Triumph Financial(TFIN) - 2025 Q2 - Quarterly Results

Shareholder Letter & Q2 2025 Overview This section provides an overview of Q2 2025 financial performance, strategic initiatives, and the company's integrated value chain of transportation offerings Q2 2025 Financial Highlights For the second quarter of 2025, the company reported a net income of $3.6 million, or $0.15 per diluted share, significantly influenced by non-core items, primarily a substantial gain from a litigation settlement with the U.S. Postal Service (USPS) impacting pre-tax operating income by $12.36 million Q2 2025 Key Financials | Metric | Value | | :--- | :--- | | Net Income to Common Stockholders | $3.6 million | | Diluted EPS | $0.15 | Summary of Non-Core Items (Q2 2025) | Category | Description | $ Impact | | :--- | :--- | :--- | | USPS Settlement | Net impact of USPS settlement | $12,362,000 | | Interest income | USPS - Collection of fees | $1,213,000 | | Noninterest expense | USPS - Recovery of legal expense | $7,376,000 | | Credit loss expense | USPS - ACL Recovery | $3,773,000 | | Other Non-Recurring Items | Net impact of other non-recurring items | $(7,091,000) | | Noninterest expense | Greenscreens transaction costs | $(3,024,000) | | Noninterest expense | Other Legal Settlements | $(2,000,000) | | Noninterest expense | New HQ termination fees and accelerated amortization | $(2,067,000) | | Total Pre-tax Impact | Pre-tax operating income impact | $5,271,000 | - The company recovered the full $19.4 million receivable from the USPS, which had been carried as a non-performing asset for nearly five years, plus additional amounts covering legal expenses[2] - The company acquired a $23.4 million non-performing equipment finance loan at a significant discount, with an initial $10.8 million charged-off with no impact to credit loss expense, and the remaining discount expected to be accreted as income in future quarters[4] Key Thoughts for the Quarter Despite a stagnant freight cycle, Triumph is demonstrating progress through revenue growth and operational efficiency initiatives, including 15.2% growth in transportation revenue, the acquisition of Greenscreens, a new FaaS partnership with RXO, and significant momentum in LoadPay account openings, reaching over 2,700 accounts by mid-July - The company is focused on operating within the current soft market conditions and is implementing operational efficiency improvements, with more details to be shared in Q3[7] - Annualized transportation revenue grew from $206 million last quarter to $237 million this quarter (excluding USPS settlement impact), with organic growth at 11.3% after adjusting for the Greenscreens acquisition[9] - RXO, a major freight broker, went live on the factoring-as-a-service (FaaS) platform and became the second LoadPay distribution partner[9] - LoadPay accounts grew rapidly, reaching 2,000 on June 10 and 2,729 by July 14, with the company expecting growth to accelerate with increased market awareness and the RXO partnership[9] - The company's transportation network now engages with $70 billion of unique annualized volume, and its Payments Network serves 66 of the top 100 US freight brokers[9] A Value Chain of Five Offerings Triumph outlines its integrated value chain of five core transportation offerings: Audit, Payments, Liquidity Solutions, Digital Banking (LoadPay), and a Pricing & Performance Engine, creating a symbiotic ecosystem that generates network effects and a defensible competitive advantage - The company's strategy is to build a value chain where each service offering logically leads to and enhances the others, creating a competitive advantage and customer stickiness[10][11][13] - 1. Audit: Audits more brokered freight than any known competitor, leveraging AI for automation, with the NextGen Audit product serving as a key tool[14] - 2. Payments: Disburses about $200 million daily, making more payments to U.S. truckers than anyone else, with significant opportunities for cross-selling with audit services[14] - 3. Liquidity Solutions: Offers a broad suite including factoring, FaaS, and supply chain finance, with a total balance sheet exposure of $1.4 billion and room to grow[14] - 4. Digital Banking for Truckers (LoadPay): A purpose-built digital bank account for truckers offering 24/7 instant funding, targeting 5,000-10,000 accounts by year-end, with 2,729 accounts as of July 14, 2025 (a 251% increase over Q1)[14][15] - 5. Pricing & Performance Engine: A unique offering built on $70 billion in unique volume from audit, payment, and factoring data, providing real-time pricing, market data, and performance metrics, with prediction models claimed