ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Cautionary Note Regarding 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 not limited to, the following:
•business and economic conditions generally and in the bank and non-bank financial services industries, nationally and within our local market areas;
•the impact of COVID-19 on our business, including the impact of the actions taken by governmental authorities to try and contain the virus or address the impact of the virus on the United States economy (including, without limitation, the CARES Act), and the resulting effect of all of such items on our operations, liquidity and capital position, and on the financial condition of our borrowers and other customers;
•our ability to mitigate our risk exposures;
•our ability to maintain our historical earnings trends;
•changes in management personnel;
•interest rate risk;
•concentration of our products and services in the transportation industry;
•risks related to TriumphPay and the associated growth in such product line;
•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;
•risks related to the integration of acquired businesses and any future acquisitions;
•our ability to successfully identify and address the risks associated with our possible future acquisitions, and the risks that our prior and possible future acquisitions make it more difficult for investors to evaluate our business, financial condition and results of operations, and impairs our ability to accurately forecast our future performance;
•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;
•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 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;
•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; and
•increases in our capital requirements.
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.
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 consolidated financial statements and the accompanying notes included elsewhere in this Annual Report on Form 10-K. 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 “Cautionary Note Regarding Forward-Looking Statements” section above.
Overview
We are a financial holding company headquartered in Dallas, Texas and registered under the Bank Holding Company Act. Through our wholly owned bank subsidiary, TBK Bank, we offer traditional banking services, commercial finance product lines focused on businesses that require specialized financial solutions and national lending product lines that further diversify our lending operations. Our traditional banking offerings 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 generate attractive returns and include factoring, asset-based lending, and equipment lending products offered on a nationwide basis. Our national lending product lines provide further asset base diversification and include mortgage warehouse and liquid credit offered on a nationwide basis. As of December 31, 2020, we had consolidated total assets of $5.936 billion, gross loans held for investment of $4.997 billion, total deposits of $4.717 billion and total stockholders’ equity of $726.8 million
A key element of our strategy is to supplement the asset generation capacity in our community banking markets with commercial finance product lines which are offered on a nationwide basis and which serve to enhance the overall yield of our portfolio. These products include our factoring services and equipment finance products, provided principally in the transportation sector, and our asset-based lending products. Year to date, our aggregate outstanding balances for these products has increased $623.9 million, or 49.9%, to $1.874 billion as of December 31, 2020, due to increases in our equipment lending and factored receivables products. The increase in factored receivables reflects the acquired transportation factoring assets of Transport Financial Solutions detailed in a later discussion. Excluding the acquired transportation factoring assets our aggregate outstanding balances for these products has increased $516.4 million or 41.3%. The following table sets forth our commercial finance product lines:
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(Dollars in thousands)
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December 31, 2020
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December 31, 2019
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Commercial finance
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Commercial - Equipment
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$
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573,163
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$
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461,555
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Commercial - Asset-based lending
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180,488
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168,955
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Factored receivables
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1,120,770
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619,986
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Total commercial finance loans
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$
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1,874,421
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$
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1,250,496
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Our national lending product lines include mortgage warehouse and liquid credit. Mortgage warehouse lending provides portfolio diversification by allowing unaffiliated mortgage originators to close one-to-four family real estate loans in their own name and manage cash flow needs until the loans are sold to investors. Our liquid credit portfolio, which consists of broadly syndicated shared national credits, provides an accordion feature allowing us to opportunistically scale our loan portfolio. The following table sets forth our national lending lines:
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(Dollars in thousands)
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December 31, 2020
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December 31, 2019
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National lending
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Mortgage warehouse
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$
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1,037,574
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$
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667,988
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Commercial - Liquid credit
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184,027
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81,353
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Commercial - Premium finance
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—
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101,015
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Total national lending loans
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$
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1,221,601
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$
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850,356
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On April 20, 2020, we entered into an agreement to sell the assets (the “Disposal Group”) of Triumph Premium Finance (“TPF”) and exit our premium finance line of business. The transaction closed on June 30, 2020, and the assets of the Disposal Group, consisting primarily of $84.5 million of premium finance loans, was sold for a gain on sale of $9.8 million. For further information regarding this transaction, see Note 2 – Business Combinations and Divestitures in the accompanying notes to the consolidated financial statements included elsewhere in this report.
Most of our products and services share basic processes and have similar economic characteristics. However, our factoring subsidiary, Triumph Business Capital, 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. We have determined our reportable segments are Banking, Factoring, and Corporate. For the year ended December 31, 2020, our Banking segment generated 65% of our total revenue (comprised of interest and noninterest income), our Factoring segment generated 34% of our total revenue, and our Corporate segment generated 1% of our total revenue.
2020 Overview
Net income available to common stockholders for the year ended December 31, 2020 was $62.3 million, or $2.53 per diluted share, compared to net income available to common stockholders for the year ended December 31, 2019 of $58.5 million, or $2.25 per diluted share. Excluding material gains and expenses related to merger and acquisition related activities, including divestitures, adjusted net income to common stockholders was $55.6 million, or $2.26 per diluted share, for the year ended December 31, 2020. There were no merger and acquisition related activities during the year ended December 31, 2019. For the year ended December 31, 2020, our return on average common equity was 9.77% and our return on average assets was 1.18%.
At December 31, 2020, we had total assets of $5.936 billion, including gross loans held for investment of $4.997 billion, compared to $5.060 billion of total assets and $4.195 billion of gross loans held for investment at December 31, 2019. Gross loan growth totaled $802.3 million during the year ended December 31, 2020. Excluding the sale of premium finance loans and acquired transportation factoring assets, organic loan growth totaled $795.8 million, or 19.4%, $189.9 million of which consisted of PPP loans. Our commercial finance loans increased from $1.250 billion in aggregate as of December 31, 2019 to $1.874 billion as of December 31, 2020, an increase of 49.9%, and constitute 38% of our total loan portfolio at December 31, 2020. Excluding the acquired transportation factoring assets, our commercial finance product lines increased $516.4 million, or 41.3%. Our national lending lines increased from $850.4 million in aggregate as of December 31, 2019 to $1.222 billion as of December 31, 2020, an increase of 43.7%, and constitute 24% of our total loan portfolio at December 31, 2020. Excluding premium finance loans, our national lending lines increased $472.3 million, or 63.0%. Our community bank lending lines decreased from $2.094 billion in aggregate as of December 31, 2019 to $1.901 billion as of December 31, 2020, a decrease of 9.2%, and constitute 38% of our total loan portfolio at December 31, 2020.
At December 31, 2020, we had total liabilities of $5.209 billion, including total deposits of $4.717 billion, compared to $4.424 billion of total liabilities and $3.790 billion of total deposits at December 31, 2019. Deposits increased $926.7 million during the year ended December 31, 2020.
At December 31, 2020, we had total stockholders' equity of $726.8 million, compared to total stockholders' equity of $636.6 million at December 31, 2019. The increase in total equity was primarily due to preferred stock issued during the year and our net income, offset in part by common stock repurchased during the year. Holding company Tier 1 capital and total capital to risk weighted assets ratios were 10.60% and 13.03%, respectively, at December 31, 2020.
For the year ended December 31, 2020, Triumph Business Capital and TriumphPay processed a combined $10.436 billion in transportation invoice payments.
For the year ended December 31, 2020, the total dollar value of invoices purchased by Triumph Business Capital was $7.135 billion with an average invoice size of $1,825. The transportation average invoice size for the quarter was $1,682.
For the year ended December 31, 2020, TriumphPay processed 4,394,901 invoices paying 93,648 distinct carriers a total of $4.175 billion.
2020 Items of Note
Transport Financial Solutions
On July 8, 2020, Triumph Bancorp, Inc., through our wholly-owned subsidiary Advance Business Capital LLC (“ABC”), acquired the transportation factoring assets (the “TFS Acquisition”) of Transport Financial Solutions (“TFS”), a wholly owned subsidiary of Covenant Logistics Group, Inc. ("CVLG"), in exchange for cash consideration of $108.4 million, 630,268 shares of the Company’s common stock valued at approximately $13.9 million, and contingent consideration of up to approximately $9.9 million to be paid in cash following the twelve-month period ending July 31, 2021.
Subsequent to the closing of the TFS Acquisition, the Company identified that approximately $62.2 million of the assets acquired at closing were advances against future payments to be made to three large clients (and their affiliated entities) of TFS pursuant to long-term contractual arrangements between the obligor on such contracts and such clients (and their affiliated entities) for services that had not yet been performed.
On September 23, 2020, the Company and ABC entered into an Account Management Agreement, Amendment to Purchase Agreement and Mutual Release (the “Agreement”) with CVLG and Covenant Transport Solutions, LLC a wholly owned subsidiary of CVLG (“CTS” and, together with CVLG, "Covenant"). Pursuant to the Agreement, the parties agreed to certain amendments to that certain Accounts Receivable Purchase Agreement (the “ARPA”), dated as of July 8, 2020, by and among ABC, as buyer, CTS, as seller, and the Company, as buyer indirect parent. Such amendments include:
•Return of the portion of the purchase price paid under the ARPA consisting of 630,268 shares of Company common stock, which was accomplished through the sale of such shares by CVLG pursuant to the terms of the Agreement and the surrender of the cash proceeds of such sale (net of brokerage or underwriting fees and commissions) to the Company;
•Elimination of the earn-out consideration potentially payable to CTS under the ARPA; and
•Modification of the indemnity provisions under the ARPA that eliminated the existing indemnifications for breaches of representations and warranties and replaced such with a newly established indemnification by Covenant in the event ABC incurs losses related to the $62.2 million in over-formula advances made to specified clients identified in the Agreement (the “Over-Formula Advance Portfolio”). Under the terms of the new indemnification arrangement, Covenant is responsible for and will indemnify ABC for 100% of the first $30 million of any losses incurred by ABC related to the Over-Formula Advance Portfolio, and for 50% of the next $30 million of any losses incurred by ABC, for total indemnification by Covenant of $45 million.
Covenant’s indemnification obligations under the Agreement are secured by a pledge of equipment collateral by Covenant with an estimated net orderly liquidation value of $60 million (the “Equipment Collateral”). The Company’s wholly-owned bank subsidiary, TBK Bank, SSB, has provided Covenant with a $45 million line of credit, also secured by the Equipment Collateral, the proceeds of which may be drawn to satisfy Covenant’s indemnification obligations under the Agreement.
Pursuant to the Agreement, Triumph and Covenant agreed to certain terms related to the management of the Over-Formula Advance Portfolio, and the terms by which Covenant may provide assistance to maximize recovery on the Over-Formula Advance Portfolio.
Pursuant to the Agreement, the Company and Covenant provided mutual releases to each other related to any and all claims related to the transactions contemplated by the ARPA or the Over-Formula Advance Portfolio.
Misdirected Payments
As of December 31, 2020 we carry a separate $19.6 million receivable (the “Misdirected Payments”) payable by the United States Postal Service (“USPS”) arising from accounts factored to the largest over-formula advance carrier. This amount is separate from the aforementioned over-formula advances. The amounts represented by this receivable were paid by the USPS directly to such customer in contravention of notices of assignment delivered to, and previously honored by, the USPS, which amount was then not remitted back to us by such customer as required. The USPS disputes their obligation to make such payment, citing purported deficiencies in the notices delivered to them. In addition to commencing litigation against such customer, we have also filed a declaratory judgment action in United States Federal District Court for the Southern District of Florida seeking a ruling that the USPS was obligated to make the payments represented by this receivable directly to us. Based on our legal analysis and discussions with our counsel advising us on this matter, we believe it is probable that we will prevail in such action and that the USPS will have the capacity to make payment on such receivable. Consequently, we have not reserved for such balance as of December 31, 2020. The full amount of such receivable is reflected as past due factored receivables as of December 31, 2020, and $6.0 million of such receivable, reflecting the portion of such receivable that was greater than 90 days past due, is included in our non-performing asset calculation as of December 31, 2020 in accordance with our policy. As of the issuance date of this report, the entire $19.6 million Misdirected Payments amount was greater than 90 days past due.
Triumph Premium Finance
On April 20, 2020, we entered into an agreement to sell the assets (the “Disposal Group”) of Triumph Premium Finance (“TPF”) and exit our premium finance line of business. The transaction closed on June 30, 2020, and the assets of the Disposal Group, consisting primarily of $84.5 million of premium finance loans, were sold for a gain on sale of $9.8 million.
For further information on the above transactions, see Note 2 – Business Combinations and Divestitures in the accompanying notes to the consolidated financial statements included elsewhere in this report.
Preferred Stock Offering
On June 19, 2020, we issued 45,000 shares of 7.125% Series C Fixed-Rate Non-Cumulative Perpetual Preferred Stock, par value $0.01 per share, with a liquidation preference of $1,000 per share through an underwritten public offering of 1,800,000 depository shares, each representing a 1/40th ownership interest in a share of the Series C Preferred Stock. Total gross proceeds from the preferred stock offering were $45.0 million. Net proceeds after underwriting discounts and offering expenses were $42.4 million. The net proceeds will be used for general corporate purposes.
Stock Repurchase Program
During the year ended December 31, 2020, we repurchased 871,319 shares into treasury stock under our stock repurchase program at an average price of $40.81, for a total of $35.6 million, effectively completing the $50.0 million stock repurchase program authorized by our board of directors on October 16, 2019.
2019 Items of Note
Warehouse Solutions Inc. Investment
On October 17, 2019, we made a minority equity investment of $8 million in Warehouse Solutions Inc. (“WSI”), purchasing 8% of the common stock of WSI and receiving warrants to purchase an additional 10% of the common stock of WSI upon exercise of the warrants at a later date. WSI provides technology solutions to help reduce supply chain costs for a global client base across multiple industries.
Stock Repurchase Program
On October 29, 2018, we announced that our board of directors had authorized us to repurchase up to $25.0 million of our outstanding common stock. On July 17, 2019, our board of directors authorized the repurchase of up to an additional $25.0 million of our outstanding common stock. On October 16, 2019 our board of directors authorized us to repurchase up to an additional $50.0 million of our outstanding common stock. We may repurchase these shares from time to time in open market transactions or through privately negotiated transactions at our discretion. The amount, timing and nature of any share repurchases will be based on a variety of factors, including the trading price of our common stock, applicable securities laws restrictions, regulatory limitations and market and economic factors. This repurchase program is authorized for a period of up to one year and does not require us to repurchase any specific number of shares. The repurchase program may be modified, suspended or discontinued at any time, at our discretion.
During the year ended December 31, 2019, we repurchased into treasury stock 2,080,791 shares at an average price of $30.90 for a total of $64.4 million.
Recent Developments: COVID-19 and the CARES Act
The outbreak of COVID-19 has adversely impacted a broad range of industries in which the Company’s customers operate and could impair their ability to fulfill their financial obligations to the Company. The World Health Organization has declared COVID-19 to be a global pandemic and almost all public commerce and related business activities have been curtailed, to varying degrees, with the goal of decreasing the rate of new infections. The spread of the outbreak has caused significant disruptions in the U.S. economy and has disrupted banking and other financial activity in the areas in which the Company operates. While there has been no material impact to the Company’s employees to date, COVID-19 has the potential to create widespread business continuity issues for the Company.
Congress, the Executive Branch, and the Federal Reserve have taken several actions designed to cushion the economic fallout. Most notably, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law at the end of March 2020 as a $2 trillion legislative package. The goal of the CARES Act is to curb the economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors through programs like the Paycheck Protection Program ("PPP") and Main Street Lending Program (“MSLP”). The package also included extensive emergency funding for hospitals and providers. In addition to the general impact of COVID-19, certain provisions of the CARES Act as well as other recent legislative and regulatory relief efforts have had a material impact on the Company’s operations and could continue to impact operations going forward.
The Company’s business is dependent upon the willingness and ability of its employees and customers to conduct banking and other financial transactions. While progress has been made on the vaccine front, if the global response to contain COVID-19 is prolonged or is unsuccessful, the Company could experience further adverse effects on its business, financial condition, results of operations and cash flows. While it is not possible to know the full universe or extent that the impact of COVID-19, and resulting measures to curtail its spread, will have on the Company’s operations, the Company is disclosing potentially material items of which it is aware.
Financial position and results of operations
Pertaining to our December 31, 2020 financial condition and results of operations, COVID-19 had a material impact on our allowance for credit losses (“ACL”). While we have not yet experienced any significant charge-offs related to COVID-19, our ACL calculation and resulting provision for credit losses are significantly impacted by changes in forecasted economic conditions. Given that forecasted economic scenarios have darkened since the pandemic was declared in early March, our need for additional reserve for credit loss increased significantly during the year ended December 31, 2020. Refer to our discussion of the ACL in Note 1 and Note 4 of our financial statements as well as further discussion later on in MD&A. Should economic conditions worsen, we could experience further increases in our required ACL and record additional credit loss expense. The execution of the payment deferral program discussed in the following commentary assisted our ratio of past due loans to total loans as well other asset quality ratios at December 31, 2020. It is possible that our asset quality measures could worsen at future measurement periods if the effects of COVID-19 are prolonged.
