Edgar Filing: Triumph Bancorp, Inc.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2015

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-36722

TRIUMPH BANCORP, INC.

(Exact name of registrant as specified in its charter)

Texas

20-0477066

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

12700 Park Central Drive, Suite 1700

Dallas, Texas 75251

(Address of principal executive offices)

(214) 365-6900

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	¨

Non-accelerated filer	x (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock — $0.01 par value, 18,041,072 shares, as of May 6, 2015

TRIUMPH BANCORP, INC.

FORM 10-Q

MARCH 31, 2015

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets	2
	Consolidated Statements of Income	3
	Consolidated Statements of Comprehensive Income	4
	Consolidated Statements of Changes in Equity	5
	Consolidated Statements of Cash Flows	6
	Condensed Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	59
Item 4.	Controls and Procedures	60

PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	61
Item 1A.	Risk Factors	61
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61
Item 3.	Defaults Upon Senior Securities	61
Item 4.	Mine Safety Disclosures	61
Item 5.	Other Information	61
Item 6.	Exhibits	62

PART I – FINANCIAL INFORMATION

ITEM 1

FINANCIAL STATEMENTS

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

March 31, 2015 and December 31, 2014

(Dollar amounts in thousands, except per share amounts)

	March 31,			December 31,
	2015			2014
	(Unaudited)
ASSETS
Cash and due from banks	$	24,836		$	21,312
Interest bearing deposits with other banks		153,606			139,576
Total cash and cash equivalents		178,442			160,888
Securities - available for sale		161,360			162,024
Securities - held to maturity, fair value of $750 and $750, respectively		746			745
Loans held for sale, at fair value		3,401			3,288
Loans, net of allowance for loan and lease losses of $9,286 and $8,843, respectively		1,002,160			997,035
Federal Home Loan Bank and Federal Reserve Bank stock, at cost		4,466			4,903
Premises and equipment, net		21,716			21,933
Other real estate owned (OREO), net		6,991			8,423
Goodwill		15,968			15,968
Intangible assets, net		14,243			13,089
Bank-owned life insurance		29,193			29,083
Deferred tax assets, net		14,983			15,956
Other assets		19,074			14,563
Total assets	$	1,472,743		$	1,447,898
LIABILITIES AND EQUITY
Liabilities
Deposits
Noninterest bearing	$	167,538		$	179,848
Interest bearing		1,006,141			985,381
Total deposits		1,173,679			1,165,229
Customer repurchase agreements		8,666			9,282
Federal Home Loan Bank advances		—			3,000
Junior subordinated debentures		24,487			24,423
Other liabilities		13,234			8,455
Total liabilities		1,220,066			1,210,389
Commitments and contingencies - See Note 8 and Note 9
Stockholders' equity - See Note 12
Preferred Stock Series A		4,550			4,550
Preferred Stock Series B		5,196			5,196
Common stock		180			180
Additional paid-in-capital		191,745			191,049
Treasury stock, at cost		(161	)		(161	)
Retained earnings		49,596			35,744
Accumulated other comprehensive income		1,571			951
Total stockholders’ equity		252,677			237,509
Total liabilities and stockholders' equity	$	1,472,743		$	1,447,898

See accompanying condensed notes to consolidated financial statements.

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

For the Three Months Ended March 31, 2015 and 2014

(Dollar amounts in thousands, except per share amounts)

(Unaudited)