to be 2x more accurate than competitors[18] Segment Performance Analysis This section analyzes the financial performance of the company's key operating segments: Payments, Factoring, Intelligence, and Banking, highlighting revenue growth, profitability, and strategic initiatives within each Payments The Payments segment demonstrated strong growth, with revenue increasing 13.5% quarter-over-quarter to an annualized $68.9 million, driven by a 14.8% increase in payment volume and significant growth in LoadPay accounts, leading to a dramatic EBITDA margin improvement to 13.9% Payments Segment Performance (Q2 2025 vs Q1 2025) | Metric | Q2 2025 | Q1 2025 | Q/Q Change | | :--- | :--- | :--- | :--- | | Total Revenue | $17.2M | $15.2M | +13.5% | | Payment Volume | $10.1B | $8.8B | +14.8% | | EBITDA Margin | 13.9% | (0.1)% | +14.0 p.p. | | LoadPay Accounts | 2,367 | 778 | +205.7% | | LoadPay Funding | $22.2M | $5.0M | +345.5% | - Network engagement in brokered freight increased to 63.3% from 50.4% in the prior quarter, partly due to the addition of Greenscreens volume[31] - The company is focused on three levers for revenue growth: consistently pricing existing customers, growing the customer base, and cross-selling Audit (NGA) and Payments services[34][40] - The percentage of payments for which a fee was charged increased from 24.0% to 28.5% in Q2, contributing to a $1.2 million increase in fee revenue[37] Factoring The Factoring segment's operating income was significantly boosted by a one-time USPS litigation settlement, resulting in a 48.5% operating margin, while still showing strong underlying growth with a 13.4% QoQ increase in invoice volume and a 6.1% increase in purchased volume, driven by technology enhancements and a strategic shift to Net Funds Employed (NFE) pricing Factoring Segment Performance (Q2 2025 vs Q1 2025) | Metric | Q2 2025 | Q1 2025 | Q/Q Change | | :--- | :--- | :--- | :--- | | Operating Margin | 48.46% | 19.24% | +29.22 p.p. | | Purchased Volume | $2.87B | $2.71B | +6.1% | | Invoice Volume | 1,697,851 | 1,497,644 | +13.4% | | Avg. Trans. Invoice Size | $1,663 | $1,769 | -6.0% | - Operating income was impacted by a net $10.4 million from non-core/non-recurring items, primarily the USPS settlement[51] - The instant decision model is active on the entire portfolio (except SCF), creating a 30% - 45% revenue growth opportunity before adding material expense[52] - The segment added 328 new customers in Q2, and the shift to NFE pricing continues, with 22% of recourse customers now on this model, up from 4% in 2022[59][61] Intelligence The Intelligence segment, bolstered by the acquisition of Greenscreens on May 8, closed the quarter on a $9.7 million annualized revenue run rate, with a near-term focus on integrating Triumph's rich data into the ISO and Greenscreens models to enhance the accuracy and coverage of its pricing and performance products, with new product announcements expected in Q3 - The segment reported total revenue of $1.7 million for the quarter and ended with an annualized revenue run rate of $9.7 million[64] - The Greenscreens acquisition, completed May 8, contributed approximately $1.3 million in noninterest income and $1.3 million in operating expenses for the partial quarter[65] - Near-term development is focused on integrating Triumph's data into ISO and Greenscreens, integrating the two products, and building new products[68] - Early testing confirms that integrating Triumph's data will demonstrably improve the prediction accuracy (MAPE) and lane coverage of the pricing engine[72] Banking The Banking segment's operating income decreased by 4.4% to $26.4 million, as growth in net interest income was offset by higher legal expenses, while credit metrics showed significant improvement, with non-performing loans and classified assets decreasing, aided by the USPS settlement but also driven by other resolutions - Banking segment operating income decreased $1.2 million (4.4%) from the prior quarter to $26.4 million[75] - Credit metrics improved significantly in Q2, with the USPS settlement accounting for less than 40% of the overall improvement in nonaccrual loans and classified assets[76] Credit Quality Improvement | Metric | Improvement | USPS-Related Impact | | :--- | :--- | :--- | | Non-performing loans to total loans | 87 bps | 39 bps | | Classified assets decrease | $58.2 million | $19.4 million | Outlook and Closing This section provides an update on the transportation market conditions and outlines the company's expense forecast for Q3, emphasizing its strategic commitment to innovation and market leadership Transportation Market Update The transportation