The Company’s fee income has been reduced due to COVID-19. In keeping with guidance from regulators, the Company actively worked with COVID-19 affected customers during the second quarter of 2020 to waive fees from a variety of sources, such as, but not limited to, insufficient funds and overdraft fees, ATM fees, account maintenance fees, etc. These reductions in fees were temporary and expired on June 1, 2020 and were the primary contributor to the $1.9 million reduction in service charges on deposits fee income for the twelve months ended December 31, 2020 compared to the same period during 2019. Should the pandemic and the global response escalate further, it is possible that the Company could reduce such fees in future periods; however, at this time, the Company is unable to project the materiality of such an impact on the results of operations in future periods.
The Company’s interest income could be reduced due to COVID-19. In keeping with guidance from regulators, the Company continues to work with COVID-19 affected borrowers to defer their payments, interest, and fees. While interest and fees continue to accrue to income, through normal GAAP accounting, should eventual credit losses on these deferred payments emerge, the related loans would be placed on nonaccrual status and interest income and fees accrued would be reversed. In such a scenario, interest income in future periods could be negatively impacted. As of December 31, 2020, the Company carried $0.7 million of accrued interest income and fees on outstanding deferrals made to COVID-19 affected borrowers. At this time, the Company is unable to project the materiality of such an impact on future deferrals to COVID-19 affected borrowers, but recognizes the breadth of the economic impact may affect its borrowers’ ability to repay in future periods.
Capital and liquidity
As of December 31, 2020, all of our capital ratios, and our subsidiary bank’s capital ratios, were in excess of all regulatory requirements. While we believe that we have sufficient capital to withstand a second economic recession brought about by COVID-19, our reported and regulatory capital ratios could be adversely impacted by further credit loss expense. We rely on cash on hand as well as dividends from our subsidiary bank to service our debt. If our capital deteriorates such that our subsidiary bank is unable to pay dividends to us for an extended period of time, we may not be able to service our debt.
We maintain access to multiple sources of liquidity. During the twelve months ended December 31, 2020, we were able to issue preferred equity as previously discussed. Wholesale funding markets have remained open to us, but rates for short-term funding have been volatile throughout 2020. If funding costs are elevated for an extended period of time, it could have an adverse effect on our net interest margin. If an extended recession caused large numbers of our deposit customers to withdraw their funds, we might become more reliant on volatile or more expensive sources of funding.
Asset valuation
Currently, we do not expect COVID-19 to affect our ability to account timely for the assets on our balance sheet; however, this could change in future periods. While certain valuation assumptions and judgments will change to account for pandemic-related circumstances such as widening credit spreads, we do not anticipate significant changes in methodology used to determine the fair value of assets measured in accordance with GAAP.
As of December 31, 2020, our goodwill was not impaired. Management performed a quantitative goodwill impairment test on our reporting units as of October 1, 2020. The goodwill impairment test did not identify any goodwill impairment and neither of our reporting units, Banking or Factoring, were at risk of failing the quantitative test. COVID-19 could cause a decline in our stock price or the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause us to perform a goodwill impairment test and result in an impairment charge being recorded for that period. In the event that we conclude that all or a portion of our goodwill is impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital. At December 31, 2020 we had goodwill of $163.2 million, representing approximately 22% of equity.
As of December 31, 2020 we did not have any impairment with respect to our intangible assets or other long-lived assets. It is possible that the lingering effects of COVID-19 could cause the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause us to perform an intangible asset impairment test and result in an impairment charge being recorded for that period. In the event that we conclude that all or a portion of our intangible assets are impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital. At December 31, 2020 we had intangible assets of $26.7 million, representing approximately 4% of equity.
During the year ended December 31, 2020 we recorded $1.4 million of impairment on a right of use asset and related leasehold improvements. This impairment was the result of our decision to consolidate part of our El Paso, TX factoring operations to our Triumph Business Capital headquarters in Coppell, TX. The impairment was not a result of the COVID-19 pandemic.
Our processes, controls and business continuity plan
The Company maintains an Enterprise Risk Management team to respond to, prepare, and execute responses to unforeseen circumstances, such as, natural disasters and pandemics. Upon the WHO’s pandemic declaration, the Company’s Enterprise Risk Management team invoked its Board approved Pandemic Preparedness Plan. Shortly after invoking the Plan, the Company deployed a successful remote working strategy, provided timely communication to team members and customers, implemented protocols for team member safety, and initiated strategies for monitoring and responding to local COVID-19 impacts – including customer relief efforts. The Company’s preparedness efforts, coupled with quick and decisive plan implementation, resulted in minimal impacts to operations as a result of COVID-19. At December 31, 2020, the majority of our employees continue to work remotely with no disruption to our operations. We have not incurred additional material cost related to our remote working strategy to date, nor do we anticipate incurring material cost in future periods.
As of December 31, 2020, we don’t anticipate significant challenges to our ability to maintain our systems and controls in light of the measures we have taken to prevent the spread of COVID-19. The Company does not currently face any material resource constraint through the implementation of our business continuity plans.
Lending operations and accommodations to borrowers
In keeping with regulatory guidance to work with borrowers during this unprecedented situation and as outlined in the CARES Act, the Company is executing a payment deferral program for its clients that are adversely affected by the pandemic. Depending on the demonstrated need of the client, the Company is deferring either the full loan payment or the principal component of the loan payment for stated period of time. As of December 31, 2020, the Company’s balance sheet reflected 59 of these deferrals on outstanding loan balances of $104,600,000. In accordance with the CARES Act and March 2020 interagency guidance, these deferrals are not considered troubled debt restructurings. It is possible that these deferrals could be extended further under the CARES Act; however, the volume of these future potential extensions is unknown. It is also possible that in spite of our best efforts to assist our borrowers and achieve full collection of our investment, these deferred loans could result in future charge-offs with additional credit loss expense charged to earnings; however, the amount of any future charge-offs on deferred loans is unknown.
With the passage of the PPP, administered by the Small Business Administration (“SBA”), the Company has actively participated in assisting its customers with applications for resources through the program. PPP loans generally have a two-year or five-year term and earn interest at 1%. The Company believes that the majority of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. As of December 31, 2020, the Company carried 1,913 PPP loans representing a book value of $189,900,000. The Company has received approximately $7,700,000 in total fees from the SBA, $4,600,000 of which were recognized in interest income and fees during the year ended December 31, 2020. The remaining fees will be amortized and recognized over the life of the associated loans. It is the Company’s understanding that loans funded through the PPP program are fully guaranteed by the U.S. government. Should those circumstances change, the Company could be required to establish an allowance for credit loss through additional credit loss expense charged to earnings.
Credit
While all industries have and will continue to experience adverse impacts as a result of COVID-19 virus, we had exposures (on balance sheet loans and commitments to lend) in the following loan categories considered to be “at-risk” of significant impact as of December 31, 2020. The exposures reported below exclude fully guaranteed PPP loans.
Retail Lending:
The Company’s exposure to retail at December 31, 2020 equated to approximately $213.1 million, or 4.3% of total loans, summarized as follows:
•30% new and used vehicle lending; mostly dealer floorplan
•24% retail real estate
•14% grocery stores, pet stores, pharmacies, gas stations and convenience stores
•14% factoring
•18% other types of retail lending
At December 31, 2020, there were no retail loans in deferral through our CARES Act deferral program.
Energy Lending:
The Company’s exposure to energy at December 31, 2020 equated to approximately $86.8 million, or 1.7% of total loans, summarized as follows:
•55% equipment finance; this portfolio consisted primarily of fully amortizing fixed rate loans on multi-use assets like trucks, trailers and cranes.
•27% factoring consisting of purchased invoices from energy-related loads in our factoring operations. The Company typically collects out of these exposures in 30 - 90 days and continuously evaluates the credit worthiness of the ultimate account debtor, TBK’s source of repayment.
•6% asset-based lending
•12% other types of energy lending
At December 31, 2020, the Company did not have exposure to Exploration and Production (“E&P”) or Reserve-Based lending and only had minimal exposure to specialized equipment lending.
At December 31, 2020, there were $13.3 million of energy lending loans in deferral through our CARES Act deferral program.
Hospitality Lending:
The Company’s exposure to hospitality at December 31, 2020 equated to approximately $125.8 million, or 2.5% of total loans. These were mostly smaller loans purchased through our bank acquisitions and secured by hotels. At December 31, 2020, there were $41.8 million of hospitality lending loans in deferral through our CARES Act deferral program.
Restaurants:
The Company’s exposure to restaurants at December 31, 2020 equated to approximately $36.8 million, or less than 1% of total loans. At December 31, 2020, there were $6.6 million of restaurant lending loans in deferral through our CARES Act deferral program.
Health Care and Senior Care Lending:
The Company’s exposure to health care and senior care at December 31, 2020, equated to $44.8 million, or less than 1% of total loans. At December 31, 2020, there were no healthcare and senior care lending loans in deferral through our CARES Act deferral program.
We continue to work with customers directly affected by COVID-19. We are prepared to offer short-term assistance in accordance with regulator guidelines. As a result of the current economic environment caused by the COVID-19 virus, we have been engaged in frequent communication with borrowers to better understand their situation and the challenges faced, allowing us to respond proactively as needs and issues arise.
Held to Maturity Securities
At December 31, 2020, we held $7.9 million in subordinated notes of three CLO securities managed by our former subsidiary. These securities are the junior-most in securitization capital structures, and are subject to suspension of distributions if the credit of the underlying loan portfolios deteriorates materially. During the year ended December 31, 2020, pandemic-related downgrades and default activity caused overcollateralization triggers to be tripped on two of the three CLO investments which had a material impact on expected cash flows used to calculate the ACL. At year end, the overcollateralization triggers were not tripped; however, the required ACL on these balances was $2.0 million resulting in $1.9 million of credit loss expense recognized during the year. Our held to maturity securities were nonaccrual assets at December 31, 2020. Ultimately, the realized cash flows on CLO securities such as these will be driven by a variety of factors, including credit performance of the underlying loan portfolio, adjustments to the portfolio by the asset manager, and the timing of a potential call. Thus, we may not receive the full amount of cash distributions we expect to receive, which would cause us to record additional allowance for credit losses with a corresponding charge to credit loss expense through earnings.
Retail operations
The Company is committed to assisting our customers and communities in this time of need. Most branch locations have converted to drive-thru only in order to ensure the health and safety of our customers and team members. The branches with lobbies open have been retrofitted with sneeze guard protective screens and our branches have been supplied with gloves and disinfectant materials for lobby, drive through and ATM equipment. We have introduced temporary changes to help with the financial hardship caused by COVID-19 for both our customers and non-customers. This included waiving select deposit account fees including overdraft fees, ATM fees and excessive withdrawal fees for savings and money market accounts. These fee waivers expired on June 1, 2020. Daily deposit limits for ATMs and Mobile were increased. We have also provided check-cashing services for government issued stimulus checks for both customers and non-customers. We continue to support the communities we serve as demonstrated by local teams making donations to those in need and buying meals for first responders.
We continue to serve our customers that need emergency branch access for account issues, safe deposit access and similar items by appointment. The Company has been able to open and close accounts effectively, through its drive through facility, and our Customer Care 800 access is successfully managing the volume of incoming calls. Additionally, the Company temporarily waived account service charges during the three months ended June 30, 2020 in an effort to assist all of our customers that may be in need including our small business and commercial customers.
The Company continues to monitor the safety of our staff. With reduced access to the lobby, our staffing is adequate to address the requests for time off by any of our employees who are impacted by health or child care issues. For our retail staff being asked to work during this event, a temporary pay increase was implemented in appreciation for their service.
Transportation
During the first half of 2020, the Company's transportation business was affected by COVID-19 and low oil prices. During this time, the most significant transportation-related impact of COVID-19 on operating results was a decrease year-over-year in exports from China to the U.S. The impact of this dynamic was offset during the first quarter by strength in other sectors of Triumph Business Capital’s (“TBC”) business in the first quarter of 2020, as freight volumes remained on par with seasonal expectations. However, the aforementioned global supply disruption from China, in combination with the U.S. supply chain challenges due to business closures, shelter in place orders and an overall decrease in consumer demand was felt heavily in April and May of 2020 with a significant reduction in freight movement. During these months, the over-capacity market drove spot rates to decade-low numbers. In June, freight volumes resumed to 2019 levels or higher, and spot rates moved up accordingly. Many carriers who were inactive during April and May resumed to nearly full utilization. Small owner operators also returned to the market.
During the second half of 2020, the Company’s transportation businesses benefited from high freight volume in a reduced capacity market. Spot rates returned to mid-2018 highs in all trailer categories. This resulted in a significant rise in the average invoice price. This was unusual as diesel prices held steady or dropped slightly, indicating a majority of the increase related to capacity shortage in many markets. A portion of the increased freight was catch-up, as U.S ports reached capacity on incoming imports. Loads from Mexico rose to record high levels. The third quarter of 2020 saw many idle carriers respond to the higher spot rates and return to market, despite continued increases in insurance costs that threaten breakeven at lower freight rates. Purchases at TBC rose during the third quarter and rose again the following quarter. This reflected the capacity shortage and the beneficial pricing for those firms active in the market. It also reflected an increase in TBC clients. Driver pay has been increasing, insurance rates are up and diesel has been edging higher. Although there have been record Class 8 and tractor orders, delivery dates are being pushed further into 2021. This leaves capacity strained and costs high, so most project that rates will stay at current levels or slightly lower. If the economy is impacted by further stimulus and mass-scale vaccinations, 2021 could be a strong year for transportation. However, if the measures to curtail the economic impact of COVID-19 prove to be unsuccessful, we could experience an impact on our transportation business similar to that experienced during the first half of 2020.
For the year ended December 31, 2020, gross transportation revenue, consisting of factoring revenue from transportation clients, interest and fees from commercial loans to borrowers in transportation industries, transportation related insurance commissions, and revenue from TriumphPay, made up 40% of total gross revenue consisting of total interest income and noninterest income. This compares to average transportation assets, consisting of transportation related factored receivables and commercial loans to borrowers in transportation industries, making up 24% of total assets for the year.
Results of Operations
For discussion of the results of operations for the year ended December 31, 2019 compared with the year ended December 31, 2018, see Triumph’s 2019 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 11, 2020.
Fiscal year ended December 31, 2020 compared with year ended December 31, 2019
Net Income
We earned net income of $64.0 million for the year ended December 31, 2020 compared to $58.5 million for the year ended December 31, 2019, an increase of $5.5 million.
The results for the year ended December 31, 2020 were impacted by the gain on sale of TPF of $9.8 million reported as noninterest income and transaction costs of $0.8 million associated with the TFS Acquisition reported as noninterest expense. There were no merger and acquisition related activities during the year ended December 31, 2019. Excluding the gain on sale, net of taxes, we earned adjusted net income to common stockholders of $55.6 million for the year ended December 30, 2020 compared to $58.5 million for the year ended December 31, 2019, a decrease of $2.9 million. The adjusted decrease was primarily the result of a $30.4 million increase in credit loss expense, a $17.2 million increase in adjusted noninterest expense, a $1.5 million increase in adjusted income tax expense, and a $1.7 million increase in dividends on preferred stock offset in part by an $28.8 million increase in net interest income and a $19.1 million increase in adjusted noninterest income.
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 deposits and other borrowed funds, referred to as a “rate change.”