	Three Months Ended March 31,
	2015			2014
Interest and dividend income:
Loans, including fees	$	13,239		$	14,376
Factored receivables, including fees		7,509			5,272
Taxable securities		678			657
Tax exempt securities		12			16
Cash deposits		141			58
Total interest income		21,579			20,379
Interest expense:
Deposits		1,570			1,108
Senior secured note		—			140
Junior subordinated debentures		272			271
Other		12			5
Total interest expense		1,854			1,524
Net interest income		19,725			18,855
Provision for loan losses		645			925
Net interest income after provision for loan losses		19,080			17,930
Noninterest income:
Service charges on deposits		612			738
Card income		523			490
Net realized gains (losses) and valuation adjustments on OREO		26			(77	)
Net gains on sale of securities		—			16
Net gains on sale of loans		542			255
Fee income		422			398
Bargain purchase gain		12,509			—
Asset management fees		958			—
Other		1,067			789
Total noninterest income		16,659			2,609
Noninterest expense:
Salaries and employee benefits		13,269			8,876
Occupancy, furniture and equipment		1,572			1,390
FDIC insurance and other regulatory assessments		263			261
Professional fees		1,327			592
Amortization of intangible assets		764			726
Advertising and promotion		543			443
Communications and technology		886			888
Other		2,159			1,720
Total noninterest expense		20,783			14,896
Net income before income tax		14,956			5,643
Income tax expense		912			1,916
Net income		14,044			3,727
Income attributable to noncontrolling interests		—			(387	)
Net income attributable to Triumph Bancorp, Inc.		14,044			3,340
Dividends on preferred stock		(192	)		(192	)
Net income available to common stockholders	$	13,852		$	3,148
Earnings per common share
Basic	$	0.78		$	0.32
Diluted	$	0.76		$	0.32

See accompanying condensed notes to consolidated financial statements.

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Three Months Ended March 31, 2015 and 2014

(Dollar amounts in thousands, except per share amounts)

(Unaudited)

	Three Months Ended March 31,
	2015			2014
Net income	$	14,044		$	3,727
Other comprehensive income:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period		988			586
Reclassification of amount realized through sale of securities		—			(16	)
Tax effect		(368	)		(218	)
Total other comprehensive income (loss)		620			352
Comprehensive income		14,664			4,079
Income attributable to noncontrolling interests		—			(387	)
Comprehensive income attributable to Triumph Bancorp, Inc.	$	14,664		$	3,692

See accompanying condensed notes to consolidated financial statements.

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the Three Months Ended March 31, 2015 and 2014

(Dollar amounts in thousands, except per share amounts)

(Unaudited)

	Preferred Stock – Series A				Preferred Stock – Series B				Common Stock						Treasury Stock								Accumulated
			Liquidation				Liquidation						Additional										Other		Non
	Shares		Preference		Shares		Preference		Shares		Par		Paid-in-		Shares					Retained			Comprehensive		Controlling		Total
	Outstanding		Amount		Outstanding		Amount		Outstanding		Amount		Capital		Outstanding		Cost			Earnings			Income		Interest		Equity
Balance, January 1, 2014		45,500	$	4,550		51,956	$	5,196		9,832,585	$	98	$	104,631		—	$	—		$	18,992		$	133	$	26,997	$	160,597
Vesting of restricted stock units		—		—		—		—		13,511		—		—		—		—			—			—		—		—
Stock based compensation		—		—		—		—		—		—		113		—		—			—			—		—		113
Series T-1 and T-2 dividends		—		—		—		—		—		—		—		—		—			(394	)		—		—		(394	)
Series A Preferred dividends		—		—		—		—		—		—		—		—		—			(90	)		—		—		(90	)
Series B Preferred dividends		—		—		—		—		—		—		—		—		—			(102	)		—		—		(102	)
TCF Class B distributions		—		—		—		—		—		—		—		—		—			(22	)		—		—		(22	)
Net income		—		—		—		—		—		—		—		—		—			3,727			—		—		3,727
Other comprehensive income		—		—		—		—		—		—		—		—		—			—			352		—		352
Balance, March 31, 2014		45,500	$	4,550		51,956	$	5,196		9,846,096	$	98	$	104,744		—	$	—		$	22,111		$	485	$	26,997	$	164,181

