tbk-10q_20150630.htm

 

  

 

 

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 June 30, 2015

OR

¨

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 July 31, 2015

 

 

 

 

 

 


 

TRIUMPH BANCORP, INC.

FORM 10-Q

June 30, 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

33

 

    Item 3.

 

Quantitative and Qualitative Disclosures About Market Risks

69

 

    Item 4.

 

Controls and Procedures

70

 

 

PART II — OTHER INFORMATION

 

 

    Item 1.

 

Legal Proceedings

71

 

    Item 1A.

 

Risk Factors

71

 

    Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

71

 

    Item 3.

 

Defaults Upon Senior Securities

71

 

    Item 4.

 

Mine Safety Disclosures

71

 

    Item 5.

 

Other Information

71

 

    Item 6.

 

Exhibits

72

 

 

 

 

i


 

PART I – FINANCIAL INFORMATION

ITEM 1

FINANCIAL STATEMENTS

 

 

 

 

1


 

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

June 30, 2015 and December 31, 2014

(Dollar amounts in thousands, except per share amounts)

 

 

 

 

June 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

27,678

 

 

$

21,312

 

Interest bearing deposits with other banks

 

 

72,036

 

 

 

139,576

 

Total cash and cash equivalents

 

 

99,714

 

 

 

160,888

 

Securities - available for sale

 

 

158,693

 

 

 

162,024

 

Securities - held to maturity, fair value of $744 and $750, respectively

 

 

746

 

 

 

745

 

Loans held for sale, at fair value

 

 

4,096

 

 

 

3,288

 

Loans, net of allowance for loan and lease losses of $11,462 and $8,843, respectively

 

 

1,141,217

 

 

 

997,035

 

Federal Home Loan Bank and Federal Reserve Bank stock, at cost

 

 

5,707

 

 

 

4,903

 

Premises and equipment, net

 

 

21,677

 

 

 

21,933

 

Other real estate owned, net

 

 

6,322

 

 

 

8,423

 

Goodwill

 

 

15,968

 

 

 

15,968

 

Intangible assets, net

 

 

14,206

 

 

 

13,089

 

Bank-owned life insurance

 

 

29,295

 

 

 

29,083

 

Deferred tax assets, net

 

 

15,582

 

 

 

15,956

 

Other assets

 

 

16,036

 

 

 

14,563

 

Total assets

 

$

1,529,259

 

 

$

1,447,898

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

 

 

Noninterest bearing

 

$

164,560

 

 

$

179,848

 

Interest bearing

 

 

1,024,699

 

 

 

985,381

 

Total deposits

 

 

1,189,259

 

 

 

1,165,229

 

Customer repurchase agreements

 

 

13,011

 

 

 

9,282

 

Federal Home Loan Bank advances

 

 

19,000

 

 

 

3,000

 

Junior subordinated debentures

 

 

24,553

 

 

 

24,423

 

Other liabilities

 

 

25,957

 

 

 

8,455

 

Total liabilities

 

 

1,271,780

 

 

 

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

 

 

181

 

 

 

180

 

Additional paid-in-capital

 

 

192,605

 

 

 

191,049

 

Treasury stock, at cost

 

 

(170

)

 

 

(161

)

Retained earnings

 

 

54,053

 

 

 

35,744

 

Accumulated other comprehensive income

 

 

1,064

 

 

 

951

 

Total stockholders’ equity

 

 

257,479

 

 

 

237,509

 

Total liabilities and stockholders' equity

 

$

1,529,259

 

 

$

1,447,898

 

See accompanying condensed notes to consolidated financial statements.

 

 

 

 

2


 

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

For the Three and Six Months Ended June 30, 2015 and 2014

(Dollar amounts in thousands, except per share amounts)

(Unaudited)

 

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Interest and dividend income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, including fees

 

$

17,158

 

 

$

13,860

 

 

$

30,397

 

 

$

28,236

 

Factored receivables, including fees

 

 

8,654

 

 

 

6,838

 

 

 

16,163

 

 

 

12,110

 

Taxable securities

 

 

659

 

 

 

663

 

 

 

1,337

 

 

 

1,319

 

Tax exempt securities

 

 

16

 

 

 

15

 

 

 

28

 

 

 

31

 

Cash deposits

 

 

110

 

 

 

77

 

 

 

251

 

 

 

135

 

Total interest income

 

 

26,597

 

 

 

21,453

 

 

 

48,176

 

 

 

41,831

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

1,667

 

 

 

1,141

 

 

 

3,237

 

 

 

2,249

 

Senior secured note

 

 

 

 

 

137

 

 

 

 

 

 

276

 

Junior subordinated debentures

 

 

278

 

 

 

272

 

 

 

550

 

 

 

543

 

Other

 

 

7

 

 

 

22

 

 

 

19

 

 

 

28

 

Total interest expense

 

 

1,952

 

 

 

1,572

 

 

 

3,806

 

 

 

3,096

 

Net interest income

 

 

24,645

 

 

 

19,881

 

 

 

44,370

 

 

 

38,735

 

Provision for loan losses

 

 

2,541

 

 

 

1,747

 

 

 

3,186

 

 

 

2,672

 

Net interest income after provision for loan losses

 

 

22,104

 

 

 

18,134

 

 

 

41,184

 

 

 

36,063

 

Noninterest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service charges on deposits

 

 

666

 

 

 

813

 

 

 

1,278

 

 

 

1,552

 

Card income

 

 

578

 

 

 

548

 

 

 

1,101

 

 

 

1,037

 

Net OREO gains (losses) and valuation adjustments

 

 

52

 

 

 

(252

)

 

 

78

 

 

 

(329

)

Net gains on sale of securities

 

 

242

 

 

 

 

 

 

242

 

 

 

16

 

Net gains on sale of loans

 

 

491

 

 

 

319

 

 

 

1,033

 

 

 

575

 

Fee income

 

 

502

 

 

 

421

 

 

 

924

 

 

 

819

 

Bargain purchase gain

 

 

 

 

 

 

 

 

12,509

 

 

 

 

Asset management fees

 

 

1,274

 

 

 

129

 

 

 

2,232

 

 

 

129

 

Other

 

 

964

 

 

 

655

 

 

 

2,031

 

 

 

1,444

 

Total noninterest income

 

 

4,769

 

 

 

2,633

 

 

 

21,428

 

 

 

5,243

 

Noninterest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

12,042

 

 

 

9,471

 

 

 

25,311

 

 

 

18,347

 

Occupancy, furniture and equipment

 

 

1,555

 

 

 

1,336

 

 

 

3,127

 

 

 

2,725

 

FDIC insurance and other regulatory assessments

 

 

271

 

 

 

280

 

 

 

534

 

 

 

541

 

Professional fees

 

 

852

 

 

 

793

 

 

 

2,179

 

 

 

1,385

 

Amortization of intangible assets

 

 

895

 

 

 

724

 

 

 

1,659

 

 

 

1,451

 

Advertising and promotion

 

 

526

 

 

 

683

 

 

 

1,069

 

 

 

1,126

 

Communications and technology

 

 

927

 

 

 

945

 

 

 

1,813

 

 

 

1,834

 

Other

 

 

2,567

 

 

 

1,928

 

 

 

4,726

 

 

 

3,647

 

Total noninterest expense

 

 

19,635

 

 

 

16,160

 

 

 

40,418

 

 

 

31,056

 

Net income before income tax

 

 

7,238

 

 

 

4,607

 

 

 

22,194

 

 

 

10,250

 

Income tax expense

 

 

2,586

 

 

 

1,626

 

 

 

3,498

 

 

 

3,542

 

Net income

 

 

4,652

 

 

 

2,981

 

 

 

18,696

 

 

 

6,708

 

Income attributable to noncontrolling interests

 

 

 

 

 

(500

)

 

 

 

 

 

(887

)

Net income attributable to Triumph Bancorp, Inc.

 

 

4,652

 

 

 

2,481

 

 

 

18,696

 

 

 

5,821

 

Dividends on preferred stock

 

 

(195

)

 

 

(196

)

 

 

(387

)

 

 

(388

)

Net income available to common stockholders

 

$

4,457

 

 

$

2,285

 

 

$

18,309

 

 

$

5,433

 

Earnings per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.25

 

 

$

0.23

 

 

$

1.03

 

 

$

0.55

 

Diluted

 

$

0.25

 

 

$

0.23

 

 

$

1.01

 

 

$

0.55

 

See accompanying condensed notes to consolidated financial statements.

 

 

 

3


 

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Three and Six Months Ended June 30, 2015 and 2014

(Dollar amounts in thousands, except per share amounts)

(Unaudited)

 

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Net income

 

$

4,652

 

 

$

2,981

 

 

$

18,696

 

 

$

6,708

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) on securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains (losses) arising during the period

 

 

(557

)

 

 

574

 

 

 

431

 

 

 

1,159

 

Reclassification of amount realized through sale of securities

 

 

(242

)

 

 

 

 

 

(242

)

 

 

(16

)

Tax effect

 

 

292

 

 

 

(218

)

 

 

(76

)

 

 

(435

)

Total other comprehensive income (loss)

 

 

(507

)

 

 

356

 

 

 

113

 

 

 

708

 

Comprehensive income

 

 

4,145

 

 

 

3,337

 

 

 

18,809

 

 

 

7,416

 

Income attributable to noncontrolling interests

 

 

 

 

 

(500

)

 

 

 

 

 

(887

)

Comprehensive income attributable to Triumph Bancorp, Inc.

 

$

4,145

 

 

$

2,837

 

 

$

18,809

 

 

$

6,529

 

See accompanying condensed notes to consolidated financial statements.

 

 

 

 

4


 

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the Six Months Ended June 30, 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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

196

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

196

 

Purchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(277

)

 

 

 

 

 

 

 

 

277

 

 

 

(4

)

 

 

 

 

 

 

 

 

 

 

 

(4

)

Series T-1 and T-2 dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(730

)

 

 

 

 

 

 

 

 

(730

)

Series A Preferred dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(182

)

 

 

 

 

 

 

 

 

(182

)

Series B Preferred dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(206

)

 

 

 

 

 

 

 

 

(206

)

TCF Class B distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(63

)

 

 

 

 

 

 

 

 

(63

)

TCF Class B redemption

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,100

)

 

 

(1,100

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,708

 

 

 

 

 

 

 

 

 

6,708

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

708

 

 

 

 

 

 

708

 

Balance, June 30, 2014

 

 

45,500

 

 

$

4,550

 

 

 

51,956

 

 

$

5,196

 

 

 

9,845,819

 

 

$

98

 

 

$

104,827

 

 

 

277

 

 

$

(4

)

 

$

24,519

 

 

$

841

 

 

$

25,897

 

 

$

165,924

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Issuance of restricted stock awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

77,956

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeiture of restricted stock awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(667

)

 

 

 

 

 

9

 

 

 

667

 

 

 

(9

)

 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,548

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,548

 

Series A Preferred dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(181

)

 

 

 

 

 

 

 

 

(181

)

Series B Preferred dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(206

)

 

 

 

 

 

 

 

 

(206

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18,696

 

 

 

 

 

 

 

 

 

18,696

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

113

 

 

 

 

 

 

113

 

Balance, June 30, 2015

 

 

45,500

 

 

$

4,550

 

 

 

51,956

 

 

$

5,196

 

 

 

18,041,072

 

 

$

181

 

 

$

192,605

 

 

 

11,651

 

 

$

(170

)

 

$

54,053

 

 

$

1,064

 

 

$

 

 

$

257,479

 

See accompanying condensed notes to consolidated financial statements.

 

 

 

 

5


 

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended June 30, 2015 and 2014

(Dollar amounts in thousands, except per share amounts)

(Unaudited)

  

 

 

Six Months Ended June 30,

 

 

 

2015

 

 

2014

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

18,696

 

 

$

6,708

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

1,069

 

 

 

934

 

Net accretion on loans and deposits

 

 

(2,720

)

 

 

(5,780

)

Amortization of junior subordinated debentures

 

 

130

 

 

 

125

 

Net amortization on securities

 

 

301

 

 

 

144

 

Amortization of intangible assets

 

 

1,659

 

 

 

1,451

 

Deferred taxes

 

 

(366

)

 

 

(8

)

Provision for loan losses

 

 

3,186

 

 

 

2,672

 

Stock based compensation

 

 

1,548

 

 

 

196

 

Origination of loans held for sale

 

 

(36,220

)

 

 

(24,127

)

Proceeds from loan sales

 

 

36,445

 

 

 

26,007

 

Net gains on sale of securities

 

 

(242

)

 

 

(16

)

Net gains on sale of loans

 

 

(1,033

)

 

 

(575

)

Net OREO (gains) losses and valuation adjustments

 

 

(78

)

 

 

329

 

Bargain purchase gain

 

 

(12,509

)

 

 

 

(Increase) decrease in other assets

 

 

(543

)

 

 

(3,270

)

Increase (decrease) in other liabilities

 

 

3,888

 

 

 

(2,373

)

Net cash provided by (used in) operating activities

 

 

13,211

 

 

 

2,417

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of securities available for sale

 

 

(15,072

)

 

 

(12,560

)

Proceeds from sales of securities available for sale

 

 

12,559

 

 

 

6,794

 

Proceeds from maturities, calls, and pay downs of securities available for sale

 

 

5,973

 

 

 

22,687

 

Purchases of loans (shared national credits)

 

 

(16,685

)

 

 

 

Net change in loans

 

 

(115,935

)

 

 

(85,963

)

Purchases of premises and equipment, net

 

 

(813

)

 

 

(508

)

Net proceeds from sale of OREO

 

 

2,926

 

 

 

2,722

 

Net proceeds from CLO warehouse investments

 

 

2,450

 

 

 

2,500

 

Purchases of FHLB and FRB stock, net

 

 

(804

)

 

 

(2,174

)

Cash paid for acquisitions, net of cash acquired

 

 

(127,591

)

 

 

(49,482

)

Proceeds from sale of loans obtained through Doral Money Inc. acquisition

 

 

36,765

 

 

 

 

Net cash provided by (used in) investing activities

 

 

(216,227

)

 

 

(115,984

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net increase in deposits

 

 

24,184

 

 

 

63,417

 

Increase (decrease) in customer repurchase agreements

 

 

3,729

 

 

 

3,983

 

Increase (decrease) in Federal Home Loan Bank advances

 

 

16,000

 

 

 

49,000

 

Repayment of senior secured note

 

 

 

 

 

(629

)

Proceeds from the issuance of other borrowings

 

 

99,975

 

 

 

 

Repayment of other borrowings

 

 

(1,659

)

 

 

 

Purchase of treasury stock

 

 

 

 

 

(4

)

Distributions on noncontrolling interest and preferred stock

 

 

(387

)

 

 

(1,181

)

Redemption of TCF Class B units

 

 

 

 

 

(1,100

)

Net cash provided by financing activities

 

 

141,842

 

 

 

113,486

 

Net increase in cash and cash equivalents

 

 

(61,174

)

 

 

(81

)

Cash and cash equivalents at beginning of period

 

 

160,888

 

 

 

85,797

 

Cash and cash equivalents at end of period

 

$

99,714

 

 

$

85,716

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

3,629

 

 

$

4,962

 

Income taxes paid

 

$

2,488

 

 

$

1,536

 

Supplemental noncash disclosures:

 

 

 

 

 

 

 

 

Loans transferred to OREO

 

$

747

 

 

$

379

 

Securities transferred in satisfaction of other borrowings

 

$

98,316

 

 

$

 

Loan purchases, not yet settled (shared national credits)

 

$

12,929

 

 

$

 

Loans transferred to branch assets held for sale

 

$

 

 

$

78,071

 

Premises and equipment transferred to branch assets held for sale

 

$

 

 

$

2,260

 

See accompanying condensed notes to consolidated financial statements.

 

 

 

6


 

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.

The Company has received regulatory approval to merge its subsidiary banks, Triumph Community Bank, N.A. and Triumph Savings Bank, SSB, into a single bank. The combined bank will be named TBK Bank, SSB, and will continue doing business under the Triumph Community Bank and Triumph Savings Bank names in the markets where the Company currently operates under such names.

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 and six months ended June 30, 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.

Issued in June 2014, ASU No. 2014-11, “Transfers and Servicing (Topic 860) - Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosure” (ASU 2014-11) aligns the accounting for repurchase-to-maturity transactions and repurchase agreements executed as a repurchase financing with the accounting for other typical repurchase agreements. Effective for interim periods beginning after March 31, 2015, the ASU requires entities to disclose certain information about transfers accounted for as sales in transactions that are economically similar to repurchase agreements. In addition, disclosures are required related to collateral, remaining contractual tenor, and the potential risks associated with repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions. Adoption of this ASU did not have a material impact on the Company’s financial statements as the Company’s repurchase agreements consist primarily of overnight customer sweep agreements secured by pledged U.S. Government agency and residential mortgage-backed securities.

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.

 

7


TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Newly Issued, But Not Yet Effective Accounting Standards

On May 28, 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (ASU 2014-09), 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 was originally effective for the Company on January 1, 2017.  However, at its July 9, 2015 meeting the FASB agreed to defer the mandatory effective date the new standard would take effect for reporting periods beginning after December 15, 2017, 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.

 

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 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

 

CLO Securities

 

 

98,316

 

Intangible asset - CLO management contracts

 

 

1,918

 

Loans

 

 

36,765

 

Prepaid corporate income tax

 

 

3,014

 

Other assets

 

 

772

 

 

 

 

149,058

 

Liabilities assumed:

 

 

 

 

Deferred tax liability

 

 

663

 

Other liabilities

 

 

22

 

 

 

 

685

 

Fair value of net assets acquired

 

 

148,373

 

Net consideration transferred

 

 

135,864

 

Bargain purchase gain

 

$

(12,509

)

The Company completed the acquisition via an FDIC bid process for DMI as part of the Doral Bank failure and the resulting nontaxable bargain purchase gain represents the excess of the fair value of the net assets acquired over the fair value of the net

 

8


TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

consideration transferred.  As of June 30, 2015, the accounting for income taxes and contingent liabilities associated with the acquisition had not been finalized.  

The Company incurred pre-tax expenses related to the acquisition of approximately $243,000 which are included in professional fees in the consolidated statements of income in the period incurred.

In addition, during March 2015 the Company sold the loans acquired in the DMI acquisition to third parties for a sales price equal to their acquisition date fair value of $36,765,000.  No gains or losses were recognized on the sales.

Sale of Pewaukee Branch

On July 11, 2014, Triumph Community Bank sold its operating branch in Pewaukee, Wisconsin, which constituted its sole branch in the state, to a third party for net cash proceeds of $57,409,000. Under the terms of the agreement, the acquirer assumed branch deposits of $36,326,000, purchased selected loans in the local market with a carrying amount of $78,071,000, and acquired the premises and equipment associated with the branch.  The transaction resulted in the Company recording a pre-tax gain of $12,619,000, net of transaction costs, in the third quarter of 2014.

Doral Healthcare Acquisition

On June 13, 2014, Triumph Bancorp, Inc., through its subsidiary, Triumph Community Bank, acquired the lending platform and certain assets of Doral Healthcare Finance (DHF), an asset-based lender focused exclusively on the healthcare industry. DHF was a division of DMI which was a subsidiary of Doral Bank. The purpose of the acquisition was to enhance the Company’s commercial finance offerings. In conjunction with the acquisition, DHF was rebranded Triumph Healthcare Finance.

The Company acquired loans with a fair value of $45,334,000 at the acquisition date in addition to other assets and liabilities. Under the terms of the agreement, the Company paid cash in the amount of $49,482,000 and recognized $1,921,000 in goodwill that was allocated to the Company’s Banking segment. Goodwill represents the excess of the fair value of consideration transferred over the fair value of net assets acquired. Goodwill resulted from a combination of expected enhanced service offerings and cross-selling opportunities. Goodwill will be amortized for tax purposes, but not for financial reporting purposes.

A summary of the fair values of assets acquired, liabilities assumed, consideration paid, and the resulting goodwill is as follows:

 

(Dollars in thousands)

 

 

 

 

Assets acquired:

 

 

 

 

Loans

 

$

45,334

 

Customer relationship intangible

 

 

2,029

 

Premises and equipment

 

 

50

 

Other assets

 

 

276

 

 

 

 

47,689

 

Liabilities assumed:

 

 

 

 

Customer deposits

 

 

128

 

Fair value of net assets acquired

 

 

47,561

 

Cash paid

 

 

49,482

 

Goodwill

 

$

1,921

 

 

 

 

9


TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 3 - SECURITIES

Securities have been classified in the financial statements as available for sale or held to maturity. The amortized cost of securities and their approximate fair values at June 30, 2015 and December 31, 2014 are as follows:

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

(Dollars in thousands)

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Fair

 

June 30, 2015

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government agency obligations

 

$

95,749

 

 

$

944

 

 

$

(21

)

 

$

96,672

 

Mortgage-backed securities, residential

 

 

25,742

 

 

 

525

 

 

 

 

 

 

26,267

 

Asset backed securities

 

 

18,437

 

 

 

121

 

 

 

(25

)

 

 

18,533

 

State and municipal

 

 

3,387

 

 

 

26

 

 

 

 

 

 

3,413

 

Corporate bonds

 

 

13,510

 

 

 

117

 

 

 

(15

)

 

 

13,612

 

SBA pooled securities

 

 

194

 

 

 

2

 

 

 

 

 

 

196

 

Total available for sale securities

 

$

157,019

 

 

$

1,735

 

 

$

(61

)

 

$

158,693

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

Amortized

 

 

Unrecognized

 

 

Unrecognized

 

 

Fair

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

Held to maturity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other debt securities

 

$

746

 

 

$

4

 

 

$

(6

)

 

$

744

 

 

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

(Dollars in thousands)

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Fair

 

December 31, 2014

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government agency obligations

 

$

93,150

 

 

$

691

 

 

$

 

 

$

93,841

 

Mortgage-backed securities, residential

 

 

28,298

 

 

 

580

 

 

 

 

 

 

28,878

 

Asset backed securities

 

 

18,559

 

 

 

129

 

 

 

(90

)

 

 

18,598

 

State and municipal

 

 

6,833

 

 

 

28

 

 

 

 

 

 

6,861

 

Corporate bonds

 

 

13,492

 

 

 

144

 

 

 

 

 

 

13,636

 

SBA pooled securities

 

 

207

 

 

 

3

 

 

 

 

 

 

210

 

Total available for sale securities

 

$

160,539

 

 

$

1,575

 

 

$

(90

)

 

$

162,024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

Amortized

 

 

Unrecognized

 

 

Unrecognized

 

 

Fair

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

Held to maturity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other debt securities

 

$

745

 

 

$

5

 

 

$

 

 

$

750

 

  

 

10


TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The amortized cost and estimated fair value of securities at June 30, 2015, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

  

 

 

Securities Available for Sale

 

 

Held to Maturity

 

 

 

Amortized

 

 

Fair

 

 

Amortized

 

 

Fair

 

(Dollars in thousands)

 

Cost

 

 

Value

 

 

Cost

 

 

Value

 

Due in one year or less

 

$

1,270

 

 

$

1,272

 

 

$

 

 

$

 

Due from one year to five years

 

 

109,156

 

 

 

110,187

 

 

 

746

 

 

 

744

 

Due from five years to ten years

 

 

1,550

 

 

 

1,548

 

 

 

 

 

 

 

Due after ten years

 

 

670

 

 

 

690

 

 

 

 

 

 

 

 

 

 

112,646

 

 

 

113,697

 

 

 

746

 

 

 

744

 

Mortgage-backed securities, residential

 

 

25,742

 

 

 

26,267

 

 

 

 

 

 

 

Asset backed securities

 

 

18,437

 

 

 

18,533

 

 

 

 

 

 

 

SBA pooled securities

 

 

194

 

 

 

196

 

 

 

 

 

 

 

 

 

$

157,019

 

 

$

158,693

 

 

$

746

 

 

$

744

 

For the three and six months ended June 30, 2015, securities were sold resulting in proceeds of $12,559,000, gross gains of $242,000, and no losses. For the six months ended June 30, 2014, securities were sold resulting in proceeds of $6,794,000, gross gains of $25,000, and gross losses of $9,000. There were no sales of securities for the three months ended June 30, 2014.

 

Securities with a carrying amount of approximately $104,878,000 and $113,980,000 at June 30, 2015 and December 31, 2014, respectively, were pledged to secure customer repurchase agreements, Federal Home Loan Bank advances, and for other purposes required or permitted by law.

 

11


TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Information pertaining to securities with gross unrealized losses at June 30, 2015 and December 31, 2014, aggregated by investment category and length of time that individual securities have been in a continuous loss position, are summarized as follows:

   

 

 

Less than 12 Months

 

 

12 Months or More

 

 

Total

 

(Dollars in thousands)

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

June 30, 2015

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government agency obligations

 

$

7,539

 

 

$

(21

)

 

$

 

 

$

 

 

$

7,539

 

 

$

(21

)

Mortgage-backed securities, residential

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset backed securities

 

 

4,875

 

 

 

(12

)

 

 

4,971

 

 

 

(13

)

 

 

9,846

 

 

 

(25

)

State and municipal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

 

1,769

 

 

 

(15

)

 

 

 

 

 

 

 

 

1,769

 

 

 

(15

)

SBA pooled securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

14,183

 

 

$

(48

)

 

$

4,971

 

 

$

(13

)

 

$

19,154

 

 

$

(61

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to maturity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other debt securities

 

$

219

 

 

$

(6

)

 

$

 

 

$

 

 

$

219

 

 

$

(6

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less than 12 Months

 

 

12 Months or More

 

 

Total

 

(Dollars in thousands)

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

December 31, 2014

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

U.S. Government agency obligations

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Mortgage-backed securities, residential

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset backed securities

 

 

8,703

 

 

 

(82

)

 

 

4,959

 

 

 

(8

)

 

 

13,662

 

 

 

(90

)

State and municipal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SBA pooled securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

8,703

 

 

$

(82

)

 

$

4,959

 

 

$

(8

)

 

$

13,662

 

 

$

(90

)

Management evaluates securities for other than temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation.  Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value.

As of June 30, 2015, management does not have the intent to sell any of the securities classified as available for sale with unrealized losses in the table above and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost. The fair value is expected to recover as the bonds approach their maturity date or repricing date or if market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality. Accordingly, as of June 30, 2015, management believes the unrealized losses detailed in the previous table are temporary and no other than temporary impairment loss has been recognized in the Company’s consolidated statements of income.

 

 

 

12


TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 4 - LOANS AND ALLOWANCE FOR LOAN AND LEASE LOSSES

Loans at June 30, 2015 and December 31, 2014 consisted of the following:

 

 

 

June 30,

 

 

December 31,

 

(Dollars in thousands)

 

2015

 

 

2014

 

Commercial real estate

 

$

234,090

 

 

$

249,164

 

Construction, land development, land

 

 

46,743

 

 

 

42,914

 

1-4 family residential properties

 

 

75,588

 

 

 

78,738

 

Farmland

 

 

25,701

 

 

 

22,496

 

Commercial

 

 

454,161

 

 

 

364,567

 

Factored receivables

 

 

199,716

 

 

 

180,910

 

Consumer

 

 

10,993

 

 

 

11,941

 

Mortgage warehouse

 

 

105,687

 

 

 

55,148

 

Total

 

 

1,152,679

 

 

 

1,005,878

 

Allowance for loan and lease losses

 

 

(11,462

)

 

 

(8,843

)

 

 

$

1,141,217

 

 

$

997,035

 

  

Total loans include net deferred origination fees and costs and deferred factoring fees totaling $878,000 and $906,000 at June 30, 2015 and December 31, 2014, respectively.

 

Loans with carrying amounts of $168,232,000 and $141,427,000 at June 30, 2015 and December 31, 2014, respectively, were pledged to secure Federal Home Loan Bank advance capacity.