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:
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For the years ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
(Dollars in thousands)
|
Average
Balance
|
|
Interest
|
|
Average
Rate
|
|
Average
Balance
|
|
Interest
|
|
Average
Rate
|
|
Average
Balance
|
|
Interest
|
|
Average
Rate
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
214,994
|
|
|
$
|
708
|
|
|
0.33
|
%
|
|
$
|
137,615
|
|
|
$
|
3,062
|
|
|
2.23
|
%
|
|
$
|
164,639
|
|
|
$
|
3,289
|
|
|
2.00
|
%
|
Taxable securities
|
248,617
|
|
|
7,312
|
|
|
2.94
|
%
|
|
273,966
|
|
|
9,137
|
|
|
3.34
|
%
|
|
191,644
|
|
|
4,962
|
|
|
2.59
|
%
|
Tax-exempt securities
|
36,669
|
|
|
917
|
|
|
2.50
|
%
|
|
59,018
|
|
|
1,337
|
|
|
2.27
|
%
|
|
71,120
|
|
|
1,392
|
|
|
1.96
|
%
|
FHLB and other restricted stock
|
23,786
|
|
|
530
|
|
|
2.23
|
%
|
|
21,269
|
|
|
712
|
|
|
3.35
|
%
|
|
18,013
|
|
|
507
|
|
|
2.81
|
%
|
Loans (1)
|
4,465,891
|
|
|
312,648
|
|
|
7.00
|
%
|
|
3,832,239
|
|
|
296,905
|
|
|
7.75
|
%
|
|
3,131,324
|
|
|
252,826
|
|
|
8.07
|
%
|
Total interest-earning assets
|
4,989,957
|
|
|
322,115
|
|
|
6.46
|
%
|
|
4,324,107
|
|
|
311,153
|
|
|
7.20
|
%
|
|
3,576,740
|
|
|
262,976
|
|
|
7.35
|
%
|
Noninterest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
56,729
|
|
|
|
|
|
|
80,206
|
|
|
|
|
|
|
66,325
|
|
|
|
|
|
Other noninterest-earning assets
|
379,783
|
|
|
|
|
|
|
369,339
|
|
|
|
|
|
|
257,663
|
|
|
|
|
|
Total assets
|
$
|
5,426,469
|
|
|
|
|
|
|
$
|
4,773,652
|
|
|
|
|
|
|
$
|
3,900,728
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand
|
628,721
|
|
|
1,073
|
|
|
0.17
|
%
|
|
593,178
|
|
|
1,492
|
|
|
0.25
|
%
|
|
451,327
|
|
|
1,020
|
|
|
0.23
|
%
|
Individual retirement accounts
|
98,445
|
|
|
1,311
|
|
|
1.33
|
%
|
|
110,553
|
|
|
1,731
|
|
|
1.57
|
%
|
|
108,170
|
|
|
1,348
|
|
|
1.25
|
%
|
Money market
|
405,323
|
|
|
1,914
|
|
|
0.47
|
%
|
|
433,922
|
|
|
5,752
|
|
|
1.33
|
%
|
|
318,927
|
|
|
2,618
|
|
|
0.82
|
%
|
Savings
|
390,023
|
|
|
576
|
|
|
0.15
|
%
|
|
363,760
|
|
|
478
|
|
|
0.13
|
%
|
|
281,995
|
|
|
279
|
|
|
0.10
|
%
|
Certificates of deposit
|
948,687
|
|
|
17,477
|
|
|
1.84
|
%
|
|
1,016,797
|
|
|
22,614
|
|
|
2.22
|
%
|
|
809,321
|
|
|
11,994
|
|
|
1.48
|
%
|
Brokered time deposits
|
278,604
|
|
|
4,613
|
|
|
1.66
|
%
|
|
348,523
|
|
|
8,158
|
|
|
2.34
|
%
|
|
291,776
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|
|
5,799
|
|
|
1.99
|
%
|
Other brokered deposits
|
205,398
|
|
|
439
|
|
|
0.21
|
%
|
|
—
|
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
|
|
—
|
%
|
Total interest-bearing deposits
|
2,955,201
|
|
|
27,403
|
|
|
0.93
|
%
|
|
2,866,733
|
|
|
40,225
|
|
|
1.40
|
%
|
|
2,261,516
|
|
|
23,058
|
|
|
1.02
|
%
|
Federal Home Loan Bank advances
|
342,264
|
|
|
2,001
|
|
|
0.58
|
%
|
|
369,548
|
|
|
8,557
|
|
|
2.32
|
%
|
|
345,388
|
|
|
6,774
|
|
|
1.96
|
%
|
Subordinated notes
|
87,398
|
|
|
5,363
|
|
|
6.14
|
%
|
|
52,682
|
|
|
3,553
|
|
|
6.74
|
%
|
|
48,877
|
|
|
3,351
|
|
|
6.86
|
%
|
Junior subordinated debentures
|
39,807
|
|
|
2,114
|
|
|
5.31
|
%
|
|
39,306
|
|
|
2,910
|
|
|
7.40
|
%
|
|
38,845
|
|
|
2,741
|
|
|
7.06
|
%
|
Other borrowings
|
150,325
|
|
|
506
|
|
|
0.34
|
%
|
|
7,827
|
|
|
5
|
|
|
0.06
|
%
|
|
8,648
|
|
|
2
|
|
|
0.02
|
%
|
Total interest-bearing liabilities
|
3,574,995
|
|
|
37,387
|
|
|
1.05
|
%
|
|
3,336,096
|
|
|
55,250
|
|
|
1.66
|
%
|
|
2,703,274
|
|
|
35,926
|
|
|
1.33
|
%
|
Noninterest-bearing liabilities and equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand deposits
|
1,114,912
|
|
|
|
|
|
|
723,682
|
|
|
|
|
|
|
605,863
|
|
|
|
|
|
Other liabilities
|
74,620
|
|
|
|
|
|
|
66,148
|
|
|
|
|
|
|
32,141
|
|
|
|
|
|
Total equity
|
661,942
|
|
|
|
|
|
|
647,726
|
|
|
|
|
|
|
559,450
|
|
|
|
|
|
Total liabilities and equity
|
$
|
5,426,469
|
|
|
|
|
|
|
$
|
4,773,652
|
|
|
|
|
|
|
$
|
3,900,728
|
|
|
|
|
|
Net interest income
|
|
|
$
|
284,728
|
|
|
|
|
|
|
$
|
255,903
|
|
|
|
|
|
|
$
|
227,050
|
|
|
|
Interest spread (2)
|
|
|
|
|
5.41
|
%
|
|
|
|
|
|
5.54
|
%
|
|
|
|
|
|
6.02
|
%
|
Net interest margin (3)
|
|
|
|
|
5.71
|
%
|
|
|
|
|
|
5.92
|
%
|
|
|
|
|
|
6.35
|
%
|
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.
The following table presents loan yields earned on our community banking and commercial finance loan portfolios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31,
|
(Dollars in thousands)
|
2020
|
|
2019
|
|
2018
|
Average community banking
|
$
|
2,040,647
|
|
|
$
|
2,158,683
|
|
|
$
|
1,762,184
|
|
Average commercial finance
|
1,458,862
|
|
|
1,190,651
|
|
|
1,065,657
|
|
Average national lending
|
966,382
|
|
|
482,905
|
|
|
303,483
|
|
Average total loans
|
$
|
4,465,891
|
|
|
$
|
3,832,239
|
|
|
$
|
3,131,324
|
|
Community banking yield
|
5.35
|
%
|
|
5.87
|
%
|
|
5.86
|
%
|
Commercial finance yield
|
10.81
|
%
|
|
12.23
|
%
|
|
12.49
|
%
|
National lending yield
|
4.75
|
%
|
|
5.11
|
%
|
|
5.41
|
%
|
Total loan yield
|
7.00
|
%
|
|
7.75
|
%
|
|
8.07
|
%
|
We earned net interest income of $284.7 million for the year ended December 31, 2020 compared to $255.9 million for the year ended December 31, 2019, an increase of $28.8 million, or 11.3%, primarily driven by the following factors.
Interest income increased $11.0 million, or 3.5%, as a result of an increase in total average interest-earning assets of $665.9 million, or 15.4%. The average balance of our higher yielding commercial finance loans increased $268.2 million, or 22.5%, from $1.191 billion for the year ended December 31, 2019 to $1.459 billion for the year ended December 31, 2020. The impact of increased average commercial finance balances was offset by decreased yields on factored receivables and increased average balances in our lower yielding mortgage warehouse lending product. The average mortgage warehouse lending balance was $729.8 million for the year ended December 31, 2020 compared to $370.4 million for the year ended December 31, 2019. Further, we began originating PPP loans during the second quarter and carried $189.9 million of PPP loans at December 31, 2020. PPP loans carry a coupon rate of 1% which has a meaningful downward impact on our loan yield. A component of interest income consists of discount accretion on acquired loan portfolios. We recognized discount accretion on purchased loans of $10.7 million and $5.6 million for the years ended December 31, 2020 and 2019, respectively.
Interest expense decreased $17.9 million, or 32.3%, in spite of growth in average interest-bearing liabilities. More specifically, average total interest-bearing deposits increased $88.5 million, or 3.1%. The decrease in interest expense was the result of lower average rates discussed below.
Net interest margin decreased to 5.71% for the year ended December 31, 2020 from 5.92% for the year ended December 31, 2019, a decrease of 21 basis points or 3.5%.
Our net interest margin was impacted by a decrease in yield on our interest-earning assets of 74 basis points to 6.46% for the year ended December 31, 2020. This decrease was driven by lower yields and a change in the overall mix within our loan portfolio period over period which drove a 75 basis point reduction in our loan yield to 7.00% for the same period. As previously discussed, we carried $189.9 million of PPP loans with a coupon rate of 1% at December 31, 2020. Our higher yielding average commercial finance products as a percentage of the total loan portfolio increased from 31.1% for the year ended December 31, 2019 to 32.7% for the year ended December 31, 2020 somewhat offsetting the overall decrease in yield on our loan portfolio. Average factored receivables as a percentage of the total commercial finance portfolio increased from 49.0% for the year ended December 31, 2019 to 53.1% for the year ended December 31, 2020. However, we experienced pricing pressure that decreased yields on our factored receivables during the year ended December 31, 2020 leading to decreased yields from our commercial finance portfolio. Our transportation factoring balances, which generate a higher yield than our non-transportation factoring balances, increased as a percentage of the overall factoring portfolio to 90.0% at December 31, 2020 compared to 77.0% at December 31, 2019. Yields on our non-loan interest-earning assets were generally flat or down period over period as well; however, these products do not impact the yield on interest-earning assets to the same extent as our loan portfolio.
The decrease in our net interest margin was partially offset by a decrease in our average cost of interest-bearing liabilities of 61 basis points. This decrease was caused by lower interest rates paid on our interest-bearing liabilities driven by changes in interest rates in the macro economy.
Changes in net interest income due to changes in rates and volume. 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 periods indicated. For purposes of this table, changes attributable to both rate and volume which cannot be segregated have been allocated to volume.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
2020 Compared to 2019
|
|
2019 Compared to 2018
|
|
Increase (Decrease) Due to:
|
|
|
|
Increase (Decrease) Due to:
|
|
|
(Dollars in thousands)
|
Rate
|
|
Volume
|
|
Net Change
|
|
Rate
|
|
Volume
|
|
Net Change
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
(2,609)
|
|
|
$
|
255
|
|
|
$
|
(2,354)
|
|
|
$
|
374
|
|
|
$
|
(601)
|
|
|
$
|
(227)
|
|
Taxable securities
|
(1,079)
|
|
|
(746)
|
|
|
(1,825)
|
|
|
1,429
|
|
|
2,746
|
|
|
4,175
|
|
Tax-exempt securities
|
139
|
|
|
(559)
|
|
|
(420)
|
|
|
219
|
|
|
(274)
|
|
|
(55)
|
|
FHLB stock
|
(238)
|
|
|
56
|
|
|
(182)
|
|
|
96
|
|
|
109
|
|
|
205
|
|
Loans
|
(28,618)
|
|
|
44,361
|
|
|
15,743
|
|
|
(10,225)
|
|
|
54,304
|
|
|
44,079
|
|
Total interest income
|
(32,405)
|
|
|
43,367
|
|
|
10,962
|
|
|
(8,107)
|
|
|
56,284
|
|
|
48,177
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand
|
(480)
|
|
|
61
|
|
|
(419)
|
|
|
115
|
|
|
357
|
|
|
472
|
|
Individual retirement accounts
|
(259)
|
|
|
(161)
|
|
|
(420)
|
|
|
346
|
|
|
37
|
|
|
383
|
|
Money market
|
(3,703)
|
|
|
(135)
|
|
|
(3,838)
|
|
|
1,610
|
|
|
1,524
|
|
|
3,134
|
|
Savings
|
59
|
|
|
39
|
|
|
98
|
|
|
92
|
|
|
107
|
|
|
199
|
|
Certificates of deposit
|
(3,882)
|
|
|
(1,255)
|
|
|
(5,137)
|
|
|
6,006
|
|
|
4,614
|
|
|
10,620
|
|
Brokered time deposits
|
(2,387)
|
|
|
(1,158)
|
|
|
|
|
—
|
|
|
—
|
|
|
|
Other brokered deposits
|
—
|
|
|
439
|
|
|
439
|
|
|
1,031
|
|
|
1,328
|
|
|
2,359
|
|
Total interest-bearing deposits
|
(10,652)
|
|
|
(2,170)
|
|
|
(12,822)
|
|
|
9,200
|
|
|
7,967
|
|
|
17,167
|
|
Federal Home Loan Bank advances
|
(6,396)
|
|
|
(160)
|
|
|
(6,556)
|
|
|
1,224
|
|
|
559
|
|
|
1,783
|
|
Subordinated notes
|
(320)
|
|
|
2,130
|
|
|
1,810
|
|
|
(55)
|
|
|
257
|
|
|
202
|
|
Junior subordinated debentures
|
(823)
|
|
|
27
|
|
|
(796)
|
|
|
135
|
|
|
34
|
|
|
169
|
|
Other borrowings
|
21
|
|
|
480
|
|
|
501
|
|
|
4
|
|
|
(1)
|
|
|
3
|
|
Total interest expense
|
(18,170)
|
|
|
307
|
|
|
(17,863)
|
|
|
10,508
|
|
|
8,816
|
|
|
19,324
|
|
Change in net interest income
|
$
|
(14,235)
|
|
|
$
|
43,060
|
|
|
$
|
28,825
|
|
|
$
|
(18,615)
|
|
|
$
|
47,468
|
|
|
$
|
28,853
|
|
Credit Loss Expense
Credit loss expense is the amount of expense that, based on our judgment, is required to maintain the allowances for credit losses (“ACL”) at an appropriate level under the current expected credit loss model. The determination of the amount of the allowance is complex and involves a high degree of judgment and subjectivity. Refer to Note 1 of the notes to the financial statements for detailed discussion regarding ACL methodologies for available for sale debt securities, held to maturity securities and loans held for investment.
The following table presents the major categories of credit loss expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2020 Compared to 2019
|
|
2019 Compared to 2018
|
(Dollars in thousands)
|
2020
|
|
2019
|
|
2018
|
|
$ Change
|
|
% Change
|
|
$ Change
|
|
% Change
|
Credit loss expense on loans
|
$
|
33,981
|
|
|
$
|
7,942
|
|
|
$
|
16,167
|
|
|
$
|
26,039
|
|
|
327.9
|
%
|
|
$
|
(8,225)
|
|
|
(50.9)
|
%
|
Credit loss expense on off balance sheet credit exposures
|
2,448
|
|
|
—
|
|
|
—
|
|
|
2,448
|
|
|
100.0
|
%
|
|
—
|
|
|
—
|
%
|
Credit loss expense on held to maturity securities
|
1,900
|
|
|
—
|
|
|
—
|
|
|
1,900
|
|
|
100.0
|
%
|
|
—
|
|
|
—
|
%
|
Credit loss expense on available for sale securities
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
Total credit loss expense
|
$
|
38,329
|
|
|
$
|
7,942
|
|
|
$
|
16,167
|
|
|
$
|
30,387
|
|
|
382.6
|
%
|
|
$
|
(8,225)
|
|
|
(50.9)
|
%
|
Upon and subsequent to adoption of ASC 326, for available for sale debt securities in an unrealized loss position, the Company evaluates the securities at each measurement date to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors. Any impairment that is not credit related is recognized in other comprehensive income, net of applicable taxes. Credit-related impairment is recognized as an ACL on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings via credit loss expense. At January 1, 2020 and December 31, 2020, the Company determined that all impaired available for sale securities experienced a decline in fair value below the amortized cost basis due to noncredit-related factors. Therefore, the Company carried no ACL at those respective dates and there was no credit loss expense recognized by the Company during the year ended December 31, 2020.
Upon and subsequent to adoption of ASC 326, the ACL on held to maturity securities is estimated at each measurement date on a collective basis by major security type. At December 31, 2020 and December 31, 2019, the Company’s held to maturity securities consisted of three investments in the subordinated notes of collateralized loan obligation (“CLO”) funds. Expected credit losses for these securities are estimated using a discounted cash flow methodology which considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. At January 1, 2020 and December 31, 2020, the Company carried $8.4 million and $7.9 million of these HTM securities at amortized cost, respectively. The ACL on these balances was $0.1 million at January 1, 2020. During the year ended December 31, 2020, pandemic-related downgrades and default activity caused overcollateralization triggers to be tripped on two of the three CLO investments which had a material impact on expected cash flows used to calculate the ACL. These overcollateralization triggers were not tripped at the end of the year. At December 31, 2020, our held to maturity securities were nonaccrual assets. The ACL on these balances was $2.0 million at December 31, 2020 resulting in $1.9 million of credit loss expense recognized during the year ended December 31, 2020. Ultimately, the realized cash flows on CLO securities such as these will be driven by a variety of factors, including credit performance of the underlying loan portfolio, adjustments to the portfolio by the asset manager, and the timing of a potential call.
Our ACL on loans was $95.7 million as of December 31, 2020, compared to $29.1 million as of December 31, 2019, representing an ACL to total loans ratio of 1.92% and 0.69% respectively. Upon adoption of ASC 326, management booked an increase of $0.3 million to the ACL and a decrease to retained earnings net of the deferred tax impact. The Day 1 adjustment upon adoption raised the ACL balance to $29.4 million on January 1, 2020.
Our credit loss expense on loans increased $26.0 million, or 327.9%, for the year ended December 31, 2020 compared to the year ended December 31, 2019.
