Triumph Financial(TFIN) - 2020 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Financial Statements Unaudited consolidated financial statements for Q1 2020, reflecting a net loss primarily from increased credit loss provision Consolidated Balance Sheets Total assets grew to $5.35 billion, while equity declined to $589.3 million from repurchases and net loss Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Assets | $5,353,729 | $5,060,297 | | Loans, net | $4,275,816 | $4,165,420 | | Total Deposits | $3,682,015 | $3,789,906 | | FHLB Advances | $850,000 | $430,000 | | Total Stockholders' Equity | $589,347 | $636,590 | Consolidated Statements of Income Q1 2020 net loss of $4.45 million (or $(0.18) diluted EPS) primarily from a $17.36 million credit loss expense Q1 2020 vs. Q1 2019 Income Statement (in thousands, except per share data) | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Net Interest Income | $62,500 | $61,311 | | Credit Loss Expense | $17,361 | $1,014 | | Total Noninterest Income | $7,477 | $7,538 | | Total Noninterest Expense | $57,690 | $48,566 | | Net Income (Loss) | $(4,450) | $14,788 | | Diluted EPS | $(0.18) | $0.55 | Consolidated Statements of Comprehensive Income Q1 2020 comprehensive loss of $11.05 million, combining net loss and $6.60 million other comprehensive loss Comprehensive Income (Loss) (in thousands) | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Net Income (Loss) | $(4,450) | $14,788 | | Other Comprehensive Income (Loss) | $(6,604) | $1,463 | | Comprehensive Income (Loss) | $(11,054) | $16,251 | Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity declined to $589.3 million from $636.6 million, driven by repurchases, net loss, and OCI - Key drivers for the decrease in stockholders' equity in Q1 2020 were the purchase of treasury stock ($35.6 million), the net loss ($4.45 million), and other comprehensive loss ($6.6 million)[16] Consolidated Statements of Cash Flows Operating cash flow was $14.1 million, with investing using $281.7 million and financing providing $278.2 million, for a $10.5 million net increase Summary of Cash Flows (in thousands) | Cash Flow Category | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $14,095 | $20,768 | | Net Cash from Investing Activities | $(281,744) | $(14,537) | | Net Cash from Financing Activities | $278,183 | $(69,220) | | Net Change in Cash | $10,534 | $(62,989) | Condensed Notes to Consolidated Financial Statements Notes detail CECL adoption, COVID-19 responses including loan deferrals, and Triumph Premium Finance assets reclassified as 'held for sale' - The company adopted the new credit loss standard, ASU 2016-13 (CECL), on January 1, 2020, recording a net reduction to retained earnings of $1.77 million[102] - In response to COVID-19, the company is executing a payment deferral program for affected clients, with 404 deferrals on loan balances of $233 million as of April 15, 2020[39] - The company decided to sell its Triumph Premium Finance (TPF) business and transferred assets with a carrying amount of $97.9 million to 'assets held for sale' as of March 31, 2020[109][110] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2020 net loss of $4.5 million, driven by increased COVID-19 credit loss expense, detailing loan growth and pandemic responses - The company incurred a net loss of $4.5 million, or $(0.18) per diluted share, for Q1 2020, compared to net income of $14.8 million in Q1 2019[233] - The COVID-19 pandemic materially impacted the allowance for credit losses (ACL), significantly increasing the required reserve due to a darkened economic forecast[244] - The company agreed to sell its Triumph Premium Finance (TPF) business, reclassifying $98.3 million in loans to assets held for sale as of March 31, 2020[238] Results of Operations Net interest income rose slightly, but net interest margin declined, while credit loss expense surged to $17.4 million due to COVID-19 Key Performance Metrics Comparison | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Net Interest Income | $62.5M | $61.3M | | Net Interest Margin | 5.63% | 6.15% | | Credit Loss Expense | $17.4M | $1.0M | | Noninterest Expense | $57.7M | $48.6M | - The significant increase in credit loss expense was primarily due to the projected economic impact of COVID-19, accounting for approximately $10.5 million of the provision[296] Operating Segment Results Banking segment reported a $10.3 million operating loss from increased credit loss expense, while Factoring segment income declined 7.9% - The Banking segment reported an operating loss of $10.3 million, a swing of $22.7 million from the prior year, driven by a 1558% increase in its credit loss expense[309] - The Factoring segment's operating income fell to $8.1 million from $8.8 million year-over-year, as yield on average net funds employed decreased from 20.58% to 18.56%[315] Financial Condition Total assets grew to $5.35 billion, fueled by loan growth and FHLB advances, despite deposit decrease, while asset quality weakened Loan Portfolio Composition (in thousands) | Loan Category | March 31, 2020 | Dec 31, 2019 | $ Change | | :--- | :--- | :--- | :--- | | Commercial | $1,412,822 | $1,342,683 | $70,139 | | Mortgage warehouse | $739,211 | $667,988 | $71,223 | | Factored receivables | $661,100 | $619,986 | $41,114 | | Commercial real estate | $985,757 | $1,046,961 | $(61,204) | | Total Loans | $4,320,548 | $4,194,512 | $126,036 | - Nonperforming assets increased to $58.2 million (1.09% of total assets) from $44.1 million (0.87% of total assets) at December 31, 2019[336] - The allowance for credit losses (ACL) to total loans ratio increased significantly to 1.04% from 0.69% at year-end, driven by CECL adoption and COVID-19 economic forecasts[343] Item 3. Quantitative and Qualitative Disclosures About Market Risks Primary market risk is interest rate volatility, with simulations showing a liability-sensitive position where a 100 bps rate decrease significantly impacts EVE Simulated Change in Net Interest Income (Next 12 Months) | Rate Change | % Change in NII | | :--- | :--- | | +200 bps | +2.2% | | +100 bps | -0.3% | | -100 bps | -3.7% | Simulated Change in Economic Value of Equity (EVE) | Rate Change | % Change in EVE | | :--- | :--- | | +200 bps | +23.0% | | +100 bps | +12.8% | | -100 bps | -17.6% | Item 4. Controls and Procedures Disclosure controls were effective as of March 31, 2020, with internal control changes for CECL adoption and economic forecasting review - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[400] - Changes were made to internal controls over financial reporting to accommodate the adoption of ASU 2016-13 (CECL), particularly regarding the review of third-party economic forecasts[401] PART II — OTHER INFORMATION Item 1. Legal Proceedings The company is not involved in any legal proceedings expected to have a material adverse effect on its business or financial condition - The company is not party to any legal proceedings expected to have a material adverse effect[403] Item 1A. Risk Factors New risk factor highlights COVID-19 pandemic's potential for increased credit losses, client bankruptcies, operational disruptions, and cybersecurity threats - A material new risk factor has been added regarding the ongoing COVID-19 pandemic and its potential adverse effects on the business, operations, and financial condition[404] - Specific risks highlighted include increased credit losses, bankruptcies among clients in the transportation sector, declines in collateral values, and heightened cyber and payment fraud risk[408] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company completed its $50 million stock repurchase program in Q1 2020, repurchasing 871,319 shares at an average price of $40.81 Q1 2020 Share Repurchases | Period | Shares Purchased | Average Price Paid | | :--- | :--- | :--- | | Jan 2020 | 284,252 | $39.51 | | Feb 2020 | 587,067 | $41.44 | | Total | 871,319 | $40.81 | Item 6. Exhibits Exhibits filed with Form 10-Q include CEO/CFO certifications and financial data in Inline XBRL format - The exhibits filed with the report include Sarbanes-Oxley certifications from the CEO and CFO (Exhibits 31.1, 31.2, 32.1) and interactive data files (Exhibit 101)[414]