 

Allowance for Loan and Lease Losses    

The activity in the allowance for loan and lease losses (ALLL) during the three and six months ended June 30, 2015 and 2014 is as follows:

 

(Dollars in thousands)

 

Beginning

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending

 

Three months ended June 30, 2015

 

Balance

 

 

Provision

 

 

Charge-offs

 

 

Recoveries

 

 

Balance

 

Commercial real estate

 

$

1,075

 

 

$

183

 

 

$

(54

)

 

$

10

 

 

$

1,214

 

Construction, land development, land

 

 

344

 

 

 

2

 

 

 

 

 

 

 

 

 

346

 

1-4 family residential properties

 

 

223

 

 

 

29

 

 

 

(78

)

 

 

77

 

 

 

251

 

Farmland

 

 

26

 

 

 

2

 

 

 

 

 

 

 

 

 

28

 

Commercial

 

 

3,996

 

 

 

1,109

 

 

 

(45

)

 

 

4

 

 

 

5,064

 

Factored receivables

 

 

3,380

 

 

 

1,049

 

 

 

(312

)

 

 

18

 

 

 

4,135

 

Consumer

 

 

84

 

 

 

61

 

 

 

(52

)

 

 

67

 

 

 

160

 

Mortgage warehouse

 

 

158

 

 

 

106

 

 

 

 

 

 

 

 

 

264

 

 

 

$

9,286

 

 

$

2,541

 

 

$

(541

)

 

$

176

 

 

$

11,462

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Beginning

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending

 

Three months ended June 30, 2014

 

Balance

 

 

Provision

 

 

Charge-offs

 

 

Recoveries

 

 

Balance

 

Commercial real estate

 

$

402

 

 

$

60

 

 

$

 

 

$

1

 

 

$

463

 

Construction, land development, land

 

 

194

 

 

 

48

 

 

 

 

 

 

 

 

 

242

 

1-4 family residential properties

 

 

203

 

 

 

35

 

 

 

(44

)

 

 

3

 

 

 

197

 

Farmland

 

 

7

 

 

 

4

 

 

 

 

 

 

 

 

 

11

 

Commercial

 

 

1,519

 

 

 

811

 

 

 

(1

)

 

 

3

 

 

 

2,332

 

Factored receivables

 

 

2,173

 

 

 

779

 

 

 

(136

)

 

 

22

 

 

 

2,838

 

Consumer

 

 

75

 

 

 

(6

)

 

 

(74

)

 

 

101

 

 

 

96

 

Mortgage warehouse

 

 

58

 

 

 

16

 

 

 

 

 

 

 

 

 

74

 

 

 

$

4,631

 

 

$

1,747

 

 

$

(255

)

 

$

130

 

 

$

6,253

 

 

 

13


TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

  

(Dollars in thousands)

 

Beginning

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending

 

Six months ended June 30, 2015

 

Balance

 

 

Provision

 

 

Charge-offs

 

 

Recoveries

 

 

Balance

 

Commercial real estate

 

$

533

 

 

$

773

 

 

$

(143

)

 

$

51

 

 

$

1,214

 

Construction, land development, land

 

 

333

 

 

 

13

 

 

 

 

 

 

 

 

 

346

 

1-4 family residential properties

 

 

215

 

 

 

119

 

 

 

(183

)

 

 

100

 

 

 

251

 

Farmland

 

 

19

 

 

 

9

 

 

 

 

 

 

 

 

 

28

 

Commercial

 

 

4,003

 

 

 

1,102

 

 

 

(47

)

 

 

6

 

 

 

5,064

 

Factored receivables

 

 

3,462

 

 

 

1,004

 

 

 

(379

)

 

 

48

 

 

 

4,135

 

Consumer

 

 

140

 

 

 

40

 

 

 

(147

)

 

 

127

 

 

 

160

 

Mortgage warehouse

 

 

138

 

 

 

126

 

 

 

 

 

 

 

 

 

264

 

 

 

$

8,843

 

 

$

3,186

 

 

$

(899

)

 

$

332

 

 

$

11,462

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Beginning

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending

 

Six months ended June 30, 2014

 

Balance

 

 

Provision

 

 

Charge-offs

 

 

Recoveries

 

 

Balance

 

Commercial real estate

 

$

348

 

 

$

113

 

 

$

 

 

$

2

 

 

$

463

 

Construction, land development, land

 

 

110

 

 

 

132

 

 

 

 

 

 

 

 

 

242

 

1-4 family residential properties

 

 

100

 

 

 

184

 

 

 

(189

)

 

 

102

 

 

 

197

 

Farmland

 

 

7

 

 

 

4

 

 

 

 

 

 

 

 

 

11

 

Commercial

 

 

1,145

 

 

 

985

 

 

 

(13

)

 

 

215

 

 

 

2,332

 

Factored receivables

 

 

1,842

 

 

 

1,136

 

 

 

(176

)

 

 

36

 

 

 

2,838

 

Consumer

 

 

49

 

 

 

88

 

 

 

(215

)

 

 

174

 

 

 

96

 

Mortgage warehouse

 

 

44

 

 

 

30

 

 

 

 

 

 

 

 

 

74

 

 

 

$

3,645

 

 

$

2,672

 

 

$

(593

)

 

$

529

 

 

$

6,253

 

 

The following table presents loans individually and collectively evaluated for impairment, as well as purchased credit impaired (PCI) loans, and their respective ALLL allocations:

 

(Dollars in thousands)

 

Loan Evaluation

 

 

ALLL Allocations

 

June 30, 2015

 

Individually

 

 

Collectively

 

 

PCI

 

 

Total loans

 

 

Individually

 

 

Collectively

 

 

PCI

 

 

Total ALLL

 

Commercial real estate

 

$

1,923

 

 

$

224,697

 

 

$

7,470

 

 

$

234,090

 

 

$

100

 

 

$

759

 

 

$

355

 

 

$

1,214

 

Construction, land development, land

 

 

 

 

 

45,337

 

 

 

1,406

 

 

 

46,743

 

 

 

 

 

 

346

 

 

 

 

 

 

346

 

1-4 family residential properties

 

 

389

 

 

 

73,155

 

 

 

2,044

 

 

 

75,588

 

 

 

2

 

 

 

249

 

 

 

 

 

 

251

 

Farmland

 

 

 

 

 

25,701

 

 

 

 

 

 

25,701

 

 

 

 

 

 

28

 

 

 

 

 

 

28

 

Commercial

 

 

2,795

 

 

 

446,904

 

 

 

4,462

 

 

 

454,161

 

 

 

747

 

 

 

4,317

 

 

 

 

 

 

5,064

 

Factored receivables

 

 

2,644

 

 

 

197,072

 

 

 

 

 

 

199,716

 

 

 

1,513

 

 

 

2,622

 

 

 

 

 

 

4,135

 

Consumer

 

 

 

 

 

10,993

 

 

 

 

 

 

10,993

 

 

 

 

 

 

160

 

 

 

 

 

 

160

 

Mortgage warehouse

 

 

 

 

 

105,687

 

 

 

 

 

 

105,687

 

 

 

 

 

 

264

 

 

 

 

 

 

264

 

 

 

$

7,751

 

 

$

1,129,546

 

 

$

15,382

 

 

$

1,152,679

 

 

$

2,362

 

 

$

8,745

 

 

$

355

 

 

$

11,462

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Loan Evaluation

 

 

ALLL Allocations

 

December 31, 2014

 

Individually

 

 

Collectively

 

 

PCI

 

 

Total loans

 

 

Individually

 

 

Collectively

 

 

PCI

 

 

Total ALLL

 

Commercial real estate

 

$

1,934

 

 

$

238,640

 

 

$

8,590

 

 

$

249,164

 

 

$

 

 

$

533

 

 

$

 

 

$

533

 

Construction, land development, land

 

 

 

 

 

41,431

 

 

 

1,483

 

 

 

42,914

 

 

 

 

 

 

333

 

 

 

 

 

 

333

 

1-4 family residential properties

 

 

627

 

 

 

76,041

 

 

 

2,070

 

 

 

78,738

 

 

 

 

 

 

215

 

 

 

 

 

 

215

 

Farmland

 

 

 

 

 

22,496

 

 

 

 

 

 

22,496

 

 

 

 

 

 

19

 

 

 

 

 

 

19

 

Commercial

 

 

7,188

 

 

 

353,022

 

 

 

4,357

 

 

 

364,567

 

 

 

716

 

 

 

3,287

 

 

 

 

 

 

4,003

 

Factored receivables

 

 

1,271

 

 

 

179,639

 

 

 

 

 

 

180,910

 

 

 

1,033

 

 

 

2,429

 

 

 

 

 

 

3,462

 

Consumer

 

 

 

 

 

11,941

 

 

 

 

 

 

11,941

 

 

 

 

 

 

140

 

 

 

 

 

 

140

 

Mortgage warehouse

 

 

 

 

 

55,148

 

 

 

 

 

 

55,148

 

 

 

 

 

 

138

 

 

 

 

 

 

138

 

 

 

$

11,020

 

 

$

978,358

 

 

$

16,500

 

 

$

1,005,878

 

 

$

1,749

 

 

$

7,094

 

 

$

 

 

$

8,843

 

  

 

14


TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following is a summary of information pertaining to impaired loans at June 30, 2015 and December 31, 2014:

 

 

 

Impaired Loans and Purchased Credit

 

 

Impaired Loans

 

 

 

Impaired Loans With a Valuation Allowance

 

 

Without a Valuation Allowance

 

(Dollars in thousands)

 

Recorded

 

 

Unpaid

 

 

Related

 

 

Recorded

 

 

Unpaid

 

June 30, 2015

 

Investment

 

 

Principal

 

 

Allowance

 

 

Investment

 

 

Principal

 

Commercial real estate

 

$

532

 

 

$

532

 

 

$

100

 

 

$

1,391

 

 

$

1,414

 

Construction, land development, land

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 family residential properties

 

 

16

 

 

 

23

 

 

 

2

 

 

 

373

 

 

 

479

 

Farmland

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

2,189

 

 

 

2,218

 

 

 

747

 

 

 

606

 

 

 

606

 

Factored receivables

 

 

2,344

 

 

 

2,344

 

 

 

1,513

 

 

 

300

 

 

 

300

 

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage warehouse

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PCI

 

 

525

 

 

 

525

 

 

 

355

 

 

 

 

 

 

 

 

 

$

5,606

 

 

$

5,642

 

 

$

2,717

 

 

$

2,670

 

 

$

2,799

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired Loans and Purchased Credit

 

 

Impaired Loans

 

 

 

Impaired Loans With a Valuation Allowance

 

 

Without a Valuation Allowance

 

(Dollars in thousands)

 

Recorded

 

 

Unpaid

 

 

Related

 

 

Recorded

 

 

Unpaid

 

December 31, 2014

 

Investment

 

 

Principal

 

 

Allowance

 

 

Investment

 

 

Principal

 

Commercial real estate

 

$

 

 

$

 

 

$

 

 

$

1,934

 

 

$

1,960

 

Construction, land development, land

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 family residential properties

 

 

 

 

 

 

 

 

 

 

 

627

 

 

 

748

 

Farmland

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

1,845

 

 

 

2,527

 

 

 

716

 

 

 

5,343

 

 

 

5,368

 

Factored receivables

 

 

1,271

 

 

 

1,271

 

 

 

1,033

 

 

 

 

 

 

 

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage warehouse

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PCI

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

3,116

 

 

$

3,798

 

 

$

1,749

 

 

$

7,904

 

 

$

8,076

 

  

 

15


TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

 

 

Three Months Ended

 

 

Three Months Ended

 

 

 

June 30, 2015

 

 

June 30, 2014

 

 

 

Average

 

 

Interest

 

 

Average

 

 

Interest

 

(Dollars in thousands)

 

Impaired Loans

 

 

Recognized

 

 

Impaired Loans

 

 

Recognized

 

Commercial real estate

 

$

1,926

 

 

$

1

 

 

$

1,992

 

 

$

180

 

Construction, land development, land

 

 

 

 

 

 

 

 

 

 

 

 

1-4 family residential properties

 

 

433

 

 

 

9

 

 

 

842

 

 

 

142

 

Farmland

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

4,833

 

 

 

80

 

 

 

5,761

 

 

 

27

 

Factored receivables

 

 

1,957

 

 

 

 

 

 

665

 

 

 

 

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage warehouse

 

 

 

 

 

 

 

 

 

 

 

 

PCI

 

 

721

 

 

 

 

 

 

13

 

 

 

(3

)

 

 

$

9,870

 

 

$

90

 

 

$

9,273

 

 

$

346

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

Six Months Ended

 

 

 

June 30, 2015

 

 

June 30, 2014

 

 

 

Average

 

 

Interest

 

 

Average

 

 

Interest

 

(Dollars in thousands)

 

Impaired Loans

 

 

Recognized

 

 

Impaired Loans

 

 

Recognized

 

Commercial real estate

 

$

1,928

 

 

$

4

 

 

$

2,113

 

 

$

181

 

Construction, land development, land

 

 

 

 

 

 

 

 

 

 

 

 

1-4 family residential properties

 

 

647

 

 

 

32

 

 

 

1,018

 

 

 

145

 

Farmland

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

4,992

 

 

 

119

 

 

 

5,642

 

 

 

40

 

Factored receivables

 

 

1,958

 

 

 

 

 

 

381

 

 

 

9

 

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage warehouse

 

 

 

 

 

 

 

 

 

 

 

 

PCI

 

 

263

 

 

 

 

 

 

13

 

 

 

9

 

 

 

$

9,788

 

 

$

155

 

 

$

9,167

 

 

$

384

 

  

Loans included in the above tables are non-PCI impaired loans and PCI loans that have deteriorated subsequent to acquisition and as a result have been deemed impaired and an allowance recorded. PCI loans that have not deteriorated subsequent to acquisition are not considered impaired and therefore do not require an allowance and are excluded from the tables above.

 

16


TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following table presents the unpaid principal and recorded investment for loans at June 30, 2015 and December 31, 2014. The difference between the unpaid principal balance and recorded investment is principally associated with (1) premiums and discounts associated with acquisition date fair value adjustments on acquired loans (both PCI and non-PCI), (2) net deferred origination costs and fees, and (3) previous charge-offs.

 

(Dollars in thousands)

 

Recorded

 

 

Unpaid

 

 

 

 

 

June 30, 2015

 

Investment

 

 

Principal

 

 

Difference

 

Commercial real estate

 

$

234,090

 

 

$

244,743

 

 

$

(10,653

)

Construction, land development, land

 

 

46,743

 

 

 

48,263

 

 

 

(1,520

)

1-4 family residential properties

 

 

75,588

 

 

 

78,626

 

 

 

(3,038

)

Farmland

 

 

25,701

 

 

 

25,611

 

 

 

90

 

Commercial

 

 

454,161

 

 

 

456,220

 

 

 

(2,059

)

Factored receivables

 

 

199,716

 

 

 

200,721

 

 

 

(1,005

)

Consumer

 

 

10,993

 

 

 

11,054

 

 

 

(61

)

Mortgage warehouse

 

 

105,687

 

 

 

105,687

 

 

 

 

 

 

$

1,152,679

 

 

$

1,170,925

 

 

$

(18,246

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recorded

 

 

Unpaid

 

 

 

 

 

December 31, 2014

 

Investment

 

 

Principal

 

 

Difference

 

Commercial

 

$

249,164

 

 

$

263,060

 

 

$

(13,896

)

Construction, land development, land

 

 

42,914

 

 

 

44,609

 

 

 

(1,695

)

1-4 family residential properties

 

 

78,738

 

 

 

82,263

 

 

 

(3,525

)

Farmland

 

 

22,496

 

 

 

22,400

 

 

 

96

 

Commercial

 

 

364,567

 

 

 

366,753

 

 

 

(2,186

)

Factored receivables

 

 

180,910

 

 

 

181,817

 

 

 

(907

)

Consumer

 

 

11,941

 

 

 

12,012

 

 

 

(71

)

Mortgage warehouse

 

 

55,148

 

 

 

55,148

 

 

 

 

 

 

$

1,005,878

 

 

$

1,028,062

 

 

$

(22,184

)

  

At June 30, 2015 and December 31, 2014, the Company had $19,672,000 and $18,976,000, respectively, of customer reserves associated with factored receivables. These amounts represent customer reserves held to settle any payment disputes or collection shortfalls, may be used to pay customers’ obligations to various third parties as directed by the customer, are periodically released to or withdrawn by customers, and are reported as deposits in the consolidated balance sheets.

 

17


TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Past Due and Nonaccrual Loans

The following is a summary of contractually past due and nonaccrual loans at June 30, 2015 and December 31, 2014:

 

 

 

 

 

 

 

Past Due 90

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

30-89 Days

 

 

Days or More

 

 

 

 

 

 

 

 

 

June 30, 2015

 

Past Due

 

 

Still Accruing

 

 

Nonaccrual

 

 

Total

 

Commercial real estate

 

$

224

 

 

$

 

 

$

1,992

 

 

$

2,216

 

Construction, land development, land

 

 

1,168

 

 

 

 

 

 

 

 

 

1,168

 

1-4 family residential properties

 

 

310

 

 

 

 

 

 

445

 

 

 

755

 

Farmland

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

4,887

 

 

 

 

 

 

2,407

 

 

 

7,294

 

Factored receivables

 

 

7,022

 

 

 

2,211

 

 

 

 

 

 

9,233

 

Consumer

 

 

280

 

 

 

 

 

 

 

 

 

280

 

Mortgage warehouse

 

 

 

 

 

 

 

 

 

 

 

 

PCI

 

 

 

 

 

 

 

 

5,895

 

 

 

5,895

 

 

 

$

13,891

 

 

$

2,211

 

 

$

10,739

 

 

$

26,841

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Past Due 90

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

30-89 Days

 

 

Days or More

 

 

 

 

 

 

 

 

 

December 31, 2014

 

Past Due

 

 

Still Accruing

 

 

Nonaccrual

 

 

Total

 

Commercial real estate

 

$

643

 

 

$

 

 

$

1,995

 

 

$

2,638

 

Construction, land development, land

 

 

 

 

 

 

 

 

 

 

 

 

1-4 family residential properties

 

 

584

 

 

 

49

 

 

 

638

 

 

 

1,271

 

Farmland

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

114

 

 

 

 

 

 

7,188

 

 

 

7,302

 

Factored receivables

 

 

7,202

 

 

 

651

 

 

 

 

 

 

7,853

 

Consumer

 

 

296

 

 

 

 

 

 

 

 

 

296

 

Mortgage warehouse

 

 

 

 

 

 

 

 

 

 

 

 

PCI

 

 

260

 

 

 

 

 

 

6,206

 

 

 

6,466

 

 

 

$

9,099

 

 

$

700

 

 

$

16,027

 

 

$

25,826

 

  

Credit Quality Information

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, including: current collateral and financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes every loan and is performed on a regular basis. Large groups of smaller balance homogeneous loans, such as consumer loans, are analyzed primarily based on payment status. The Company uses the following definitions for risk ratings:

Pass:

Loans classified as pass are loans with low to average risk and not otherwise classified as special mention, substandard or doubtful.

Special Mention:

Loans classified as special mention have low to acceptable risks. Liquidity, asset quality, and debt service coverage are as a whole satisfactory and performance is generally as agreed.

 

18


TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Substandard:

Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the repayment of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful:

Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

PCI:

At acquisition, PCI loans had the characteristics of substandard loans and it was probable, at acquisition, that all contractually required principal and interest payments would not be collected. The Company evaluates these loans on a projected cash flow basis with this evaluation performed quarterly.

As of June 30, 2015 and December 31, 2014 based on the most recent analysis performed, the risk category of loans is as follows:

   

(Dollars in thousands)

 

 

 

 

 

Special

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2015

 

Pass

 

 

Mention

 

 

Substandard

 

 

Doubtful

 

 

PCI

 

 

Total

 

Commercial real estate

 

$

216,720

 

 

$

2,297

 

 

$

7,603

 

 

$

 

 

$

7,470

 

 

$

234,090

 

Construction, land development, land

 

 

45,337

 

 

 

 

 

 

 

 

 

 

 

 

1,406

 

 

 

46,743

 

1-4 family residential

 

 

73,080

 

 

 

 

 

 

464

 

 

 

 

 

 

2,044

 

 

 

75,588

 

Farmland

 

 

25,701

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25,701

 

Commercial

 

 

430,782

 

 

 

8,442

 

 

 

10,475

 

 

 

 

 

 

4,462

 

 

 

454,161

 

Factored receivables

 

 

197,072

 

 

 

 

 

 

1,850

 

 

 

794

 

 

 

 

 

 

199,716

 

Consumer

 

 

10,993

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,993

 

Mortgage warehouse

 

 

105,687

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

105,687

 

 

 

$

1,105,372

 

 

$

10,739

 

 

$

20,392

 

 

$

794

 

 

$

15,382

 

 

$

1,152,679

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

Special

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2014

 

Pass

 

 

Mention

 

 

Substandard

 

 

Doubtful

 

 

PCI

 

 

Total

 

Commercial real estate

 

$

231,627

 

 

$

2,344

 

 

$

6,603

 

 

$

 

 

$

8,590

 

 

$

249,164

 

Construction, land development, land

 

 

41,431

 

 

 

 

 

 

 

 

 

 

 

 

1,483

 

 

 

42,914

 

1-4 family residential

 

 

75,781

 

 

 

77

 

 

 

810

 

 

 

 

 

 

2,070

 

 

 

78,738

 

Farmland

 

 

22,496

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

22,496

 

Commercial

 

 

347,534

 

 

 

2,435

 

 

 

10,241

 

 

 

 

 

 

4,357

 

 

 

364,567

 

Factored receivables

 

 

179,639

 

 

 

 

 

 

350

 

 

 

921

 

 

 

 

 

 

180,910

 

Consumer

 

 

11,941

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,941

 

Mortgage warehouse

 

 

55,148

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

55,148

 

 

 

$

965,597

 

 

$

4,856

 

 

$

18,004

 

 

$

921

 

 

$

16,500

 

 

$

1,005,878

 

 

Troubled Debt Restructurings

Troubled debt restructurings and their effects were immaterial as of June 30, 2015 and December 31, 2014 and for the three and six months ended June 30, 2015 and 2014.

 

19


TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Purchased Credit Impaired Loans

The Company has loans that were acquired, for which there was, at acquisition, evidence of deterioration of credit quality since origination and for which it was probable, at acquisition, that all contractually required payments would not be collected. The outstanding contractually required principal and interest and the carrying amount of these loans included in the balance sheet amounts of loans at June 30, 2015 and December 31, 2014, are as follows:

  

 

 

June 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Contractually required principal and interest:

 

 

 

 

 

 

 

 

Real estate loans

 

$

19,482

 

 

$

23,457

 

Commercial loans

 

 

6,221

 

 

 

6,293

 

Outstanding contractually required principal and interest

 

$

25,703

 

 

$

29,750

 

Gross carrying amount included in loans receivable

 

$

15,382

 

 

$

16,500

 

 

The changes in accretable yield during the three and six months ended June 30, 2015 and 2014 in regard to loans transferred at acquisition for which it was probable that all contractually required payments would not be collected are as follows:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Accretable yield, beginning balance

 

$

4,496

 

 

$

6,662

 

 

$

4,977

 

 

$

4,587

 

Additions

 

 

 

 

 

482

 

 

 

 

 

 

482

 

Accretion

 

 

(1,031

)

 

 

(199

)

 

 

(1,460

)

 

 

(1,957

)

Reclassification from nonaccretable to accretable yield

 

 

585

 

 

 

 

 

 

585

 

 

 

3,922

 

Disposals

 

 

(147

)

 

 

(61

)

 

 

(199

)

 

 

(150

)

Accretable yield, ending balance

 

$

3,903

 

 

$

6,884

 

 

$

3,903

 

 

$

6,884

 

  

 

NOTE 5 - GOODWILL AND INTANGIBLE ASSETS

Goodwill and intangible assets consist of the following:

 

 

June 30,

 

 

December 31,

 

(Dollars in thousands)

 

2015

 

 

2014

 

Goodwill

 

$

15,968

 

 

$

15,968

 

Core deposit intangibles

 

 

9,984

 

 

 

11,218

 

Other intangible assets

 

 

4,222

 

 

 

1,871

 

 

 

$

30,174

 

 

$

29,057

 

 

The changes in goodwill and intangible assets during the three and six months ended June 30, 2015 and 2014 are as follows:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(Dollars in thousands)

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Beginning balance

 

$

30,211

 

 

$

27,791

 

 

$

29,057

 

 

$

28,518

 

Acquired goodwill

 

 

 

 

 

1,921

 

 

 

 

 

 

1,921

 

Acquired intangibles

 

 

858

 

 

 

2,055

 

 

 

2,776

 

 

 

2,055

 

Amortization of intangibles

 

 

(895

)

 

 

(724

)

 

 

(1,659

)

 

 

(1,451

)

Ending balance

 

$

30,174

 

 

$

31,043

 

 

$

30,174

 

 

$

31,043

 

 

 

 

20


TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 6 – Variable Interest Entities

The Company, through its subsidiary, TCA, acts as asset manager to various CLO funds. TCA earns asset management fees in accordance with the terms of its asset management agreements with the CLO funds.

The following table summarizes the closed CLO offerings with assets under management by TCA:

 

Offering

 

Offering

 

(Dollars in thousands)

Date

 

Amount

 

Trinitas CLO I, LTD (Trinitas I)

May 1, 2014

 

$

400,000

 

Trinitas CLO II, LTD (Trinitas II)

August 4, 2014

 

$

416,000

 

Doral CLO II, LTD (Doral II)

April 26, 2012

 

$

416,460

 

Doral CLO III, LTD (Doral III)

December 17, 2012

 

$

310,800

 

Trinitas CLO III, LTD (Trinitas III)

June 9, 2015

 

$

409,375

 

The securities sold in the CLO offerings were issued in a series of tranches ranging from an AAA rated debt tranche to an unrated tranche of subordinated notes. The Company does not hold any of the securities issued in the CLO offerings.  A related party of the Company holds insignificant interests in Trinitas II and Trinitas III.

TCA earned asset management fees totaling $1,274,000 and $2,232,000 for the three and six months ended June 30, 2015, respectively, and $129,000 for the three and six months ended June 30, 2014.

The Company performed a consolidation analysis to confirm whether the Company was required to consolidate the assets, liabilities, equity or operations of the closed CLO funds in its financial statements. The Company concluded that the closed CLO funds are variable interest entities; however, the Company, through TCA, does not hold variable interests in the entities as the Company’s interest in the CLO funds is limited to the asset management fees payable to TCA under their asset management agreements and the interests of its related parties are insignificant.  The Company concluded that the asset management fees were not variable interests in the CLO funds as (a) the asset management fees are commensurate with the services provided, (b) the asset management agreements include only terms, conditions, or amounts that are customarily present in arrangements for similar services negotiated on an arm’s-length basis, and (c) the Company does not hold other interests in the CLO funds (including interests held through related parties) that individually or in the aggregate absorb more than an insignificant amount of the CLO funds’ expected losses or receive more than an insignificant amount of the CLO funds’ expected residual returns. Consequently, the Company concluded that it was not required to consolidate the assets, liabilities, equity or operations of the closed CLO funds in its financial statements.

At December 31, 2014, Trinitas III was in a “warehouse” phase whereby it was acquiring senior secured corporate loans in anticipation of the securities offering that completed the final CLO securitization structure. The purchases of these warehouse assets were funded by initial third party equity investments, the Company’s initial equity investment, and the proceeds from third party debt financing. On June 9, 2015, Trinitas III completed its CLO securities offering and issued $409,375,000 face amount of CLO securities. In connection with the offering, Trinitas III redeemed the equity securities issued as part of its warehouse phase and repaid and terminated its warehouse credit facility.  The Company performed a consolidation analysis of Trinitas III during the warehouse phase and concluded that Trinitas III was a variable interest entity and that the Company and its related persons held variable interests in the entity that could have potentially been significant to the entity in the form of equity investments in the entity.  However, the Company also concluded that due to certain approval and denial powers available to the lender under the warehouse credit facility for Trinitas III which provided for shared decision-making powers, the Company was not the primary beneficiary of Trinitas III during the warehouse phase and therefore did not consolidate the assets, liabilities, equity, or operations of the entity in the Company’s financial statements.

 

 

 

 

21


TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 7 - Deposits

Deposits at June 30, 2015 and December 31, 2014 are summarized as follows:

 

(Dollars in thousands)

 

June 30, 2015

 

 

December 31, 2014

 

Noninterest bearing demand

 

$

164,560

 

 

$

179,848

 

Interest bearing demand

 

 

228,909

 

 

 

236,525

 

Individual retirement accounts

 

 

56,285

 

 

 

55,034

 

Money market

 

 

116,019

 

 

 

117,514

 

Savings

 

 

73,016

 

 

 

70,407

 

Certificates of deposit

 

 

500,451

 

 

 

455,901

 

Brokered deposits

 

 

50,019

 

 

 

50,000

 

Total Deposits

 

$

1,189,259

 

 

$

1,165,229

 

 

At June 30, 2015, scheduled maturities of certificates of deposits, individual retirement accounts and brokered deposits are as follows:

 

(Dollars in thousands)

 

June 30, 2015

 

Within one year

 

$

386,320

 

After one but within two years

 

 

151,393

 

After two but within three years

 

 

44,538

 

After three but within four years

 

 

13,794

 

After four but within five years

 

 

10,710

 

Total

 

$

606,755

 

 

Time deposits, including individual retirement accounts, certificates of deposit, and brokered deposits, with individual balances of $250,000 and greater totaled $92,044,000 and $66,366,000 at June 30, 2015 and December 31, 2014, respectively.