One driver of the increased credit loss expense was significant year-to-date projected deterioration of the loss drivers that the Company forecasts to calculate expected losses. This deterioration was brought on by the projected economic impact of COVID-19 on the Company’s loss drivers over the reasonable and supportable forecast period. See further discussion in the allowance for credit loss section below. The deterioration of forecasted loss assumptions and minimal changes to qualitative loss factors resulted in approximately $16.7 million of credit loss expense for the year ended December 31, 2020. For the year ended December 31, 2019, changes to loss factors under the incurred loss allowance methodology resulted in a benefit to credit loss expense of $0.5 million.
Another driver of the increased credit loss expense was an increase in required ACL on the Over-Formula Advances deemed to be purchased credit deteriorated ("PCD"). Management determined that the $62.2 million in Over-Formula Advances and some smaller immaterial factored receivables obtained through the TFS Acquisition had experienced more than insignificant credit deterioration since origination and thus deemed those Over-Formula Advances to be purchased credit deteriorated ("PCD"). This resulted in recording a $37.4 million ACL on the PCD assets through purchase accounting during the year ended December 31, 2020. There was no initial impact to credit loss expense resulting from the PCD determination. At December 31, 2020, the ACL on the Over-Formula Advance PCD assets increased by $11.5 million and the total ACL on all acquired PCD assets was $49.0 million. The change in ACL on PCD assets subsequent to acquisition was charged to credit loss expense. This increase in required PCD ACL caused us to increase the value of our Covenant indemnification asset by $5.3 million which was recorded through non-interest income.
The increase in credit loss expense was further driven by net new specific reserves on non-PCD assets. We recorded net new specific reserves on non-PCD assets of $5.1 million during the year ended December 31, 2020 compared to $2.2 million during the year ended December 31, 2019.
The increased credit loss expense was partially offset by net charge-off activity during the year. We experienced lower net charge-offs of $4.6 million in year ended December 31, 2020 compared to $6.4 million for the same period in 2019. Additionally, approximately $1.0 million and $1.7 million of the charge-offs for the years ended December 31, 2020 and 2019, respectively, had specific reserves previously recorded.
Change in loan growth and change in mix partially offset the increase in credit loss expense period over period. During the year ended December 31, 2020, outstanding loans increased $802.3 million. When this increase is adjusted for PPP loan growth of $189.9 million, loans increased $612.4 million during the year and much of this growth was in factored receivables and mortgage warehouse lending which require lower reserve rates due to their nature. Refer to discussion of the allowance for credit losses below for ACL considerations regarding our PPP loans. During the year ended December 31, 2019, outstanding loans increased $585.9 million; however, this growth was in lending products that required higher levels of reserves. For the year ended December 31, 2020, changes in loan growth and changes in mix decreased credit loss expense by $3.0 million. Changes in loan growth and mix resulted in $1.6 million of credit loss expense for the same period one year ago.
Credit loss expense for off balance sheet credit exposures increased $2.4 million, primarily due to increased assumed loss rates on estimated funding as a result of the COVID-19 virus. The Company also experienced an increase in commitments to fund during the period. Prior to January 1, 2020, credit loss expense for off balance sheet credit exposures was recorded in other noninterest expense. Credit loss expense for off balance sheet credit exposures for the year ended December 31, 2019 was insignificant.
Noninterest Income
The following table presents the major categories of noninterest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2020 Compared to 2019
|
|
2019 Compared to 2018
|
(Dollars in thousands)
|
2020
|
|
2019
|
|
2018
|
|
$ Change
|
|
% Change
|
|
$ Change
|
|
% Change
|
Service charges on deposits
|
$
|
5,274
|
|
|
$
|
7,132
|
|
|
$
|
5,469
|
|
|
$
|
(1,858)
|
|
|
(26.1)
|
%
|
|
$
|
1,663
|
|
|
30.4
|
%
|
Card income
|
7,781
|
|
|
7,873
|
|
|
6,514
|
|
|
(92)
|
|
|
(1.2)
|
%
|
|
1,359
|
|
|
20.9
|
%
|
Net OREO gains (losses) and valuation adjustments
|
(616)
|
|
|
351
|
|
|
(514)
|
|
|
(967)
|
|
|
(275.5)
|
%
|
|
865
|
|
|
(168.3)
|
%
|
Net gains (losses) on sale of securities
|
3,226
|
|
|
61
|
|
|
(272)
|
|
|
3,165
|
|
|
5,188.5
|
%
|
|
333
|
|
|
(122.4
|
%)
|
Fee income
|
6,007
|
|
|
6,441
|
|
|
5,150
|
|
|
(434)
|
|
|
(6.7)
|
%
|
|
1,291
|
|
|
25.1
|
%
|
Insurance commissions
|
4,232
|
|
|
4,219
|
|
|
3,492
|
|
|
13
|
|
|
0.3
|
%
|
|
727
|
|
|
20.8
|
%
|
Gain on sale of subsidiary or division
|
9,758
|
|
|
—
|
|
|
1,071
|
|
|
9,758
|
|
|
100.0
|
%
|
|
(1,071)
|
|
|
(100.0
|
%)
|
Other
|
24,723
|
|
|
5,492
|
|
|
2,060
|
|
|
19,231
|
|
|
350.2
|
%
|
|
3,432
|
|
|
166.6
|
%
|
Total noninterest income
|
$
|
60,385
|
|
|
$
|
31,569
|
|
|
$
|
22,970
|
|
|
$
|
28,816
|
|
|
91.3
|
%
|
|
$
|
8,599
|
|
|
37.4
|
%
|
Noninterest income increased $28.8 million, or 91.3%. Noninterest income for the year ended December 31, 2020 was impacted by the realization of the $9.8 million gain associated with the sale of TPF. Excluding the gain on sale of TPF, we earned adjusted noninterest income of $50.6 million for the year ended December 31, 2020, resulting in an adjusted increase in noninterest income of $19.0 million, or 60.1%, period over period. Changes in selected components of noninterest income in the above table are discussed below.
•Service Charges on Deposits. Service charges on deposit accounts, including overdraft and non-sufficient fund fees, decreased $1.9 million, or 26.1%. In keeping with guidance from regulators, we actively worked with COVID-19 affected customers during the second quarter of 2020 to waive fees from a variety of sources, such as, but not limited to, insufficient funds and overdraft fees, ATM fees, account maintenance fees, etc. These reductions in fees were temporary and expired on June 1, 2020.
•Net OREO gains (losses) and valuation adjustments. Net OREO gains (losses) and valuation adjustments, which represents gains and losses on loans transferred to OREO, gains and losses on the sale of OREO, and valuation adjustments recorded due to the subsequent change in fair value less costs to sell of OREO, reflect increased losses of $1.0 million. OREO activity on individual repossessed assets during the years ended December 31, 2020 and 2019 was not significant.
•Net gains (losses) on sale or call of securities. Net gains (losses) on sale or call of securities increased $3.2 million due to increased sales of available for sale CLOs during the year ended December 31, 2020.
•Other. Other noninterest income, increased $19.2 million, or 350.2%. We recognized $10.9 million of non-interest income during the year ended December 31, 2020 related to CVLG's delivery of proceeds to us resulting from CVLG's liquidation of its acquired TBK stock in connection with the September 23, 2020 Account Management Agreement, Amendment to Purchase Agreement and Mutual Release. This was measured as the difference between the initial purchase accounting measurement and the amount of net proceeds delivered to the Company upon liquidation. Additionally, the value of our indemnification asset related to the Over-Formula Advances acquired from Covenant increased $5.3 million during the year resulting in $5.3 million of other noninterest income. Further, we recognized $1.9 million of loan syndication fees related to the syndication and placement of one large relationship that closed during the current year. This revenue was recognized at the time of closing as all required services had been completed. Gain on sale of loans was $2.8 million and $2.3 million for the years ended December 31, 2020 and 2019, respectively. The increase in other noninterest income was partially offset by a $0.7 million loss recognized on the donation of a branch to a local municipality during the year ended December 31, 2020. The remaining increase was driven by organic growth in our operations. There were no other significant items within in the components of other noninterest income during the year ended December 31, 2019.
Noninterest Expense
The following table presents the major categories of noninterest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2020 Compared to 2019
|
|
2019 Compared to 2018
|
(Dollars in thousands)
|
2020
|
|
2019
|
|
2018
|
|
$ Change
|
|
% Change
|
|
$ Change
|
|
% Change
|
Salaries and employee benefits
|
$
|
126,975
|
|
|
$
|
112,862
|
|
|
$
|
90,212
|
|
|
$
|
14,113
|
|
|
12.5
|
%
|
|
$
|
22,650
|
|
|
25.1
|
%
|
Occupancy, furniture and equipment
|
22,766
|
|
|
18,196
|
|
|
14,023
|
|
|
4,570
|
|
|
25.1
|
%
|
|
4,173
|
|
|
29.8
|
%
|
FDIC insurance and other regulatory assessments
|
1,520
|
|
|
298
|
|
|
1,129
|
|
|
1,222
|
|
|
410.1
|
%
|
|
(831)
|
|
|
(73.6
|
%)
|
Professional fees
|
9,349
|
|
|
7,288
|
|
|
8,939
|
|
|
2,061
|
|
|
28.3
|
%
|
|
(1,651)
|
|
|
(18.5)
|
%
|
Amortization of intangible assets
|
8,330
|
|
|
9,131
|
|
|
6,980
|
|
|
(801)
|
|
|
(8.8)
|
%
|
|
2,151
|
|
|
30.8
|
%
|
Advertising and promotion
|
4,718
|
|
|
6,126
|
|
|
4,974
|
|
|
(1,408)
|
|
|
(23.0)
|
%
|
|
1,152
|
|
|
23.2
|
%
|
Communications and technology
|
22,153
|
|
|
20,976
|
|
|
18,270
|
|
|
1,177
|
|
|
5.6
|
%
|
|
2,706
|
|
|
14.8
|
%
|
Travel and entertainment
|
2,394
|
|
|
5,434
|
|
|
4,234
|
|
|
(3,040)
|
|
|
(55.9)
|
%
|
|
1,200
|
|
|
28.3
|
%
|
Other
|
23,869
|
|
|
23,773
|
|
|
18,592
|
|
|
96
|
|
|
0.4
|
%
|
|
5,181
|
|
|
27.9
|
%
|
Total noninterest expense
|
$
|
222,074
|
|
|
$
|
204,084
|
|
|
$
|
167,353
|
|
|
$
|
17,990
|
|
|
8.8
|
%
|
|
$
|
36,731
|
|
|
21.9
|
%
|
Noninterest expense increased $18.0 million, or 8.8%. Noninterest expense for the year ended December 31, 2020 was impacted by $0.8 million of transaction costs associated with the TFS Acquisition. Excluding the TFS Acquisition transaction costs, we incurred adjusted noninterest expense of $221.3 million for the year ended December 31, 2020, resulting in an adjusted net increase in noninterest expense of $17.2 million, or 8.4%. Details of the more significant changes in the various components of noninterest expense are further discussed below.
•Salaries and Employee Benefits. Salaries and employee benefits expenses increased $14.1 million, or 12.5%,which is primarily due to temporary increased second quarter pay to branch employees during the COVID-19 pandemic, merit increases for existing employees, higher health insurance benefit costs, incentive compensation, and 401(k) expense. The size of our workforce was relatively flat. Our average full-time equivalent employees were 1,124.0 and 1,118.8 for the years ended December 31, 2020 and 2019, respectively.
•Occupancy, Furniture and Equipment. Occupancy, furniture and equipment expenses increased $4.6 million, or 25.1%, primarily due to growth in our operations. We recorded right of use asset and leasehold improvement impairment expense of $1.4 million during the year ended December 31, 2020 related to our decision to consolidate part of our El Paso, TX factoring operations to our Triumph Business Capital headquarters in Coppell, TX.
•FDIC Insurance and Other Regulatory Assessments. FDIC insurance and other regulatory assessments increased $1.2 million, or 410.1%, primarily due to the application of a small bank credit by the FDIC during the year ended December 31, 2019 that did not repeat during the year ended December 31, 2020.
•Professional Fees. Professional fees, which are primarily comprised of external audit, tax, consulting, and legal fees, increased $2.1 million, or 28.3%, primarily due to professional fees incurred in connection with the TFS Acquisition.
•Amortization of intangible assets. Amortization of intangible assets decreased $0.8 million, or 8.8%, due to lower amortizable intangible asset balances during the year ended December 31, 2020 compared to the same period during 2019.
•Advertising and promotion. Advertising and promotion expenses decreased $1.4 million, or 23.0%, primarily due to pull back in this type of spending as a result of the COVID-19 pandemic.
•Communications and Technology. Communications and technology expenses increased $1.2 million, or 5.6%, primarily as a result as a result of increased information technology license and software maintenance expense as well as continued spend on technology designed to improve efficiency in our operations.
•Travel and entertainment. Travel and entertainment expenses decreased $3.0 million, or 55.9%, primarily due to the impact of the COVID-19 pandemic on such activities.
•Other. Other noninterest expense includes loan-related expenses, software amortization, training and recruiting, postage, insurance, and subscription services. There were no significant increases or decreases in the components of other noninterest expense period over period.
Income Taxes
The amount of income tax expense is influenced by the amount of pre-tax income, the amount of tax-exempt income, changes in the statutory rate and the effect of changes in valuation allowances maintained against deferred tax benefits.
Income tax expense increased $3.8 million, or 22.4%, from $16.9 million for the year ended December 31, 2019 to $20.7 million for the year ended December 31, 2020. The increase in income tax expense period over period is consistent with the increase in pre-tax income for the same periods. The effective tax rate was 24% and 22% for the years ended December 31, 2020 and 2019, respectively. The increase in the effective tax rate period over period is principally due to additional state tax filings from significant revenue growth in new states.
Operating Segment Results
Our reportable segments are Banking, Factoring, 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 Banking segment includes the operations of TBK 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 TBK Bank. The Factoring segment includes the operations of Triumph Business Capital with revenue derived from factoring services. 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. Additionally, because of the interrelationships of the various segments, the information presented is not indicative of how the segments would perform if they operated as independent entities. Changes in management structure or allocation methodologies and procedures may result in future changes to previously reported segment financial data. The accounting policies of the segments are the same as those described in Note 1 – Summary of Significant Accounting Policies in the accompanying notes to the consolidated financial statements included elsewhere in this report. Transactions between segments consist primarily of borrowed funds. Beginning in 2019, intersegment interest expense is allocated to the Factoring segment based on Federal Home Loan Bank advance rates. Prior to 2019, intersegment interest was calculated based on the Company’s prime rate. Credit loss expense is allocated based on the segment’s ACL determination. Noninterest income and expense directly attributable to a segment are assigned accordingly. Taxes are paid on a consolidated basis and are not allocated for segment purposes.
