amidst a prolonged freight recession Discussion of the Quarter The company reported a net income of $4.5 million for the third quarter, maintaining expense discipline and achieving positive EBITDA for TriumphPay despite credit quality headwinds Q3 2024 Earnings Summary | Metric | Value | | :--- | :--- | | Net Income to Common Stockholders | $4.5 million | | Diluted Earnings Per Share | $0.19 | - The freight recession has lasted 33 months, the longest since 1980, with the company focusing on customer service and market share expansion during this period[2] - Expenses were successfully kept under the $97 million target for Q3, with similar discipline planned for Q4[2] - The TriumphPay payments segment returned to a positive EBITDA margin, with performance expected to continue improving non-linearly[3] - The company officially launched LoadPay and Factoring as a Service (FaaS) with C.H. Robinson, key offerings for its $1 billion transportation fintech platform revenue goal[4] - Credit loss remains a headwind, with year-to-date expense at $14.3 million, and classified assets are higher than historical norms[4] Key Performance Indicators (KPIs) This section presents key financial and operational metrics for Q3 2024 compared to prior quarters, highlighting sequential improvements in net income and strong year-over-year growth in payment volumes KPIs for the Quarter This section presents key financial and operational metrics for Q3 2024 in comparison to the preceding four quarters, showing sequential increases in net income and diluted EPS, alongside strong year-over-year growth in payment volumes Financial Highlights (Q3 2024 vs Q2 2024) | Financial Metric | Q3 2024 | Q2 2024 | | :--- | :--- | :--- | | Net income available to common stockholders | $4.546 million | $1.945 million | | Diluted earnings per common share | $0.19 | $0.08 | | Loans held for investment | $4.333 billion | $4.288 billion | | Deposits | $4.707 billion | $4.392 billion | | Non-performing assets to total assets | 2.07% | 1.60% | Factoring & Payments KPIs (Q3 2024) | Segment & Metric | Q3 2024 Value | Q/Q % Change | Y/Y % Change | | :--- | :--- | :--- | :--- | | Factoring | | | | | Invoice Volume | 1,480,824 | 3.4% | 3.7% | | Purchased Volume | $2.61 billion | 2.7% | 0.1% | | Payments | | | | | Invoice Volume | 6,278,246 | 3.6% | 24.6% | | Payment Volume | $7.09 billion | 6.0% | 33.1% | | Network Payment Volume | $1.06 billion | (6.2)% | 108.4% | Segment Analysis This section analyzes the financial and operational performance of the Payments, Factoring, and Banking segments, detailing revenue growth, market penetration, and credit quality Payments Segment The Payments segment achieved strong revenue growth and positive EBITDA despite the freight recession, advancing market penetration and launching key new products Financial and Operational Performance The Payments segment's noninterest income grew significantly, reaching an annualized revenue run rate of $59.5 million and achieving positive EBITDA margin in Q3 - Noninterest income in the Payments segment grew 7.8% in Q3 2024 and is up 30.0% compared to Q3 2023[8] - The third-quarter annualized revenue run rate was $59.5 million, with a compound annual growth rate (CAGR) of approximately 43.0% over the last two years[9] - The segment achieved a positive EBITDA margin in Q3, and management expects revenue and margin to continue improving, though not necessarily in a linear fashion[13] Market Penetration and Density TriumphPay's annualized network engagement reached approximately $52.5 billion, representing 48% of the brokered freight market, despite a short-term dip in total network volume - In Q3, annualized network engagement was approximately $52.5 billion, representing about 48% of the total addressable brokered freight market[15] - The company is focused on the top 25 brokers to add density quickly, with C.H. Robinson's volume expected to scale in Q4 after joining the network post-quarter[15] - Total network volume decreased by 5.7% in Q3 compared to Q2, attributed to the loss of one tier 1 factor, with management expecting a return to network volume growth by Q1 2025[18] Product Updates (NextGen Audit & LoadPay) The company is enhancing its product suite with NextGen Audit, enabling over 85% touchless invoice processing, and LoadPay, providing 24/7 real-time payments to carriers - The enhanced NextGen Audit product can enable over 85% touchless invoice processing, with its AI/ML technology achieving 94%+ accuracy in data extraction[20] - LoadPay allows carriers to receive real-time payments 24/7/365, even when traditional banking systems are closed[21] - The initial target market for LoadPay is the approximately 200,000 active owner-operators in the US, with each account estimated to generate about $750 of gross revenue annually, primarily from debit card interchange fees[23][24] Factoring Segment The Factoring segment's operating income increased to $8.0 million due to lower credit loss expenses, despite market pressures from declining average transportation invoice prices Financial and Operational Performance In Q3, the Factoring segment's operating income increased by $3.3 million to $8.0 million, driven by reduced credit loss expenses, despite a decline in the average transportation invoice price Q3 2024 Factoring Segment Performance | Metric | Q3 2024 Value | Q/Q Change | Y/Y Change | | :--- | :--- | :--- | :--- | | Operating Income | $8.0 million | +$3.3 million | - | | Purchased Volume | $2.61 billion | +2.7% | +0.1% | | Average Transportation Invoice Price | $1,724 | -$14 | -$48 | | Yield on Average Receivables | 13.57% | -0.57% | - | Transportation Market Update The transportation market remains stressed, with average invoice prices hitting a four-year low and spot rates lagging operating costs, leading to carriers exiting the market - Average invoice prices declined during the quarter, hitting a low of $1,698 in September, the lowest level seen since July 2020[29] - Despite a net decrease of 1,372 small trucker clients over the past 12 months, the number of invoices purchased increased by 3.7%[29] - Many owner-operators (O/O) are leaving their independent businesses to lease on with larger, more stable carriers[30] - Spot rates per mile (excluding fuel) remain below the cost per mile (excluding fuel), indicating that many smaller carriers cannot operate profitably[32][33] Technology, FaaS, and TriumphPay Integration Triumph is leveraging technology like 'Instant Decision' to significantly reduce invoice funding times and chargebacks, while TriumphPay network participation improves Days Sales Outstanding for factors - The 'Instant Decision' tool has scaled to 50% of the small carrier segment, reducing disputes by 38.6%, chargebacks by 84.5%, and short payments by 74.7%[35] - A client using Instant Decision with LoadPay was funded in 21 seconds on a Saturday, receiving funds three days earlier than through traditional banking channels[36] - In-network invoices on TriumphPay turn every 30.1 days on average, compared to 45+ days for out-of-network invoices with exceptions, with each day of DSO improvement estimated to save about $1 million annually at scale[38] Banking Segment The Banking segment's operating income decreased due to higher credit expenses and asset quality deterioration, despite benefiting from an influx of noninterest-bearing deposits that lowered funding costs Financial and Operational Performance Banking segment operating income fell 4.0% due to higher credit expense, though the cost of funds declined to 1.57% from an influx of noninterest-bearing deposits - Banking segment operating income fell $1.2 million, or 4.0%, from the prior quarter, primarily due to higher credit expense[39] - Cost of funds declined by 5 basis points to 1.57%, driven by an influx of noninterest-bearing deposits from Mortgage Warehouse customers[39] - The bank is mildly asset sensitive; each 25 bps rate cut is projected to reduce quarterly net interest income by $0.5 - $1.0 million[39] Credit Update Credit expenses remained elevated and asset quality deteriorated due to specific, non-systemic issues including CRE loan downgrades, a C&I client bankruptcy, and an equipment finance client downgrade - Two CRE loans totaling $42 million were downgraded to substandard due to short-term cash flow issues, though they remain