 

NOTE 8 - Legal Contingencies

Various legal claims have arisen from time to time in the normal course of business which, in the opinion of management, will have no material effect on the Company’s consolidated financial statements. The Company does not anticipate any material losses as a result of commitments and contingent liabilities.

Trademark Infringement Lawsuit

On February 18, 2015, a trademark infringement suit was filed in the United States District Court for the Western District of Tennessee Western Division against the Company and certain subsidiaries by Triumph Bancshares, Inc. and Triumph Bank, N.A., asserting that the Company’s use of “Triumph” as part of their trademarks and domain names causes a likelihood of confusion, has caused actual confusion, and infringes plaintiffs’ trademarks.  The suit seeks damages as well as an injunction to prevent the use of the name “Triumph” and certain other matters with respect to the Company and its subsidiaries.  The Company disagrees with the allegations in the complaint and will defend it vigorously.

 

 

NOTE 9 - OFF-BALANCE SHEET LOAN COMMITMENTS

From time to time, the Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments.

The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

 

22


TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The contractual amounts of financial instruments with off-balance sheet risk were as follows:

  

 

 

June 30, 2015

 

 

December 31, 2014

 

(Dollars in thousands)

 

Fixed Rate

 

 

Variable Rate

 

 

Fixed Rate

 

 

Variable Rate

 

Commitments to make loans

 

$

8,382

 

 

$

15,588

 

 

$

5,192

 

 

$

14,600

 

Unused lines of credit

 

 

35,178

 

 

 

186,520

 

 

 

30,369

 

 

 

197,594

 

Standby letters of credit

 

 

1,385

 

 

 

1,984

 

 

 

1,840

 

 

 

1,915

 

 

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being fully drawn upon, the total commitment amounts disclosed above do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if considered necessary by the Company, upon extension of credit, is based on management’s credit evaluation of the customer.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. In the event of nonperformance by the customer, the Company has rights to the underlying collateral, which can include commercial real estate, physical plant and property, inventory, receivables, cash and marketable securities. The credit risk to the Company in issuing letters of credit is essentially the same as that involved in extending loan facilities to its customers.

NOTE 10 - Fair Value Disclosures

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The methods of determining the fair value of assets and liabilities presented in this note are consistent with our methodologies disclosed in our annual financial statements.

 

23


TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Assets measured at fair value on a recurring basis are summarized in the table below. There were no liabilities measured at fair value on a recurring basis at June 30, 2015 and December 31, 2014.

(Dollars in thousands)

 

Fair Value Measurements Using

 

 

Total

 

June 30, 2015

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value

 

Securities available for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government agency obligations

 

$

 

 

$

96,672

 

 

$

 

 

$

96,672

 

Mortgage-backed securities-residential

 

 

 

 

 

26,267

 

 

 

 

 

 

26,267

 

Asset backed securities

 

 

 

 

 

18,533

 

 

 

 

 

 

18,533

 

State and municipal

 

 

 

 

 

3,413

 

 

 

 

 

 

3,413

 

Corporate bonds

 

 

 

 

 

13,612

 

 

 

 

 

 

13,612

 

SBA pooled securities

 

 

 

 

 

196

 

 

 

 

 

 

196

 

 

 

$

 

 

$

158,693

 

 

$

 

 

$

158,693

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans held for sale

 

$

 

 

$

4,096

 

 

$

 

 

$

4,096

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Fair Value Measurements Using

 

 

Total

 

December 31, 2014

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value

 

Securities available for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government agency obligations

 

$

 

 

$

93,841

 

 

$

 

 

$

93,841

 

Mortgage-backed securities-residential

 

 

 

 

 

28,878

 

 

 

 

 

 

28,878

 

Asset backed securities

 

 

 

 

 

18,598

 

 

 

 

 

 

18,598

 

State and municipal

 

 

 

 

 

3,592

 

 

 

3,269

 

 

 

6,861

 

Corporate bonds

 

 

 

 

 

13,636

 

 

 

 

 

 

13,636

 

SBA pooled securities

 

 

 

 

 

210

 

 

 

 

 

 

210

 

 

 

$

 

 

$

158,755

 

 

$

3,269

 

 

$

162,024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans held for sale

 

$

 

 

$

3,288

 

 

$

 

 

$

3,288

 

  

 

There were no transfers between levels during 2015 or 2014.

At December 31, 2014, the Company classified $3,269,000 of municipal securities as level 3. These securities were called during the six months ended June 30, 2015.

 

24


TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Assets measured at fair value on a non-recurring basis are summarized in the table below. There were no liabilities measured at fair value on a non-recurring basis at June 30, 2015 and December 31, 2014.

  

(Dollars in thousands)

 

Fair Value Measurements Using

 

 

Total

 

June 30, 2015

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value

 

Impaired loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

$

 

 

$

 

 

$

432

 

 

$

432

 

1-4 family residential properties

 

 

 

 

 

 

 

 

14

 

 

 

14

 

Commercial

 

 

 

 

 

 

 

 

1,442

 

 

 

1,442

 

Factored receivables

 

 

 

 

 

 

 

 

831

 

 

 

831

 

PCI

 

 

 

 

 

 

 

 

170

 

 

 

170

 

Other real estate owned (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 family residential properties

 

 

 

 

 

 

 

 

92

 

 

 

92

 

Construction, land development, land

 

 

 

 

 

 

 

 

411

 

 

 

411

 

 

 

$

 

 

$

 

 

$

3,392

 

 

$

3,392

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Fair Value Measurements Using

 

 

Total

 

December 31, 2014

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value

 

Impaired loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

 

 

$

 

 

$

1,129

 

 

$

1,129

 

Factored receivables

 

 

 

 

 

 

 

 

238

 

 

 

238

 

Other real estate owned (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 family residential properties

 

 

 

 

 

 

 

 

97

 

 

 

97

 

Commercial

 

 

 

 

 

 

 

 

2,163

 

 

 

2,163

 

Construction, land development, land

 

 

 

 

 

 

 

 

1,487

 

 

 

1,487

 

 

 

$

 

 

$

 

 

$

5,114

 

 

$

5,114

 

 

(1) Represents the fair value of OREO that was adjusted during the period and subsequent to its initial classification as OREO

Impaired Loans with Specific Allocation of ALLL:    A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due pursuant to the contractual terms of the loan agreement. Impairment is measured by estimating the fair value of the loan based on the present value of expected cash flows, the market price of the loan, or the underlying fair value of the loan’s collateral. Fair value of the impaired loan’s collateral is determined by third party appraisals, which are then adjusted for the estimated selling and closing costs related to liquidation of the collateral. For this asset class, the actual valuation methods (income, sales comparable, or cost) vary based on the status of the project or property. For example, land is generally based on the sales comparable method while construction is based on the income and/or sales comparable methods. The unobservable inputs may vary depending on the individual assets with no one of the three methods being the predominant approach. The Company reviews the third party appraisal for appropriateness and adjusts the value downward to consider selling and closing costs, which typically range from 5% to 8% of the appraised value of the underlying collateral.

OREO:    OREO is comprised of real estate acquired in partial or full satisfaction of loans. OREO is recorded at its estimated fair value less estimated selling and closing costs at the date of transfer, with any excess of the related loan balance over the fair value less expected selling costs is charged to the ALLL. Subsequent changes in fair value are reported as adjustments to the carrying amount and are recorded against earnings. The Company outsources the valuation of OREO with material balances to third party appraisers. For this asset class, the actual valuation methods (income, sales comparable, or cost) vary based on the status of the project or property. For example, land is generally based on the sales comparable method while construction is based on the income and/or sales comparable methods. The unobservable inputs may vary depending on the individual assets with no one of the three methods being the predominant approach. The Company reviews the third party appraisal for appropriateness and adjusts the value downward to consider selling and closing costs, which typically range from 5% to 8% of the appraised value.

 

25


TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The estimated fair values of the Company’s financial instruments at June 30, 2015 and December 31, 2014 were as follows:

  

(Dollars in thousands)

 

Carrying

 

 

Fair Value Measurements Using

 

 

Total

 

June 30, 2015

 

Amount

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

99,714

 

 

$

99,714

 

 

$

 

 

$

 

 

$

99,714

 

Securities - held to maturity

 

 

746

 

 

 

 

 

 

744

 

 

 

 

 

 

744

 

Loans not previously presented, net

 

 

1,138,328

 

 

 

 

 

 

 

 

 

1,144,194

 

 

 

1,144,194

 

FHLB and FRB stock

 

 

5,707

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

Accrued interest receivable

 

 

4,328

 

 

 

 

 

 

4,328

 

 

 

 

 

 

4,328

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

1,189,259

 

 

 

 

 

 

1,191,279

 

 

 

 

 

 

1,191,279

 

Customer repurchase agreements

 

 

13,011

 

 

 

 

 

 

13,011

 

 

 

 

 

 

13,011

 

Federal Home Loan Bank advances

 

 

19,000

 

 

 

 

 

 

 

19,000

 

 

 

 

 

 

 

19,000

 

Junior subordinated debentures

 

 

24,553

 

 

 

 

 

 

24,553

 

 

 

 

 

 

24,553

 

Accrued interest payable

 

 

1,149

 

 

 

 

 

 

1,149

 

 

 

 

 

 

1,149

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Carrying

 

 

Fair Value Measurements Using

 

 

Total

 

December 31, 2014

 

Amount

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

160,888

 

 

$

160,888

 

 

$

 

 

$

 

 

$

160,888

 

Securities - held to maturity

 

 

745

 

 

 

 

 

 

750

 

 

 

 

 

 

750

 

Loans not previously presented, net

 

 

995,668

 

 

 

 

 

 

 

 

 

1,001,548

 

 

 

1,001,548

 

FHLB and FRB stock

 

 

4,903

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

Accrued interest receivable

 

 

3,727

 

 

 

 

 

 

3,727

 

 

 

 

 

 

3,727

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

1,165,229

 

 

 

 

 

 

1,167,479

 

 

 

 

 

 

1,167,479

 

Customer repurchase agreements

 

 

9,282

 

 

 

 

 

 

9,282

 

 

 

 

 

 

9,282

 

Federal Home Loan Bank advances

 

 

3,000

 

 

 

 

 

 

3,000

 

 

 

 

 

 

3,000

 

Junior subordinated debentures

 

 

24,423

 

 

 

 

 

 

24,423

 

 

 

 

 

 

24,423

 

Accrued interest payable

 

 

971

 

 

 

 

 

 

971

 

 

 

 

 

 

971

 

 

NOTE 11 - Regulatory Matters

The Company (on a consolidated basis), TSB and TCB are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s, TSB’s, or TCB’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company, TSB, and TCB must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulations to ensure capital adequacy require the Company, TSB, and TCB to maintain minimum amounts and ratios of total and Tier 1 capital to risk weighted assets, common equity Tier 1 capital to total risk weighted assets, and of Tier 1 capital to average assets.

In July 2013, the U.S. banking regulators adopted a final rule which implements the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision, and certain changes required by the Dodd-Frank Act. The final rule established an integrated regulatory capital framework and introduces the “Standardized Approach” for risk-weighted assets, which replaces the Basel I risk-based guidance for determining risk-weighted assets as of January 1, 2015, the date the Company became subject to the new rules. Based on the Company's current capital composition and levels, the Company believes it is in compliance with the requirements as set forth in the final rules.

 

26


TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The rules include new risk-based capital and leverage ratios, which will be phased in from 2015 to 2019, and refine the definition of what constitutes “capital” for purposes of calculating those ratios. The new minimum capital level requirements applicable to the Company, TSB and TCB are set forth in the table below. The final rules also establish a “capital conservation buffer” of 2.5% above the new regulatory minimum capital requirements. The capital conservation buffer will be phased-in over four years beginning on January 1, 2016 and becoming fully effective on January 1, 2019. Under the final rules, institutions are subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions.

The final rules also contain revisions to the prompt corrective action framework, which is designed to place restrictions on insured depository institutions if their capital levels begin to show signs of weakness. Under the prompt corrective action requirements, which are designed to complement the capital conservation buffer, insured depository institutions are now required to meet the new capital level requirements set forth in the table below in order to qualify as “well capitalized.” As of June 30, 2015, TSB’s and TCB’s capital ratios exceeded those levels necessary to be categorized as “well capitalized” under the regulatory framework for prompt corrective action. There are no conditions or events since June 30, 2015 that management believes would change either institution’s category.

 

27


TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The actual capital amounts and ratios for the Company, TSB, and TCB are presented in the following table as of June 30, 2015 and December 31, 2014.  For periods beginning on or after January 1, 2015, capital ratios are calculated and presented in accordance with the requirements of Basel III.  

  

 

 

 

 

 

To Be Adequately

 

 

To Be Well

 

 

 

 

 

 

Capitalized Under

 

 

Capitalized Under

 

 

 

 

 

 

Prompt Corrective

 

 

Prompt Corrective

 

(Dollars in thousands)

 

Actual

 

 

Action Provisions

 

 

Action Provisions

 

As of June 30, 2015

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

Total capital (to risk weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Triumph Bancorp, Inc.

 

$

263,293

 

 

 

20.0%

 

 

$

105,102

 

 

 

8.0%

 

 

N/A

 

 

N/A

 

Triumph Savings Bank, SSB

 

$

62,464

 

 

 

15.5%

 

 

$

32,232

 

 

 

8.0%

 

 

$

40,291

 

 

 

10.0%

 

Triumph Community Bank

 

$

132,191

 

 

 

15.3%

 

 

$

69,035

 

 

 

8.0%

 

 

$

86,293

 

 

 

10.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 capital (to risk weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Triumph Bancorp, Inc.

 

$

251,691

 

 

 

19.2%

 

 

$

78,826

 

 

 

6.0%

 

 

N/A

 

 

N/A

 

Triumph Savings Bank, SSB

 

$

57,595

 

 

 

14.3%

 

 

$

24,174

 

 

 

6.0%

 

 

$

32,232

 

 

 

8.0%

 

Triumph Community Bank

 

$

125,552

 

 

 

14.6%

 

 

$

51,774

 

 

 

6.0%

 

 

$

69,032

 

 

 

8.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common equity Tier 1 capital (to risk weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Triumph Bancorp, Inc.

 

$

223,046

 

 

 

17.0%

 

 

$

59,120

 

 

 

4.5%

 

 

N/A

 

 

N/A

 

Triumph Savings Bank, SSB

 

$

57,595

 

 

 

14.3%

 

 

$

18,131

 

 

 

4.5%

 

 

$

26,189

 

 

 

6.5%

 

Triumph Community Bank

 

$

125,552

 

 

 

14.6%

 

 

$

38,831

 

 

 

4.5%

 

 

$

56,089

 

 

 

6.5%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 capital (to average assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Triumph Bancorp, Inc.

 

$

251,691

 

 

 

17.0%

 

 

$

59,181

 

 

 

4.0%

 

 

N/A

 

 

N/A

 

Triumph Savings Bank, SSB

 

$

57,595

 

 

 

13.3%

 

 

$

17,321

 

 

 

4.0%

 

 

$

21,651

 

 

 

5.0%

 

Triumph Community Bank

 

$

125,552

 

 

 

12.6%

 

 

$

39,880

 

 

 

4.0%

 

 

$

49,850

 

 

 

5.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total capital (to risk weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Triumph Bancorp, Inc.

 

$

229,509

 

 

 

20.4%

 

 

$

90,213

 

 

 

8.0%

 

 

N/A

 

 

N/A

 

Triumph Savings Bank, SSB

 

$

56,013

 

 

 

16.5%

 

 

$

27,118

 

 

 

8.0%

 

 

$

33,898

 

 

 

10.0%

 

Triumph Community Bank

 

$

117,254

 

 

 

15.0%

 

 

$

62,547

 

 

 

8.0%

 

 

$

78,184

 

 

 

10.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 capital (to risk weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Triumph Bancorp, Inc.

 

$

220,550

 

 

 

19.6%

 

 

$

45,107

 

 

 

4.0%

 

 

N/A

 

 

N/A

 

Triumph Savings Bank, SSB

 

$

52,020

 

 

 

15.3%

 

 

$

13,559

 

 

 

4.0%

 

 

$

20,339

 

 

 

6.0%

 

Triumph Community Bank

 

$

112,289

 

 

 

14.4%

 

 

$

31,273

 

 

 

4.0%

 

 

$

46,910

 

 

 

6.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 capital (to average assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Triumph Bancorp, Inc.

 

$

220,550

 

 

 

15.9%

 

 

$

55,412

 

 

 

4.0%

 

 

N/A

 

 

N/A

 

Triumph Savings Bank, SSB

 

$

52,020

 

 

 

13.0%

 

 

$

15,982

 

 

 

4.0%

 

 

$

19,978

 

 

 

5.0%

 

Triumph Community Bank

 

$

112,289

 

 

 

11.9%

 

 

$

37,812

 

 

 

4.0%

 

 

$

47,265

 

 

 

5.0%

 

In conjunction with the acquisition of TCB, the Company made commitments with banking regulators to maintain certain capital levels at TCB, including a minimum Tier 1 capital to average assets ratio of 8.0% of adjusted average assets and total risk-based ratio of 10.0%.

Dividends paid by banks are limited to, without prior regulatory approval, current year earnings and earnings less dividends paid during the preceding two years.

 

 

 

28


TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 12 – STOCKHOLDERS’ EQUITY

The following summarizes the capital structure of Triumph Bancorp, Inc.

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Treasury Stock

 

 

 

Series A

 

 

Series B

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June

 

 

December

 

 

June

 

 

December

 

 

June

 

 

December

 

 

June

 

 

December

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Number of shares authorized

 

 

50,000

 

 

 

50,000

 

 

 

115,000

 

 

 

115,000

 

 

 

50,000,000

 

 

 

50,000,000

 

 

 

 

 

 

 

 

 

Number of shares issued

 

 

45,500

 

 

 

45,500

 

 

 

51,956

 

 

 

51,956

 

 

 

18,052,723

 

 

 

17,974,767

 

 

 

 

 

 

 

 

 

Number of shares outstanding

 

 

45,500

 

 

 

45,500

 

 

 

51,956

 

 

 

51,956

 

 

 

18,041,072

 

 

 

17,963,783

 

 

 

11,651

 

 

 

10,984

 

Par value per share

 

$

0.01

 

 

$

0.01

 

 

$

0.01

 

 

$

0.01

 

 

$

0.01

 

 

$

0.01

 

 

 

 

 

 

 

 

 

Liquidation preference per share

 

$

100

 

 

$

100

 

 

$

100

 

 

$

100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividend rate

 

Prime + 2%

 

 

Prime + 2%

 

 

 

8.00

%

 

 

8.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividend rate - floor

 

 

8.00

%

 

 

8.00

%

 

 

8.00

%

 

 

8.00

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Initial dividend payment date

 

3/31/2013

 

 

3/31/2013

 

 

12/31/2013

 

 

12/31/2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subsequent dividend payment dates

 

Quarterly

 

 

Quarterly

 

 

Quarterly

 

 

Quarterly

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible to common stock

 

Yes

 

 

Yes

 

 

Yes

 

 

Yes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion period

 

Anytime

 

 

Anytime

 

 

Anytime

 

 

Anytime

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion ratio - preferred to common

 

6.94008

 

 

6.94008

 

 

6.94008

 

 

6.94008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOTE 13 – STOCK BASED COMPENSATION

Stock based compensation expense that has been charged against income was $852,000 and $1,548,000 for the three and six month periods ended June 30, 2015, respectively, and $83,000 and $196,000 for the three and six month periods ended June 30, 2014, respectively.

2014 Omnibus Incentive Plan

In connection with the Company’s initial public offering in November 2014, the Company adopted the 2014 Omnibus Incentive Plan (Omnibus Incentive Plan). The Omnibus Incentive Plan provides for the grant of nonqualified and incentive stock options, stock appreciation rights, restricted stock awards, restricted stock units, and other awards that may be settled in, or based upon the value of, the Company’s common stock. The aggregate number of shares of common stock available for issuance under the Omnibus Incentive Plan is 1,200,000 shares. RSAs granted to employees under the Omnibus Incentive Plan typically vest over two to three years.

A summary of changes in the Company’s nonvested RSAs under the Omnibus Incentive Plan for the six months ended June 30, 2015 were as follows:

 

 

 

 

 

 

Weighted-Average

 

 

 

 

 

 

 

Grant-Date

 

Nonvested RSAs

 

Shares

 

 

Fair Value

 

Nonvested at January 1, 2015

 

 

252,256

 

 

$

14.71

 

Granted

 

 

77,956

 

 

 

13.50

 

Vested

 

 

 

 

 

 

Forfeited

 

 

(667

)

 

 

14.71

 

Nonvested at June 30, 2015

 

 

329,545

 

 

$

14.42

 

Compensation expense for RSAs granted under the Omnibus Incentive Program will be recognized over the vesting period of the awards based on the fair value of the stock at the issue date.

As of June 30, 2015, there was $2,974,000 of unrecognized compensation cost related to nonvested RSAs granted under the Omnibus Incentive Plan. The cost is expected to be recognized over a remaining period of 1.73 years.

Amended and Restricted Stock Plan  

The Company’s Amended and Restricted Stock Plan (the Terminated Plan) provided for the issuance of up to 750,000 shares of restricted common stock to officers, directors and employees of the Company and its subsidiaries. In August 2014, the Company

 

29


TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

terminated the plan and approved the immediate and full acceleration of vesting on all remaining nonvested RSUs in anticipation of its contemplated initial public offering. As a result, the Company recognized all remaining unrecognized compensation cost associated with these shares during the third quarter of 2014.

A summary of changes in the Company’s nonvested RSUs under the Terminated Plan for the six months ended June 30, 2014 were as follows:

  

 

 

 

 

 

 

Weighted-Average

 

 

 

 

 

 

 

Grant-Date

 

Nonvested RSUs

 

Units

 

 

Fair Value

 

Nonvested at January 1, 2014

 

 

26,120

 

 

$

10.77

 

Granted

 

 

32,275

 

 

 

14.08

 

Vested

 

 

(13,511

)

 

 

12.12

 

Forfeited

 

 

 

 

 

 

Nonvested at June 30, 2014

 

 

44,884

 

 

$

12.75

 

 

 

NOTE 14 – EARNINGS PER SHARE

The factors used in the earnings per share computation follow:

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(Dollars in thousands)

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Basic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income to common stockholders

 

$

4,457

 

 

$

2,285

 

 

$

18,309

 

 

$

5,433

 

Weighted average common shares outstanding

 

 

17,711,527

 

 

 

9,845,819

 

 

 

17,711,527

 

 

 

9,839,313

 

Basic earnings per common share

 

$

0.25

 

 

$

0.23

 

 

$

1.03

 

 

$

0.55

 

Diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income to common stockholders

 

$

4,457

 

 

$

2,285

 

 

$

18,309

 

 

$

5,433

 

Dilutive effect of preferred stock

 

 

 

 

 

 

 

 

387

 

 

 

 

Net income to common stockholders - diluted

 

$

4,457

 

 

$

2,285

 

 

$

18,696

 

 

$

5,433

 

Weighted average common shares outstanding

 

 

17,711,527

 

 

 

9,845,819

 

 

 

17,711,527

 

 

 

9,839,313

 

Add:  Dilutive effects of restricted stock

 

 

71,022

 

 

 

11,807

 

 

 

41,492

 

 

 

9,090

 

Add:  Dilutive effects of assumed exercises of stock warrants

 

 

31,276

 

 

 

52,881

 

 

 

30,050

 

 

 

52,881

 

Add:  Dilutive effects of assumed conversion of Preferred A

 

 

 

 

 

 

 

 

315,773

 

 

 

 

Add:  Dilutive effects of assumed conversion of Preferred B

 

 

 

 

 

 

 

 

360,578

 

 

 

 

Average shares and dilutive potential common shares

 

 

17,813,825

 

 

 

9,910,507

 

 

 

18,459,420

 

 

 

9,901,284

 

Dilutive earnings per common share

 

$

0.25

 

 

$

0.23

 

 

$

1.01

 

 

$

0.55

 

 

Shares that were not considered in computing diluted earnings per common share because they were antidilutive are as follows:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Shares assumed to be converted from Preferred Stock Series A

 

 

315,773

 

 

 

315,773

 

 

 

 

 

 

315,773

 

Shares assumed to be converted from Preferred Stock Series B

 

 

360,578

 

 

 

360,578

 

 

 

 

 

 

360,578

 

 

 

 

30


TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 15 – BUSINESS SEGMENT INFORMATION

The following table presents the Company’s operating segments. Transactions between segments consist primarily of borrowed funds. Intersegment interest expense is allocated to the Factoring segment based on the Company’s prime rate. The provision for loan loss is allocated based on the segment’s allowance for loan and lease losses determination which considers the effects of charge-offs. Noninterest income and expense directly attributable to a segment are assigned to it. Taxes are paid on a consolidated basis but not allocated for segment purposes The Factoring segment includes only factoring originated by ABC. General factoring services not originated through ABC are included in the Banking segment.