The following tables present our primary operating results for our operating segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
|
Banking
|
|
Factoring
|
|
Corporate
|
|
Consolidated
|
Total interest income
|
|
$
|
212,452
|
|
|
$
|
109,391
|
|
|
$
|
272
|
|
|
$
|
322,115
|
|
Intersegment interest allocations
|
|
12,371
|
|
|
(12,371)
|
|
|
—
|
|
|
—
|
|
Total interest expense
|
|
29,911
|
|
|
—
|
|
|
7,476
|
|
|
37,387
|
|
Net interest income (expense)
|
|
194,912
|
|
|
97,020
|
|
|
(7,204)
|
|
|
284,728
|
|
Credit loss expense
|
|
20,389
|
|
|
16,042
|
|
|
1,898
|
|
|
38,329
|
|
Net interest income (expense) after credit loss expense
|
|
174,523
|
|
|
80,978
|
|
|
(9,102)
|
|
|
246,399
|
|
Gain on sale of subsidiary or division
|
|
9,758
|
|
|
—
|
|
|
—
|
|
|
9,758
|
|
Other noninterest income
|
|
29,503
|
|
|
21,010
|
|
|
114
|
|
|
50,627
|
|
Noninterest expense
|
|
163,995
|
|
|
54,011
|
|
|
4,068
|
|
|
222,074
|
|
Operating income (loss)
|
|
$
|
49,789
|
|
|
$
|
47,977
|
|
|
$
|
(13,056)
|
|
|
$
|
84,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
Banking
|
|
Factoring
|
|
Corporate
|
|
Consolidated
|
Total interest income
|
|
$
|
211,742
|
|
|
$
|
98,247
|
|
|
$
|
1,164
|
|
|
$
|
311,153
|
|
Intersegment interest allocations
|
|
11,294
|
|
|
(11,294)
|
|
|
—
|
|
|
—
|
|
Total interest expense
|
|
48,786
|
|
|
—
|
|
|
6,464
|
|
|
55,250
|
|
Net interest income (expense)
|
|
174,250
|
|
|
86,953
|
|
|
(5,300)
|
|
|
255,903
|
|
Credit loss expense
|
|
5,533
|
|
|
2,486
|
|
|
(77)
|
|
|
7,942
|
|
Net interest income (expense) after credit loss expense
|
|
168,717
|
|
|
84,467
|
|
|
(5,223)
|
|
|
247,961
|
|
Noninterest income
|
|
26,875
|
|
|
4,727
|
|
|
(33)
|
|
|
31,569
|
|
Noninterest expense
|
|
148,620
|
|
|
51,780
|
|
|
3,684
|
|
|
204,084
|
|
Operating income (loss)
|
|
$
|
46,972
|
|
|
$
|
37,414
|
|
|
$
|
(8,940)
|
|
|
$
|
75,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
Banking
|
|
Factoring
|
|
Corporate
|
|
Consolidated
|
Total interest income
|
|
$
|
170,871
|
|
|
$
|
90,092
|
|
|
$
|
2,013
|
|
|
$
|
262,976
|
|
Intersegment interest allocations
|
|
20,191
|
|
|
(20,191)
|
|
|
—
|
|
|
—
|
|
Total interest expense
|
|
29,834
|
|
|
—
|
|
|
6,092
|
|
|
35,926
|
|
Net interest income (expense)
|
|
161,228
|
|
|
69,901
|
|
|
(4,079)
|
|
|
227,050
|
|
Credit loss expense
|
|
12,373
|
|
|
3,802
|
|
|
(8)
|
|
|
16,167
|
|
Net interest income (expense) after credit loss expense
|
|
148,855
|
|
|
66,099
|
|
|
(4,071)
|
|
|
210,883
|
|
Gain on sale of subsidiary or division
|
|
1,071
|
|
|
—
|
|
|
—
|
|
|
1,071
|
|
Other noninterest income
|
|
18,364
|
|
|
3,483
|
|
|
52
|
|
|
21,899
|
|
Noninterest expense
|
|
119,283
|
|
|
43,495
|
|
|
4,575
|
|
|
167,353
|
|
Operating income (loss)
|
|
$
|
49,007
|
|
|
$
|
26,087
|
|
|
$
|
(8,594)
|
|
|
$
|
66,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Banking
|
|
Factoring
|
|
Corporate
|
|
Eliminations
|
|
Consolidated
|
Total assets
|
|
$
|
5,907,373
|
|
|
$
|
1,121,704
|
|
|
$
|
861,967
|
|
|
$
|
(1,955,253)
|
|
|
$
|
5,935,791
|
|
Gross loans held for investment
|
|
$
|
4,872,494
|
|
|
$
|
1,036,369
|
|
|
$
|
800
|
|
|
$
|
(912,887)
|
|
|
$
|
4,996,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Banking
|
|
Factoring
|
|
Corporate
|
|
Eliminations
|
|
Consolidated
|
Total assets
|
|
$
|
4,976,009
|
|
|
$
|
662,002
|
|
|
$
|
771,048
|
|
|
$
|
(1,348,762)
|
|
|
$
|
5,060,297
|
|
Gross loans held for investment
|
|
$
|
4,108,735
|
|
|
$
|
573,372
|
|
|
$
|
1,519
|
|
|
$
|
(489,114)
|
|
|
$
|
4,194,512
|
|
Banking
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Years Ended December 31,
|
|
2020 Compared to 2019
|
|
2019 Compared to 2018
|
Banking
|
|
2020
|
|
2019
|
|
2018
|
|
$ Change
|
|
% Change
|
|
$ Change
|
|
% Change
|
Total interest income
|
|
$
|
212,452
|
|
|
$
|
211,742
|
|
|
$
|
170,871
|
|
|
$
|
710
|
|
|
0.3
|
%
|
|
$
|
40,871
|
|
|
23.9
|
%
|
Intersegment interest allocations
|
|
12,371
|
|
|
11,294
|
|
|
20,191
|
|
|
1,077
|
|
|
9.5
|
%
|
|
(8,897)
|
|
|
(44.1)
|
%
|
Total interest expense
|
|
29,911
|
|
|
48,786
|
|
|
29,834
|
|
|
(18,875)
|
|
|
(38.7)
|
%
|
|
18,952
|
|
|
63.5
|
%
|
Net interest income (expense)
|
|
194,912
|
|
|
174,250
|
|
|
161,228
|
|
|
20,662
|
|
|
11.9
|
%
|
|
13,022
|
|
|
8.1
|
%
|
Credit loss expense
|
|
20,389
|
|
|
5,533
|
|
|
12,373
|
|
|
14,856
|
|
|
268.5
|
%
|
|
(6,840)
|
|
|
(55.3)
|
%
|
Net interest income (expense) after credit loss expense
|
|
174,523
|
|
|
168,717
|
|
|
148,855
|
|
|
5,806
|
|
|
3.4
|
%
|
|
19,862
|
|
|
13.3
|
%
|
Gain on sale of subsidiary or division
|
|
9,758
|
|
|
—
|
|
|
1,071
|
|
|
9,758
|
|
|
100.0
|
%
|
|
(1,071)
|
|
|
(100.0)
|
%
|
Other noninterest income
|
|
29,503
|
|
|
26,875
|
|
|
18,364
|
|
|
2,628
|
|
|
9.8
|
%
|
|
8,511
|
|
|
46.3
|
%
|
Noninterest expense
|
|
163,995
|
|
|
148,620
|
|
|
119,283
|
|
|
15,375
|
|
|
10.3
|
%
|
|
29,337
|
|
|
24.6
|
%
|
Operating income (loss)
|
|
$
|
49,789
|
|
|
$
|
46,972
|
|
|
$
|
49,007
|
|
|
$
|
2,817
|
|
|
6.0
|
%
|
|
$
|
(2,035)
|
|
|
(4.2)
|
%
|
Our Banking segment’s operating income increased $2.8 million, or 6.0%. Our Banking segment’s operating income for the year ended December 31, 2020 was impacted by the realization of the $9.8 million gain associated with the sale of TPF in the second quarter of 2020. Excluding the gain on sale of TPF, our Banking segment’s adjusted operating income was $40.0 million for the year, resulting in an adjusted decrease in operating income of $6.9 million, or 14.9%, period over period.
Interest income increased primarily as a result of increases in the balances of our interest-earning assets, primarily loans, due to the continued growth of our commercial finance products, including equipment loans, and growth in our general C&I lending resulting from our origination of PPP loans. Average loans in our Banking segment increased 15.8% from $3.753 billion for the year ended December 31, 2019 to $4.347 billion for the year ended December 31, 2020. The increase in interest income due to increased average balances of our interest-earning assets was partially offset by lower yields across almost all of our interest-earning asset groups.
Interest expense decreased in spite of growth in average interest-bearing liabilities at our Banking segment. More specifically, average total interest-bearing deposits increased $88.5 million, or 3.1%. The decrease in interest expense was the result of a decrease in our average cost of interest-bearing liabilities driven by changes in interest rates in the macro economy.
Credit loss expense at our banking segment is made up of credit loss expense related to loans and credit loss expense related to off balance sheet commitments to lend. Credit loss expense related to loans was $17.9 million for the year ended December 31, 2020 compared to $5.5 million for the year ended December 31, 2019. The increased credit loss expense related to loans for our Banking segment was primarily the result of significant year-to-date deterioration in the loss drivers that the Company forecasts to calculate expected losses and minimal changes in qualitative loss factors. The deterioration in forecasted loss assumptions resulted in approximately $16.7 million of credit loss expense for the year ended December 31, 2020. For the year ended December 31, 2019, changes to loss factors under the incurred loss allowance methodology resulted in approximately $0.2 million of credit loss expense at our Banking segment. The increase in the credit loss expense at our Banking segment was further driven by net new specific reserves. We recorded net new specific reserves at our Banking segment of $5.2 million during the year ended December 31, 2020 compared to $1.0 million during the prior year. We experienced lower total net charge-offs at our Banking segment of $1.6 million during the year ended December 31, 2020 compared to $4.5 million for the same period in 2019. Charge-offs during the year ended December 31, 2020 had $0.3 million of reserves established in a prior period while charge-offs during the year ended December 31, 2019 had previously established reserves of $1.7 million. Excluding PPP loans that require no ACL, loan growth at our banking segment was flat year-over-year; however, there was a shift of loan mix during the current year away from loan segments that require higher ACL factors to loan segments that require lower ACL factors such as mortgage warehouse lending. This change in mix at our Banking segment offset the increase in credit loss expense period over period. For the year ended December 31, 2020, changes in loan volume and mix reduced credit loss expense by $5.3 million during the period. Changes in loan volume and mix resulted in an increase in credit loss expense of $1.7 million for the year ended December 31, 2019.
Credit loss expense for off balance sheet credit exposures at our Banking segment increased $2.4 million, primarily due to increased assumed loss rates on estimated funding as a result of the COVID-19 virus. The Company also experienced an increase in commitments to fund during the period. Prior to January 1, 2020, credit loss expense for off balance sheet credit exposures at our Banking segment was recorded in other noninterest expense. Credit loss expense for off balance sheet credit exposures at our Banking segment for the nine months ended September 30, 2019 was insignificant.
Noninterest income at our Banking segment increased primarily due to a $3.2 million gain on sale of securities related to the liquidation of available for sale CLOs during the year ended December 31, 2020. Additionally, we recognized $1.9 million of loan syndication fees related to the syndication and placement of one large relationship that closed during the nine months ended September 30, 2020. The increase in other noninterest income at our Banking segment was also driven by gain on sale of loans of $2.8 million for the year ended December 31, 2020 compared to $2.3 million for the same period a year ago. The increase in noninterest income at our Banking segment was partially offset by a $1.9 million decrease in service charges on deposits primarily driven by by our willingness to actively work with COVID-19 affected customers during the second quarter of 2020 to waive fees from a variety of sources, such as, but not limited to, insufficient funds and overdraft fees, ATM fees, account maintenance fees, etc. The increase was also partially offset by a $0.7 million loss recognized on the donation of a branch to a local municipality during the year ended December 31, 2020.
Noninterest expense increased due to incremental costs associated with the growth in our Banking segment infrastructure. In addition, increases due to temporary increased pay to branch employees during the COVID-19 pandemic, merit increases for existing employees, higher health insurance benefit costs, incentive compensation, and 401(k) expense contributed to the increase. Further, FDIC insurance and other regulatory assessments increased $1.2 million due to the application of a small bank credit by the FDIC during the year ended December 31, 2019 that did not repeat during the year ended December 31, 2020.
Factoring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Years Ended December 31,
|
|
2020 Compared to 2019
|
|
2019 Compared to 2018
|
Factoring
|
|
2020
|
|
2019
|
|
2018
|
|
$ Change
|
|
% Change
|
|
$ Change
|
|
% Change
|
Total interest income
|
|
$
|
109,391
|
|
|
$
|
98,247
|
|
|
$
|
90,092
|
|
|
$
|
11,144
|
|
|
11.3
|
%
|
|
$
|
8,155
|
|
|
9.1
|
%
|
Intersegment interest allocations
|
|
(12,371)
|
|
|
(11,294)
|
|
|
(20,191)
|
|
|
(1,077)
|
|
|
(9.5)
|
%
|
|
8,897
|
|
|
44.1
|
%
|
Total interest expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net interest income (expense)
|
|
97,020
|
|
|
86,953
|
|
|
69,901
|
|
|
10,067
|
|
|
11.6
|
%
|
|
17,052
|
|
|
24.4
|
%
|
Credit loss expense
|
|
16,042
|
|
|
2,486
|
|
|
3,802
|
|
|
13,556
|
|
|
545.3
|
%
|
|
(1,316)
|
|
|
(34.6)
|
%
|
Net interest income (expense) after credit loss expense
|
|
80,978
|
|
|
84,467
|
|
|
66,099
|
|
|
(3,489)
|
|
|
(4.1)
|
%
|
|
18,368
|
|
|
27.8
|
%
|
Noninterest income
|
|
21,010
|
|
|
4,727
|
|
|
3,483
|
|
|
16,283
|
|
|
344.5
|
%
|
|
1,244
|
|
|
35.7
|
%
|
Noninterest expense
|
|
54,011
|
|
|
51,780
|
|
|
43,495
|
|
|
2,231
|
|
|
4.3
|
%
|
|
8,285
|
|
|
19.0
|
%
|
Operating income (loss)
|
|
$
|
47,977
|
|
|
$
|
37,414
|
|
|
$
|
26,087
|
|
|
$
|
10,563
|
|
|
28.2
|
%
|
|
$
|
11,327
|
|
|
43.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Year Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Factored receivable period end balance
|
$
|
1,036,369,000
|
|
|
$
|
573,372,000
|
|
|
$
|
588,750,000
|
|
Yield on average receivable balance
|
15.07
|
%
|
|
18.02
|
%
|
|
18.43
|
%
|
Rolling twelve quarter annual charge-off rate
|
0.37
|
%
|
|
0.39
|
%
|
|
0.37
|
%
|
Factored receivables - transportation concentration
|
89
|
%
|
|
81
|
%
|
|
83
|
%
|
|
|
|
|
|
|
Interest income, including fees
|
$
|
109,391,000
|
|
|
$
|
98,247,000
|
|
|
$
|
90,092,000
|
|
Noninterest income(1)
|
4,883,000
|
|
|
4,727,000
|
|
|
3,483,000
|
|
Factored receivable total revenue
|
114,274,000
|
|
|
102,974,000
|
|
|
93,575,000
|
|
Average net funds employed
|
659,156,000
|
|
|
497,867,000
|
|
|
447,358,000
|
|
Yield on average net funds employed
|
17.34
|
%
|
|
20.68
|
%
|
|
20.92
|
%
|
|
|
|
|
|
|
Accounts receivable purchased
|
$
|
7,134,823,000
|
|
|
$
|
5,674,565,000
|
|
|
$
|
5,119,527,000
|
|
Number of invoices purchased
|
3,908,779
|
|
|
3,451,559
|
|
|
2,897,148
|
|
Average invoice size
|
$
|
1,825
|
|
|
$
|
1,644
|
|
|
$
|
1,767
|
|
Average invoice size - transportation
|
$
|
1,682
|
|
|
$
|
1,508
|
|
|
$
|
1,662
|
|
Average invoice size - non-transportation
|
$
|
4,671
|
|
|
$
|
3,404
|
|
|
$
|
2,906
|
|
(1) December 31, 2020 noninterest income excludes the $10.9 million gain related to CVLG’s delivery of proceeds resulting from the liquidation of its acquired TBK stock and a $5.3 million increase in the value of the indemnification asset resulting from the amended TFS acquisition agreement
Our Factoring segment’s operating income increased $10.6 million, or 28.2%. Our Factoring segment's operating income was impacted by $0.8 million of transaction costs associated with the TFS Acquisition. Excluding the TFS Acquisition transaction costs, our Factoring segment's adjusted operating income was $48.8 million for the year ended December 31, 2020, resulting in an adjusted net increase in operating income of $11.4 million, or 30.5%.
Our average invoice size increased 11.0% from $1,644 for the year ended December 31, 2019 to $1,825 for the year ended December 31, 2020 and the number of invoices purchased increased 13.2% period over period.
Net interest income at our Factoring segment increased $10.1 million, or 11.6%, period over period. Overall average net funds employed (“NFE”) was up 32.4% during the year ended December 31, 2020 compared to the same period in 2019. The increase in average NFE was the result of increased invoice purchase volume as well as increased average invoice size due to the impact of the COVID-19 pandemic on over-the-road transportation. See further discussion under the Recent Developments: COVID-19 and the CARES Act section. After record transportation invoice prices in 2018, 2019 trended toward the longer term levels. The increase in net interest income was partially offset by decreased purchase discount rates driven by greater focus on larger lower priced fleets, competitive pricing pressure, and the aforementioned impact of COVID-19; however, this downward impact was offset by increased concentration in transportation factoring balances, which typically generate a higher yield than our non-transportation factoring balances. This concentration increased 8% period over period from 81% at December 31, 2019 to 89% at December 31, 2020.
The increase in credit loss expense was primarily due to an $11.5 million increase in required reserves on acquired over-formula advances as previously explained in the Credit Loss Expense discussion. Outside the additional specific reserves attributable to the acquired over-formula advances, net new specific reserves at our Factoring segment were flat. Additional net new specific reserves during the same period a year ago resulted in credit loss expense of $1.2 million. Additionally, the period end balance of factored receivables at our Factoring segment increased at a higher rate for the year ended December 31, 2020 as compared to the same period one year ago when balances contracted year-over-year. Growth in the factored receivables balance contributed $2.3 million of credit loss expense for the year ended December 31, 2020 whereas contraction of the portfolio during the prior year created a reduction to credit loss expense of $0.1 million during that time. We experienced higher total net charge-offs at our Factoring segment of $3.0 million during the year ended December 31, 2020 compared to $2.0 million for the same period in 2019. Charge-offs during the year ended December 31, 2020 had $0.7 million of reserves established in a prior period while charge-offs during the year ended December 31, 2019 had no previously established reserves. Change in reserve rates had an insignificant impact on credit loss expense during the year ended December 31, 2020 while changes in such rates decreased credit loss expense at our Factoring segment by $0.7 million during the year ended December 31, 2019.