market continues to experience flat demand and stable capacity, with consistent pressure on broker margins since 2023, and while mild rate conditions persist, normal seasonal events and isolated demand spikes are expected to push rates higher, challenging existing capacity with any moderate increase in demand - The market saw no major surprises in trucking prices or capacity in Q2, though temporary inflation episodes occurred due to weather, road checks, and seasonality[23] - Aggregate dry van broker margins across the Greenscreens customer base have been under fairly consistent pressure since 2023[24] - Benchmark price trends show mild rate conditions have persisted since early 2023 with slight seasonal upticks[27] Expense Forecast & Closing Thoughts After a 'noisy' second quarter, the company projects a more representative core run rate for Q3, with noninterest expense forecasted to be approximately $104 million, as management expresses confidence in the company's trajectory, emphasizing its unique position and commitment to innovation to deliver value despite a soft transportation market - Q3 noninterest expense is projected to be approximately $104 million, which includes incremental operating expenses and intangible amortization from the Greenscreens acquisition[80] - The company remains committed to innovation and customer-centric solutions to strengthen its market position, regardless of market tailwinds[81] Financial Statements and Supplementary Data This section presents the company's consolidated financial statements, including the balance sheet, income statement, and detailed segment performance data, providing a comprehensive view of its financial position and operational results Financial Highlights This section provides a high-level overview of key financial metrics for the quarter ended June 30, 2025, compared to previous periods, showing total assets grew to $6.5 billion, net income available to common stockholders was $3.6 million, and presenting key performance ratios alongside asset quality and capital adequacy metrics Key Financials as of June 30, 2025 | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Total Assets | $6,494.7M | $6,268.4M | $5,783.3M | | Loans Held for Investment | $4,953.2M | $4,666.2M | $4,288.4M | | Total Deposits | $5,186.1M | $4,976.8M | $4,392.0M | | Net Income (to common) | $3.6M | $(0.8)M | $1.9M | | Diluted EPS | $0.15 | $(0.03) | $0.08 | | Tangible Book Value per Share | $19.31 | $25.32 | $24.60 | Consolidated Balance Sheet As of June 30, 2025, total assets stood at $6.5 billion, an increase from $6.3 billion in the prior quarter, primarily driven by growth in loans, while total liabilities increased to $5.6 billion, with total deposits growing to $5.2 billion, and total stockholders' equity rose to $912.4 million Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | March 31, 2025 | | :--- | :--- | :--- | | Assets | | | | Total Assets | $6,494,748 | $6,268,394 | | Loans, net | $4,914,479 | $4,629,994 | | Goodwill | $353,900 | $241,949 | | Liabilities & Equity | | | | Total Deposits | $5,186,098 | $4,976,750 | | Total Liabilities | $5,582,366 | $5,374,467 | | Total Stockholders' Equity | $912,382 | $893,927 | Consolidated Statement of Income For the three months ended June 30, 2025, the company reported net interest income of $88.7 million and a net income of $4.4 million, with a credit loss benefit of $0.7 million largely due to the USPS recovery, and noninterest expense at $100.8 million, impacted by transaction costs and legal settlements but offset by the recovery of legal fees Consolidated Income Statement Highlights (Q2 2025, in thousands) | Line Item | Q2 2025 | Q1 2025 | | :--- | :--- | :--- | | Net Interest Income | $88,678 | $84,383 | | Credit Loss Expense (Benefit) | $(702) | $1,330 | | Total Noninterest Income | $19,384 | $17,190 | | Total Noninterest Expense | $100,840 | $100,173 | | Net Income | $4,420 | $17 | | Net Income to Common Stockholders | $3,618 | $(784) | Segment Financials This section provides a detailed breakdown of financial performance by operating segment: Banking, Factoring, Payments, and Intelligence, with Q2 2025 showing the Banking segment generating $26.4 million in operating income, Factoring contributing $19.8 million (boosted by the USPS settlement), while Payments and Intelligence recorded operating losses of $0.7 million and $6.0 million respectively, with Intelligence impacted by acquisition costs Operating Income (Loss) by Segment (Q2 2025, in thousands) | Segment | Operating Income (Loss) | | :--- | :--- | | Banking | $26,374 | | Factoring | $19,754 | | Payments | $(654) | | Intelligence | $(5,986) |