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

Asset

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2015

 

Factoring

 

 

Banking

 

 

Management

 

 

Corporate

 

 

Consolidated

 

Total interest income

 

$

8,275

 

 

$

18,189

 

 

$

5

 

 

$

128

 

 

$

26,597

 

Intersegment interest allocations

 

 

(1,017

)

 

 

1,017

 

 

 

 

 

 

 

 

 

 

Total interest expense

 

 

 

 

 

1,674

 

 

 

 

 

 

278

 

 

 

1,952

 

Net interest income (expense)

 

 

7,258

 

 

 

17,532

 

 

 

5

 

 

 

(150

)

 

 

24,645

 

Provision for loan losses

 

 

477

 

 

 

1,971

 

 

 

 

 

 

93

 

 

 

2,541

 

Net interest income after provision

 

 

6,781

 

 

 

15,561

 

 

 

5

 

 

 

(243

)

 

 

22,104

 

Other noninterest income

 

 

450

 

 

 

2,708

 

 

 

1,352

 

 

 

259

 

 

 

4,769

 

Noninterest expense

 

 

4,450

 

 

 

12,707

 

 

 

809

 

 

 

1,669

 

 

 

19,635

 

Operating income (loss)

 

$

2,781

 

 

$

5,562

 

 

$

548

 

 

$

(1,653

)

 

$

7,238

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

189,755

 

 

$

1,251,704

 

 

$

13,812

 

 

$

73,988

 

 

$

1,529,259

 

Gross loans

 

$

176,154

 

 

$

957,888

 

 

$

42

 

 

$

18,595

 

 

$

1,152,679

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

Asset

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2014

 

Factoring

 

 

Banking

 

 

Management

 

 

Corporate

 

 

Consolidated

 

Total interest income

 

$

6,637

 

 

$

14,804

 

 

$

 

 

$

12

 

 

$

21,453

 

Intersegment interest allocations

 

 

(701

)

 

 

701

 

 

 

 

 

 

 

 

 

 

Total interest expense

 

 

 

 

 

1,164

 

 

 

 

 

 

408

 

 

 

1,572

 

Net interest income (expense)

 

 

5,936

 

 

 

14,341

 

 

 

 

 

 

(396

)

 

 

19,881

 

Provision for loan losses

 

 

512

 

 

 

1,235

 

 

 

 

 

 

 

 

 

1,747

 

Net interest income after provision

 

 

5,424

 

 

 

13,106

 

 

 

 

 

 

(396

)

 

 

18,134

 

Noninterest income

 

 

404

 

 

 

1,945

 

 

 

129

 

 

 

155

 

 

 

2,633

 

Noninterest expense

 

 

3,509

 

 

 

11,025

 

 

 

720

 

 

 

906

 

 

 

16,160

 

Operating income (loss)

 

$

2,319

 

 

$

4,026

 

 

$

(591

)

 

$

(1,147

)

 

$

4,607

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

159,246

 

 

$

1,223,317

 

 

$

252

 

 

$

24,257

 

 

$

1,407,072

 

Gross loans

 

$

146,370

 

 

$

793,147

 

 

$

 

 

$

 

 

$

939,517

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

Asset

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2015

 

Factoring

 

 

Banking

 

 

Management

 

 

Corporate

 

 

Consolidated

 

Total interest income

 

$

15,503

 

 

$

32,424

 

 

$

65

 

 

$

184

 

 

$

48,176

 

Intersegment interest allocations

 

 

(1,926

)

 

 

1,926

 

 

 

 

 

 

 

 

 

 

Total interest expense

 

 

 

 

 

3,246

 

 

 

10

 

 

 

550

 

 

 

3,806

 

Net interest income (expense)

 

 

13,577

 

 

 

31,104

 

 

 

55

 

 

 

(366

)

 

 

44,370

 

Provision for loan losses

 

 

368

 

 

 

2,725

 

 

 

 

 

 

93

 

 

 

3,186

 

Net interest income after provision

 

 

13,209

 

 

 

28,379

 

 

 

55

 

 

 

(459

)

 

 

41,184

 

Bargain purchase gain

 

 

 

 

 

 

 

 

12,509

 

 

 

 

 

 

12,509

 

Other noninterest income

 

 

781

 

 

 

5,293

 

 

 

2,309

 

 

 

536

 

 

 

8,919

 

Noninterest expense

 

 

8,762

 

 

 

25,107

 

 

 

3,435

 

 

 

3,114

 

 

 

40,418

 

Operating income (loss)

 

$

5,228

 

 

$

8,565

 

 

$

11,438

 

 

$

(3,037

)

 

$

22,194

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

189,755

 

 

$

1,251,704

 

 

$

13,812

 

 

$

73,988

 

 

$

1,529,259

 

Gross loans

 

$

176,154

 

 

$

957,888

 

 

$

42

 

 

$

18,595

 

 

$

1,152,679

 

 

 

31


TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

Asset

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2014

 

Factoring

 

 

Banking

 

 

Management

 

 

Corporate

 

 

Consolidated

 

Total interest income

 

$

11,742

 

 

$

30,063

 

 

$

 

 

$

26

 

 

$

41,831

 

Intersegment interest allocations

 

 

(1,272

)

 

 

1,272

 

 

 

 

 

 

 

 

 

 

Total interest expense

 

 

 

 

 

2,278

 

 

 

 

 

 

818

 

 

 

3,096

 

Net interest income

 

 

10,470

 

 

 

29,057

 

 

 

 

 

 

(792

)

 

 

38,735

 

Provision for loan losses

 

 

902

 

 

 

1,770

 

 

 

 

 

 

 

 

 

2,672

 

Net interest income after provision

 

 

9,568

 

 

 

27,287

 

 

 

 

 

 

(792

)

 

 

36,063

 

Noninterest income

 

 

787

 

 

 

3,912

 

 

 

129

 

 

 

415

 

 

 

5,243

 

Noninterest expense

 

 

6,445

 

 

 

21,890

 

 

 

1,074

 

 

 

1,647

 

 

 

31,056

 

Operating income (loss)

 

$

3,910

 

 

$

9,309

 

 

$

(945

)

 

$

(2,024

)

 

$

10,250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

159,246

 

 

$

1,223,317

 

 

$

252

 

 

$

24,257

 

 

$

1,407,072

 

Gross loans

 

$

146,370

 

 

$

793,147

 

 

$

 

 

$

 

 

$

939,517

 

 

 

 

 

 

 

 

 

32


 

item 2

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

This section presents management’s perspective on our financial condition and results of operations. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Company’s interim consolidated financial statements and the accompanying notes included elsewhere in this Quarterly Report on Form 10-Q and with the consolidated financial statements and accompanying notes and other detailed information appearing in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. To the extent that this discussion describes prior performance, the descriptions relate only to the periods listed, which may not be indicative of our future financial outcomes. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause results to differ materially from management’s expectations. See the “Forward-Looking Statements” section of this discussion for further information on forward-looking statements.

Overview

We are a financial holding company headquartered in Dallas, Texas and registered under the Bank Holding Company Act. Through our two wholly owned bank subsidiaries, Triumph Savings Bank and Triumph Community Bank, we offer traditional banking services as well as commercial finance product lines focused on businesses that require specialized financial solutions. Our banking operations include a full suite of lending and deposit products and services focused on our local market areas. These activities generate a stable source of core deposits and a diverse asset base to support our overall operations. Our commercial finance product lines include factoring, asset-based lending, equipment lending and healthcare lending products offered on a nationwide basis. These product offerings supplement the asset generation capacity in our community banking markets and enhance the overall yield of our loan portfolio, enabling us to earn attractive risk-adjusted net interest margins. In addition, through our Triumph Capital Advisors subsidiary, we provide investment management services currently focused on the origination and management of collateralized loan obligations. We believe our integrated business model distinguishes us from other banks and non-bank financial services companies in the markets in which we operate. As of June 30, 2015, we had consolidated total assets of $1.529 billion, total loans held for investment of $1.153 billion, total deposits of $1.189 billion and total stockholders’ equity of $257.5 million.

Most of our products and services share basic processes and have similar economic characteristics. However, our factoring subsidiary operates in a highly specialized niche and earns substantially higher yields on its factored accounts receivable portfolio than our other lending products. This business also has a legacy and structure as a standalone company. In addition, through our Triumph Capital Advisors asset management subsidiary, we provide fee-based asset management services distinct from our traditional banking offerings and operations.  As a result, we have determined our reportable segments are Banking, Factoring, Asset Management, and Corporate. For the six months ended June 30, 2015, our banking segment generated 66% of our total revenue (comprised of interest and noninterest income, excluding the bargain purchase gain), our factoring segment generated 29% of our total revenue, our asset management segment generated 4% of our total revenue, and our corporate segment generated 1% of our total revenue.

Doral Money, Inc. Acquisition

On February 27, 2015, Triumph Capital Advisors entered into a Purchase and Sale Agreement with the Federal Deposit Insurance Corporation, in its capacity as receiver of Doral Bank, to acquire 100% of the equity of Doral Money, Inc., a subsidiary of Doral Bank, and the management contracts associated with two active collateralized loan obligations with approximately $700 million in assets under management. The consideration transferred in the acquisition consisted of cash paid of $135.9 million and resulted in the recognition of a pre-tax bargain purchase gain in the amount of $12.5 million. The purpose of the acquisition was to expand our asset management operations.

On February 26, 2015, we entered into a $100.0 million 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.  We used the proceeds from the loan to partially fund the Doral Money, Inc. acquisition.

The acquisition was completed on March 3, 2015, at which time we repaid the $100.0 million third party secured term loan credit facility in full by delivering the securities issued by the collateralized loan obligations that were acquired from Doral Money, Inc. with an acquisition date fair value of $98.3 million and cash representing security payments received in the amount of $1.7 million.

 

 

33


 

Financial Highlights

The Company’s key financial highlights as of and for the three and six months ended June 30, 2015, as compared to the prior period, are shown below:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(Dollars in thousands, except per share amounts)

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Income Statement Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

26,597

 

 

$

21,453

 

 

$

48,176

 

 

$

41,831

 

Interest expense

 

 

1,952

 

 

 

1,572

 

 

 

3,806

 

 

 

3,096

 

Net interest income

 

 

24,645

 

 

 

19,881

 

 

 

44,370

 

 

 

38,735

 

Provision for loan losses

 

 

2,541

 

 

 

1,747

 

 

 

3,186

 

 

 

2,672

 

Net interest income after provision

 

 

22,104

 

 

 

18,134

 

 

 

41,184

 

 

 

36,063

 

Bargain purchase gain

 

 

 

 

 

 

 

 

12,509

 

 

 

 

Other noninterest income

 

 

4,769

 

 

 

2,633

 

 

 

8,919

 

 

 

5,243

 

Noninterest income

 

 

4,769

 

 

 

2,633

 

 

 

21,428

 

 

 

5,243

 

Noninterest expense

 

 

19,635

 

 

 

16,160

 

 

 

40,418

 

 

 

31,056

 

Net income before income taxes

 

 

7,238

 

 

 

4,607

 

 

 

22,194

 

 

 

10,250

 

Income tax expense

 

 

2,586

 

 

 

1,626

 

 

 

3,498

 

 

 

3,542

 

Net income

 

 

4,652

 

 

 

2,981

 

 

 

18,696

 

 

 

6,708

 

Income attributable to noncontrolling interests

 

 

 

 

 

(500

)

 

 

 

 

 

(887

)

Dividends on preferred stock

 

 

(195

)

 

 

(196

)

 

 

(387

)

 

 

(388

)

Net income available to common stockholders

 

$

4,457

 

 

$

2,285

 

 

$

18,309

 

 

$

5,433

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per Share Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

 

$

0.25

 

 

$

0.23

 

 

$

1.03

 

 

$

0.55

 

Diluted earnings per common share

 

$

0.25

 

 

$

0.23

 

 

$

1.01

 

 

$

0.55

 

Weighted average shares outstanding - basic

 

 

17,711,527

 

 

 

9,845,819

 

 

 

17,711,527

 

 

 

9,839,313

 

Weighted average shares outstanding - diluted

 

 

17,813,825

 

 

 

9,910,507

 

 

 

18,459,420

 

 

 

9,901,284

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Per Share Data(1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted diluted earnings per common share

 

N/A

 

 

N/A

 

 

$

0.39

 

 

N/A

 

Adjusted weighted average shares outstanding - diluted

 

N/A

 

 

N/A

 

 

 

17,783,069

 

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performance ratios - Annualized(2):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on average assets

 

 

1.23

%

 

 

0.88

%

 

 

2.55

%

 

 

1.03

%

Return on average common equity (1)

 

 

7.27

%

 

 

7.05

%

 

 

15.37

%

 

 

8.54

%

Return on average tangible common equity (1)

 

 

8.28

%

 

 

8.98

%

 

 

17.54

%

 

 

10.94

%

Return on average total equity

 

 

7.30

%

 

 

7.18

%

 

 

15.08

%

 

 

8.20

%

Yield on loans

 

 

9.49

%

 

 

8.83

%

 

 

9.02

%

 

 

9.00

%

Adjusted yield on loans (1)

 

 

8.96

%

 

 

7.75

%

 

 

8.52

%

 

 

7.75

%

Cost of interest bearing deposits

 

 

0.65

%

 

 

0.50

%

 

 

0.65

%

 

 

0.50

%

Cost of total deposits

 

 

0.56

%

 

 

0.42

%

 

 

0.56

%

 

 

0.43

%

Cost of total funds

 

 

0.63

%

 

 

0.53

%

 

 

0.63

%

 

 

0.55

%

Net interest margin (1)

 

 

7.20

%

 

 

6.58

%

 

 

6.67

%

 

 

6.72

%

Adjusted net interest margin (1)

 

 

6.78

%

 

 

5.74

%

 

 

6.28

%

 

 

5.74

%

Efficiency ratio (1)

 

 

66.75

%

 

 

71.78

%

 

 

72.52

%

 

 

70.62

%

Net noninterest expense to average assets (1)

 

 

3.95

%

 

 

3.99

%

 

 

4.06

%

 

 

3.96

%

  

 

34


 

 

 

June 30,

 

 

December 31,

 

(Dollars in thousands, except per share amounts)

 

2015

 

 

2014

 

Balance Sheet Data:

 

 

 

 

 

 

 

 

Total assets

 

$

1,529,259

 

 

$

1,447,898

 

Cash and cash equivalents

 

 

99,714

 

 

 

160,888

 

Investment securities

 

 

159,439

 

 

 

162,769

 

Loans held for sale

 

 

4,096

 

 

 

3,288

 

Loans held for investment, net

 

 

1,141,217

 

 

 

997,035

 

Total liabilities

 

 

1,271,780

 

 

 

1,210,389

 

Noninterest bearing deposits

 

 

164,560

 

 

 

179,848

 

Interest bearing deposits

 

 

1,024,699

 

 

 

985,381

 

Junior subordinated debentures

 

 

24,553

 

 

 

24,423

 

Total stockholders’ equity

 

 

257,479

 

 

 

237,509

 

Preferred stockholders' equity

 

 

9,746

 

 

 

9,746

 

Common stockholders' equity (1)

 

 

247,733

 

 

 

227,763

 

 

 

 

 

 

 

 

 

 

Per Share Data:

 

 

 

 

 

 

 

 

Book value per share

 

$

13.73

 

 

$

12.68

 

Tangible book value per share (1)

 

$

12.06

 

 

$

11.06

 

Shares outstanding end of period

 

 

18,041,072

 

 

 

17,963,783

 

 

 

 

 

 

 

 

 

 

Asset Quality ratios(3):

 

 

 

 

 

 

 

 

Past due to total loans

 

 

2.33

%

 

 

2.57

%

Nonperforming loans  to total loans

 

 

1.12

%

 

 

1.66

%

Nonperforming assets to total assets

 

 

1.26

%

 

 

1.73

%

ALLL to nonperforming loans

 

 

88.51

%

 

 

53.02

%

ALLL to total loans

 

 

0.99

%

 

 

0.88

%

Net charge-offs to average loans(4)

 

 

0.05

%

 

 

0.07

%

 

 

 

 

 

 

 

 

 

Capital ratios (5):

 

 

 

 

 

 

 

 

Tier 1 capital to average assets

 

 

17.01

%

 

 

15.92

%

Tier 1 capital to risk-weighted assets

 

 

19.16

%

 

 

19.56

%

Common equity Tier 1 capital to risk-weighted assets

 

 

16.98

%

 

N/A

 

Total capital to risk-weighted assets

 

 

20.04

%

 

 

20.35

%

Total stockholders' equity to total assets

 

 

16.84

%

 

 

16.40

%

Tangible common stockholders' equity ratio (1)

 

 

14.51

%

 

 

14.00

%

  

(1)

The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance.  The non-GAAP measures used by the Company include the following:

Common stockholders’ equity” is defined as total stockholders’ equity at end of period less the liquidation preference value of the preferred stock.

Adjusted diluted earnings per common share” is defined as adjusted net income available to common stockholders divided by adjusted weighted average diluted common shares outstanding.  Excluded from net income available to common stockholders are material gains and expenses related to merger and acquisition-related activities, including divestitures, net of tax. In our judgment, the adjustments made to net income available to common stockholders allow management and investors to better assess our performance in relation to our core net income by removing the volatility associated with certain acquisition-related items and other discrete items that are unrelated to our core business.  Weighted average diluted common shares outstanding are adjusted as a result of changes in their dilutive properties given the gain and expense adjustments described herein.  

Net interest margin” is defined as net interest income divided by average interest earning assets.

Tangible common stockholders’ equity” is common stockholders’ equity less goodwill and other intangible assets.

 

35


 

Total tangible assets” is defined as total assets less goodwill and other intangible assets.

Tangible book value per share” is defined as tangible common stockholders’ equity divided by total common shares outstanding. This measure is important to investors interested in changes from period-to-period in book value per share exclusive of changes in intangible assets.

Tangible common stockholders’ equity ratio” is defined as the ratio of tangible common stockholders’ equity divided by total tangible assets. We believe that this measure is important to many investors in the marketplace who are interested in relative changes from period-to period in common equity and total assets, each exclusive of changes in intangible assets.

Return on average tangible common equity” is defined as net income available to common stockholders divided by average tangible common stockholders’ equity.

Efficiency ratio” is defined as noninterest expenses divided by our operating revenue, which is equal to net interest income plus noninterest income. Also excluded are material gains and expenses related to merger and acquisition-related activities, including divestitures. In our judgment, the adjustments made to operating revenue allow management and investors to better assess our performance in relation to our core operating revenue by removing the volatility associated with certain acquisition-related items and other discrete items that are unrelated to our core business.

“Net noninterest expense to average total assets” is defined as noninterest expenses net of noninterest income divided by total average assets. Excluded are material gains and expenses related to merger and acquisition-related activities, including divestitures.  This metric is used by our management to better assess our operating efficiency.  

Adjusted yield on loans” is our yield on loans after excluding loan accretion from our acquired loan portfolio.  Our management uses this metric to better assess the impact of purchase accounting on our yield on loans, as the effect of loan discount accretion is expected to decrease as the acquired loans roll off of our balance sheet.

Adjusted net interest margin” is net interest margin after excluding loan accretion from the acquired loan portfolio.  Our management uses this metric to better assess the impact of purchase accounting on net interest margin, as the effect of loan discount accretion is expected to decrease as the acquired loans mature or roll off of our balance sheet.

(2)

Amounts have been annualized.

(3)

Asset quality ratios exclude loans held for sale.

(4)

Net charge-offs to average loans ratios are for the six months ended June 30, 2015 and the year ended December 31, 2014.

(5)

Effective January 1, 2015, capital ratios are calculated under the requirements of Basel III.

 

36


 

GAAP Reconciliation of Non-GAAP Financial Measures

We believe the non-GAAP financial measures included above provide useful information to management and investors that is supplementary to our financial condition, results of operations and cash flows computed in accordance with GAAP; however, we acknowledge that our non-GAAP financial measures have a number of limitations. The following reconciliation table provides a more detailed analysis of the non-GAAP financial measures:  

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(Dollars in thousands, except per share amounts)

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Net income available to common stockholders

 

N/A

 

 

N/A

 

 

$

18,309

 

 

N/A

 

Less: bargain purchase gain, nontaxable

 

N/A

 

 

N/A

 

 

 

12,509

 

 

N/A

 

Add: merger and acquisition expenses, net of tax

 

N/A

 

 

N/A

 

 

 

158

 

 

N/A

 

Add: incremental bonus, net of tax

 

N/A

 

 

N/A

 

 

 

1,138

 

 

N/A

 

Less: escrow recovery from DHF, net of tax

 

N/A

 

 

N/A

 

 

 

195

 

 

N/A

 

Adjusted net income available to common stockholders

 

N/A

 

 

N/A

 

 

$

6,901

 

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - diluted

 

N/A

 

 

N/A

 

 

 

18,459,420

 

 

N/A

 

Less: adjusted effects of assumed preferred stock conversion

 

N/A

 

 

N/A

 

 

 

676,351

 

 

N/A

 

Adjusted weighted average shares outstanding - diluted

 

N/A

 

 

N/A

 

 

 

17,783,069

 

 

N/A

 

Adjusted diluted earnings per common share

 

N/A

 

 

N/A

 

 

$

0.39

 

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income available to common stockholders

 

$

4,457

 

 

$

2,285

 

 

$

18,309

 

 

$

5,433

 

Average tangible common equity

 

 

215,846

 

 

 

102,107

 

 

 

210,554

 

 

 

100,163

 

Return on average tangible common equity

 

 

8.28

%

 

 

8.98

%

 

 

17.54

%

 

 

10.94

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Efficiency ratio:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

$

24,645

 

 

$

19,881

 

 

$

44,370

 

 

$

38,735

 

Noninterest income

 

 

4,769

 

 

 

2,633

 

 

 

21,428

 

 

 

5,243

 

Operating revenue

 

 

29,414

 

 

 

22,514

 

 

 

65,798

 

 

 

43,978

 

Less: bargain purchase gain, nontaxable

 

 

 

 

 

 

 

 

12,509

 

 

 

 

Less: escrow recovery from DHF, pre-tax

 

 

 

 

 

 

 

 

300

 

 

 

 

Adjusted operating revenue

 

$

29,414

 

 

$

22,514

 

 

$

52,989

 

 

$

43,978

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total noninterest expense

 

$

19,635

 

 

$

16,160

 

 

$

40,418

 

 

$

31,056

 

Less: merger and acquisition expenses, pre-tax

 

 

 

 

 

 

 

 

243

 

 

 

 

Less: incremental bonus, pre-tax

 

 

 

 

 

 

 

 

1,750

 

 

 

 

Adjusted noninterest expense

 

$

19,635

 

 

$

16,160

 

 

$

38,425

 

 

$

31,056

 

Efficiency ratio

 

 

66.75

%

 

 

71.78

%

 

 

72.52

%

 

 

70.62

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net noninterest expense to average assets ratio:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total noninterest expense

 

$

19,635

 

 

$

16,160

 

 

$

40,418

 

 

$

31,056

 

Less: merger and acquisition expenses, pre-tax

 

 

 

 

 

 

 

 

243

 

 

 

 

Less: incremental bonus, pre-tax

 

 

 

 

 

 

 

 

1,750

 

 

 

 

Adjusted noninterest expense

 

$

19,635

 

 

$

16,160

 

 

$

38,425

 

 

$

31,056

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total noninterest income

 

$

4,769

 

 

$

2,633

 

 

$

21,428

 

 

$

5,243

 

Less: bargain purchase gain, nontaxable

 

 

 

 

 

 

 

 

12,509

 

 

 

 

Less: escrow recovery from DHF, pre-tax

 

 

 

 

 

 

 

 

300

 

 

 

 

Adjusted noninterest income

 

 

4,769

 

 

 

2,633

 

 

 

8,619

 

 

 

5,243

 

Adjusted net noninterest expenses

 

$

14,866

 

 

$

13,527

 

 

$

29,806

 

 

$

25,813

 

Average Total Assets

 

 

1,511,045

 

 

 

1,359,503

 

 

 

1,480,546

 

 

 

1,315,256

 

Net noninterest expense to average assets ratio

 

 

3.95

%

 

 

3.99

%

 

 

4.06

%

 

 

3.96

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reported yield on loans

 

 

9.49

%

 

 

8.83

%

 

 

9.02

%

 

 

9.00

%

Effect of accretion income on acquired loans

 

 

(0.53

%)

 

 

(1.08

%)

 

 

(0.50

%)

 

 

(1.25

%)

Adjusted yield on loans

 

 

8.96

%

 

 

7.75

%

 

 

8.52

%

 

 

7.75

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reported net interest margin

 

 

7.20

%

 

 

6.58

%

 

 

6.67

%

 

 

6.72

%

Effect of accretion income on acquired loans

 

 

(0.42

%)

 

 

(0.84

%)

 

 

(0.39

%)

 

 

(0.98

%)

Adjusted net interest margin

 

 

6.78

%

 

 

5.74

%

 

 

6.28

%

 

 

5.74

%

  

 

37


 

 

 

June 30,

 

 

December 31,

 

(Dollars in thousands, except per share amounts)

 

2015

 

 

2014

 

Total stockholders' equity

 

$

257,479

 

 

$

237,509

 

Less: Preferred stock liquidation preference

 

 

9,746

 

 

 

9,746

 

Total common stockholders' equity

 

 

247,733

 

 

 

227,763

 

Less: Goodwill and other intangibles

 

 

30,174

 

 

 

29,057

 

Tangible common stockholders' equity

 

$

217,559

 

 

$

198,706

 

Common shares outstanding

 

 

18,041,072

 

 

 

17,963,783

 

Tangible book value per share

 

$

12.06

 

 

$

11.06

 

 

 

 

 

 

 

 

 

 

Total assets at end of period

 

$

1,529,259

 

 

$

1,447,898

 

Less: Goodwill and other intangibles

 

 

30,174

 

 

 

29,057

 

Adjusted total assets at period end

 

$

1,499,085

 

 

$

1,418,841

 

Tangible common stockholders' equity ratio

 

 

14.51

%

 

 

14.00

%

Results of Operations

Net Income

Three months ended June 30, 2015 compared with three months ended June 30, 2014. We earned net income of $4.7 million for the three months ended June 30, 2015 compared to $3.0 million for the three months ended June 30, 2014, an increase of $1.7 million. The increase was the result of a $4.7 million increase in net interest income and a $2.2 million increase in noninterest income, offset in part by a $0.8 million increase in the provision for loan losses, a $1.0 million increase in income tax expense, and a $3.4 million increase in noninterest expense.

Six months ended June 30, 2015 compared with six months ended June 30, 2014. We earned net income of $18.7 million for the six months ended June 30, 2015 compared to $6.7 million for the six months ended June 30, 2014, an increase of $12.0 million. The increase was primarily the result of a $5.7 million increase in net interest income and a $16.2 million increase in noninterest income, offset in part by a $0.5 million increase in the provision for loan losses and a $9.3 million increase in noninterest expense. These results were most significantly impacted by our acquisition of Doral Money, Inc. during the six months ended June 30, 2015 which resulted in a pre-tax bargain purchase gain in the amount of $12.5 million included in noninterest income offset by an additional $1.8 million bonus accrual and approximately $0.3 million of transaction costs recorded in connection with the Doral Money, Inc. acquisition and reported as noninterest expense.  Additional increases in noninterest expense generally reflect both the additional costs associated with operating as a public company as well as operational growth in our factoring, asset-based lending, and equipment lending product lines.

Excluding the impact of the Doral Money, Inc. acquisition, we earned net income of $7.3 million for the six months ended June 30, 2015.

Details of the changes in the various components of net income are further discussed below.

Net Interest Income

Our operating results depend primarily on our net interest income, which is the difference between interest income on interest earning assets, including loans and securities, and interest expense incurred on interest bearing liabilities, including deposits and other borrowed funds. Interest rate fluctuations, as well as changes in the amount and type of interest earning assets and interest bearing liabilities, combine to affect net interest income. Our net interest income is affected by changes in the amount and mix of interest earning assets and interest bearing liabilities, referred to as a “volume change.” It is also affected by changes in yields earned on interest earning assets and rates paid on interest bearing liabilities, referred to as a “rate change.”

 

 

38


 

Three months ended June 30, 2015 compared with three months ended June 30, 2014. The following table presents the distribution of average assets, liabilities and equity, as well as interest income and fees earned on average interest earning assets and interest expense paid on average interest bearing liabilities for the three month periods ended June 30, 2015 and 2014:

 

 

 

Three Months Ended June 30,

 

 

 

2015

 

 

2014

 

 

 

Average

 

 

 

 

 

 

Average

 

 

Average

 

 

 

 

 

 

Average

 

(Dollars in thousands)

 

Balance

 

 

Interest

 

 

Rate

 

 

Balance

 

 

Interest

 

 

Rate

 

Interest earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

119,969

 

 

$

110

 

 

 

0.37

%

 

$

96,862

 

 

$

77

 

 

 

0.32

%

Taxable securities

 

 

153,073

 

 

 

609

 

 

 

1.60

%

 

 

161,353

 

 

 

609

 

 

 

1.51

%

Tax-exempt securities

 

 

3,643

 

 

 

16

 

 

 

1.76

%

 

 

6,697

 

 

 

15

 

 

 

0.90

%

FHLB and FRB stock

 

 

5,288

 

 

 

50

 

 

 

3.79

%

 

 

6,016

 

 

 

54

 

 

 

3.60

%

Loans (1)

 

 

1,090,472

 

 

 

25,812

 

 

 

9.49

%

 

 

940,155

 

 

 

20,698

 

 

 

8.83

%

Total interest earning assets

 

 

1,372,445

 

 

 

26,597

 

 

 

7.77

%

 

 

1,211,083

 

 

 

21,453

 

 

 

7.11

%

Noninterest earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

24,921

 

 

 

 

 

 

 

 

 

 

 

27,203

 

 

 

 

 

 

 

 

 

Other noninterest earning assets

 

 

113,679

 

 

 

 

 

 

 

 

 

 

 

121,217

 

 

 

 

 

 

 

 

 

Total assets

 

$

1,511,045

 

 

 

 

 

 

 

 

 

 

$

1,359,503

 

 

 

 

 

 

 

 

 

Interest bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing demand

 

$

239,033

 

 

$

36

 

 

 

0.06

%

 

$

251,075

 

 

$

51

 

 

 

0.08

%

Individual retirement accounts

 

 

55,778

 

 

 

168

 

 

 

1.21

%

 

 

52,690

 

 

 

144

 

 

 

1.10

%

Money market

 

 

116,517

 

 

 

66

 

 

 

0.23

%

 

 

137,630

 

 

 

79

 

 

 

0.23

%

Savings

 

 

74,088

 

 

 

9

 

 

 

0.05

%

 

 

74,583

 

 

 

9

 

 

 

0.05

%

Certificates of deposit

 

 

485,533

 

 

 

1,263

 

 

 

1.04

%

 

 

352,227

 

 

 

801

 

 

 

0.91

%

Brokered deposits

 

 

50,002

 

 

 

125

 

 

 

1.00

%

 

 

50,789

 

 

 

57

 

 

 

0.45

%

Total deposits

 

 

1,020,951

 

 

 

1,667

 

 

 

0.65

%

 

 

918,994

 

 

 

1,141

 

 

 

0.50

%

Short-term borrowings

 

 

28,862

 

 

 

7

 

 

 

0.10

%

 

 

59,736

 

 

 

22

 

 

 

0.15

%

Senior secured note

 

 

 

 

 

 

 

 

 

 

 

11,993

 

 

 

137

 

 

 

4.58

%

Junior subordinated debentures

 

 

24,513

 

 

 

278

 

 

 

4.55

%

 

 

24,256

 

 

 

272

 

 

 

4.50

%

Total interest bearing liabilities

 

 

1,074,326

 

 

 

1,952

 

 

 

0.73

%

 

 

1,014,979

 

 

 

1,572

 

 

 

0.62

%

Noninterest bearing liabilities and equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest bearing demand deposits

 

 

170,240

 

 

 

 

 

 

 

 

 

 

 

168,808

 

 

 

 

 

 

 

 

 

Other liabilities

 

 

10,825

 

 

 

 

 

 

 

 

 

 

 

9,125

 

 

 

 

 

 

 

 

 

Total equity

 

 

255,654

 

 

 

 

 

 

 

 

 

 

 

166,591

 

 

 

 

 

 

 

 

 

Total liabilities and equity

 

$

1,511,045

 

 

 

 

 

 

 

 

 

 

$

1,359,503

 

 

 

 

 

 

 

 

 

Net interest income

 

 

 

 

 

$

24,645

 

 

 

 

 

 

 

 

 

 

$

19,881

 

 

 

 

 

Interest spread (2)

 

 

 

 

 

 

 

 

 

 

7.04

%

 

 

 

 

 

 

 

 

 

 

6.49

%

Net interest margin (3)

 

 

 

 

 

 

 

 

 

 

7.20

%

 

 

 

 

 

 

 

 

 

 

6.58

%

 

(1) 

Balance totals include respective nonaccrual assets.