The increase in noninterest income at our Factoring segment was primarily driven by the recognition of $10.9 million gain resulting from Covenant's delivery of proceeds to us resulting from the liquidation of its acquired TBK stock previously discussed. The $10.9 million gain was measured as the difference between the initial purchase accounting measurement and the amount of net proceeds delivered to the Company upon liquidation. Additionally, the value of our indemnification asset increased $5.3 million during the year resulting in $5.3 million of other noninterest income. There were no other material fluctuations in noninterest income at our Factoring segment. The increase in noninterest expense at our Factoring segment was primarily due to $0.8 million in transaction costs incurred in connection with the TFS Acquisition. There were no other material fluctuations in noninterest expense at our Factoring segment.
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Years Ended December 31,
|
|
2020 Compared to 2019
|
|
2019 Compared to 2018
|
Corporate
|
|
2020
|
|
2019
|
|
2018
|
|
$ Change
|
|
% Change
|
|
$ Change
|
|
% Change
|
Total interest income
|
|
$
|
272
|
|
|
$
|
1,164
|
|
|
$
|
2,013
|
|
|
$
|
(892)
|
|
|
(76.6
|
%)
|
|
$
|
(849)
|
|
|
(42.2)
|
%
|
Intersegment interest allocations
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total interest expense
|
|
7,476
|
|
|
6,464
|
|
|
6,092
|
|
|
1,012
|
|
|
15.7
|
%
|
|
372
|
|
|
6.1
|
%
|
Net interest income (expense)
|
|
(7,204)
|
|
|
(5,300)
|
|
|
(4,079)
|
|
|
(1,904)
|
|
|
(35.9
|
%)
|
|
(1,221)
|
|
|
(29.9
|
%)
|
Credit loss expense
|
|
1,898
|
|
|
(77)
|
|
|
(8)
|
|
|
1,975
|
|
|
2,564.9
|
%
|
|
(69)
|
|
|
(862.5
|
%)
|
Net interest income (expense) after credit loss expense
|
|
(9,102)
|
|
|
(5,223)
|
|
|
(4,071)
|
|
|
(3,879)
|
|
|
(74.3
|
%)
|
|
(1,152)
|
|
|
(28.3
|
%)
|
Noninterest income
|
|
114
|
|
|
(33)
|
|
|
52
|
|
|
147
|
|
|
445.5
|
%
|
|
(85)
|
|
|
(163.5
|
%)
|
Noninterest expense
|
|
4,068
|
|
|
3,684
|
|
|
4,575
|
|
|
384
|
|
|
10.4
|
%
|
|
(891)
|
|
|
(19.5
|
%)
|
Operating income (loss)
|
|
$
|
(13,056)
|
|
|
$
|
(8,940)
|
|
|
$
|
(8,594)
|
|
|
$
|
(4,116)
|
|
|
(46.0
|
%)
|
|
$
|
(346)
|
|
|
(4.0
|
%)
|
The Corporate segment reported an operating loss of $13.1 million for the year ended December 31, 2020 compared to an operating loss of $8.9 million for the year ended December 31, 2019. The increase in operating loss was primarily driven by activity related to our three investments in the subordinated notes of collateralized loan obligation (“CLO”) funds designated as held to maturity. These securities are required to carry an ACL in accordance with ASC 326. The ACL on these balances was $2.0 million at December 31, 2020 resulting in $1.9 million of credit loss expense recognized during the year. Given increased uncertainty related to projected future cash flows, these securities were designated as nonaccrual during the year ended December 31, 2020 resulting in a reversal of interest income during the period. There were no other significant fluctuations in accounts in our Corporate segment period over period.
Financial Condition
Assets
Total assets were $5.936 billion at December 31, 2020, compared to $5.060 billion at December 31, 2019, an increase of $875.5 million, the components of which are discussed below.
Loan Portfolio
Loans held for investment were $4.997 billion at December 31, 2020, compared with $4.195 billion at December 31, 2019.
The following table shows the recorded investment of our loans by portfolio categories as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
|
|
|
(Dollars in thousands)
|
|
|
% of Total
|
|
|
|
% of Total
|
|
$ Change
|
|
% Change
|
Commercial real estate
|
$
|
779,158
|
|
|
16
|
%
|
|
$
|
1,046,961
|
|
|
25
|
%
|
|
$
|
(267,803)
|
|
|
(25.6)
|
%
|
Construction, land development, land
|
219,647
|
|
|
4
|
%
|
|
160,569
|
|
|
4
|
%
|
|
59,078
|
|
|
36.8
|
%
|
1-4 family residential properties
|
157,147
|
|
|
3
|
%
|
|
179,425
|
|
|
4
|
%
|
|
(22,278)
|
|
|
(12.4
|
%)
|
Farmland
|
103,685
|
|
|
2
|
%
|
|
154,975
|
|
|
4
|
%
|
|
(51,290)
|
|
|
(33.1
|
%)
|
Commercial
|
1,562,957
|
|
|
32
|
%
|
|
1,342,683
|
|
|
31
|
%
|
|
220,274
|
|
|
16.4
|
%
|
Factored receivables
|
1,120,770
|
|
|
22
|
%
|
|
619,986
|
|
|
15
|
%
|
|
500,784
|
|
|
80.8
|
%
|
Consumer
|
15,838
|
|
|
—
|
%
|
|
21,925
|
|
|
1
|
%
|
|
(6,087)
|
|
|
(27.8
|
%)
|
Mortgage warehouse
|
1,037,574
|
|
|
21
|
%
|
|
667,988
|
|
|
16
|
%
|
|
369,586
|
|
|
55.3
|
%
|
Total loans
|
$
|
4,996,776
|
|
|
100
|
%
|
|
$
|
4,194,512
|
|
|
100
|
%
|
|
$
|
802,264
|
|
|
19.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
|
December 31, 2016
|
(Dollars in thousands)
|
|
|
% of Total
|
|
|
|
% of Total
|
|
|
|
% of Total
|
Commercial real estate
|
$
|
992,080
|
|
|
27
|
%
|
|
$
|
745,893
|
|
|
27
|
%
|
|
$
|
442,237
|
|
|
22
|
%
|
Construction, land development, land
|
179,591
|
|
|
5
|
%
|
|
134,812
|
|
|
5
|
%
|
|
109,812
|
|
|
5
|
%
|
1-4 family residential properties
|
190,185
|
|
|
5
|
%
|
|
125,827
|
|
|
4
|
%
|
|
104,974
|
|
|
5
|
%
|
Farmland
|
170,540
|
|
|
5
|
%
|
|
180,141
|
|
|
6
|
%
|
|
141,615
|
|
|
7
|
%
|
Commercial
|
1,114,971
|
|
|
31
|
%
|
|
920,812
|
|
|
33
|
%
|
|
778,643
|
|
|
39
|
%
|
Factored receivables
|
617,791
|
|
|
17
|
%
|
|
374,410
|
|
|
13
|
%
|
|
238,198
|
|
|
12
|
%
|
Consumer
|
29,822
|
|
|
1
|
%
|
|
31,131
|
|
|
1
|
%
|
|
29,764
|
|
|
1
|
%
|
Mortgage warehouse
|
313,664
|
|
|
9
|
%
|
|
297,830
|
|
|
11
|
%
|
|
182,381
|
|
|
9
|
%
|
Total loans
|
$
|
3,608,644
|
|
|
100
|
%
|
|
$
|
2,810,856
|
|
|
100
|
%
|
|
$
|
2,027,624
|
|
|
100
|
%
|
Commercial Real Estate Loans. Our commercial real estate loans decreased $267.8 million, or 25.6%, due to paydowns slightly offset by new loan origination activity for the period.
Construction and Development Loans. Our construction and development loans increased $59.1 million, or 36.8%, primarily due to new loan originations and increased draws on existing construction lines slightly offset by paydown activity for the period.
Residential Real Estate Loans. Our one-to-four family residential loans decreased $22.3 million, or 12.4%, due to paydowns that were offset by modest origination and draw activity.
Farmland Loans. Our farmland loans decreased $51.3 million, or 33.1%, due to paydowns for the year that outpaced new loan origination activity.
Commercial Loans. Our commercial loans held for investment increased $220.3 million, or 16.4%, primarily due to growth in PPP loans, liquid credit, and equipment finance. Growth in commercial loans was offset by a reduction of premium finance loans due to the sale of the assets of TPF. Our other commercial lending products, comprised primarily of general commercial loans originated in our community banking markets, decreased by $63.0 million, or 15.6%.
The following table shows our commercial loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
December 31, 2020
|
|
December 31, 2019
|
|
$ Change
|
|
% Change
|
Commercial
|
|
|
|
|
|
|
|
Equipment
|
$
|
573,163
|
|
|
$
|
461,555
|
|
|
$
|
111,608
|
|
|
24.2
|
%
|
Asset-based lending
|
180,488
|
|
|
168,955
|
|
|
11,533
|
|
|
6.8
|
%
|
Liquid credit
|
184,027
|
|
|
81,353
|
|
|
102,674
|
|
|
126.2
|
%
|
Premium finance
|
—
|
|
|
101,015
|
|
|
(101,015)
|
|
|
(100.0)
|
%
|
Agriculture
|
94,572
|
|
|
125,912
|
|
|
(31,340)
|
|
|
(24.9
|
%)
|
Paycheck Protection Program
|
189,857
|
|
|
—
|
|
|
189,857
|
|
|
100.0
|
%
|
Other commercial lending
|
340,850
|
|
|
403,893
|
|
|
(63,043)
|
|
|
(15.6)
|
%
|
Total commercial loans
|
$
|
1,562,957
|
|
|
$
|
1,342,683
|
|
|
$
|
220,274
|
|
|
16.4
|
%
|
Factored Receivables. Our factored receivables increased $500.8 million, or 80.8%. A portion of this increase is driven by $107.5 million of factored receivables obtained through the TFS Acquisition. At December 31, 2020, the balance of the Over-Formula Advance Portfolio included in factored receivables was $62.1 million. At December 31, 2020 the balance of Misdirected Payments included in factored receivables was $19.6 million. Also, see discussion of our factoring subsidiary in the Operating Segment Results for analysis of the key drivers impacting the change in the ending factored receivables balance during the year.
Consumer Loans. Our consumer loans decreased $6.1 million, or 27.8%, due to paydowns in excess of new loan origination activity during the year.
Mortgage Warehouse. Our mortgage warehouse facilities increased $369.6 million, or 55.3%, due to higher utilization by our clients driven by higher rates of mortgage refinance activity due to the low interest rate environment. Client utilization of mortgage warehouse facilities can experience significant fluctuation on a day-to-day basis given mortgage origination market conditions. Our average mortgage warehouse lending balance was $729.8 million for the year ended December 31, 2020 compared to $370.4 million for the year ended December 31, 2019.
The following table sets forth the contractual maturities, including scheduled principal repayments, of our loan portfolio and the distribution between fixed and floating interest rate loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
(Dollars in thousands)
|
One Year or
Less
|
|
After One
but within
Five Years
|
|
After Five
Years
|
|
Total
|
Commercial real estate
|
$
|
166,364
|
|
|
$
|
449,412
|
|
|
$
|
163,382
|
|
|
$
|
779,158
|
|
Construction, land development, land
|
102,000
|
|
|
103,452
|
|
|
14,195
|
|
|
219,647
|
|
1-4 family residential properties
|
25,706
|
|
|
35,974
|
|
|
95,467
|
|
|
157,147
|
|
Farmland
|
6,697
|
|
|
38,977
|
|
|
58,011
|
|
|
103,685
|
|
Commercial
|
351,171
|
|
|
1,088,159
|
|
|
123,627
|
|
|
1,562,957
|
|
Factored receivables
|
1,120,770
|
|
|
—
|
|
|
—
|
|
|
1,120,770
|
|
Consumer
|
2,694
|
|
|
8,451
|
|
|
4,693
|
|
|
15,838
|
|
Mortgage warehouse
|
1,037,574
|
|
|
—
|
|
|
—
|
|
|
1,037,574
|
|
|
$
|
2,812,976
|
|
|
$
|
1,724,425
|
|
|
$
|
459,375
|
|
|
$
|
4,996,776
|
|
|
|
|
|
|
|
|
|
Sensitivity of loans to changes in interest rates:
|
|
|
|
|
|
|
|
Predetermined (fixed) interest rates
|
|
|
$
|
1,253,080
|
|
|
$
|
157,181
|
|
|
|
Floating interest rates
|
|
|
471,345
|
|
|
302,194
|
|
|
|
Total
|
|
|
$
|
1,724,425
|
|
|
$
|
459,375
|
|
|
|
As of December 31, 2020, most of the Company’s non-factoring lending activity is with customers located within certain states. The states of Texas (22%), Colorado (17%), Illinois (12%), and Iowa (6%) make up 57% 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. At December 31, 2019, the states of Texas (27%), Colorado (23%), Illinois (13%) and Iowa (7%) made up 70% of the Company’s gross loans, excluding factored receivables.
Further, a majority (90%) of our factored receivables, representing approximately 20% of our total loan portfolio as of December 31, 2020, are transportation receivables. Although such concentration may cause our future 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 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. At December 31, 2019, 77% of our factored receivables, representing approximately 11% of our total loan portfolio, were transportation receivables.
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 senior management review of proposed extensions of credit exceeding certain thresholds. When delinquencies exist, we 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 subsidiary, independent loan review, approval of large credit relationships by our bank subsidiary’s Management Loan Committee 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 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 and securities, loans modified under restructurings as a result of the borrower experiencing financial difficulties (“TDR”), factored receivables greater than 90 days past due, OREO, and other repossessed assets. Additionally, we consider the portion of the Over-Formula Advance Portfolio that is not covered by Covenant's indemnification to be nonperforming (reflected in nonperforming loans - factored receivables). The balances of nonperforming loans reflect the recorded investment in these assets, including deductions for purchase discounts.
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
December 31
2020
|
|
December 31
2019
|
Nonperforming loans:
|
|
|
|
Commercial real estate
|
$
|
9,945
|
|
|
$
|
7,501
|
|
Construction, land development, land
|
2,294
|
|
|
3,922
|
|
1-4 family residential properties
|
1,851
|
|
|
1,804
|
|
Farmland
|
2,531
|
|
|
6,715
|
|
Commercial
|
17,202
|
|
|
16,118
|
|
Factored receivables
|
23,956
|
|
|
4,226
|
|
Consumer
|
253
|
|
|
327
|
|
Mortgage Warehouse
|
—
|
|
|
—
|
|
Total nonperforming loans
|
58,032
|
|
|
40,613
|
|
Held to maturity securities
|
7,945
|
|
|
—
|
|
Other real estate owned, net
|
1,432
|
|
|
3,009
|
|
Other repossessed assets
|
1,069
|
|
|
476
|
|
Total nonperforming assets
|
$
|
68,478
|
|
|
$
|
44,098
|
|
|
|
|
|
Nonperforming assets to total assets
|
1.15
|
%
|
|
0.87
|
%
|
Nonperforming loans to total loans held for investment
|
1.16
|
%
|
|
0.97
|
%
|
Total past due loans to total loans held for investment
|
3.22
|
%
|
|
1.74
|
%
|
Nonperforming loans increased $17.4 million, or 42.9%, primarily due to the addition of $10.0 million of over-formula advances not covered by Covenant's indemnification, a $5.7 million commercial real estate loan secured by a hotel property, a $5.0 million general commercial loan primarily secured by accounts receivable, and a $2.3 million general commercial loan secured by real estate and equipment. Additionally, $6.0 million of $19.6 million Misdirected Payments amount was greater than 90 days past due and this portion of the Misdirected Payments is included in non performing loans (specifically, factored receivables) in accordance with our policy. As of the issuance date of this report, the entire $19.6 million Misdirected Payments amount was greater than 90 days past due. These increase were offset by a $3.9 million payoff of an agriculture and farmland relationship and the payoff of a $3.0 million construction, land development, land relationship during the year. We also sold a $1.2 million commercial real estate loan that was considered nonperforming at December 31, 2019. The remaining activity in nonperforming loans was also impacted by additions and removals of smaller credits to and from nonperforming loans.
OREO decreased $1.6 million, or 52.4%, due to the removal of individually insignificant OREO properties as well as insignificant valuation adjustments made throughout the period.
As a result of the above activity and growth in our total assets and total loans held for investment, the ratio of nonperforming loans to total loans held for investment increased to 1.16% at December 31, 2020 compared to 0.97% at December 31, 2019.
Our ratio of nonperforming assets to total assets increased to 1.15% at December 31, 2020 compared to 0.87% at December 31, 2019. This is due to the aforementioned loan activity. Additionally, during the year ended December 31, 2020, pandemic-related downgrades and default activity caused us to place $7.9 million of held to maturity investments in the subordinated notes of CLO funds on nonaccrual. Additionally, combined other real estate owned and other repossessed assets decreased $1.0 million during the year.