Balance, January 1, 2015		45,500	$	4,550		51,956	$	5,196		17,963,783	$	180	$	191,049		10,984	$	(161	)	$	35,744		$	951	$	—	$	237,509
Stock based compensation		—		—		—		—		—		—		696		—		—			—			—		—		696
Series A Preferred dividends		—		—		—		—		—		—		—		—		—			(90	)		—		—		(90	)
Series B Preferred dividends		—		—		—		—		—		—		—		—		—			(102	)		—		—		(102	)
Net income		—		—		—		—		—		—		—		—		—			14,044			—		—		14,044
Other comprehensive income		—		—		—		—		—		—		—		—		—			—			620		—		620
Balance, March 31, 2015		45,500	$	4,550		51,956	$	5,196		17,963,783	$	180	$	191,745		10,984	$	(161	)	$	49,596		$	1,571	$	—	$	252,677

See accompanying condensed notes to consolidated financial statements.

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended March 31, 2015 and 2014

(Dollar amounts in thousands, except per share amounts)

(Unaudited)

	Three Months Ended March 31,
	2015			2014
Cash flows from operating activities:
Net income	$	14,044		$	3,727
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		528			464
Net accretion on loans and deposits		(1,194	)		(3,176	)
Amortization of junior subordinated debentures		64			62
Net amortization on securities		160			70
Amortization of intangible assets		764			726
Deferred taxes		(58	)		(15	)
Provision for loan losses		645			925
Stock based compensation		696			113
Origination of loans held for sale		(19,276	)		(11,453	)
Proceeds from loan sales		19,705			12,204
Net gains on sale of securities		—			(16	)
Net gains on sale of loans		(542	)		(255	)
Net realized (gains) losses and valuation adjustments on OREO		(26	)		77
Proceeds from sale of loans obtained through Doral Money Inc. acquisition		36,765			—
Bargain purchase gain		(12,509	)		—
(Increase) decrease in other assets		(172	)		153
Increase (decrease) in other liabilities		1,493			(6,009	)
Net cash provided by (used in) operating activities		41,087			(2,403	)
Cash flows from investing activities:
Purchases of securities available for sale		—			(7,504	)
Proceeds from sales of securities available for sale		—			6,777
Proceeds from maturities, calls, and pay downs of securities available for sale		1,491			20,593
Net change in loans		(5,153	)		(2,918	)
(Purchases) sales of premises and equipment, net		(311	)		91
Net proceeds from sale of OREO		1,955			229
Net cash paid for CLO warehouse investments		—			(5,000	)
Redemption of FHLB and Federal Reserve Bank stock		437			569
Cash paid for acquisitions, net of cash acquired		(124,990	)		—
Net cash provided by (used in) investing activities		(126,571	)		12,837
Cash flows from financing activities:
Net increase in deposits		8,530			5,552
Increase (decrease) in customer repurchase agreements		(616	)		6,340
Decrease in Federal Home Loan Bank advances		(3,000	)		(250	)
Repayment of senior secured note		—			(314	)
Proceeds from the issuance of other borrowings		99,975			—
Repayment of other borrowings		(1,659	)		—
Distributions on noncontrolling interest and preferred stock		(192	)		(608	)
Net cash provided by financing activities		103,038			10,720
Net increase in cash and cash equivalents		17,554			21,154
Cash and cash equivalents at beginning of period		160,888			85,797
Cash and cash equivalents at end of period	$	178,442		$	106,951
Supplemental cash flow information:
Interest paid	$	1,856		$	3,342
Income taxes paid	$	528		$	966
Supplemental noncash disclosures:
Loans transferred to OREO	$	497		$	98
Securities transferred in satisfaction of other borrowings	$	98,316		$	—
Loans transferred to branch assets held for sale	$	—		$	86,405
Premises and equipment transferred to branch assets held for sale	$	—		$	2,287

See accompanying condensed notes to consolidated financial statements.