(2) 

Net interest spread is the yield on average interest earning assets less the rate on interest bearing liabilities.

(3) 

Net interest margin is the ratio of net interest income to average interest earning assets.

We earned net interest income of $24.6 million for the three months ended June 30, 2015 compared to $19.9 million for the three months ended June 30, 2014, an increase of $4.7 million, or 23.6%. This increase in net interest income was driven by increases in average interest earning assets, which was primarily attributable to growth in our commercial finance product lines, as our factored receivables, TCF asset-based loans, THF asset-based loans, and TCF equipment loans all increased on a period over period basis as a result of our continued execution of our growth strategy for such products.  Average total interest earning assets increased to $1.372 billion for the three months ended June 30, 2015 from $1.211 billion for the three months ended June 30, 2014, an increase of $161 million, or 13.3%. In addition, the increase in interest income during the three months ended June 30, 2015 was impacted by approximately $1.7 million of delinquent interest collected upon the resolution, for cash, of a nonperforming commercial loan and approximately $0.6 million of fees received in conjunction with the restructuring of an asset-based healthcare loan.

 

39


 

The increases in our net interest income resulting from changes in the interest income generated by our loan portfolio discussed above were offset in part by an increase in our interest expense associated with the growth in customer deposits.  Average total interest bearing deposits increased to $1.021 billion for the three months ended June 30, 2015 from $919 million for the three months ended June 30, 2014, an increase of $102 million, or 11.1%.  This increase was primarily due to growth in our certificates of deposit as these higher cost deposit products were used to fund our growth period over period.

Net interest margin increased to 7.20% for the three months ended June 30, 2015 from 6.58% for the three months ended June 30, 2014, an increase of 62 basis points.

The increase in our net interest margin primarily resulted from an increase in yields on our interest earning assets.  Our average yield on earning assets increased to 7.77% for the three months ended June 30, 2015 from 7.11% for the three months ended June 30, 2014, an increase of 66 basis points. The increase was primarily due to additional interest income on the loan portfolio related to the delinquent interest and restructuring fee collections discussed above, as well as growth of our higher-yielding specialized commercial finance products.  These increases were offset in part by the diminishing impact of discount accretion on the loan portfolio yield period over period.

A component of the yield on our loan portfolio consists of discount accretion on the Triumph Savings Bank legacy portfolio acquired in connection with our original acquisition of Equity Bank in 2010 and the portfolio acquired in the Triumph Community Bank acquisition in 2013. The aggregate increased yield on our loan portfolio attributable to this discount accretion was 53 basis points for the three months ended June 30, 2015 and 108 basis points for the three months ended June 30, 2014. Excluding the impact of this discount accretion, the adjusted yield on our loan portfolio was 8.96% and 7.75% for the three months ended June 30, 2015 and 2014, respectively.  We anticipate that the contribution of this discount accretion to our interest income will continue to decline over time, but we expect that any resulting decreases in aggregate yield on our loan portfolio will be offset by continued growth in our higher yielding specialized commercial finance product lines which include our factored receivables, TCF asset-based loans, THF asset-based loans, and TCF equipment loans.  As of June 30, 2015, there was approximately $7.8 million of purchase discount remaining that is expected to be accreted over the remaining lives of the acquired Triumph Savings Bank and acquired Triumph Community Bank loan portfolios.

The increases in our net interest margin resulting from changes in the average yield in our loan portfolio discussed above were offset in part by an increase in our average cost of funds.  Our average cost of interest bearing liabilities increased to 0.73% for the three months ended June 30, 2015 from 0.62% for the three months ended June 30, 2014, an increase of 11 basis points.  This increase was primarily due to a change in the mix of our interest bearing deposits toward higher rate certificates of deposit and brokered funds as these deposit products were used to fund our growth period over period. In addition, maturing brokered deposits were replaced with new brokered deposits at a higher effective interest rate during the period.

Our adjusted net interest margin, which excludes the impact of the acquired loan discount accretion described above, was 6.78% and 5.74% for the three months ended June 30, 2015 and 2014, respectively.

 

 

40


 

The following table shows the effects changes in average balances (volume) and average interest rates (rate) had on the interest earned in our interest earning assets and the interest incurred on our interest bearing liabilities for the three month periods ended June 30, 2015 and 2014:

 

 

 

Three Months Ended

 

 

 

June 30, 2015 vs. 2014

 

 

 

Increase (Decrease) Due to:

 

 

 

 

 

(Dollars in thousands)

 

Rate

 

 

Volume

 

 

Net Increase

 

Interest earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

12

 

 

$

21

 

 

$

33

 

Taxable securities

 

 

33

 

 

 

(33

)

 

 

 

Tax-exempt securities

 

 

14

 

 

 

(13

)

 

 

1

 

FHLB and FRB stock

 

 

3

 

 

 

(7

)

 

 

(4

)

Loans

 

 

1,556

 

 

 

3,558

 

 

 

5,114

 

Total interest income

 

 

1,618

 

 

 

3,526

 

 

 

5,144

 

Interest bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing demand

 

 

(13

)

 

 

(2

)

 

 

(15

)

Individual retirement accounts

 

 

15

 

 

 

9

 

 

 

24

 

Money market

 

 

(1

)

 

 

(12

)

 

 

(13

)

Savings

 

 

 

 

 

 

 

 

 

Certificates of deposit

 

 

115

 

 

 

347

 

 

 

462

 

Brokered deposits

 

 

70

 

 

 

(2

)

 

 

68

 

Total deposits

 

 

186

 

 

 

340

 

 

 

526

 

Short-term borrowings

 

 

(8

)

 

 

(7

)

 

 

(15

)

Senior secured note

 

 

 

 

 

(137

)

 

 

(137

)

Junior subordinated debentures

 

 

3

 

 

 

3

 

 

 

6

 

Total interest expense

 

 

181

 

 

 

199

 

 

 

380

 

Change in net interest income

 

$

1,437

 

 

$

3,327

 

 

$

4,764

 

  

 

41


 

Six months ended June 30, 2015 compared with six months ended June 30, 2014. The following table presents the distribution of average assets, liabilities and equity, as well as interest income and fees earned on average interest earning assets and interest expense paid on average interest bearing liabilities for the six month periods ended June 30, 2015 and 2014:

 

 

Six Months Ended June 30,

 

 

 

2015

 

 

2014

 

 

 

Average

 

 

 

 

 

 

Average

 

 

Average

 

 

 

 

 

 

Average

 

(Dollars in thousands)

 

Balance

 

 

Interest

 

 

Rate

 

 

Balance

 

 

Interest

 

 

Rate

 

Interest earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

137,373

 

 

$

251

 

 

 

0.37

%

 

$

81,177

 

 

$

135

 

 

 

0.34

%

Taxable securities

 

 

153,938

 

 

 

1,236

 

 

 

1.62

%

 

 

165,198

 

 

 

1,214

 

 

 

1.48

%

Tax-exempt securities

 

 

4,770

 

 

 

28

 

 

 

1.18

%

 

 

7,096

 

 

 

31

 

 

 

0.88

%

FHLB and FRB stock

 

 

4,915

 

 

 

101

 

 

 

4.14

%

 

 

5,672

 

 

 

105

 

 

 

3.73

%

Loans (1)

 

 

1,040,737

 

 

 

46,560

 

 

 

9.02

%

 

 

903,587

 

 

 

40,346

 

 

 

9.00

%

Total interest earning assets

 

 

1,341,733

 

 

 

48,176

 

 

 

7.24

%

 

 

1,162,730

 

 

 

41,831

 

 

 

7.25

%

Noninterest earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

25,444

 

 

 

 

 

 

 

 

 

 

 

28,258

 

 

 

 

 

 

 

 

 

Other noninterest earning assets

 

 

113,369

 

 

 

 

 

 

 

 

 

 

 

124,268

 

 

 

 

 

 

 

 

 

Total assets

 

$

1,480,546

 

 

 

 

 

 

 

 

 

 

$

1,315,256

 

 

 

 

 

 

 

 

 

Interest bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing demand

 

$

234,766

 

 

$

69

 

 

 

0.06

%

 

$

228,776

 

 

$

83

 

 

 

0.07

%

Individual retirement accounts

 

 

55,575

 

 

 

324

 

 

 

1.18

%

 

 

52,991

 

 

 

285

 

 

 

1.08

%

Money market

 

 

117,851

 

 

 

133

 

 

 

0.23

%

 

 

141,123

 

 

 

160

 

 

 

0.23

%

Savings

 

 

73,067

 

 

 

18

 

 

 

0.05

%

 

 

73,271

 

 

 

18

 

 

 

0.05

%

Certificates of deposit

 

 

477,100

 

 

 

2,444

 

 

 

1.03

%

 

 

354,170

 

 

 

1,591

 

 

 

0.91

%

Brokered deposits

 

 

50,003

 

 

 

249

 

 

 

1.00

%

 

 

54,592

 

 

 

112

 

 

 

0.41

%

Total deposits

 

 

1,008,362

 

 

 

3,237

 

 

 

0.65

%

 

 

904,923

 

 

 

2,249

 

 

 

0.50

%

Short-term borrowings

 

 

22,083

 

 

 

19

 

 

 

0.17

%

 

 

43,436

 

 

 

28

 

 

 

0.13

%

Senior secured note

 

 

 

 

 

 

 

 

 

 

 

12,149

 

 

 

276

 

 

 

4.58

%

Junior subordinated debentures

 

 

24,481

 

 

 

550

 

 

 

4.53

%

 

 

24,225

 

 

 

543

 

 

 

4.52

%

Total interest bearing liabilities

 

 

1,054,926

 

 

 

3,806

 

 

 

0.73

%

 

 

984,733

 

 

 

3,096

 

 

 

0.63

%

Noninterest bearing liabilities and equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest bearing demand deposits

 

 

165,583

 

 

 

 

 

 

 

 

 

 

 

156,377

 

 

 

 

 

 

 

 

 

Other liabilities

 

 

10,028

 

 

 

 

 

 

 

 

 

 

 

9,237

 

 

 

 

 

 

 

 

 

Total equity

 

 

250,009

 

 

 

 

 

 

 

 

 

 

 

164,909

 

 

 

 

 

 

 

 

 

Total liabilities and equity

 

$

1,480,546

 

 

 

 

 

 

 

 

 

 

$

1,315,256

 

 

 

 

 

 

 

 

 

Net interest income

 

 

 

 

 

$

44,370

 

 

 

 

 

 

 

 

 

 

$

38,735

 

 

 

 

 

Interest spread (2)

 

 

 

 

 

 

 

 

 

 

6.51

%

 

 

 

 

 

 

 

 

 

 

6.62

%

Net interest margin (3)

 

 

 

 

 

 

 

 

 

 

6.67

%

 

 

 

 

 

 

 

 

 

 

6.72

%

(1) 

Balance totals include respective nonaccrual assets.

(2) 

Net interest spread is the yield on average interest earning assets less the rate on interest bearing liabilities.

(3) 

Net interest margin is the ratio of net interest income to average interest earning assets.

We earned net interest income of $44.4 million for the six months ended June 30, 2015 compared to $38.7 million for the six months ended June 30, 2014, an increase of $5.7 million, or 14.7%. This increase in net interest income was driven by increases in average interest earning assets, which was primarily attributable to growth in our commercial finance product lines, as our factored receivables, TCF asset-based loans, THF asset-based loans, and TCF equipment loans all increased on a period over period basis as a result of our continued execution of our growth strategy for such products.  Average total interest earning assets increased to $1.342 billion for the six months ended June 30, 2015 from $1.163 billion for the six months ended June 30, 2014, an increase of $179 million, or 15.4%.  In addition, the increase in interest income during the six months ended June 30, 2015 was impacted by approximately $1.7 million of delinquent interest collected upon the resolution, for cash, of a nonperforming commercial loan and approximately $0.6 million of fees received in conjunction with the restructuring of an asset-based healthcare loan.

 

42


 

The growth in net interest income attributable to increases in our average interest earning assets was offset in part by a decrease in our net interest margin.  Net interest margin decreased to 6.67% for the six months ended June 30, 2015 from 6.72% for the six months ended June 30, 2014, a decrease of 5 basis points.

The decline in our net interest margin primarily resulted from an increase in our average cost of funds.  Our average cost of interest bearing liabilities increased to 0.73% for the six months ended June 30, 2015 from 0.63% for the six months ended June 30, 2014, an increase of 10 basis points.  This increase was primarily due to a change in the mix of our interest bearing deposits toward higher rate certificates of deposit and brokered funds as these deposit products were used to fund our growth period over period.  In addition, maturing brokered deposits were replaced with new brokered deposits at a higher effective interest rate during the period.

The decline in our net interest margin was also impacted from a slight decrease in overall yields on our interest earning assets.  Our average yield on interest earning assets decreased to 7.24% for the six months ended June 30, 2015 from 7.25% for the six months ended June 30, 2014, a decrease of 1 basis point. The decrease was primarily due to a temporary change in the mix of our interest earning assets as we have recently held higher levels of lower rate cash balances during the six months ended June 30, 2015 resulting from proceeds generated by our initial public offering in November 2014.  Offsetting this impact in part, we recorded additional interest income on the loan portfolio related to the delinquent interest and restructuring fee collections discussed above, as well as growth of our higher-yielding specialized commercial finance products.  These increases were offset by the diminishing impact of discount accretion on the loan portfolio yield period over period.

A component of the yield on our loan portfolio consists of discount accretion on the Triumph Savings Bank legacy portfolio acquired in connection with our original acquisition of Equity Bank in 2010 and the portfolio acquired in the Triumph Community Bank acquisition in 2013. The aggregate increased yield on our loan portfolio attributable to this discount accretion was 50 basis points for the six months ended June 30, 2015 and 125 basis points for the six months ended June 30, 2014. Excluding the impact of this discount accretion, the adjusted yield on our loan portfolio was 8.52% and 7.75% for the six months ended June 30, 2015 and 2014, respectively.  We anticipate that the contribution of this discount accretion to our interest income will continue to decline over time, but we expect that any resulting decreases in aggregate yield on our loan portfolio will be offset by continued growth in our higher yielding specialized commercial finance product lines which include our factored receivables, TCF asset-based loans, THF asset-based loans, and TCF equipment loans.  As of June 30, 2015, there was approximately $7.8 million of purchase discount remaining that is expected to be accreted over the remaining lives of the acquired Triumph Savings Bank and acquired Triumph Community Bank loan portfolios.

Our adjusted net interest margin, which excludes the impact of the acquired loan discount accretion described above, was 6.28% and 5.74% for the six months ended June 30, 2015 and 2014, respectively.

 

 

43


 

The following table shows the effects changes in average balances (volume) and average interest rates (rate) had on the interest earned in our interest earning assets and the interest incurred on our interest bearing liabilities for the six month periods ended June 30, 2015 and 2014:

 

 

 

Six Months Ended

 

 

 

June 30, 2015 vs. 2014

 

 

 

Increase (Decrease) Due to:

 

 

 

 

 

(Dollars in thousands)

 

Rate

 

 

Volume

 

 

Net Increase

 

Interest earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

13

 

 

$

103

 

 

$

116

 

Taxable securities

 

 

112

 

 

 

(90

)

 

 

22

 

Tax-exempt securities

 

 

11

 

 

 

(14

)

 

 

(3

)

FHLB and FRB stock

 

 

12

 

 

 

(16

)

 

 

(4

)

Loans

 

 

78

 

 

 

6,136

 

 

 

6,214

 

Total interest income

 

 

226

 

 

 

6,119

 

 

 

6,345

 

Interest bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing demand

 

 

(16

)

 

 

2

 

 

 

(14

)

Individual retirement accounts

 

 

24

 

 

 

15

 

 

 

39

 

Money market

 

 

(1

)

 

 

(26

)

 

 

(27

)

Savings

 

 

 

 

 

 

 

 

 

Certificates of deposit

 

 

223

 

 

 

630

 

 

 

853

 

Brokered deposits

 

 

160

 

 

 

(23

)

 

 

137

 

Total deposits

 

 

390

 

 

 

598

 

 

 

988

 

Short-term borrowings

 

 

9

 

 

 

(18

)

 

 

(9

)

Senior secured note

 

 

 

 

 

(276

)

 

 

(276

)

Junior subordinated debentures

 

 

1

 

 

 

6

 

 

 

7

 

Total interest expense

 

 

400

 

 

 

310

 

 

 

710

 

Change in net interest income

 

$

(174

)

 

$

5,809

 

 

$

5,635

 

Provision for Loan Losses

The provision for loan losses is the amount of expense that, based on our judgment, is required to maintain the allowance for loan and lease losses at an adequate level to absorb probable losses inherent in the loan portfolio at the balance sheet date and that, in management’s judgment, is appropriate under GAAP. The determination of the amount of the allowance is complex and involves a high degree of judgment and subjectivity.

Under accounting standards for business combinations, acquired loans are recorded at fair value on the date of acquisition. This fair value adjustment eliminates any of the seller’s allowance for loan loss associated with such loans as of such date as any credit exposure associated with such loans is incorporated into the fair value adjustment.  A provision for loan losses is recorded for the emergence of new probable and estimable losses on acquired loans after the acquisition date.

Our provision for loan losses was $2.5 million for the three months ended June 30, 2015 compared to $1.7 million for the three months ended June 30, 2014.  We experienced net charge-offs of $0.4 million in the three months ended June 30, 2015 compared to net charge-offs of $0.1 million for the same period in 2014.  Increases in the provision for loan losses were primarily the result of increased loan portfolio balances period over period.  

Our provision for loan losses was $3.2 million for the six months ended June 30, 2015 compared to $2.7 million for the six months ended June 30, 2014. We experienced net charge-offs of $0.6 million in the six months ended June 30, 2015 compared to net charge-offs of $0.1 million for the same period in 2014. Increases in the provision for loan losses were primarily the result of increased loan portfolio balances period over period.

Our ALLL was $11.5 million as of June 30, 2015 versus $8.8 million as of December 31, 2014, representing an ALLL to total loans ratio of 0.99% and 0.88% respectively.

 

44


 

Noninterest Income

The following table presents the major categories of noninterest income for the three and six month periods ended June 30, 2015 and 2014:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(Dollars in thousands)

 

2015

 

 

2014

 

 

$ Change

 

 

% Change

 

 

2015

 

 

2014

 

 

$ Change

 

 

% Change

 

Service charges on deposits

 

$

666

 

 

$

813

 

 

$

(147

)

 

 

(18.1

%)

 

$

1,278

 

 

$

1,552

 

 

$

(274

)

 

 

(17.7

%)

Card income

 

 

578

 

 

 

548

 

 

 

30

 

 

 

5.5

%

 

 

1,101

 

 

 

1,037

 

 

 

64

 

 

 

6.2

%

Net OREO gains (losses) and valuation adjustments

 

 

52

 

 

 

(252

)

 

 

304

 

 

 

120.6

%

 

 

78

 

 

 

(329

)

 

 

407

 

 

 

123.7

%

Net gains on sale of securities

 

 

242

 

 

 

 

 

 

242

 

 

 

100.0

%

 

 

242

 

 

 

16

 

 

 

226

 

 

 

1412.5

%

Net gains on sale of loans

 

 

491

 

 

 

319

 

 

 

172

 

 

 

53.9

%

 

 

1,033

 

 

 

575

 

 

 

458

 

 

 

79.7

%

Fee income

 

 

502

 

 

 

421

 

 

 

81

 

 

 

19.2

%

 

 

924

 

 

 

819

 

 

 

105

 

 

 

12.8

%

Bargain purchase gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,509

 

 

 

 

 

 

12,509

 

 

 

100.0

%

Asset management fees

 

 

1,274

 

 

 

129

 

 

 

1,145

 

 

 

887.6

%

 

 

2,232

 

 

 

129

 

 

 

2,103

 

 

 

1630.2

%

Other

 

 

964

 

 

 

655

 

 

 

309

 

 

 

47.2

%

 

 

2,031

 

 

 

1,444

 

 

 

587

 

 

 

40.7

%

Total noninterest income

 

$

4,769

 

 

$

2,633

 

 

$

2,136

 

 

 

81.1

%

 

$

21,428

 

 

$

5,243

 

 

$

16,185

 

 

 

308.7

%

  

Three months ended June 30, 2015 compared with three months ended June 30, 2014. We earned noninterest income of $4.8 million for the three months ended June 30, 2015, compared to $2.6 million for the three months ended June 30, 2014, an increase of $2.2 million. The increase was primarily due to noninterest income earned with respect to CLO asset management fees earned by Triumph Capital Advisors and increased gains realized on sales of residential mortgage loans, investment securities, and OREO.

Service Charges on Deposits.  Service charges on deposit accounts, including overdraft and non-sufficient fund fees, decreased from $0.8 million for the three months ended June 30, 2014 to $0.7 million for the three months ended June 30, 2015, partially attributed the loss of fees generated from of our Pewaukee, Wisconsin branch which was sold in July 2014 as well as reductions in the amount of overdraft and insufficient fees charged on transaction accounts period over period.

Net Gains on Sale of Securities.  Net gains on sale of securities for the three months ended June 30, 2015 were the result of the sale of approximately $12.3 million of securities for a gain of $0.2 million as part of our ongoing securities portfolio management.  There were no security sales during the three months ended June 30, 2014.

Net Gains on Sale of Loans.  Net gains on sale of loans, comprised primarily of residential mortgage loans sold, increased 54% due to increased sales activity period over period as well as improved pricing on the residential mortgage loans being sold.  Proceeds from loan sales increased from $13.8 million for the three months ended June 30, 2014 to $16.7 million for the three months ended June 30, 2015.

Fee Income.  Fee income, comprised primarily of fees and service charges earned from services provided to our factoring clients, increased 19% due to the growth experienced in our factored accounts receivable portfolio purchases during the period.  Factored accounts receivable purchases increased from $345 million during the three months ended June 30, 2014 to $417 million during the three months ended June 30, 2015.

Asset Management Fees.  Asset management fees earned by Triumph Capital Advisors increased from $0.1 million for the three months ended June 30, 2014 to $1.3 million for the three months ended June 30, 2015.  The earning of asset management fees commenced upon the closing of Triumph Capital Advisors’ CLO offerings in May 2014, August 2014, and June 2015, and its assumption of two CLO asset management agreements in March 2015 as a result of the Doral Money, Inc. acquisition.

Other.  Other income increased from $0.7 million for the three months ended June 30, 2014 to $1.0 million for the three months ended June 30, 2015.  Other income includes income for check cashing and wire transfer fees, income associated with trust activities, bank-owned life insurance, and Triumph Insurance Group commissions.  There were no significant increases or decreases in the various components of other income period over period.

 

Six months ended June 30, 2015 compared with six months ended June 30, 2014. We earned noninterest income of $21.4 million for the six months ended June 30, 2015, compared to $5.2 million for the six months ended June 30, 2014, an increase of $16.2 million. This increase was significantly impacted by the realization of a pre-tax bargain purchase gain in the amount of $12.5 million associated with the acquisition of Doral Money, Inc. in March 2015.  

Excluding the bargain purchase gain, we earned noninterest income of $8.9 million for the six months ended June 30, 2015 compared to $5.2 million for the six months ended June 30, 2014, an increase of $3.7 million.  The increase was primarily due to noninterest

 

45


 

income earned with respect to CLO asset management fees earned by Triumph Capital Advisors and increased gains realized on sales of residential mortgage loans, investment securities, and OREO.

Service Charges on Deposits.  Service charges on deposit accounts, including overdraft and non-sufficient fund fees, decreased from $1.6 million for the six months ended June 30, 2014 to $1.3 million for the six months ended June 30, 2015, partially attributed to the loss of fees generated from of our Pewaukee, Wisconsin branch which was sold in July 2014 as well as reductions in the amount of overdraft and insufficient fees charged on transaction accounts period over period.

Net Gains on Sale of Securities.  Net gains on sale of securities for the six months ended June 30, 2015 were the result of the sale of approximately $12.3 million of securities for a gain of $0.2 million during the second quarter as part of our ongoing securities portfolio management.

Net Gains on Sale of Loans.  Net gains on sale of loans, comprised primarily of residential mortgage loans sold, increased 80% due to increased sales activity period over period as well as improved pricing on the residential mortgage loans being sold.  Proceeds from loan sales increased from $26.0 million for the six months ended June 30, 2014 to $36.4 million for the six months ended June 30, 2015.

Fee Income.  Fee income, comprised primarily of fees and service charges earned from services provided to our factoring clients, increased 13% due to the growth experienced in our factored accounts receivable portfolio purchases during the period.  Factored accounts receivable purchases increased from $620 million during the six months ended June 30, 2014 to $782 million during the six months ended June 30, 2015.

Asset Management Fees.  Asset management fees earned by Triumph Capital Advisors increased from $0.1 million for the six months ended June 30, 2014 to $2.2 million for the six months ended June 30, 2015.  The earning of asset management fees commenced upon the closing of Triumph Capital Advisors’ first CLO offering in May 2014, its second CLO offering in August 2014, and its assumption of two CLO asset management agreements in March 2015 as a result of the Doral Money, Inc. acquisition.

Other.  Other income increased from $1.4 million for the six months ended June 30, 2014 to $2.0 million for the six months ended June 30, 2015.  Other income includes income for check cashing and wire transfer fees, income associated with trust activities, bank-owned life insurance, and Triumph Insurance Group commissions.  There were no significant increases or decreases in the various components of other income period over period

Noninterest Expense

The following table presents the major categories of noninterest expense for the three and six month periods ended June 30, 2015 and 2014:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(Dollars in thousands)

 

2015

 

 

2014

 

 

$ Change

 

 

% Change

 

 

2015

 

 

2014

 

 

$ Change

 

 

% Change

 

Salaries and employee benefits

 

$

12,042

 

 

$

9,471

 

 

$

2,571

 

 

 

27.1

%

 

$

25,311

 

 

$

18,347

 

 

$

6,964

 

 

 

38.0

%

Occupancy, furniture and equipment

 

 

1,555

 

 

 

1,336

 

 

 

219

 

 

 

16.4

%

 

 

3,127

 

 

 

2,725

 

 

 

402

 

 

 

14.8

%

FDIC insurance and other regulatory assessments

 

 

271

 

 

 

280

 

 

 

(9

)

 

 

(3.2

%)

 

 

534

 

 

 

541

 

 

 

(7

)

 

 

(1.3

%)

Professional fees

 

 

852

 

 

 

793

 

 

 

59

 

 

 

7.4

%

 

 

2,179

 

 

 

1,385

 

 

 

794

 

 

 

57.3

%

Amortization of intangible assets

 

 

895

 

 

 

724

 

 

 

171

 

 

 

23.6

%

 

 

1,659

 

 

 

1,451

 

 

 

208

 

 

 

14.3

%

Advertising and promotion

 

 

526

 

 

 

683

 

 

 

(157

)

 

 

(23.0

%)

 

 

1,069

 

 

 

1,126

 

 

 

(57

)

 

 

(5.1

%)

Communications and technology

 

 

927

 

 

 

945

 

 

 

(18

)

 

 

(1.9

%)

 

 

1,813

 

 

 

1,834

 

 

 

(21

)

 

 

(1.1

%)

Other

 

 

2,567

 

 

 

1,928

 

 

 

639

 

 

 

33.1

%

 

 

4,726

 

 

 

3,647

 

 

 

1,079

 

 

 

29.6

%

Total noninterest expense

 

$

19,635

 

 

$

16,160

 

 

$

3,475

 

 

 

21.5

%

 

$

40,418

 

 

$

31,056

 

 

$

9,362

 

 

 

30.1

%

  

Three months ended June 30, 2015 compared with three months ended June 30, 2014. Noninterest expense totaled $19.6 million for the three months ended June 30, 2015 compared to $16.2 million for the three months ended June 30, 2014, an increase of $3.4 million. This increase is primarily attributable to continuing investments made in personnel and infrastructure to support growth in organically generated product lines and other strategic initiatives.