Past due loans to total loans held for investment increased to 3.2% at December 31, 2020 compared to 1.7% at December 31, 2019 primarily due to $62.1 million of acquired over-formula advances; substantially all of which was past due over 90 days at year end. Aging of the Over-Formula Advances is based upon the service month on which the advances were made by TFS prior to acquisition. Additionally, the entire $19.6 million of Misdirected Payments was past due at December 31, 2020. Of this balance, $13.6 million was past due 60-89 Days and $6.0 million was past due over 90 days.
The following table presents nonperforming and past due loans for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(Dollars in thousands)
|
|
2020
|
|
2019
|
|
2018
|
|
2017
|
|
2016
|
Nonaccrual loans
|
|
$
|
34,073
|
|
|
$
|
36,054
|
|
|
$
|
30,785
|
|
|
$
|
32,149
|
|
|
$
|
38,030
|
|
Factored receivables greater than 90 days past due
|
|
13,927
|
|
|
4,226
|
|
|
2,152
|
|
|
1,454
|
|
|
2,153
|
|
Other nonperforming factored receivables(1)
|
|
10,029
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Troubled debt restructurings accruing interest
|
|
3
|
|
|
333
|
|
|
3,117
|
|
|
5,128
|
|
|
5,123
|
|
Total nonperforming loans
|
|
$
|
58,032
|
|
|
$
|
40,613
|
|
|
$
|
36,054
|
|
|
$
|
38,731
|
|
|
$
|
45,306
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans greater than 90 days past due accruing interest
|
|
$
|
72,774
|
|
|
$
|
4,226
|
|
|
$
|
3,559
|
|
|
$
|
1,664
|
|
|
$
|
3,621
|
|
(1) Other nonperforming factored receivables represent the portion of the Over-Formula Advance Portfolio that is not covered by Covenant's indemnification.
Potential problem loans consist of loans that are performing in accordance with contractual terms but for which management has concerns about the ability of an obligor to continue to comply with repayment terms because of the obligor’s potential operating or financial difficulties. Management monitors these loans and reviews their performance on a regular basis. Potential problem loans contain potential weaknesses that could improve, persist or further deteriorate. At December 31, 2020, we had $33.8 million in loans of this type which are not included in any of the nonperforming loan categories. All of the loans identified as potential problem loans at December 31, 2020 were graded as “classified”.
Allowance for Credit Losses on Loans
The ACL is a valuation allowance estimated at each balance sheet date in accordance with US GAAP that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. When the Company deems all or a portion of a loan to be uncollectible the appropriate amount is written off and the ACL is reduced by the same amount. Subsequent recoveries, if any, are credited to the ACL when received. See Note 1 – Summary of Significant Accounting Policies in the accompanying notes to the consolidated financial statements included elsewhere in this report for discussion of our ACL methodology on loans. Allocations of the ACL may be made for specific loans, but the entire allowance is available for any loan that, in the Company’s judgment, should be charged-off.
Loan loss valuation allowances are recorded on specific at-risk balances, typically consisting of collateral dependent loans and factored invoices greater than 90 days past due with negative cash reserves.
The following table sets forth the ACL by category of loan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
(Dollars in thousands)
|
Allocated
Allowance
|
|
% of Loan
Portfolio
|
|
ALLL to
Loans
|
|
Allocated
Allowance
|
|
% of Loan
Portfolio
|
|
ALLL to
Loans
|
Commercial real estate
|
$
|
10,182
|
|
|
16
|
%
|
|
1.31
|
%
|
|
$
|
5,353
|
|
|
25
|
%
|
|
0.51
|
%
|
Construction, land development, land
|
3,418
|
|
|
4
|
%
|
|
1.56
|
%
|
|
1,382
|
|
|
4
|
%
|
|
0.86
|
%
|
1-4 family residential properties
|
1,225
|
|
|
3
|
%
|
|
0.78
|
%
|
|
308
|
|
|
4
|
%
|
|
0.17
|
%
|
Farmland
|
832
|
|
|
2
|
%
|
|
0.80
|
%
|
|
670
|
|
|
4
|
%
|
|
0.43
|
%
|
Commercial
|
22,040
|
|
|
32
|
%
|
|
1.41
|
%
|
|
12,566
|
|
|
31
|
%
|
|
0.94
|
%
|
Factored receivables
|
56,463
|
|
|
22
|
%
|
|
5.04
|
%
|
|
7,657
|
|
|
15
|
%
|
|
1.24
|
%
|
Consumer
|
542
|
|
|
—
|
%
|
|
3.42
|
%
|
|
488
|
|
|
1
|
%
|
|
2.23
|
%
|
Mortgage warehouse
|
1,037
|
|
|
21
|
%
|
|
0.10
|
%
|
|
668
|
|
|
16
|
%
|
|
0.10
|
%
|
Total loans
|
$
|
95,739
|
|
|
100
|
%
|
|
1.92
|
%
|
|
$
|
29,092
|
|
|
100
|
%
|
|
0.69
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
|
December 31, 2016
|
(Dollars in thousands)
|
Allocated
Allowance
|
|
% of Loan
Portfolio
|
|
ALLL to
Loans
|
|
Allocated
Allowance
|
|
% of Loan
Portfolio
|
|
ALLL to
Loans
|
|
Allocated
Allowance
|
|
% of Loan
Portfolio
|
|
ALLL to
Loans
|
Commercial real estate
|
$
|
4,493
|
|
|
27
|
%
|
|
0.45
|
%
|
|
$
|
3,435
|
|
|
27
|
%
|
|
0.46
|
%
|
|
$
|
1,813
|
|
|
22
|
%
|
|
0.41
|
%
|
Construction, land development, land
|
1,134
|
|
|
5
|
%
|
|
0.63
|
%
|
|
883
|
|
|
5
|
%
|
|
0.65
|
%
|
|
465
|
|
|
5
|
%
|
|
0.42
|
%
|
1-4 family residential properties
|
317
|
|
|
5
|
%
|
|
0.17
|
%
|
|
293
|
|
|
4
|
%
|
|
0.23
|
%
|
|
253
|
|
|
5
|
%
|
|
0.24
|
%
|
Farmland
|
535
|
|
|
5
|
%
|
|
0.31
|
%
|
|
310
|
|
|
6
|
%
|
|
0.17
|
%
|
|
170
|
|
|
7
|
%
|
|
0.12
|
%
|
Commercial
|
12,865
|
|
|
31
|
%
|
|
1.15
|
%
|
|
8,150
|
|
|
33
|
%
|
|
0.89
|
%
|
|
8,014
|
|
|
39
|
%
|
|
1.03
|
%
|
Factored receivables
|
7,299
|
|
|
17
|
%
|
|
1.18
|
%
|
|
4,597
|
|
|
13
|
%
|
|
1.23
|
%
|
|
4,088
|
|
|
12
|
%
|
|
1.72
|
%
|
Consumer
|
615
|
|
|
1
|
%
|
|
2.06
|
%
|
|
783
|
|
|
1
|
%
|
|
2.52
|
%
|
|
420
|
|
|
1
|
%
|
|
1.41
|
%
|
Mortgage warehouse
|
313
|
|
|
9
|
%
|
|
0.10
|
%
|
|
297
|
|
|
11
|
%
|
|
0.10
|
%
|
|
182
|
|
|
9
|
%
|
|
0.10
|
%
|
Total loans
|
$
|
27,571
|
|
|
100
|
%
|
|
0.76
|
%
|
|
$
|
18,748
|
|
|
100
|
%
|
|
0.67
|
%
|
|
$
|
15,405
|
|
|
100
|
%
|
|
0.76
|
%
|
The ACL increased $66.6 million, or 229%. Upon adoption of ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” on January 1, 2020, the Company recorded an increase of $0.3 million to the ACL. Management determined that the $62.2 million in over-formula advances and some smaller immaterial factored receivables obtained through the TFS Acquisition had experienced more than insignificant credit deterioration since origination and thus, deemed those assets to be purchased credit deteriorated ("PCD"). At December 31, 2020 the ACL on these PCD assets was $49.0 million accounting for a large share of the increase in total required ACL at year end.
The primary reason for the non-PCD related increase in required ACL is significant projected deterioration of the loss drivers that the Company forecasts to calculate expected losses and, to a much lesser extent, changes in qualitative loss factors over the year ended December 31, 2020. This deterioration was brought on by the projected economic impact of COVID-19 on the Company’s loss drivers and assumptions over the reasonable and supportable forecast period and created the need for $16.7 million of additional ACL.
The Company uses the discounted cash flow (DCF) method to estimate ACL for the commercial real estate, construction, land development, land, 1-4 family residential, commercial (excluding liquid credit), and consumer loan pools. For all loan pools utilizing the DCF method, the Company utilizes and forecasts national unemployment as a loss driver. The Company also utilizes and forecasts either one-year percentage change in national retail sales (commercial real estate – non multifamily, commercial general, commercial agriculture, commercial asset-based lending, commercial equipment finance, consumer), one-year percentage change in the national home price index (1-4 family residential and construction, land development, land), or one-year percentage change in national gross domestic product (commercial real estate – multifamily) as a second loss driver depending on the nature of the underlying loan pool and how well that loss driver correlates to expected future losses. Consistent forecasts of the loss drivers are used across the loan segments.
For all DCF models at December 31, 2020, the Company has determined that four quarters represents a reasonable and supportable forecast period and reverts back to a historical loss rate over eight quarters on a straight-line basis. The Company leverages economic projections from a reputable and independent third-party to inform its loss driver forecasts over the four-quarter forecast period. Other internal and external indicators of economic forecasts are also considered by the Company when developing the forecast metrics. At December 31, 2020 as compared to January 1, 2020, the Company forecasted a significantly higher national unemployment rate, a lower one-year percentage change in national retail sales, a lower one-year percentage change in the national home price index, and a somewhat higher one-year percentage change in national gross domestic product over the reasonable and supportable forecast period. Specifically regarding the forecasts used to calculate the December 31, 2020 ACL, management expects unemployment to remain persistently above pre-pandemic levels over the forecast period. Percentage change in retail sales is assumed to return to pre-pandemic levels given additional federal stimulus and the expected broad distribution of a COVID-19 vaccine. A gradual decline in the percentage change in national home price index is expected over the forecasted period as the effects of the pandemic on home prices are expected to lag behind other loss drivers. Percentage change in GDP growth is forecasted to increase over the projected period as the national economy comes back on line over the next four quarters.
The Company uses a loss-rate method to estimate expected credit losses for the farmland, liquid credit, factored receivable, and mortgage warehouse loan pools. For each of these loan segments, the Company applies an expected loss ratio based on internal and peer historical losses adjusted as appropriate for qualitative factors. Qualitative loss factors are based on the Company's judgment of company, market, industry or business specific data, changes in underlying loan composition of specific portfolios, trends relating to credit quality, delinquency, non-performing and adversely rated loans, and reasonable and supportable forecasts of economic conditions. Loss factors used to calculate the required ACL on pools that use the loss-rate method reflect the forecasted economic conditions described above.
The increase in required ACL was also driven by net charge-offs of $4.6 million (which carried reserves of $1.0 million established during the prior period) and net new specific allowances recorded on individual non-PCD loans of $5.1 million. The increase was partially offset by the changes in mix in the underlying portfolio eligible to receive an ACL.
With the passage of the PPP, administered by the Small Business Administration (“SBA”), the Company has actively participated in assisting its customers with applications for resources through the program. At December 31, 2020, the Company carried $189.9 of PPP loans classified as Commercial loans for reporting purposes. Loans funded through the PPP program are fully guaranteed by the U.S. government. This guarantee exists at the inception of the loans and throughout the lives of the loans and was not entered into separately and apart from the loans. ASC 326 requires credit enhancements that mitigate credit losses, such as the U.S. government guarantee on PPP loans, to be considered in estimating credit losses. The guarantee is considered “embedded” and, therefore, is considered when estimating credit loss on the PPP loans. Given that the loans are fully guaranteed by the U.S. government and absent any specific loss information on any of our PPP loans, the Company does not carry an ACL on its PPP loans at December 31, 2020.
The following table presents the unpaid principal and recorded investment for loans at December 31, 2020. The difference between the unpaid principal balance and recorded investment is principally (1) premiums and discounts associated with acquisition date fair value adjustments on acquired loans totaling $18.5 million and (2) net deferred origination and factoring fees totaling $4.9 million. The net difference can provide protection from credit loss in addition to the ACL as future potential charge-offs for an individual loan are limited to the recorded investment plus unpaid accrued interest.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
December 31, 2020
|
|
Recorded
Investment
|
|
Unpaid
Principal
|
|
Difference
|
Commercial real estate
|
|
$
|
779,158
|
|
|
$
|
782,614
|
|
|
$
|
(3,456)
|
|
Construction, land development, land
|
|
219,647
|
|
|
220,021
|
|
|
(374)
|
|
1-4 family residential properties
|
|
157,147
|
|
|
157,731
|
|
|
(584)
|
|
Farmland
|
|
103,685
|
|
|
104,522
|
|
|
(837)
|
|
Commercial
|
|
1,562,957
|
|
|
1,579,841
|
|
|
(16,884)
|
|
Factored receivables
|
|
1,120,770
|
|
|
1,122,008
|
|
|
(1,238)
|
|
Consumer
|
|
15,838
|
|
|
15,863
|
|
|
(25)
|
|
Mortgage warehouse
|
|
1,037,574
|
|
|
1,037,574
|
|
|
—
|
|
|
|
$
|
4,996,776
|
|
|
$
|
5,020,174
|
|
|
$
|
(23,398)
|
|
At December 31, 2020 and 2019, we had $145.9 million and $66.8 million, respectively, of customer reserves associated with factored receivables which 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.
The following table provides an analysis of the credit loss expense, net charge-offs and recoveries, and the effects of those items on our ACL:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(Dollars in thousands)
|
2020
|
|
2019
|
|
2018
|
|
2017
|
|
2016
|
Balance at beginning of period
|
$
|
29,092
|
|
|
$
|
27,571
|
|
|
$
|
18,748
|
|
|
$
|
15,405
|
|
|
$
|
12,567
|
|
Loans charged-off:
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
(320)
|
|
|
(304)
|
|
|
(90)
|
|
|
(259)
|
|
|
(5)
|
|
Construction, land development, land
|
(23)
|
|
|
(78)
|
|
|
(59)
|
|
|
(582)
|
|
|
—
|
|
1-4 family residential properties
|
(27)
|
|
|
(141)
|
|
|
(17)
|
|
|
(31)
|
|
|
(84)
|
|
Farmland
|
—
|
|
|
(265)
|
|
|
(200)
|
|
|
—
|
|
|
—
|
|
Commercial
|
(2,344)
|
|
|
(3,326)
|
|
|
(5,855)
|
|
|
(4,875)
|
|
|
(3,643)
|
|
Factored receivables
|
(3,201)
|
|
|
(2,494)
|
|
|
(1,224)
|
|
|
(1,667)
|
|
|
(856)
|
|
Consumer
|
(573)
|
|
|
(876)
|
|
|
(989)
|
|
|
(1,004)
|
|
|
(564)
|
|
Mortgage warehouse
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total loans charged-off
|
$
|
(6,488)
|
|
|
$
|
(7,484)
|
|
|
$
|
(8,434)
|
|
|
$
|
(8,418)
|
|
|
$
|
(5,152)
|
|
Recoveries of loans charged-off:
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
$
|
170
|
|
|
$
|
1
|
|
|
$
|
104
|
|
|
$
|
59
|
|
|
$
|
16
|
|
Construction, land development, land
|
241
|
|
|
92
|
|
|
17
|
|
|
175
|
|
|
6
|
|
1-4 family residential properties
|
53
|
|
|
61
|
|
|
18
|
|
|
47
|
|
|
85
|
|
Farmland
|
80
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial
|
1,115
|
|
|
447
|
|
|
518
|
|
|
1,329
|
|
|
991
|
|
Factored receivables
|
143
|
|
|
296
|
|
|
69
|
|
|
118
|
|
|
120
|
|
Consumer
|
117
|
|
|
166
|
|
|
364
|
|
|
508
|
|
|
79
|
|
Mortgage warehouse
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total loans recoveries
|
$
|
1,919
|
|
|
$
|
1,063
|
|
|
$
|
1,090
|
|
|
$
|
2,236
|
|
|
$
|
1,297
|
|
Net loans charged-off
|
$
|
(4,569)
|
|
|
$
|
(6,421)
|
|
|
$
|
(7,344)
|
|
|
$
|
(6,182)
|
|
|
$
|
(3,855)
|
|
Credit loss expense:
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
$
|
3,607
|
|
|
$
|
1,163
|
|
|
$
|
1,044
|
|
|
$
|
1,822
|
|
|
$
|
313
|
|
Construction, land development, land
|
2,005
|
|
|
234
|
|
|
293
|
|
|
825
|
|
|
92
|
|
1-4 family residential properties
|
378
|
|
|
71
|
|
|
23
|
|
|
24
|
|
|
(22)
|
|
Farmland
|
(355)
|
|
|
400
|
|
|
425
|
|
|
140
|
|
|
36
|
|
Commercial
|
11,336
|
|
|
2,580
|
|
|
10,052
|
|
|
5,785
|
|
|
5,390
|
|
Factored receivables
|
16,079
|
|
|
2,556
|
|
|
3,857
|
|
|
2,058
|
|
|
315
|
|
Consumer
|
562
|
|
|
583
|
|
|
457
|
|
|
859
|
|
|
689
|
|
Mortgage warehouse
|
369
|
|
|
355
|
|
|
16
|
|
|
115
|
|
|
(120)
|
|
Total credit loss expense
|
$
|
33,981
|
|
|
$
|
7,942
|
|
|
$
|
16,167
|
|
|
$
|
11,628
|
|
|
$
|
6,693
|
|
Impact of adopting ASU 2016-13
|
269
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Initial allowance on loans purchased with credit deterioration
|
37,415
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Allowance transferred to assets held for sale
|
(449)
|
|
|
—
|
|
|
—
|
|
|
(2,103)
|
|
|
—
|
|
Balance at end of period
|
$
|
95,739
|
|
|
$
|
29,092
|
|
|
$
|
27,571
|
|
|
$
|
18,748
|
|
|
$
|
15,405
|
|
|
|
|
|
|
|
|
|
|
|
Average total loans held for investment
|
$
|
4,445,747
|
|
|
$
|
3,827,754
|
|
|
$
|
3,130,731
|
|
|
$
|
2,235,481
|
|
|
$
|
1,549,788
|
|
Net charge-offs to average total loans held for investment
|
0.10
|
%
|
|
0.17
|
%
|
|
0.23
|
%
|
|
0.28
|
%
|
|
0.25
|
%
|
Allowance to total loans held for investment
|
1.92
|
%
|
|
0.69
|
%
|
|
0.76
|
%
|
|
0.67
|
%
|
|
0.76
|
%
|
Net loans charged off decreased 1.9 million, or 28.8%. There were no individually significant loan charge-offs or recoveries during the years ended December 31, 2020 or 2019.