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Triumph Bancorp, Inc. (collectively with its subsidiaries, Triumph, or the Company, as applicable) is a financial holding company headquartered in Dallas, Texas. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries Triumph Capital Advisors, LLC (TCA), Triumph CRA Holdings, LLC (TCRA), National Bancshares, Inc. (NBI), NBI’s wholly owned subsidiary Triumph Community Bank, N.A. (TCB), Triumph Savings Bank, SSB (TSB), TSB’s wholly owned subsidiary Advance Business Capital LLC (ABC), which currently operates under the d/b/a of Triumph Business Capital, and TSB’s wholly owned subsidiary Triumph Insurance Group (TIG). In addition, (i) TSB does business under the Triumph Commercial Finance name with respect to its commercial finance business, including asset-based lending, equipment lending and general factoring and (ii) TCB does business under the Triumph Healthcare Finance name with respect to its healthcare asset-based lending business.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with United States Generally Accepted Accounting Principles (GAAP) for interim financial information and in accordance with guidance provided by the Securities and Exchange Commission. Accordingly, the condensed financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all normal and recurring adjustments considered necessary for a fair presentation. Transactions between the subsidiaries have been eliminated. These condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. Operating results for the three months ended March 31, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. The Company has four reportable segments consisting of Factoring, Banking, Asset Management, and Corporate. The Company’s Chief Executive Officer uses segment results to make operating and strategic decisions.

Adoption of New Accounting Standards

Effective January 1, 2015, the Company adopted Accounting Standards Update (ASU) No. 2014-04, “Receivables – Troubled Debt Restructurings by Creditors” (ASU 2014-04). Issued in January 2014, ASU 2014-04 affects all creditors when an in substance repossession or foreclosure of residential real estate property collateralizing a consumer mortgage loan in satisfaction of a receivable has occurred. Adoption of this ASU did not have a material impact on the Company’s financial statements.

Effective January 1, 2015, the Company retrospectively adopted ASU No. 2015-02, “Amendments to the Consolidation Analysis” (ASU 2015-02). Issued in February 2015, ASU 2015-02 simplifies consolidation accounting by reducing the number of consolidation models and changing various aspects of current GAAP, including certain consolidation criteria for variable interest entities. Adoption of this ASU did not have a material impact on the Company’s financial statements.

Newly Issued, But Not Yet Effective Accounting Standards

On May 28, 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers”, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in GAAP when it becomes effective. The new standard is currently effective for the Company on January 1, 2017 and early application is not permitted. However, the FASB has voted to propose having the new standard take effect for reporting periods beginning after December 15, 2017 for public companies, with early adoption allowed as of the original effective date for public companies. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 2 – Business combinations AND DIVESTITURES

Doral Money Acquisition

On February 27, 2015, Triumph Bancorp, Inc., through its subsidiary Triumph Capital Advisors, LLC, entered into a Purchase and Sale Agreement with the Federal Deposit Insurance Corporation (FDIC), in its capacity as receiver of Doral Bank, to acquire 100% of the equity of Doral Money, Inc. (DMI), a subsidiary of Doral Bank, and the management contracts associated with two active collateralized loan obligations (CLOs) with approximately $700,000,000 in assets under management. The consideration transferred in the acquisition consisted of cash paid at closing of $133,263,000 and a sales price adjustment of $2,601,000 which was accrued for at March 31, 2015 and settled on April 7, 2015, for total consideration transferred of $135,864,000. The primary purpose of the acquisition was to expand the CLO assets under management at Triumph Capital Advisors, LLC.

On February 26, 2015, the Company entered into a $99,975,000 secured term loan credit facility payable to a third party, with an interest rate equal to LIBOR plus 3.5%, and a maturity date of March 31, 2015. The proceeds from the loan were used by the Company to partially fund the DMI acquisition.

The acquisition was completed on March 3, 2015, at which time the Company also repaid the $99,975,000 third party secured term loan credit facility in full by delivering the securities issued by the CLOs that were acquired from DMI with an acquisition date fair value of $98,316,000 and cash representing payments received on the CLO securities in the amount of $1,659,000.

A summary of the estimated fair values of assets acquired, liabilities assumed, net consideration transferred, and the resulting bargain purchase gain is as follows:

(Dollars in thousands)
Assets acquired:
Cash	$	8,273