Salaries and Employee Benefits. Salaries and employee benefits expenses have historically been our largest category of noninterest expense. Salaries and employee benefits expenses were $12.0 million for the three months ended June 30, 2015 compared to $9.5 million for the three months ended June 30, 2014, an increase of $2.5 million. This increase is attributable to several factors.  We experienced a 7.3% increase in the total size of our workforce between these periods as

 

46


 

our full-time equivalent employees totaled 497.0 and 463.0 at June 30, 2015 and 2014, respectively. Sources of this increased headcount include employees hired to support our operation as a public company, employees added through our acquisition of Doral Healthcare Finance, as well as additional employees hired to support growth in our commercial finance product lines and other strategic initiatives, including the establishment of our asset management business. Other factors contributing to this increase include merit increases for existing employees, higher health insurance benefit costs, incentive compensation, 401(k) expense, and higher stock based compensation expense in the three months ended June 30, 2015 related to the amortization of restricted stock awards issued upon of the Company’s initial public offering.

Occupancy, Furniture and Equipment. Occupancy, furniture and equipment expenses were $1.6 million for the three months ended June 30, 2015 compared to $1.3 million for the three months ended June 30, 2014, an increase of $0.3 million. This increase is primarily attributable to the costs associated with the expansion of our corporate headquarters, including utilities, rent, depreciation and other occupancy expenses.

Professional Fees. Professional fees are primarily comprised of external audit, tax, consulting, and legal fees and were $0.9 million for the three months ended June 30, 2015 compared to $0.8 million for the three months ended June 30, 2014, an increase of $0.1 million. This increase is partially attributable to expenses associated with external audit and board of director fees as a result of our transition to being a public company.

Amortization of Intangibles. Amortization of intangible assets was $0.9 million for the three months ended June 30, 2015 compared to $0.7 million for the three months ended June 30, 2014, an increase of $0.2 million.  The increase is primarily due to the amortization of intangible assets recorded in conjunction with our acquisition of Doral Money, Inc. in March 2015.

Advertising and Promotion. Advertising and promotion expenses were $0.5 million for the three months ended June 30, 2015 compared to $0.7 million for the three months ended June 30, 2014, a decrease of $0.2 million. This decrease is primarily attributed to $0.2 million of costs incurred during the three months ended June 30, 2014 associated with our marketing of Triumph Business Capital and Triumph Community Bank.

Other. Increases experienced in other noninterest expense items in the three months ended June 30, 2015 versus the three months ended June 30, 2014 are generally attributable to the impact of continued growth of our business and workforce and include increases in loan-related expenses, training and recruiting, postage, insurance, business travel, and subscription expenses.

 

Six months ended June 30, 2015 compared with six months ended June 30, 2014. Noninterest expense totaled $40.4 million for the six months ended June 30, 2015 compared to $31.1 million for the six months ended June 30, 2014, an increase of $9.3 million. This increase was impacted by the accrual of an incremental $1.8 million bonus expense during the six months ended June 30, 2015 for the anticipated amount expected to be paid to team members to recognize their contribution to the Doral Money, Inc. acquisition.  Excluding the Doral Money, Inc. bonus accrual, noninterest expense totaled $38.6 million for the six months ended June 30, 2015 compared to $31.1 million for the six months ended June 30, 2014, an increase of $7.5 million.  This increase is attributable to continuing investments made in personnel and infrastructure to support growth in organically generated product lines and other strategic initiatives.

Salaries and Employee Benefits. Salaries and employee benefits expenses have historically been our largest category of noninterest expense. Salaries and employee benefits expenses were $25.3 million for the six months ended June 30, 2015.  Excluding the Doral Money, Inc. bonus accrual, salaries and employee benefits expenses were $23.5 million for the six months ended June 30, 2015 compared to $18.3 million for the six months ended June 30, 2014, an increase of $5.2 million. This increase is attributable to several factors.  We experienced a 7.3% increase in the total size of our workforce between these periods as our full-time equivalent employees totaled 497.0 and 463.0 at June 30, 2015 and 2014, respectively. Sources of this increased headcount include employees hired to support our operation as a public company, employees added through our acquisition of Doral Healthcare Finance, as well as additional employees hired to support growth in our commercial finance product lines and other strategic initiatives, including the establishment of our asset management business. Other factors contributing to this increase include merit increases for existing employees, higher health insurance benefit costs, incentive compensation, 401(k) expense, and higher stock based compensation expense in the six months ended June 30, 2015 related to the amortization of restricted stock awards issued upon of the Company’s initial public offering.

Occupancy, Furniture and Equipment. Occupancy, furniture and equipment expenses were $3.1 million for the six months ended June 30, 2015 compared to $2.7 million for the six months ended June 30, 2014, an increase of $0.4 million. This increase is primarily attributable to the costs associated with the expansion of our corporate headquarters, including utilities, rent, depreciation and other occupancy expenses.

 

47


 

Professional Fees. Professional fees are primarily comprised of external audit, tax, consulting, and legal fees and were $2.2 million for the six months ended June 30, 2015 compared to $1.4 million for the six months ended June 30, 2014, an increase of $0.8 million. This increase is partially attributable to approximately $0.2 million of professional fees associated with the Company’s acquisition of Doral Money, Inc. during the six months ended June 30, 2015.  In addition, incremental costs were incurred for increased expenses associated with external audit and board of director fees as a result of our transition to being a public company.

Amortization of Intangibles. Amortization of intangible assets was $1.7 million for the three months ended June 30, 2015 compared to $1.5 million for the three months ended June 30, 2014, an increase of $0.2 million.  The increase is primarily due to the amortization of intangible assets recorded in conjunction with our acquisition of Doral Money, Inc. in March 2015.

Other. Increases experienced in other noninterest expense items in the six months ended June 30, 2015 versus the six months ended June 30, 2014 are generally attributable to the impact of continued growth of our business and workforce and include increases in loan-related expenses, training and recruiting, postage, insurance, business travel, and subscription expenses.

Income Taxes

The amount of income tax expense is influenced by the amount of pre-tax income, the amount of tax-exempt income and the effect of changes in valuation allowances maintained against deferred tax benefits.

Income tax expense for the three months ended June 30, 2015 was $2.6 million compared to $1.6 million for the three months ended June 30, 2014. The effective tax rate for the three months ended June 30, 2015 was 36% compared to 35% for the three months ended June 30, 2014.  

Income tax expense was $3.5 million for the six months ended June 30, 2015 and 2014. The effective tax rate for the six months ended June 30, 2015 was 16% compared to 35% for the six months ended June 30, 2014.  The lower effective tax rate for the six months ended June 30, 2015 reflects the significant increase in nontaxable income attributed to the $12.5 million bargain purchase gain associated with the Doral Money, Inc. acquisition.

Operating Segment Results

Our reportable segments are Factoring, Banking, Asset Management, and Corporate which have been determined based upon their business processes and economic characteristics. This determination also gave consideration to the structure and management of various product lines. The factoring segment includes the operations of Advance Business Capital with revenue derived from factoring services. The banking segment includes the operations of Triumph Savings Bank and Triumph Community Bank. Our banking segment derives its revenue principally from investments in interest earning assets as well as noninterest income typical for the banking industry. The banking segment also includes certain factored receivables which are purchased by Triumph Savings Bank under its Triumph Commercial Finance brand as opposed to Advance Business Capital.  The asset management segment includes the operations of Triumph Capital Advisors with revenue derived from fees for managing collateralized loan obligation funds. Corporate includes holding company financing and investment activities and management and administrative expenses to support the overall operations of the Company.

Reported segments and the financial information of the reported segments are not necessarily comparable with similar information reported by other financial institutions. Furthermore, changes in management structure or allocation methodologies and procedures may result in future changes to previously reported segment financial data. Transactions between segments consist primarily of borrowed funds.  Intersegment interest expense is allocated to the factoring segment based on the Company’s prime rate. The provision for loan loss is allocated based on the segment’s ALLL determination which considers the effects of charge-offs. Noninterest income and expense directly attributable to a segment are assigned to it. Taxes are paid on a consolidated basis and are not allocated for segment purposes.  Certain factored receivables not originated through Advance Business Capital are included in the Banking segment.

Our asset management business, the results of which were previously included in our corporate reporting segment, met the quantitative thresholds for presentation as a separate reporting segment beginning in 2015.  The discussions below reflect the updated asset management reporting segment and all prior period comparisons have been conformed and are consistent with the presentation of financial information to management.

 

48


 

Three months ended June 30, 2015 compared with three months ended June 30, 2014. The following tables present our primary operating results for our operating segments as of and for the three month periods ended June 30, 2015 and 2014, respectively.

   

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

Asset

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2015

 

Factoring

 

 

Banking

 

 

Management

 

 

Corporate

 

 

Consolidated

 

Total interest income

 

$

8,275

 

 

$

18,189

 

 

$

5

 

 

$

128

 

 

$

26,597

 

Intersegment interest allocations

 

 

(1,017

)

 

 

1,017

 

 

 

 

 

 

 

 

 

 

Total interest expense

 

 

 

 

 

1,674

 

 

 

 

 

 

278

 

 

 

1,952

 

Net interest income (expense)

 

 

7,258

 

 

 

17,532

 

 

 

5

 

 

 

(150

)

 

 

24,645

 

Provision for loan losses

 

 

477

 

 

 

1,971

 

 

 

 

 

 

93

 

 

 

2,541

 

Net interest income after provision

 

 

6,781

 

 

 

15,561

 

 

 

5

 

 

 

(243

)

 

 

22,104

 

Other noninterest income

 

 

450

 

 

 

2,708

 

 

 

1,352

 

 

 

259

 

 

 

4,769

 

Noninterest expense

 

 

4,450

 

 

 

12,707

 

 

 

809

 

 

 

1,669

 

 

 

19,635

 

Operating income (loss)

 

$

2,781

 

 

$

5,562

 

 

$

548

 

 

$

(1,653

)

 

$

7,238

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

189,755

 

 

$

1,251,704

 

 

$

13,812

 

 

$

73,988

 

 

$

1,529,259

 

Gross loans

 

$

176,154

 

 

$

957,888

 

 

$

42

 

 

$

18,595

 

 

$

1,152,679

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

Asset

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2014

 

Factoring

 

 

Banking

 

 

Management

 

 

Corporate

 

 

Consolidated

 

Total interest income

 

$

6,637

 

 

$

14,804

 

 

$

 

 

$

12

 

 

$

21,453

 

Intersegment interest allocations

 

 

(701

)

 

 

701

 

 

 

 

 

 

 

 

 

 

Total interest expense

 

 

 

 

 

1,164

 

 

 

 

 

 

408

 

 

 

1,572

 

Net interest income (expense)

 

 

5,936

 

 

 

14,341

 

 

 

 

 

 

(396

)

 

 

19,881

 

Provision for loan losses

 

 

512

 

 

 

1,235

 

 

 

 

 

 

 

 

 

1,747

 

Net interest income after provision

 

 

5,424

 

 

 

13,106

 

 

 

 

 

 

(396

)

 

 

18,134

 

Noninterest income

 

 

404

 

 

 

1,945

 

 

 

129

 

 

 

155

 

 

 

2,633

 

Noninterest expense

 

 

3,509

 

 

 

11,025

 

 

 

720

 

 

 

906

 

 

 

16,160

 

Operating income (loss)

 

$

2,319

 

 

$

4,026

 

 

$

(591

)

 

$

(1,147

)

 

$

4,607

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

159,246

 

 

$

1,223,317

 

 

$

252

 

 

$

24,257

 

 

$

1,407,072

 

Gross loans

 

$

146,370

 

 

$

793,147

 

 

$

 

 

$

 

 

$

939,517

 

Factoring

Our factoring segment’s operating income for the three months ended June 30, 2015 was $2.8 million, compared with $2.3 million for the three months ended June 30, 2014, an increase of $0.5 million. This increase was due to growth in interest and noninterest income as factored receivables in our factoring segment grew 20% from $146.4 million as of June 30, 2014 to $176.2 million as of June 30, 2015. Growth experienced in our factoring portfolio resulted from execution of our growth strategy for such product, increased marketing efforts and growth initiatives during 2014 and 2015, as well as favorable economic conditions driving increased activity generally in the transportation sector throughout much of the second quarter of 2015. Our factored accounts receivable purchases increased 21% from $345 million during the three months ended June 30, 2014 to $417 million during the three months ended June 30, 2015.  This increase in income from the growth in our portfolio more than offset the increased variable expenses associated with this growth, mostly personnel costs required to service our larger portfolio.

Net interest income was $7.3 million for the three months ended June 30, 2015 compared to $5.9 million for the three months ended June 30, 2014, an increase of $1.4 million, driven by growth in our portfolio which more than offset the increased intersegment interest allocation attributable to this growth.

Noninterest expense was $4.5 million for the three months ended June 30, 2015 compared with $3.5 million for the three months ended June 30, 2014, driven primarily by increased personnel and operating costs incurred in connection with growth in our factoring portfolio.

 

49


 

Our provision for loan losses was $0.5 million for the three months ended June 30, 2015 compared with $0.5 million for the three months ended June 30, 2014. The provision for loan losses on factored receivables is primarily driven by the allowance allocation for incurred losses recorded on collectively evaluated factored receivables purchased and outstanding for a period.  As factored receivables purchased fluctuate period over period, the associated provision for loan losses typically increases or decreases accordingly.  This relatively flat provision in the three months ended June 30, 2015, despite the growth in our factored receivable balances from June 30, 2014 to June 30, 2015, was due to comparable increases in purchased factored receivables during the three months ended June 30, 2015 and 2014.  During the three months ended June 30, 2015 factored receivables increased approximately $21 million from March 31, 2015.  During the three months ended June 30, 2014, factored receivables increased approximately $23 million from March 31, 2014.  The increases within each period were comparable resulting in a comparable provision for loan losses.

Banking

Our banking segment’s operating income totaled $5.6 million for the three months ended June 30, 2015 compared to operating income of $4.0 million for the three months ended June 30, 2014. We experienced an increase in net interest income from $14.3 million for the three months ended June 30, 2014 to $17.5 million for the three months ended June 30, 2015.  In addition, noninterest income increased from $1.9 million for the three months ended June 30, 2014 to $2.7 million for the three months ended June 30, 2015.  These increases were offset by increases in the provision for loan losses and noninterest expenses period over period.  

This increase in net interest income was primarily the result of increases in the balances of our interest earning assets, primarily loans, in the banking segment due to the continued growth of our commercial finance products, including equipment loans, general asset-based loans, and healthcare asset-based loans.  Outstanding loans in our banking segment grew 21% from $793.1 million as of June 30, 2014 to $957.9 million as of June 30, 2015.

The increase in noninterest income was primarily due to noninterest income earned by increased gains realized on sales of residential mortgage loans, investment securities, and OREO.

Our provision for loan losses was $2.0 million for the three months ended June 30, 2015 compared with $1.2 million for the three months ended June 30, 2014, reflecting the growth in our banking loan portfolio period over period.

Noninterest expense was $12.7 million for the three months ended June 30, 2015, compared with $11.0 million for the three months ended June 30, 2014, an increase of $1.7 million driven by increased operating expenses in personnel, facilities and infrastructure to support the continued growth in our equipment and asset-based lending as well as merit increases for existing employees, higher health insurance benefit costs, incentive compensation, and 401(k) expense.  

Asset Management

Our asset management segment’s operating income totaled $0.5 million for the three months ended June 30, 2015 compared to an operating loss of $0.6 million for the three months ended June 30, 2014. This increase is primarily the result of an increase of $1.2 million related to asset management fees earned by Triumph Capital Advisors which commenced upon the closing of its CLO offerings in May 2014, August 2014, and June 2015, as well as the assumption of CLO asset management contracts in the March 2015 Doral Money, Inc. acquisition.

Corporate

The Corporate segment’s operating loss totaled $1.7 million for the three months ended June 30, 2015, compared with an operating loss of $1.1 million for the three months ended June 30, 2014.  Included in this result is an increase of $0.8 million in operating expenses for the three months ended June 30, 2015, related primarily to increases in management and administrative expenses at the holding company level not attributable to an operating segment in conjunction with our transition to being a public company.  The increase in total assets at the holding company is primarily due to the net proceeds of $83.8 million resulting from the consummation of our initial public offering in November 2014.  A portion of the offering proceeds were invested in $18.6 million of shared national credits during the three months ended June 30, 2015.

 

50


 

Six months ended June 30, 2015 compared with six months ended June 30, 2014. The following tables present our primary operating results for our operating segments as of and for the six month periods ended June 30, 2015 and 2014, respectively.

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

Asset

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2015

 

Factoring

 

 

Banking

 

 

Management

 

 

Corporate

 

 

Consolidated

 

Total interest income

 

$

15,503

 

 

$

32,424

 

 

$

65

 

 

$

184

 

 

$

48,176

 

Intersegment interest allocations

 

 

(1,926

)

 

 

1,926

 

 

 

 

 

 

 

 

 

 

Total interest expense

 

 

 

 

 

3,246

 

 

 

10

 

 

 

550

 

 

 

3,806

 

Net interest income (expense)

 

 

13,577

 

 

 

31,104

 

 

 

55

 

 

 

(366

)

 

 

44,370

 

Provision for loan losses

 

 

368

 

 

 

2,725

 

 

 

 

 

 

93

 

 

 

3,186

 

Net interest income after provision

 

 

13,209

 

 

 

28,379

 

 

 

55

 

 

 

(459

)

 

 

41,184

 

Bargain purchase gain

 

 

 

 

 

 

 

 

12,509

 

 

 

 

 

 

12,509

 

Other noninterest income

 

 

781

 

 

 

5,293

 

 

 

2,309

 

 

 

536

 

 

 

8,919

 

Noninterest expense

 

 

8,762

 

 

 

25,107

 

 

 

3,435

 

 

 

3,114

 

 

 

40,418

 

Operating income (loss)

 

$

5,228

 

 

$

8,565

 

 

$

11,438

 

 

$

(3,037

)

 

$

22,194

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

189,755

 

 

$

1,251,704

 

 

$

13,812

 

 

$

73,988

 

 

$

1,529,259

 

Gross loans

 

$

176,154

 

 

$

957,888

 

 

$

42

 

 

$

18,595

 

 

$

1,152,679

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

Asset

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2014

 

Factoring

 

 

Banking

 

 

Management

 

 

Corporate

 

 

Consolidated

 

Total interest income

 

$

11,742

 

 

$

30,063

 

 

$

 

 

$

26

 

 

$

41,831

 

Intersegment interest allocations

 

 

(1,272

)

 

 

1,272

 

 

 

 

 

 

 

 

 

 

Total interest expense

 

 

 

 

 

2,278

 

 

 

 

 

 

818

 

 

 

3,096

 

Net interest income

 

 

10,470

 

 

 

29,057

 

 

 

 

 

 

(792

)

 

 

38,735

 

Provision for loan losses

 

 

902

 

 

 

1,770

 

 

 

 

 

 

 

 

 

2,672

 

Net interest income after provision

 

 

9,568

 

 

 

27,287

 

 

 

 

 

 

(792

)

 

 

36,063

 

Noninterest income

 

 

787

 

 

 

3,912

 

 

 

129

 

 

 

415

 

 

 

5,243

 

Noninterest expense

 

 

6,445

 

 

 

21,890

 

 

 

1,074

 

 

 

1,647

 

 

 

31,056

 

Operating income (loss)

 

$

3,910

 

 

$

9,309

 

 

$

(945

)

 

$

(2,024

)

 

$

10,250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

159,246

 

 

$

1,223,317

 

 

$

252

 

 

$

24,257

 

 

$

1,407,072

 

Gross loans

 

$

146,370

 

 

$

793,147

 

 

$

 

 

$

 

 

$

939,517

 

Factoring

Our factoring segment’s operating income for the six months ended June 30, 2015 was $5.2 million, compared with $3.9 million for the six months ended June 30, 2014, an increase of $1.3 million. This increase was due to growth in interest and noninterest income as factored receivables in our factoring segment grew 20% from $146.4 million as of June 30, 2014 to $176.2 million as of June 30, 2015. Growth experienced in our factoring portfolio resulted from execution of our growth strategy for such product, increased marketing efforts and growth initiatives during 2014 and 2015, as well as favorable economic conditions driving increased activity generally in the transportation sector throughout much of 2014 and the second quarter of 2015. Our factored accounts receivable purchases increased 26% from $620 million during the six months ended June 30, 2014 to $782 million during the six months ended June 30, 2015.  This increase in income from the growth in our portfolio more than offset the increased variable expenses associated with this growth, mostly personnel costs required to service our larger portfolio.

Net interest income was $13.6 million for the six months ended June 30, 2015 compared to $10.5 million for the six months ended June 30, 2014, an increase of $3.1 million, driven by growth in our portfolio which more than offset the increased intersegment interest allocation attributable to this growth.

Noninterest expense was $8.8 million for the six months ended June 30, 2015 compared with $6.4 million for the six months ended June 30, 2014, driven primarily by increased personnel and operating costs incurred in connection with growth in our factoring portfolio.

 

51


 

Our provision for loan losses was $0.4 million for the six months ended June 30, 2015 compared with $0.9 million for the six months ended June 30, 2014. The provision for loan losses on factored receivables is primarily driven by the allowance allocation for incurred losses recorded on collectively evaluated factored receivables purchased and outstanding for a period.  As factored receivables purchased fluctuate period over period, the associated provision for loan losses typically increases or decreases accordingly.  The decreased provision in the six months ended June 30, 2015, despite the growth in our factored receivable balances from June 30, 2014 to June 30, 2015, was due to variances in purchased factored receivables during the six months ended June 30, 2015 and 2014.  During the six months ended June 30, 2015 factored receivables increased only $6 million from December 31, 2014.  During the six months ended June 30, 2014, factored receivables increased approximately $38 million from December 31, 2013.  The higher increase in factored receivable balances within the six month period ended June 30, 2014 resulted in a higher provision for loan losses compared to the six months ended June 30, 2015.

Banking

Our banking segment’s operating income totaled $8.6 million for the six months ended June 30, 2015 compared to operating income of $9.3 million for the six months ended June 30, 2014. We experienced an increase in net interest income from $29.1 million for the six months ended June 30, 2014 to $31.1 million for the six months ended June 30, 2015.  In addition, noninterest income increased from $3.9 million for the six months ended June 30, 2014 to $5.3 million for the six months ended June 30, 2015.  These increases were offset by increases in the provision for loan losses and noninterest expenses period over period, resulting in a net decrease in operating income.

This increase in net interest income was primarily the result of increases in the balances of our interest earning assets, primarily loans, in the banking segment due to the continued growth of our commercial finance products, including equipment loans, general asset-based loans, and healthcare asset-based loans.  Outstanding loans in our banking segment grew 21% from $793.1 million as of June 30, 2014 to $957.9 million as of June 30, 2015.

The increase in noninterest income was primarily due to noninterest income earned by increased gains realized on sales of residential mortgage loans, investment securities, and OREO.

Our provision for loan losses was $2.7 million for the six months ended June 30, 2015 compared with $1.8 million for the six months ended June 30, 2014, reflecting the growth in our banking loan portfolio period over period.

Noninterest expense was $25.1 million for the six months ended June 30, 2015, compared with $21.9 million for the six months ended June 30, 2014, an increase of $3.2 million driven by increased operating expenses in personnel, facilities and infrastructure to support the continued growth in our asset-based lending and equipment lending as well as merit increases for existing employees, higher health insurance benefit costs, incentive compensation, and 401(k) expense.  

Asset Management

Our asset management segment’s operating income totaled $11.4 million for the six months ended June 30, 2015 compared to an operating loss of $0.9 million for the six months ended June 30, 2014. This increase was significantly impacted by the recording of a pre-tax bargain purchase gain in the amount of $12.5 million associated with the acquisition of Doral Money, Inc. in March 2015, offset by direct transaction costs of $0.2 million and the accrual of a $1.8 million incremental bonus expense for the anticipated amount expected to be paid to team members to recognize their contribution to the transaction.  Excluding the bargain purchase gain net of transaction costs and the incremental bonus accrual, the asset management segment reported operating income of $0.9 million for the six months ending June 30, 2015.  Included in this result is an increase of $2.1 million related to asset management fees earned by Triumph Capital Advisors which commenced upon the closing of its CLO offerings in May 2014, August 2014, and June 2015, as well as the assumption of CLO asset management contracts in the March 2015 Doral Money, Inc. acquisition.

Corporate

The Corporate segment’s operating loss totaled $3.0 million for the six months ended June 30, 2015, compared with an operating loss of $2.0 million for the six months ended June 30, 2014.  Included in this result is an increase of $1.5 million in operating expenses for the six months ended June 30, 2015, related primarily to increases in management and administrative expenses at the holding company level not attributable to an operating segment in conjunction with our transition to being a public company.  The increase in total assets at the holding company is primarily due to the net proceeds of $83.8 million resulting from the consummation of our initial public offering in November 2014.  A portion of the offering proceeds were invested in $18.6 million of shared national credits during the three months ended June 30, 2015.

 

52


 

Financial Condition

Assets

Total assets were $1.529 billion at June 30, 2015, compared to $1.448 billion at December 31, 2014, an increase of $81 million, the components of which are discussed below.  

Loan Portfolio

Loans held for investment were $1.153 billion at June 30, 2015, compared with $1.006 billion at December 31, 2014.

We offer a broad range of lending and credit products.  Within our Triumph Community Bank subsidiary, we offer a full range of lending products, including commercial real estate, construction and development, residential real estate, general commercial, farmland and consumer loans, focused on our community banking markets in Iowa and Illinois.  We also originate a variety of commercial finance products offered on a nationwide basis.  These products include our factored receivables, the asset-based loans and equipment loans originated by Triumph Savings Bank under our Triumph Commercial Finance brand, and the healthcare asset-based loans originated by Triumph Community Bank under our Triumph Healthcare Finance brand.  In addition, our Triumph Savings Bank subsidiary originates a variety of additional loans, including mortgage warehouse loans and other commercial and commercial real estate loans.  

The following table shows our loan portfolio by portfolio segments as of June 30, 2015 and December 31, 2014:

 

 

 

June 30, 2015

 

 

December 31, 2014

 

(Dollars in thousands)

 

 

 

 

 

% of Total

 

 

 

 

 

 

% of Total

 

Commercial real estate

 

$

234,090

 

 

 

20

%

 

$

249,164

 

 

 

25

%

Construction, land development, land

 

 

46,743

 

 

 

4

%

 

 

42,914

 

 

 

4

%

1-4 family residential properties

 

 

75,588

 

 

 

7

%

 

 

78,738

 

 

 

8

%

Farmland

 

 

25,701

 

 

 

3

%

 

 

22,496

 

 

 

2

%

Commercial

 

 

454,161

 

 

 

39

%

 

 

364,567

 

 

 

37

%

Factored receivables

 

 

199,716

 

 

 

17

%

 

 

180,910

 

 

 

18

%

Consumer

 

 

10,993

 

 

 

1

%

 

 

11,941

 

 

 

1

%

Mortgage warehouse

 

 

105,687

 

 

 

9

%

 

 

55,148

 

 

 

5

%

Total Loans

 

$

1,152,679

 

 

 

100

%

 

$

1,005,878

 

 

 

100

%

  

Commercial Real Estate Loans. Our commercial real estate loans were $234.1 million at June 30, 2105, a decrease of $15.1 million from $249.2 million at December 31, 2014, driven by paydowns that offset new loan activity for the period as we continue to experience pricing pressure for such loans, which has impacted our ability to grow loan volumes in these markets at what we consider to be appropriate risk adjusted returns, particularly in our community banking markets.