well-secured[40] - A $2.4 million reserve was established for a C&I client that filed for bankruptcy with specific and organized fraud[40] - A major equipment finance client with $32 million in loans was downgraded to nonaccrual, which was the primary driver of the NPA ratio degradation this quarter[41] Outlook and Capital Management This section outlines management's near-term guidance, expense expectations, and commitment to long-term strategy and strong capital stewardship Guidance, Expenses, and Capital Management Management expects Q4 expenses to remain below $97 million and anticipates a soft Q1 2025 due to seasonality, while emphasizing strong capital stewardship with $260 million in excess capital - The company expects Q4 expenses to be below $97 million[42] - Management anticipates a soft Q1 2025 for earnings due to freight market seasonality and rising expense pressures, but will not pull back on long-term investments[43] - The company's long-term goal is for its market capitalization (approximately $1.9 billion) to exceed its total assets (approximately $5.9 billion) by growing non-balance sheet-intensive revenue[45] Capital Allocation of Retained Earnings | Use of Capital | Amount | | :--- | :--- | | Excess Capital (vs. CET1 target) | $260 million | | Share Repurchases | $245 million | Financial Statements and Supplemental Data This section provides the company's unaudited consolidated financial statements, including balance sheet, income statement, and detailed segment and portfolio breakdowns Consolidated Financial Statements This section presents the unaudited consolidated financial statements as of September 30, 2024, detailing total assets of $5.87 billion, net income of $5.3 million, and diluted EPS of $0.19 Consolidated Balance Sheet Highlights (As of Sep 30, 2024) | Account | Value (in thousands) | | :--- | :--- | | Total Assets | $5,866,046 | | Total Loans, net | $4,291,724 | | Total Deposits | $4,706,694 | | Total Liabilities | $4,980,282 | | Total Stockholders' Equity | $885,764 | Consolidated Income Statement Highlights (For Three Months Ended Sep 30, 2024) | Account | Value (in thousands) | | :--- | :--- | | Total Interest Income | $108,075 | | Net Interest Income | $88,699 | | Credit Loss Expense | $4,263 | | Total Noninterest Income | $17,497 | | Total Noninterest Expense | $95,646 | | Net Income | $5,347 | | Net Income Available to Common Stockholders | $4,546 | Segment and Portfolio Details This section provides a granular view of the company's operations, breaking down performance by Banking, Factoring, and Payments segments, and detailing the composition of its loan and deposit portfolios Operating Income (Loss) by Segment (Q3 2024) | Segment | Operating Income (Loss) (in thousands) | | :--- | :--- | | Banking | $29,074 | | Factoring | $7,963 | | Payments | ($2,613) | Loan Portfolio Composition (As of Sep 30, 2024) | Loan Type | Value (in thousands) | | :--- | :--- | | Commercial real estate | $762,343 | | Commercial | $1,093,477 | | Factored receivables | $1,201,495 | | Mortgage warehouse | $867,790 | | Other | $407,862 | | Total Loans | $4,332,967 | Deposit Composition (As of Sep 30, 2024) | Deposit Type | Value (in thousands) | | :--- | :--- | | Non-interest bearing demand | $2,103,092 | | Interest bearing demand | $700,928 | | Money market & Savings | $1,139,874 | | CDs & Brokered | $716,704 | | Other | $46,096 | | Total Deposits | $4,706,694 | Non-GAAP Financial Measures The company presents non-GAAP financial measures like Tangible Book Value Per Share and Return on Average Tangible Common Equity to provide a clearer view of core operational performance by excluding intangible assets Key Non-GAAP Metrics (Q3 2024 vs Q2 2024) | Metric | Q3 2024 | Q2 2024 | | :--- | :--- | :--- | | Tangible book value per share | $25.22 | $24.60 | | Return on average tangible common equity | 3.07% | 1.35% | | Tangible common stockholders' equity ratio | 10.50% | 10.39% | - The company defines and uses non-GAAP measures like 'Tangible common stockholders' equity' (common equity less goodwill/intangibles) and 'Tangible book value per share' to help investors evaluate performance exclusive of intangible assets[79]