Construction and Development Loans. Our construction and development loans were $46.7 million at June 30, 2015, an increase of $3.8 million from $42.9 million at December 31, 2014, due primarily to growth from continued strength of this category in our markets.

Residential Real Estate Loans. Our one-to-four family residential loans were $75.6 million at June 30, 2015, a decrease of $3.1 million from $78.7 million at December 31, 2014, due primarily to paydowns that offset new loan activity for the period.

 

53


 

Commercial Loans. Our commercial loans held for investment were $454.2 million at June 30, 2015, an increase of $89.6 million from $364.6 million at December 31, 2014. This increase was driven by continued growth in the equipment loans and asset-based loans originated under our Triumph Commercial Finance brand as well as the asset-based healthcare loans originated under our Triumph Healthcare Finance brand as we continue to execute on our growth strategy for such products.  Our other commercial lending products, comprised primarily of general commercial loans originated in our community banking markets and purchased shared national credits, increased from $170.1 million at December 31, 2014 to $186.2 million at June 30, 2015 as a result of $29.6 million in new purchases of shared national credits during the second quarter of 2015, offset by paydowns of commercial loans in our community banking markets as we continue to experience pricing pressure for such loans.  The following table shows our commercial products as of June 30, 2015 and December 31, 2014:

 

 

June 30,

 

 

December 31,

 

(Dollars in thousands)

 

2015

 

 

2014

 

Commercial

 

 

 

 

 

 

 

 

TCF equipment

 

$

138,018

 

 

$

106,354

 

TCF asset-based lending

 

 

64,836

 

 

 

46,388

 

THF asset-based lending

 

 

65,083

 

 

 

41,770

 

Other commercial lending

 

 

186,224

 

 

 

170,055

 

Total commercial loans

 

$

454,161

 

 

$

364,567

 

Factored Receivables. Our factored receivables were $199.7 million at June 30, 2015, an increase of $18.8 million from $180.9 million at December 31, 2014 as we continue to execute on our growth strategy for this product at Advance Business Capital, our factoring subsidiary, as well as through growth in factored receivables purchased under our Triumph Commercial Finance brand.  Purchase volume at our factoring subsidiary Advance Business Capital was $782 million during the six months ended June 30, 2015 and Triumph Commercial Finance recorded purchase volume of $89 million for the six months ended June 30, 3015.

Mortgage Warehouse. Our mortgage warehouse facilities maintained outstanding balances of $105.7 million at June 30, 2015, an increase of $50.6 million from $55.1 million at December 31, 2014. The increase was primarily due to increases in mortgage origination volumes at our mortgage warehouse clients resulting in higher utilization of their mortgage warehouse facilities during the period.  Client utilization of mortgage warehouse facilities may experience significant fluctuation on a day-to-day basis given mortgage origination market conditions.

Other Loans. Our portfolio also includes real estate loans secured by farmland and consumer loans. All of these categories of loans in the aggregate were less than 5% of our total loan portfolio as of June 30, 2015 and December 31, 2014.

The following tables set forth the contractual maturities, including scheduled principal repayments, of our loan portfolio and the distribution between fixed and floating interest rate loans as of June 30, 2015.

 

 

 

June 30, 2015

 

(Dollars in thousands)

 

One Year or

Less

 

 

After One

but within

Five Years

 

 

After Five

Years

 

 

Total

 

Commercial real estate

 

$

43,326

 

 

$

152,063

 

 

$

38,701

 

 

$

234,090

 

Construction, land development, land

 

 

27,450

 

 

 

12,975

 

 

 

6,318

 

 

 

46,743

 

1-4 family residential properties

 

 

9,842

 

 

 

23,246

 

 

 

42,500

 

 

 

75,588

 

Farmland

 

 

1,633

 

 

 

11,631

 

 

 

12,437

 

 

 

25,701

 

Commercial

 

 

153,047

 

 

 

259,259

 

 

 

41,855

 

 

 

454,161

 

Factored receivables

 

 

199,716

 

 

 

 

 

 

 

 

 

199,716

 

Consumer

 

 

2,138

 

 

 

5,856

 

 

 

2,999

 

 

 

10,993

 

Mortgage warehouse

 

 

105,687

 

 

 

 

 

 

 

 

 

105,687

 

 

 

$

542,839

 

 

$

465,030

 

 

$

144,810

 

 

$

1,152,679

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sensitivity of loans to changes in interest rates:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Predetermined (fixed) interest rates

 

 

 

 

 

$

354,124

 

 

$

50,618

 

 

 

 

 

Floating interest rates

 

 

 

 

 

 

110,906

 

 

 

94,192

 

 

 

 

 

Total

 

 

 

 

 

$

465,030

 

 

$

144,810

 

 

 

 

 

  

 

54


 

As of June 30, 2015, most of the Company’s non-factoring business activity is with customers located within certain states. The states of Illinois (33%), Iowa (15%) and Texas (32%) make up 80% of the Company’s gross loans, excluding factored receivables. Therefore, the Company’s exposure to credit risk is affected by changes in the economies in these states.

Further, a significant majority (85%) of our factored receivables, representing approximately 15% of our total loan portfolio as of June 30, 2015, are receivables purchased from trucking fleets and owner-operators in the transportation industry. Although such concentration may cause our future interest income with respect to our factoring operations to be correlated with demand for the transportation industry in the United States generally, and small-to-mid-sized operators in such industry specifically, we feel that the credit risk with respect to our outstanding portfolio is appropriately mitigated as we limit the amount of receivables acquired from individual debtors and creditors thereby achieving diversification across a number of companies and industries.

Nonperforming Assets

We have established procedures to assist us in maintaining the overall quality of our loan portfolio. In addition, we have adopted underwriting guidelines to be followed by our lending officers and require significant senior management review of proposed extensions of credit exceeding certain thresholds. When delinquencies exist, we rigorously monitor them for any negative or adverse trends. Our loan review procedures include approval of lending policies and underwriting guidelines by the Board of Directors of our bank subsidiaries, independent loan review, approval of large credit relationships by our bank subsidiaries’ Management Loan Committees and loan quality documentation procedures. We, like other financial institutions, are subject to the risk that our loan portfolio will be subject to increasing pressures from deteriorating borrower credit due to general economic conditions.

The accrual of interest income on non-PCI loans is discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection, or at an earlier date if full collection of interest or principal becomes doubtful. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. All interest accrued when a loan is placed on nonaccrual is reversed from interest income. Interest received on these loans is accounted for on the cash-basis or cost recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

The accretion of interest income on PCI loans is discontinued if the estimation of the timing and amount of cash flows expected to be collected involves a high degree of uncertainty and cannot be reasonably projected.  Such PCI loans are considered nonaccrual and included in our nonaccrual loan totals, but are not considered impaired unless the loans have experienced credit deterioration and an allowance has been recorded subsequent to acquisition.  PCI loans for which the timing and amount of expected cash flows can be reasonably estimated accrete interest income, regardless of the contractual past due status of the loan, however, the disclosure of past due status of all PCI loans is based on the contractual terms of the loan, including those placed on nonaccrual due to the contractual payment status of the loan.

We obtain appraisals or other valuations of real property and other collateral which secure loans, and may update these valuations of collateral securing loans categorized as nonperforming loans and potential problem loans. In instances where updated valuations reflect reduced collateral values, an evaluation of the borrower’s overall financial condition is made to determine the need, if any, for possible write-downs or appropriate additions to the ALLL.

OREO acquired as a result of foreclosure or as part of an acquisition are held for sale and are initially recorded at fair value less estimated cost to sell at the date of acquisition, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. At the time of acquisition of properties not acquired as part of an acquisition, losses are charged against the ALLL, and gains are realized to the extent fair value exceeds the carrying amount of the foreclosed loan. Improvements to the value of the properties are capitalized, but not in excess of the net realizable value of the property.

 

55


 

The following table sets forth the allocation of our nonperforming assets among our different asset categories as of the dates indicated. We classify nonperforming assets as nonaccrual loans, loans modified under restructurings as a result of the borrower experiencing financial difficulties, factored receivables greater than 90 days past due, and OREO. The balances of nonperforming loans reflect the recorded investment in these assets, including deductions for purchase discounts.

 

 

 

June 30,

 

 

December 31,

 

(Dollars in thousands)

 

2015

 

 

2014

 

Nonperforming loans:

 

 

 

 

 

 

 

 

Commercial real estate

 

$

1,992

 

 

$

1,995

 

Construction, land development, land

 

 

 

 

 

 

1-4 family residential properties

 

 

445

 

 

 

638

 

Farmland

 

 

 

 

 

 

Commercial

 

 

2,407

 

 

 

7,188

 

Factored receivables

 

 

2,211

 

 

 

651

 

Consumer

 

 

 

 

 

 

Mortgage warehouse

 

 

 

 

 

 

Purchased credit impaired

 

 

5,895

 

 

 

6,206

 

Total nonperforming loans

 

 

12,950

 

 

 

16,678

 

Other real estate owned, net

 

 

6,322

 

 

 

8,423

 

Total nonperforming assets

 

$

19,272

 

 

$

25,101

 

 

 

 

 

 

 

 

 

 

Nonperforming assets to total assets

 

 

1.26

%

 

 

1.73

%

Nonperforming loans to total loans held for investment

 

 

1.12

%

 

 

1.66

%

Total past due loans to total loans held for investment

 

 

2.33

%

 

 

2.57

%

We had $13.0 million and $16.7 million in nonperforming loans, including nonaccrual PCI loans, as of June 30, 2015 and December 31, 2014, respectively. Nonperforming loans decreased from December 31, 2014 to June 30, 2015 primarily due to the payoff of a $5.2 million nonperforming commercial loan that had been on nonaccrual.  This decrease was offset in part by the addition of a $1.1 million asset-based healthcare loan and a $1.1 million factored receivable relationship.  The ratio of nonperforming loans to total loans improved to 1.12% at June 30, 2015 and our nonperforming assets to total assets further improved to 1.26% at June 30, 2015 compared to 1.73% at December 31, 2014 in conjunction with the nonperforming commercial loan activity described above and a decline in our OREO balances.  We also experienced a decrease in our total past due loans to total loans during the six months ended June 30, 2015 to 2.33% from 2.57% at December 31,2014.

Our OREO as of June 30, 2015 totaled $6.3 million, a decrease of $2.1 million from the $8.4 million as of December 31, 2014, primarily due to sales of OREO property during the six months ended June 30, 2015.

 

Allowance for Loan and Lease Losses

ALLL is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off.

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings (TDRs) and classified as impaired.

 

56


 

Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.  PCI loans are not considered impaired on the acquisition date.  For PCI loans, a decline in the present value of current expected cash flows compared to the previously estimated expected cash flows, due in any part to change in credit, is referred to as credit impairment and recorded as a provision for loan losses during the period.

Impaired loans generally include nonaccrual loans, factored receivables greater than 90 days past due, TDRs, partially charged off loans, and PCI loans with subsequent deterioration in expected cash flows.  All impaired loans are subject to being individually evaluated for specific loss reserves. If an impaired loan is determined to have incurred a loss, a portion of the ALLL is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures.

TDRs are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a TDR is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For TDRs that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the ALLL. PCI loans accounted for individually (not accounted for in a closed pool of loans with other loans that share common risk characteristics) are subject to the TDR accounting requirements when restructured subsequent to acquisition (loans that were restructured prior to acquisition are not considered TDRs).  Modifications subsequent to acquisition of our PCI loans accounted for within a pool with similar risk characteristics are not subject to TDR guidance. Rather, the revised estimated future cash flows of the individually modified loan within a pool are included in the estimated future cash flows of the pool.

The general component covers non-impaired loans and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company since acquisition. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment. These economic factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations.

Purchased loans are recorded at fair value at the date of acquisition without carryover of the seller’s ALLL. Therefore we maintain an ALLL on purchased loans based on credit deterioration subsequent to the acquisition date.

Analysis of the Allowance for Loan and Lease Losses

The following table sets forth the ALLL by category of loan:

 

 

 

June 30, 2015

 

 

December 31, 2014

 

(Dollars in thousands)

 

Allocated

Allowance

 

 

% of Loan

Portfolio

 

 

ALLL to

Loans

 

 

Allocated

Allowance

 

 

% of Loan

Portfolio

 

 

ALLL to

Loans

 

Commercial real estate

 

$

1,214

 

 

 

20

%

 

 

0.52

%

 

$

533

 

 

 

25

%

 

 

0.21

%

Construction, land development, land

 

 

346

 

 

 

4

%

 

 

0.74

%

 

 

333

 

 

 

4

%

 

 

0.78

%

1-4 family residential properties

 

 

251

 

 

 

7

%

 

 

0.33

%

 

 

215

 

 

 

8

%

 

 

0.27

%

Farmland

 

 

28

 

 

 

3

%

 

 

0.11

%

 

 

19

 

 

 

2

%

 

 

0.08

%

Commercial

 

 

5,064

 

 

 

39

%

 

 

1.12

%

 

 

4,003

 

 

 

37

%

 

 

1.10

%

Factored receivables

 

 

4,135

 

 

 

17

%

 

 

2.07

%

 

 

3,462

 

 

 

18

%

 

 

1.91

%

Consumer

 

 

160

 

 

 

1

%

 

 

1.46

%

 

 

140

 

 

 

1

%

 

 

1.17

%

Mortgage warehouse

 

 

264

 

 

 

9

%

 

 

0.25

%

 

 

138

 

 

 

5

%

 

 

0.25

%

Total Loans

 

$

11,462

 

 

 

100

%

 

 

0.99

%

 

$

8,843

 

 

 

100

%

 

 

0.88

%

 

 

57


 

From December 31, 2014 to June 30, 2015, the ALLL increased from $8.8 million or 0.88% of total loans to $11.5 million or 0.99% of total loans. The increase was partially driven by a $0.4 million specific allowance recorded on an impaired commercial real estate PCI loan and a $0.5 million specific allowance recorded on an impaired factored receivable relationship during the six months ended June 30, 2015. In addition, the allowance associated with collectively evaluated loans increased to $8.7 million at June 30, 2015 from $7.1 million at December 31, 2014. The increase was primarily driven by growth in the loan portfolio during the six months ended June 30, 2015, as well as changes in the mix of collectively evaluated loans as non-PCI loans acquired in the Triumph Community Bank acquisition that matured and were renewed during the period, which previously maintained discounts associated with fair value adjustments recorded at acquisition, required allowance allocations.

The following table presents the unpaid principal and recorded investment for loans at June 30, 2015. The difference between the unpaid principal balance and recorded investment is principally associated with (1) premiums and discounts associated with acquisition date fair value adjustments on acquired loans (both PCI and non-PCI) of which approximately $7.8 million is expected to be accretable into income over the remaining lives of the acquired loans, (2) net deferred origination costs and fees, and (3) previous charge-offs. The net difference can provide protection from credit loss in addition to the ALLL as future potential charge-offs for an individual loan is limited to the recorded investment plus unpaid accrued interest.

 

(Dollars in thousands)

 

Recorded

 

 

Unpaid

 

 

 

 

 

June 30, 2015

 

Investment

 

 

Principal

 

 

Difference

 

Commercial real estate

 

$

234,090

 

 

$

244,743

 

 

$

(10,653

)

Construction, land development, land

 

 

46,743

 

 

 

48,263

 

 

 

(1,520

)

1-4 family residential properties

 

 

75,588

 

 

 

78,626

 

 

 

(3,038

)

Farmland

 

 

25,701

 

 

 

25,611

 

 

 

90

 

Commercial

 

 

454,161

 

 

 

456,220

 

 

 

(2,059

)

Factored receivables

 

 

199,716

 

 

 

200,721

 

 

 

(1,005

)

Consumer

 

 

10,993

 

 

 

11,054

 

 

 

(61

)

Mortgage warehouse

 

 

105,687

 

 

 

105,687

 

 

 

 

 

 

$

1,152,679

 

 

$

1,170,925

 

 

$

(18,246

)

 

At June 30, 2015 and December 31, 2014, we had on deposit $19.7 million and $19.0 million, respectively, of customer reserves associated with factored receivables. These deposits represent customer reserves held to settle any payment disputes or collection shortfalls, may be used to pay customers’ obligations to various third parties as directed by the customer, are periodically released to or withdrawn by customers, and are reported as deposits on our consolidated balance sheets.

 

58


 

The following table provides an analysis of the provisions for loan losses, net charge-offs and recoveries for the three and six months ended June 30, 2015 and 2014, and the effects of those items on our ALLL:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(Dollars in thousands)

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Balance at beginning of period

 

$

9,286

 

 

$

4,631

 

 

$

8,843

 

 

$

3,645

 

Loans charged-off:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

(54

)

 

 

 

 

 

(143

)

 

 

 

Construction, land development, land

 

 

 

 

 

 

 

 

 

 

 

 

1-4 family residential properties

 

 

(78

)

 

 

(44

)

 

 

(183

)

 

 

(189

)

Farmland

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

(45

)

 

 

(1

)

 

 

(47

)

 

 

(13

)

Factored receivables

 

 

(312

)

 

 

(136

)

 

 

(379

)

 

 

(176

)

Consumer

 

 

(52

)

 

 

(74

)

 

 

(147

)

 

 

(215

)

Mortgage warehouse

 

 

 

 

 

 

 

 

 

 

 

 

Total loans charged-off

 

$

(541

)

 

$

(255

)

 

$

(899

)

 

$

(593

)

Recoveries of loans charged-off:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

10

 

 

 

1

 

 

 

51

 

 

 

2

 

Construction, land development, land

 

 

 

 

 

 

 

 

 

 

 

 

1-4 family residential properties

 

 

77

 

 

 

3

 

 

 

100

 

 

 

102

 

Farmland

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

4

 

 

 

3

 

 

 

6

 

 

 

215

 

Factored receivables

 

 

18

 

 

 

22

 

 

 

48

 

 

 

36

 

Consumer

 

 

67

 

 

 

101

 

 

 

127

 

 

 

174

 

Mortgage warehouse

 

 

 

 

 

 

 

 

 

 

 

 

Total loans recoveries

 

$

176

 

 

$

130

 

 

$

332

 

 

$

529

 

Net loans charged-off

 

$

(365

)

 

$

(125

)

 

$

(567

)

 

$

(64

)

Provision for (reversal of) loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

183

 

 

 

60

 

 

 

773

 

 

 

113

 

Construction, land development, land

 

 

2

 

 

 

48

 

 

 

13

 

 

 

132

 

1-4 family residential properties

 

 

29

 

 

 

35

 

 

 

119

 

 

 

184

 

Farmland

 

 

2

 

 

 

4

 

 

 

9

 

 

 

4

 

Commercial

 

 

1,109

 

 

 

811

 

 

 

1,102

 

 

 

985

 

Factored receivables

 

 

1,049

 

 

 

779

 

 

 

1,004

 

 

 

1,136

 

Consumer

 

 

61

 

 

 

(6

)

 

 

40

 

 

 

88

 

Mortgage warehouse

 

 

106

 

 

 

16

 

 

 

126

 

 

 

30

 

Total provision for loan losses

 

$

2,541

 

 

$

1,747

 

 

$

3,186

 

 

$

2,672

 

Balance at end of period

 

$

11,462

 

 

$

6,253

 

 

$

11,462

 

 

$

6,253

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average total loans held for investment

 

$

1,087,409

 

 

$

936,556

 

 

$

1,037,273

 

 

$

900,168

 

Net charge-offs to average total loans held for investment

 

 

0.03

%

 

 

0.01

%

 

 

0.05

%

 

 

0.01

%

Allowance to total loans held for investment

 

 

0.99

%

 

 

0.67

%

 

 

0.99

%

 

 

0.67

%

 

Net loan charge offs and recoveries were not significant for the three and six months ended June 30, 2015 and 2014.  Net loans charged off for the three and six months ended June 30, 2015 were $0.4 million and $0.6 million, respectively, compared to net loans charged off of $0.1 million and $0.1 million, respectively, for the three and six months ended June 30, 2014.  The factored receivable charge-off activity during the three and six months ended June 30, 2015 was primarily due to two client relationships.  Net charge-offs as a percentage of average total loans held for investment were only 0.03% and 0.05% for the three and six months ended June 30, 2015, respectively.

Assets Held for Sale

At June 30, 2015 and December 31, 2014, originated mortgage loans held for sale were $4.1 million and $3.3 million, respectively. Loan sales of $36.4 million and $26.0 million occurred during the six months ended June 30, 2015 and 2014, respectively, and resulted in recognized net gains on sale of $1.0 million and $0.6 million in the respective periods.  At June 30, 2015 and December 31, 2014, no originated mortgage loans held for sale were on nonaccrual status.

 

59


 

Securities

Our investment strategy is oriented towards maintaining liquidity in securities with minimal credit risk. As of June 30, 2015, we have investments classified as held to maturity with an amortized cost of $0.7 million. The remaining $158.7 million, or 99.6% of our investments, are classified as available for sale at fair value and can be used for pledging to secure FHLB advances and public deposits, or can be sold to meet liquidity needs.

The following tables set forth the amortized cost and average yield of our securities, by type and contractual maturity as of June 30, 2015:

 

 

 

Maturity as of June 30, 2015

 

 

 

One Year or Less

 

 

After One but within Five Years

 

 

After Five but within Ten Years

 

 

After Ten Years

 

 

Total

 

 

 

Amortized

 

 

Average

 

 

Amortized

 

 

Average

 

 

Amortized

 

 

Average

 

 

Amortized

 

 

Average

 

 

Amortized

 

 

Average

 

(Dollars in thousands)

 

Cost

 

 

Yield

 

 

Cost

 

 

Yield

 

 

Cost

 

 

Yield

 

 

Cost

 

 

Yield

 

 

Cost

 

 

Yield

 

U.S. Government agency obligations

 

$

 

 

 

 

 

$

95,749

 

 

 

1.48

%

 

$

 

 

 

 

 

$

 

 

 

 

 

$

95,749

 

 

 

1.48

%

Mortgage-backed securities

 

 

 

 

 

 

 

 

247

 

 

 

4.18

%

 

 

1,415

 

 

 

2.19

%

 

 

24,080

 

 

 

2.10

%

 

 

25,742

 

 

 

2.12

%

Asset backed securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,888

 

 

 

1.21

%

 

 

13,549

 

 

 

1.68

%

 

 

18,437

 

 

 

1.56

%

State and municipal

 

 

1,270

 

 

 

1.56

%

 

 

1,958

 

 

 

2.98

%

 

 

159

 

 

 

3.85

%

 

 

 

 

 

 

 

 

3,387

 

 

 

2.48

%

Corporate bonds

 

 

 

 

 

 

 

 

11,449

 

 

 

1.81

%

 

 

1,391

 

 

 

1.99

%

 

 

670

 

 

 

5.82

%

 

 

13,510

 

 

 

2.02

%

SBA pooled securities

 

 

 

 

 

 

 

 

5

 

 

 

1.80

%

 

 

173

 

 

 

2.59

%

 

 

16

 

 

 

2.74

%

 

 

194

 

 

 

2.58

%

Total securities available for sale

 

$

1,270

 

 

 

1.56

%

 

$

109,408

 

 

 

1.55

%

 

$

8,026

 

 

 

1.60

%

 

$

38,315

 

 

 

2.01

%

 

$

157,019

 

 

 

1.66

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Security held to maturity

 

$

 

 

 

 

 

$

746

 

 

 

2.47

%

 

$

 

 

 

 

 

$

 

 

 

 

 

$

746

 

 

 

2.47

%

 

We held $158.7 million in securities classified as available for sale as of June 30, 2015, a decrease of $3.3 million from $162.0 million at December 31, 2014. This decrease is attributable to normal portfolio management activities, with the net reduction being attributed to normal sales, payment, and amortization activity.  For the six months ended June 30, 2015, securities were sold resulting in proceeds of $12.6 million, gross gains of $0.2 million, and no losses.

Liabilities

Our total liabilities were $1.272 billion as of June 30, 2015, an increase of $62 million, from $1.210 billion at December 31, 2014. The net change was primarily due to a $24 million increase in customer deposits, a $4 million increase in customer repurchase agreements, an $18 million increase in other liabilities, and a $16 million increase in Federal Home Loan Bank advances.

Deposits

Deposits represent our primary source of funds. We intend to continue to focus on growth in transactional deposit accounts as part of our growth strategy, both in our existing branch networks and through targeted acquisitions.

Our total deposits were $1.189 billion as of June 30, 2015, compared to $1.165 billion as of December 31, 2014, an increase of $24 million.  As of June 30, 2015, interest bearing demand deposits, noninterest bearing deposits, money market deposits and savings deposits accounted for 49% of our total deposits, while individual retirement accounts and certificates of deposit made up 51% of total deposits. The average cost of interest bearing deposits was 0.65% for the three and six months ended June 30, 2015, and 0.50% for the three and six months ended June 30, 2014, on an annualized basis.  

 

60


 

The following table summarizes our average deposit balances and weighted average rates for the three and six month periods ended June 30, 2015 and 2014:

 

 

 

Three Months Ended June 30, 2015

 

 

Three Months Ended June 30, 2014

 

 

 

Average

 

 

Weighted

 

 

% of

 

 

Average

 

 

Weighted

 

 

% of

 

(Dollars in thousands)

 

Balance

 

 

Avg Yields

 

 

Total

 

 

Balance

 

 

Avg Yields

 

 

Total

 

Noninterest bearing demand

 

$

170,240

 

 

 

 

 

 

14

%

 

$

168,808

 

 

 

 

 

 

15

%

Interest bearing demand

 

 

239,033

 

 

 

0.06

%

 

 

20

%

 

 

251,075

 

 

 

0.08

%

 

 

23

%

Individual retirement accounts

 

 

55,778

 

 

 

1.21

%

 

 

5

%

 

 

52,690

 

 

 

1.10

%

 

 

5

%

Money market

 

 

116,517

 

 

 

0.23

%

 

 

10

%

 

 

137,630

 

 

 

0.23

%

 

 

13

%

Savings

 

 

74,088

 

 

 

0.05

%

 

 

6

%

 

 

74,583

 

 

 

0.05

%

 

 

7

%

Certificates of deposit

 

 

485,533

 

 

 

1.04

%

 

 

41

%

 

 

352,227

 

 

 

0.91

%

 

 

32

%

Brokered deposits

 

 

50,002

 

 

 

1.00

%

 

 

4

%

 

 

50,789

 

 

 

0.45

%

 

 

5

%

Total

 

$

1,191,191

 

 

 

0.56

%

 

 

100

%

 

$

1,087,802

 

 

 

0.42

%

 

 

100

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2015

 

 

Six Months Ended June 30, 2014

 

 

 

Average

 

 

Weighted

 

 

% of

 

 

Average

 

 

Weighted

 

 

% of

 

(Dollars in thousands)

 

Balance

 

 

Avg Yields

 

 

Total

 

 

Balance

 

 

Avg Yields

 

 

Total

 

Noninterest bearing demand

 

$

165,583

 

 

 

 

 

 

14

%

 

$

156,377

 

 

 

 

 

 

15

%

Interest bearing demand

 

 

234,766

 

 

 

0.06

%

 

 

20

%

 

 

228,776

 

 

 

0.07

%

 

 

22

%

Individual retirement accounts

 

 

55,575

 

 

 

1.18

%

 

 

5

%

 

 

52,991

 

 

 

1.08

%

 

 

5

%

Money market

 

 

117,851

 

 

 

0.23

%

 

 

10

%

 

 

141,123

 

 

 

0.23

%

 

 

13

%

Savings

 

 

73,067

 

 

 

0.05

%

 

 

6

%

 

 

73,271

 

 

 

0.05

%

 

 

7

%

Certificates of deposit

 

 

477,100

 

 

 

1.03

%

 

 

41

%

 

 

354,170

 

 

 

0.91

%

 

 

33

%

Brokered deposits

 

 

50,003

 

 

 

1.00

%

 

 

4

%

 

 

54,592

 

 

 

0.41

%

 

 

5

%

Total

 

$

1,173,945

 

 

 

0.56

%

 

 

100

%

 

$

1,061,300

 

 

 

0.43

%

 

 

100

%

 

The increase in the average balance of certificates of deposit as a percentage of average total deposits was due to a change in the mix of our interest bearing deposits toward higher rate certificates of deposit as these deposit products were used in part to fund our organic loan growth period over period.

 

The following table provides information on the maturity distribution of time deposits with individual balances of $100,000 to $250,000 and of time deposits with individual balances of $250,000 or more as of June 30, 2015:

 

 

 

$100,000 to

 

 

$250,000 and

 

 

 

 

 

(Dollars in thousands)

 

$250,000

 

 

Over

 

 

Total

 

Maturity

 

 

 

 

 

 

 

 

 

 

 

 

3 months or less

 

$

46,116

 

 

$

21,647

 

 

$

67,763

 

Over 3 through 6 months

 

 

38,248

 

 

 

12,679

 

 

 

50,927

 

Over 6 through 12 months

 

 

83,349

 

 

 

26,073

 

 

 

109,422

 

Over 12 months

 

 

65,635

 

 

 

31,645

 

 

 

97,280

 

 

 

$

233,348

 

 

$

92,044

 

 

$

325,392

 

 

Short-Term Borrowings

The following table provides a summary of our short-term borrowings as and for the six months ended June 30, 2015 and the year ended December 31, 2014:

 

 

 

June 30,

 

 

December 31,

 

(Dollars in thousands)

 

2015

 

 

2014

 

Average amount outstanding during the period

 

$

22,083

 

 

$

40,346

 

Amount outstanding at end of period

 

 

32,011

 

 

 

12,282

 

Highest month end balance during the period

 

 

37,288

 

 

 

85,313

 

Weighted average interest rate at end of period

 

 

0.06

%

 

 

0.05

%

Weighted average interest rate during the period

 

 

0.17

%

 

 

0.14

%

 

61


 

Customer Repurchase Agreements

Customer repurchase agreements outstanding totaled $13.0 million at June 30, 2015. The maximum amount outstanding at any month end during the six month period ended June 30, 2015 occurred in June 2015 with a balance of $13.0 million. Customer repurchase agreements outstanding totaled $9.3 million at December 31, 2014, and the maximum amount outstanding of these agreements at any month end during the year ended December 31, 2014 occurred in March 2014 with a balance of $17.7 million. Our customer repurchase agreements generally have maturities that fall within one year. Variances in these balances are attributable to normal customer behavior and seasonal factors affecting their liquidity positions.

FHLB Advances

As part of our overall funding and liquidity management program, from time to time we borrow from the Federal Home Loan Banks of Dallas and Des Moines. Our FHLB advances are collateralized by assets, including a blanket pledge of certain loans.  Our FHLB borrowings totaled $19.0 million as of June 30, 2015 and $3.0 million as of December 31, 2014. Our FHLB borrowings outstanding are short term in nature, generally maturing within one month.  The $16.0 million increase in borrowings from December 31, 2014 to June 30, 2015 was due to normal liquidity management efforts as we balance the term, cost, and availability of various sources of funds. As of June 30, 2015 and December 31, 2014, we had $101.7 million and $104.4 million, respectively, in unused and available advances from the FHLB.

Long-Term Debt

Junior Subordinated Debentures

National Bancshares, Inc., which became our wholly owned subsidiary as part of the Triumph Community Bank acquisition, has two junior subordinated debentures outstanding with a combined face value of $33.0 million. These debentures are unsecured obligations and were issued to two trusts that are unconsolidated subsidiaries of National Bancshares, Inc. The trusts in turn issued trust preferred securities with identical payment terms to unrelated investors. The debentures mature in September 2033 and July 2036 and may be called at par plus any accrued but unpaid interest; however, we have no current plans to redeem them prior to maturity. Interest on the debentures is calculated quarterly, based on a rate equal to three month LIBOR plus a weighted average spread of 2.28%. As part of the purchase accounting adjustments made with the Triumph Community Bank acquisition, we adjusted the carrying value of the junior subordinated debentures to fair value as of October 15, 2013. The junior subordinated debentures had a combined carrying value of $24.6 million as of June 30, 2015 and $24.4 million as of December 31, 2014, and the discount will be amortized through maturity and recognized as a component of interest expense.

The debentures are included on our consolidated balance sheet as liabilities; however, for regulatory purposes, these obligations are eligible for inclusion in regulatory capital, subject to certain limitations. All of the carrying value of $24.6 million and $24.4 million was allowed in the calculation of Tier I capital as of June 30, 2015 and December 31, 2014, respectively.

Capital Resources and Liquidity Management

Capital Resources

Our stockholders’ equity totaled $257.5 million as of June 30, 2015, an increase of $20.0 million from $237.5 million as of December 31, 2014. Stockholders’ equity increased during this period primarily due to net income for the period of $19.0 million.

Liquidity Management

We define liquidity as our ability to generate sufficient cash to fund current loan demand, deposit withdrawals, or other cash demands and disbursement needs, and otherwise to operate on an ongoing basis.

We manage liquidity at the holding company level as well as that of our bank subsidiaries. The management of liquidity at both levels is critical, because the holding company and our bank subsidiaries have different funding needs and sources, and each is subject to regulatory guidelines and requirements which require minimum levels of liquidity. We believe that our liquidity ratios meet or exceed those guidelines and our present position is adequate to meet our current and future liquidity needs.

Our liquidity requirements are met primarily through cash flow from operations, receipt of pre-paid and maturing balances in our loan and investment portfolios, debt financing and increases in customer deposits. Our liquidity position is supported by management of liquid assets and liabilities and access to other sources of funds. Liquid assets include cash, interest bearing deposits in banks, federal funds sold, securities available for sale and maturing or prepaying balances in our investment and loan portfolios. Liquid liabilities include core deposits, federal funds purchased, customer repurchase agreements and other borrowings. Other sources of funds include the sale of loans, brokered deposits, the issuance of additional collateralized borrowings such as FHLB advances, the issuance of debt

 

62


 

securities, borrowings through the Federal Reserve’s discount window and the issuance of common securities. For additional information regarding our operating, investing and financing cash flows, see the Consolidated Statements of Cash Flows provided in our consolidated financial statements.

In addition to the liquidity provided by the sources described above, our subsidiary banks maintain correspondent relationships with other banks in order to sell loans or purchase overnight funds should additional liquidity be needed. As of June 30, 2015, Triumph Savings Bank had unsecured federal funds lines of credit with two unaffiliated banks totaling $24.5 million, and Triumph Community Bank had unsecured federal funds lines of credit with six unaffiliated banks totaling $100.0 million, with no amounts advanced against those lines at that time.

Regulatory Capital Requirements

Our capital management consists of providing equity to support our current and future operations. We are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s, Triumph Savings Bank’s or Triumph Community Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company, Triumph Savings Bank and Triumph Community Bank each must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulations to ensure capital adequacy require the Company, Triumph Savings Bank and Triumph Community Bank to maintain minimum amounts and ratios of total, Tier 1, and common equity Tier 1 capital to risk weighted assets, and of Tier 1 capital to average assets.

In July 2013, the U.S. banking regulators adopted a final rule which implements the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision, and certain changes required by the Dodd-Frank Act. The final rule established an integrated regulatory capital framework and introduces the “Standardized Approach” for risk-weighted assets, which replaces the Basel I risk-based guidance for determining risk-weighted assets as of January 1, 2015, the date the Company became subject to the new rules. Based on the Company's current capital composition and levels, the Company believes it is in compliance with the requirements as set forth in the final rules.

The rules include new risk-based capital and leverage ratios, which will be phased in from 2015 to 2019, and refine the definition of what constitutes “capital” for purposes of calculating those ratios. The new minimum capital level requirements applicable to the Company, Triumph Savings Bank and Triumph Community Bank are set forth in the table below. The final rules also establish a “capital conservation buffer” of 2.5% above the new regulatory minimum capital requirements. The capital conservation buffer will be phased-in over four years beginning on January 1, 2016 and becoming fully effective on January 1, 2019. Under the final rules, institutions are subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions.

The final rules also contain revisions to the prompt corrective action framework, which is designed to place restrictions on insured depository institutions if their capital levels begin to show signs of weakness. Under the prompt corrective action requirements, which are designed to complement the capital conservation buffer, insured depository institutions are now required to meet the new capital level requirements set forth in the table below in order to qualify as “well capitalized.” As of June 30, 2015, Triumph Savings Bank’s and Triumph Community Bank’s capital ratios exceeded those levels necessary to be categorized as “well capitalized” under the regulatory framework for prompt corrective action. There are no conditions or events since June 30, 2015 that management believes would change either institution’s category.

 

63


 

In conjunction with the acquisition of Triumph Community Bank, we also made further commitments to maintain certain capital levels at Triumph Community Bank. We have agreed to maintain a minimum Tier 1 capital to average assets ratio of 8.0% of adjusted average assets and total risk-based ratio of 10.0%.

The actual capital amounts and ratios for the Company, TSB, and TCB are presented in the following table as of June 30, 2015. For periods beginning on or after January 1, 2015, capital ratios are calculated and presented in accordance with the requirements of Basel III.  

 

 

 

 

 

 

To Be Adequately

 

 

To Be Well

 

 

 

 

 

 

Capitalized Under

 

 

Capitalized Under

 

 

 

 

 

 

Prompt Corrective

 

 

Prompt Corrective

 

(Dollars in thousands)

 

Actual

 

 

Action Provisions

 

 

Action Provisions

 

As of June 30, 2015

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

Total capital (to risk weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Triumph Bancorp, Inc.

 

$

263,293

 

 

 

20.0%

 

 

$

105,102

 

 

 

8.0%

 

 

N/A

 

 

N/A

 

Triumph Savings Bank, SSB

 

$

62,464

 

 

 

15.5%

 

 

$

32,232

 

 

 

8.0%

 

 

$

40,291

 

 

 

10.0%

 

Triumph Community Bank

 

$

132,191

 

 

 

15.3%

 

 

$

69,035

 

 

 

8.0%

 

 

$

86,293

 

 

 

10.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 capital (to risk weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Triumph Bancorp, Inc.

 

$

251,691

 

 

 

19.2%

 

 

$

78,826

 

 

 

6.0%

 

 

N/A

 

 

N/A

 

Triumph Savings Bank, SSB

 

$

57,595

 

 

 

14.3%

 

 

$

24,174

 

 

 

6.0%

 

 

$

32,232

 

 

 

8.0%

 

Triumph Community Bank

 

$

125,552

 

 

 

14.6%

 

 

$

51,774

 

 

 

6.0%

 

 

$

69,032

 

 

 

8.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common equity Tier 1 capital (to risk weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Triumph Bancorp, Inc.

 

$

223,046

 

 

 

17.0%

 

 

$

59,120

 

 

 

4.5%

 

 

N/A

 

 

N/A

 

Triumph Savings Bank, SSB

 

$

57,595

 

 

 

14.3%

 

 

$

18,131

 

 

 

4.5%

 

 

$

26,189

 

 

 

6.5%

 

Triumph Community Bank

 

$

125,552

 

 

 

14.6%

 

 

$

38,831

 

 

 

4.5%

 

 

$

56,089

 

 

 

6.5%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 capital (to average assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Triumph Bancorp, Inc.

 

$

251,691

 

 

 

17.0%

 

 

$

59,181

 

 

 

4.0%

 

 

N/A

 

 

N/A

 

Triumph Savings Bank, SSB

 

$

57,595

 

 

 

13.3%

 

 

$

17,321

 

 

 

4.0%

 

 

$

21,651

 

 

 

5.0%

 

Triumph Community Bank

 

$

125,552

 

 

 

12.6%

 

 

$

39,880

 

 

 

4.0%

 

 

$

49,850

 

 

 

5.0%

 

Contractual Obligations

The following table summarizes our contractual obligations and other commitments to make future payments as of June 30, 2015 excluding purchase accounting adjustments for our junior subordinated debentures and deposits. The amount of the obligations presented in the table reflects principal amounts only and excludes the amount of interest we are obligated to pay. Also excluded from the table are a number of obligations to be settled in cash. These excluded items are reflected in our consolidated balance sheet and include deposits with no stated maturity, trade payables, accrued interest payable and customer repurchase agreements.

 

 

 

Payments Due by Period - June 30, 2015

 

(Dollars in thousands)

 

Total

 

 

One Year or

Less

 

 

After One

but within

Three Years

 

 

After Three

but within

Five Years

 

 

After Five

Years

 

Customer repurchase agreements

 

$

13,011

 

 

$

13,011

 

 

$

 

 

$

 

 

$

 

Federal Home Loan Bank advances

 

 

19,000

 

 

 

19,000

 

 

 

 

 

 

 

 

 

 

Junior subordinated debentures

 

 

32,990

 

 

 

 

 

 

 

 

 

 

 

 

32,990

 

Operating lease agreements

 

 

7,992

 

 

 

1,699

 

 

 

3,091

 

 

 

2,303

 

 

 

899

 

Time deposits with stated maturity dates

 

 

606,755

 

 

 

386,320

 

 

 

195,931

 

 

 

24,504

 

 

 

 

Total contractual obligations

 

$

679,748

 

 

$

420,030

 

 

$

199,022

 

 

$

26,807

 

 

$

33,889

 

 

 

64


 

Off-Balance Sheet Arrangements

In the normal course of business, we enter into various transactions, which, in accordance with GAAP, are not included in our consolidated balance sheets. We enter into these transactions to meet the financing needs of our customers. These transactions include commitments to extend credit and standby and commercial letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the consolidated balance sheets.

The following table details our commitments associated with outstanding standby and commercial letters of credit and commitments to extend credit. Since commitments associated with letters of credit and commitments to extend credit may expire unused, the amounts shown do not necessarily reflect actual future cash funding requirements.

 

 

 

June 30,

 

 

December 31,

 

(Dollars in thousands)

 

2015

 

 

2014

 

Commitments to make loans

 

$

23,970

 

 

$

19,792

 

Unused lines of credit

 

 

221,698

 

 

 

227,963

 

Standby letters of credit

 

 

3,369

 

 

 

3,755

 

Total other commitments

 

$

249,037

 

 

$

251,510

 

 

Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements in accordance with U.S. generally accepted accounting principles, or GAAP, requires us to make estimates and judgments that affect our reported amounts of assets, liabilities, income and expenses and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under current circumstances, results of which form the basis for making judgments about the carrying value of certain assets and liabilities that are not readily available from other sources. We evaluate our estimates on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions.

Accounting policies, as described in detail in the notes to our consolidated financial statements are an integral part of our financial statements. A thorough understanding of these accounting policies is essential when reviewing our reported results of operations and our financial position. We believe that the critical accounting policies and estimates discussed below require us to make difficult, subjective or complex judgments about matters that are inherently uncertain. Changes in these estimates that are likely to occur from period to period, or the use of different estimates that we could have reasonably used in the current period, would have a material impact on our financial position, results of operations or liquidity.

Originated Loans. Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of unearned income, deferred loan fees and costs, and any direct principal charge-offs. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income over the remaining life of the loan without anticipating prepayments. Loans are considered past due or delinquent when the contractual principal or interest due in accordance with the terms of the loan agreement or any portion thereof remains unpaid after the due date of the scheduled payment. Loans are classified as nonaccrual when, in the opinion of management, collection of principal or interest is doubtful. Generally, loans are placed in nonaccrual status due to the continued failure to adhere to contractual payment terms by the borrower coupled with other pertinent factors, such as insufficient collateral value.

The accrual of interest income on single family residential mortgage, commercial and commercial real estate loans is discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection, or if full collection of interest or principal becomes uncertain. Consumer loans are typically charged off no later than 120 days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. All interest accrued but not received for a loan placed on nonaccrual is charged against interest income. Interest received on such loans is accounted for on the cash-basis or cost recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Purchased Loans. Purchased loans are recorded at fair value at the date of acquisition based on a discounted cash flow methodology that considered various factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan and whether or not the loan was amortizing, and a discount rate reflecting the Company’s assessment of risk inherent in the cash flow estimates. Larger purchased loans are individually evaluated while smaller purchased loans are grouped together according to similar characteristics and were treated in the aggregate when applying various valuation techniques. These cash flow evaluations are inherently subjective as they require material estimates, all of which may be susceptible to significant change.

 

65


 

The cash flows anticipated to be collected on PCI loans are estimated based upon the expected remaining life of the underlying loans, which includes the effects of estimated prepayments. Purchased loans are considered credit impaired if there is evidence of credit deterioration at the date of purchase and if it is probable that not all contractually required payments will be collected. Interest income, through accretion of the difference between the carrying value of the loans and the expected cash flows is recognized on all PCI loans, unless the timing and amount of expected cash flows cannot be reasonably estimated, in which case the PCI loan would be classified as nonaccrual. Expected cash flows are re-estimated quarterly. A decline in the present value of current expected cash flows subsequent to acquisition compared to the previously estimated expected cash flows, due in any part to change in credit, is referred to as credit impairment and recorded as provision for loan losses during the period. PCI loans generally are not classified as impaired on the acquisition date.  Declines in the present value of expected cash flows only from the expected timing of such cash flows is recognized prospectively as a decrease in yield on the loan. Improvement in expected cash flows is recognized prospectively as an adjustment to the yield on the loan once any previously recorded impairment is recaptured.

Purchased loans that were not considered PCI at acquisition have premiums or discounts. Premiums and discounts recorded when the loans were recorded at their estimated fair values at acquisition are amortized or accreted over the remaining term of the loan as an adjustment to the related loan’s yield. Loans are considered past due or delinquent when the contractual principal or interest due in accordance with the terms of the loan agreement or any portion thereof remains unpaid after the due date of the scheduled payment. The subsequent accounting for acquired non-PCI loans follows the accounting for originated loans.

ALLL. The ALLL is a reserve for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off.

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered TDRs and classified as impaired.

Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

All loans are subject to being individually evaluated for impairment. If an impaired loan is determined to have incurred a loss, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment and, accordingly, they are not separately identified for impairment disclosures.

TDRs are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a TDR is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For TDRs that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the ALLL.

The general component covers non-impaired loans and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company since acquisition. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment. These economic factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations.

 

66


 

Goodwill and Core Deposit Intangibles. Goodwill resulting from business combinations is determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. In the event the fair value of the net assets acquired and liabilities assumed exceeds the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, a bargain purchase gain is recognized.

Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually or more frequently if events and circumstances exist that indicate that a goodwill impairment test should be performed. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on the Company’s balance sheet.

Other intangible assets consist of core deposit and loan customer relationship intangible assets representing the estimated values of acquired relationships with deposit and loan customers arising from acquisitions and are amortized on an accelerated method over their estimated useful lives. The estimated fair value of core deposit intangible assets is based on a discounted cash flow methodology that considers customer attrition rates, cost of the deposit base and maintenance cost.  The estimated fair value of loan customer relationship intangible assets is based on a multi-period excess earnings method that considers estimated customer loan renewal rates, portfolio yields, ongoing lending fees and costs, and credit losses.

Fair Values of Financial Instruments. In general, fair values of financial instruments are based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and/or the Company’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time.

In the ordinary course of business, the Company generally does not sell or transfer non-impaired loans and deposits. As such, the disclosures that present the estimated fair value for non-impaired loans and deposits are highly judgmental and may not represent amounts to be received if the Company were to sell or transfer such items.

Recently Issued Accounting Pronouncements

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.

Issued in June 2014, ASU No. 2014-11, “Transfers and Servicing (Topic 860) - Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosure” (ASU 2014-11) aligns the accounting for repurchase-to-maturity transactions and repurchase agreements executed as a repurchase financing with the accounting for other typical repurchase agreements. Effective for interim periods beginning after March 31, 2015, the ASU requires entities to disclose certain information about transfers accounted for as sales in transactions that are economically similar to repurchase agreements. In addition, disclosures are required related to collateral, remaining contractual tenor, and the potential risks associated with repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions. Adoption of this ASU did not have a material impact on the Company’s financial statements as the Company’s repurchase agreements consist primarily of overnight customer sweep agreements secured by pledged U.S. Government agency and residential mortgage-backed securities.

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.

On May 28, 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (ASU 2014-09), 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 was originally effective for the Company on January 1, 2017.  However, at its July 9, 2015 meeting the FASB agreed to defer the mandatory effective date the new standard would take effect for reporting periods beginning after December 15, 2017, 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.

 

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Forward-Looking Statements

This document contains forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would” and “outlook,” or the negative version of those words or other comparable of a future or forward-looking nature. These forward-looking statements are not historical facts and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.

There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but are not limited to, the following:

our limited operating history as an integrated company and our recent acquisitions;

business and economic conditions generally and in the bank and non-bank financial services industries, nationally and within our local market area;

our ability to mitigate our risk exposures;

our ability to maintain our historical earnings trends;

risks related to the integration of acquired businesses and any future acquisitions;

changes in management personnel;

interest rate risk;

concentration of our factoring services in the transportation industry;

credit risk associated with our loan portfolio;

lack of seasoning in our loan portfolio;

deteriorating asset quality and higher loan charge-offs;

time and effort necessary to resolve nonperforming assets;

inaccuracy of the assumptions and estimates we make in establishing reserves for probable loan losses and other estimates;

lack of liquidity;

fluctuations in the fair value and liquidity of the securities we hold for sale;

impairment of investment securities, goodwill, other intangible assets or deferred tax assets;

risks related to our acting as the asset manager for one or more CLOs;

our risk management strategies;

environmental liability associated with our lending activities;

increased competition in the bank and non-bank financial services industries, nationally, regionally or locally, which may adversely affect pricing and terms;

the obligations associated with being a public company;

the accuracy of our financial statements and related disclosures;

material weaknesses in our internal control over financial reporting;

system failures or failures to prevent breaches of our network security;

the institution and outcome of litigation and other legal proceedings against us or to which we become subject;

changes in carry-forwards of net operating losses;

changes in federal tax law or policy;

 

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the impact of recent and future legislative and regulatory changes, including changes in banking, securities and tax laws and regulations, such as the Dodd-Frank Act and their application by our regulators;

governmental monetary and fiscal policies;

changes in the scope and cost of FDIC, insurance and other coverages;

failure to receive regulatory approval for future acquisitions;

increases in our capital requirements; and

risk retention requirements under the Dodd-Frank Act.

The foregoing factors should not be construed as exhaustive. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made and we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. New factors emerge from time to time and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

 

 

ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Asset/Liability Management and Interest Rate Risk

The principal objective of our asset and liability management function is to evaluate the interest rate risk within the balance sheet and pursue a controlled assumption of interest rate risk while maximizing net income and preserving adequate levels of liquidity and capital. The Board of Directors of each of our subsidiary banks has oversight of our asset and liability management function, which is managed by our Chief Financial Officer. Our Chief Financial Officer meets with our senior executive management team regularly to review, among other things, the sensitivity of our assets and liabilities to market interest rate changes, local and national market conditions and market interest rates. That group also reviews our liquidity, capital, deposit mix, loan mix and investment positions.

As a financial institution, our primary component of market risk is interest rate volatility. Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most of our assets and liabilities, and the fair value of all interest-earning assets and interest-bearing liabilities, other than those which have a short term to maturity. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income.

We manage our exposure to interest rates primarily by structuring our balance sheet in the ordinary course of business. We do not typically enter into derivative contracts for the purpose of managing interest rate risk, but we may elect to do so in the future. Based upon the nature of our operations, we are not subject to foreign exchange or commodity price risk. We do not own any trading assets.

We use an interest rate risk simulation model to test the interest rate sensitivity of net interest income and the balance sheet. Instantaneous parallel rate shift scenarios are modeled and utilized to evaluate risk and establish exposure limits for acceptable changes in net interest margin. These scenarios, known as rate shocks, simulate an instantaneous change in interest rates and use various assumptions, including, but not limited to, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment and replacement of asset and liability cash flows. We also analyze the economic value of equity as a secondary measure of interest rate risk. This is a complementary measure to net interest income where the calculated value is the result of the fair value of assets less the fair value of liabilities. The economic value of equity is a longer term view of interest rate risk because it measures the present value of all future cash flows. The impact of changes in interest rates on this calculation is analyzed for the risk to our future earnings and is used in conjunction with the analyses on net interest income.

 

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The following table summarizes simulated change in net interest income versus unchanged rates as of June 30, 2015 and December 31, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2015

 

 

December 31, 2014

 

 

 

Following 12 Months

 

 

Months

13-24

 

 

Following 12 Months

 

 

Months

13-24

 

+400 basis points

 

 

9.2

%

 

 

4.4

%

 

 

6.4

%

 

 

1.7

%

+300 basis points

 

 

6.6

%

 

 

3.0

%

 

 

4.6

%

 

 

1.3

%

+200 basis points

 

 

4.0

%

 

 

1.7

%

 

 

2.7

%

 

 

0.8

%

+100 basis points

 

 

1.8

%

 

 

0.6

%

 

 

1.3

%

 

 

0.5

%

Flat rates

 

 

0.0

%

 

 

0.0

%

 

 

0.0

%

 

 

0.0

%

-100 basis points

 

 

(1.1

%)

 

 

(2.8

%)

 

 

(0.2

%)

 

 

(2.7

%)

 

The following table presents the change in our economic value of equity as of June 30, 2015 and December 31, 2014, assuming immediate parallel shifts in interest rates:

 

 

 

Economic Value of Equity at Risk (%)

 

 

 

June 30, 2015

 

 

December 31, 2014

 

+400 basis points

 

 

1.9

%

 

 

9.5

%

+300 basis points

 

 

0.9

%

 

 

7.8

%

+200 basis points

 

 

(0.4

%)

 

 

5.6

%

+100 basis points

 

 

(1.1

%)

 

 

3.2

%

Flat rates

 

 

0.0

%

 

 

0.0

%

-100 basis points

 

 

(6.1

%)

 

 

(5.6

%)

 

Many assumptions are used to calculate the impact of interest rate fluctuations. Actual results may be significantly different than our projections due to several factors, including the timing and frequency of rate changes, market conditions and the shape of the yield curve. The computations of interest rate risk shown above do not include actions that our management may undertake to manage the risks in response to anticipated changes in interest rates, and actual results may also differ due to any actions taken in response to the changing rates.

As part of our asset/liability management strategy, our management has emphasized the origination of shorter duration loans as well as variable rate loans to limit the negative exposure to a rate increase. The Triumph Community Bank acquisition was in large part a result of management’s desire to acquire their deposit transaction accounts, particularly noninterest or low interest-bearing non-maturity deposit accounts, whose cost is less sensitive to changes in interest rates. We intend to focus our strategy on utilizing this acquired deposit base and operating platform to increase these deposit transaction accounts.

 

 

ITEM 4

CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures. An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this Quarterly Report on Form 10-Q was performed under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply judgment in evaluating its controls and procedures.  Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms.

 

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Changes in internal control over financial reporting. There were no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 

PART II – OTHER INFORMATION

 

 

Item 1. Legal Proceedings

From time to time we are a party to various litigation matters incidental to the conduct of our business. We are not presently party to any legal proceedings the resolution of which we believe would have a material adverse effect on our business, prospects, financial condition, liquidity, results of operation, cash flows or capital levels.

Trademark Infringement Lawsuit

On February 18, 2015, a trademark infringement suit was filed in the United States District Court for the Western District of Tennessee Western Division against the Company and certain of its subsidiaries by Triumph Bancshares, Inc. and Triumph Bank, Inc., asserting that the Company’s use of “Triumph” as part of their trademarks and domain names causes a likelihood of confusion, has caused actual confusion, and infringes plaintiffs’ trademarks.  The suit seeks damages as well as an injunction to prevent the use of the name “Triumph” and certain other matters with respect to the Company and its subsidiaries.  The Company disagrees with the allegations in the complaint and will defend it vigorously.

 

 

Item 1A. Risk Factors

There have been no material changes in the Company’s risk factors from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

 

Item 3. Defaults Upon Senior Securities

Not applicable.

 

Item 4. Mine Safety Disclosures

Not applicable.

 

Item 5. Other Information

None.

 

 

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Item 6. Exhibits

Exhibits 

3.1

 

Second Amended and Restated Certificate of Formation of the Registrant, effective November 7, 2014, incorporated by reference to Exhibit 3.1 to Form 8-K filed with the SEC on November 13, 2014.

3.2

 

Second Amended and Restated Bylaws of the Registrant, effective November 7, 2014, incorporated by reference to Exhibit 3.2 to Form 8-K filed with the SEC on November 13, 2014.

31.1

 

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

 

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

 

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101

 

XBRL Instance Document

 

 

72


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

TRIUMPH BANCORP, INC.

 

 

 

(Registrant)

 

 

 

 

Date:

July 31, 2015

 

 /s/ Aaron P. Graft

 

 

 

Aaron P. Graft

 

 

 

President and Chief Executive Officer

 

 

 

 

Date:

July 31, 2015

 

 /s/ R. Bryce Fowler

 

 

 

R. Bryce Fowler

 

 

 

Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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