Securities
The following table sets forth the composition of our securities portfolio by type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
|
December 31, 2018
|
(Dollars in thousands)
|
Amortized Cost
|
|
Fair Value
|
|
Amortized Cost
|
|
Fair Value
|
|
Amortized Cost
|
|
Fair Value
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agency obligations
|
$
|
14,942
|
|
|
$
|
15,088
|
|
|
$
|
39,679
|
|
|
$
|
39,760
|
|
|
$
|
93,500
|
|
|
$
|
92,648
|
|
U.S. Treasury notes
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,956
|
|
|
1,932
|
|
Mortgage-backed securities, residential
|
26,547
|
|
|
27,684
|
|
|
37,324
|
|
|
38,016
|
|
|
39,971
|
|
|
39,736
|
|
Asset-backed securities
|
7,091
|
|
|
7,039
|
|
|
8,039
|
|
|
7,959
|
|
|
10,165
|
|
|
10,145
|
|
State and municipal
|
36,238
|
|
|
37,395
|
|
|
31,746
|
|
|
32,065
|
|
|
118,826
|
|
|
118,451
|
|
CLO Securities
|
118,128
|
|
|
122,204
|
|
|
75,592
|
|
|
75,273
|
|
|
—
|
|
|
—
|
|
Corporate bonds
|
11,373
|
|
|
11,573
|
|
|
50,889
|
|
|
51,583
|
|
|
68,804
|
|
|
68,787
|
|
SBA pooled securities
|
3,200
|
|
|
3,327
|
|
|
4,112
|
|
|
4,164
|
|
|
4,766
|
|
|
4,724
|
|
Total available for sale securities
|
$
|
217,519
|
|
|
$
|
224,310
|
|
|
$
|
247,381
|
|
|
$
|
248,820
|
|
|
$
|
337,988
|
|
|
$
|
336,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
CLO securities
|
$
|
7,945
|
|
|
$
|
5,850
|
|
|
$
|
8,417
|
|
|
$
|
6,907
|
|
|
$
|
8,487
|
|
|
$
|
7,326
|
|
Allowance for credit losses
|
(2,026)
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
Held to maturity securities, net of ACL
|
$
|
5,919
|
|
|
|
|
$
|
8,417
|
|
|
|
|
$
|
8,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
Mutual fund
|
|
|
$
|
5,826
|
|
|
|
|
$
|
5,437
|
|
|
|
|
$
|
5,044
|
|
As of December 31, 2020, we held equity securities with a fair value of $5.8 million, an increase of $0.4 million from $5.4 million at December 31, 2019. These securities represent investments in a publicly traded Community Reinvestment Act mutual fund and are subject to market pricing volatility, with changes in fair value recorded in earnings.
As of December 31, 2020, we held securities classified as available for sale with a fair value of $224.3 million, a decrease of $24.5 million from $248.8 million at December 31, 2019. The decrease is primarily attributable to decreases of $40.0 million, $24.7 million, and $10.3 million of corporate bonds, U.S. Government Agency obligations, and mortgage-backed securities, respectively. These decreases were partially offset by $46.9 million and $5.3 million increases in CLO securities and state and municipal securities, respectively. Our available for sale CLO portfolio consists of investment grade positions in high ranking tranches within their respective securitization structures. As of December 31, 2020, the Company determined that all impaired available for sale securities experienced a decline in fair value below their amortized cost basis due to noncredit-related factors. Therefore, the Company carried no ACL at December 31, 2020. Our available for sale securities can be used for pledging to secure FHLB borrowings and public deposits, or can be sold to meet liquidity needs.
As of December 31, 2020, we held securities classified as held to maturity with an amortized cost, net of ACL, of $5.9 million, a decrease of $2.5 million from $8.4 million at December 31, 2019. The decrease in amortized cost, net of ACL, was primarily driven by a $2.0 million increase in the required ACL during the year ended December 31, 2020. See previous discussion of Credit Loss Expense related to our held to maturity securities for further details regarding the nature of these securities and the required ACL at December 31, 2020.
The following tables set forth the amortized cost and average yield of our securities, by type and contractual maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity as of December 31, 2019
|
|
1 Year or Less
|
|
1 to 5 Years
|
|
5 to 10 Years
|
|
Over 10 Years
|
|
Total
|
(Dollars in thousands)
|
Amortized
Cost
|
|
Average
Yield
|
|
Amortized
Cost
|
|
Average
Yield
|
|
Amortized
Cost
|
|
Average
Yield
|
|
Amortized
Cost
|
|
Average
Yield
|
|
Amortized
Cost
|
|
Average
Yield
|
U.S. Government agency obligations
|
$
|
14,942
|
|
|
2.04
|
%
|
|
$
|
—
|
|
|
—
|
%
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
14,942
|
|
|
2.04
|
%
|
Mortgage-backed securities, residential
|
—
|
|
|
5.09
|
%
|
|
2,560
|
|
|
2.01
|
%
|
|
8,691
|
|
|
1.97
|
%
|
|
15,296
|
|
|
2.76
|
%
|
|
26,547
|
|
|
2.43
|
%
|
Asset-backed securities
|
—
|
|
|
—
|
%
|
|
129
|
|
|
0.49
|
%
|
|
4,999
|
|
|
0.37
|
%
|
|
1,963
|
|
|
1.43
|
%
|
|
7,091
|
|
|
0.66
|
%
|
State and municipal
|
2,273
|
|
|
2.89
|
%
|
|
10,406
|
|
|
2.65
|
%
|
|
3,134
|
|
|
2.34
|
%
|
|
20,425
|
|
|
2.44
|
%
|
|
36,238
|
|
|
2.52
|
%
|
CLO Securities
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
20,300
|
|
|
3.18
|
%
|
|
97,828
|
|
|
2.34
|
%
|
|
118,128
|
|
|
2.49
|
%
|
Corporate bonds
|
9,388
|
|
|
3.21
|
%
|
|
1,713
|
|
|
1.15
|
%
|
|
—
|
|
|
—
|
|
|
272
|
|
|
5.13
|
%
|
|
11,373
|
|
|
2.94
|
%
|
SBA pooled securities
|
1
|
|
|
—
|
|
|
29
|
|
|
2.93
|
%
|
|
—
|
|
|
—
|
%
|
|
3,170
|
|
|
3.74
|
%
|
|
3,200
|
|
|
3.73
|
%
|
Total securities available for sale
|
$
|
26,604
|
|
|
2.52
|
%
|
|
$
|
14,837
|
|
|
2.34
|
%
|
|
$
|
37,124
|
|
|
2.48
|
%
|
|
$
|
138,954
|
|
|
2.43
|
%
|
|
$
|
217,519
|
|
|
2.44
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held-to-maturity
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
7,945
|
|
|
—
|
%
|
|
$
|
—
|
|
|
—
|
|
|
$
|
7,945
|
|
|
—
|
%
|
Liabilities
Total liabilities were $5.209 billion as of December 31, 2020, compared to $4.424 billion at December 31, 2019, an increase of $785.3 million, the components of which are discussed below.
Deposits
Our total deposits were $4.717 billion as of December 31, 2020, compared to $3.790 billion as of December 31, 2019, an increase of $926.7 million, primarily due to growth in noninterest-bearing demand deposits, brokered time deposits, and other brokered deposits. Other brokered deposits, first utilized as part of our overall funding strategy in the second quarter of 2020, are non-maturity deposits obtained from wholesale sources. The growth in these products was partially offset by a decrease in certificates of deposit and money market deposit products during the year. As of December 31, 2020, interest-bearing demand deposits, noninterest-bearing deposits, money market deposits, other brokered deposits, and savings deposits accounted for 70% of our total deposits, while individual retirement accounts, certificates of deposit, and brokered time deposits made up 30% of total deposits. See Note 11 – Deposits in the accompanying notes to consolidated financial statements included elsewhere in this report for details of our deposit balances as of December 31, 2020 and 2019.
The following table summarizes our average deposit balances and weighted average rates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
|
Year Ended December 31, 2019
|
|
Year Ended December 31, 2018
|
(Dollars in thousands)
|
Average
Balance
|
|
Average
Rates
|
|
% of
Total
|
|
Average
Balance
|
|
Average
Rates
|
|
% of
Total
|
|
Average
Balance
|
|
Average
Rates
|
|
% of
Total
|
Interest-bearing demand
|
$
|
628,721
|
|
|
0.17
|
%
|
|
15
|
%
|
|
$
|
593,178
|
|
|
0.25
|
%
|
|
17
|
%
|
|
$
|
451,327
|
|
|
0.23
|
%
|
|
16
|
%
|
Individual retirement accounts
|
98,445
|
|
|
1.33
|
%
|
|
2
|
%
|
|
110,553
|
|
|
1.57
|
%
|
|
3
|
%
|
|
108,170
|
|
|
1.25
|
%
|
|
4
|
%
|
Money market
|
405,323
|
|
|
0.47
|
%
|
|
10
|
%
|
|
433,922
|
|
|
1.33
|
%
|
|
12
|
%
|
|
318,927
|
|
|
0.82
|
%
|
|
11
|
%
|
Savings
|
390,023
|
|
|
0.15
|
%
|
|
10
|
%
|
|
363,760
|
|
|
0.13
|
%
|
|
10
|
%
|
|
281,995
|
|
|
0.10
|
%
|
|
10
|
%
|
Certificates of deposit
|
948,687
|
|
|
1.84
|
%
|
|
24
|
%
|
|
1,016,797
|
|
|
2.22
|
%
|
|
28
|
%
|
|
809,321
|
|
|
1.48
|
%
|
|
28
|
%
|
Brokered time deposits
|
278,604
|
|
|
1.66
|
%
|
|
7
|
%
|
|
348,523
|
|
|
2.34
|
%
|
|
10
|
%
|
|
291,776
|
|
|
1.99
|
%
|
|
10
|
%
|
Other brokered deposits
|
205,398
|
|
|
0.21
|
%
|
|
5
|
%
|
|
—
|
|
|
—
|
%
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
—
|
%
|
Total interest-bearing deposits
|
2,955,201
|
|
|
0.93
|
%
|
|
73
|
%
|
|
2,866,733
|
|
|
1.40
|
%
|
|
80
|
%
|
|
2,261,516
|
|
|
1.02
|
%
|
|
79
|
%
|
Noninterest-bearing demand
|
1,114,912
|
|
|
—
|
%
|
|
27
|
%
|
|
723,682
|
|
|
—
|
%
|
|
20
|
%
|
|
605,863
|
|
|
—
|
%
|
|
21
|
%
|
Total deposits
|
$
|
4,070,113
|
|
|
0.67
|
%
|
|
100
|
%
|
|
$
|
3,590,415
|
|
|
1.12
|
%
|
|
100
|
%
|
|
$
|
2,867,379
|
|
|
0.80
|
%
|
|
100
|
%
|
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 December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
$100,000 to
$250000
|
|
Over
$250000
|
|
Total
|
Maturity
|
|
|
|
|
|
3 months or less
|
$
|
273,639
|
|
|
$
|
31,707
|
|
|
$
|
305,346
|
|
Over 3 through 6 months
|
259,413
|
|
|
73,430
|
|
|
332,843
|
|
Over 6 through 12 months
|
142,142
|
|
|
40,551
|
|
|
182,693
|
|
Over 12 months
|
69,895
|
|
|
18,753
|
|
|
88,648
|
|
|
$
|
745,089
|
|
|
$
|
164,441
|
|
|
$
|
909,530
|
|
Other Borrowings
Customer Repurchase Agreements
The following table provides a summary of our customer repurchase agreements as of and for the years ended December 31, 2020, 2019, and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
December 31,
2020
|
|
December 31,
2019
|
|
December 31,
2018
|
Amount outstanding at end of the year
|
$
|
3,099
|
|
|
$
|
2,033
|
|
|
$
|
4,485
|
|
Weighted average interest rate at end of the year
|
0.03
|
%
|
|
0.03
|
%
|
|
0.01
|
%
|
Average daily balance during the year
|
$
|
6,716
|
|
|
$
|
7,823
|
|
|
$
|
8,648
|
|
Weighted average interest rate during the year
|
0.03
|
%
|
|
0.02
|
%
|
|
0.02
|
%
|
Maximum month-end balance during the year
|
$
|
14,192
|
|
|
$
|
14,463
|
|
|
$
|
13,844
|
|
Our customer repurchase agreements generally have overnight maturities. 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 Bank. The following table provides a summary of our FHLB borrowings as of and for the years ended December 31, 2020, 2019, and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
December 31,
2020
|
|
December 31,
2019
|
|
December 31,
2018
|
Amount outstanding at end of the year
|
$
|
105,000
|
|
|
$
|
430,000
|
|
|
$
|
330,000
|
|
Weighted average interest rate at end of the year
|
0.17
|
%
|
|
1.58
|
%
|
|
2.52
|
%
|
Average daily balance during the year
|
$
|
342,264
|
|
|
$
|
369,548
|
|
|
$
|
345,388
|
|
Weighted average interest rate during the year
|
0.58
|
%
|
|
2.32
|
%
|
|
1.96
|
%
|
Maximum month-end balance during the year
|
$
|
850,000
|
|
|
$
|
530,000
|
|
|
$
|
455,000
|
|
Our FHLB advances are collateralized by assets, including a blanket pledge of certain loans. Of the FHLB borrowings outstanding as of December 31, 2020, $75.0 million were short-term borrowings maturing within one year and $30.0 million were long term borrowings maturing after five years. As of December 31, 2020 and 2019, we had $1.247 billion and $871.0 million, respectively, in unused and available advances from the FHLB. The increase in our total borrowing capacity from December 31, 2019 to December 31, 2020 was primarily the result of our growth in assets and loans held for investment.
Paycheck Protection Program Liquidity Facility (“PPPLF”)
The PPPLF is a lending facility offered by the Federal Reserve Banks to facilitate lending to small businesses under the Paycheck Protection Program. Borrowings under the PPPLF are secured by Paycheck Protection Program Loans (“PPP loans”) guaranteed by the Small Business Administration (“SBA”) and mature at the same time as the PPP Loan pledged to secure the extension of credit. The maturity dates of the borrowings will be accelerated if the underlying PPP Loan goes into default and Company sells the PPP Loan to the SBA to realize on the SBA guarantee or if the Company receives any loan forgiveness reimbursement from the SBA for the underlying PPP Loan.
Information concerning borrowings under the PPPLF is summarized as follows for the year ended December 31, 2020:
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
December 31,
2020
|
Amount outstanding at end of period
|
|
$
|
191,860
|
|
Weighted average interest rate at end of period
|
|
0.35
|
%
|
Average amount outstanding during the period
|
|
143,608
|
|
Weighted average interest rate during the period
|
|
0.35
|
%
|
Highest month end balance during the period
|
|
223,809
|
|
At December 31, 2020, scheduled maturities of PPPLF borrowings are as follows:
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
December 31,
2020
|
Within one year
|
|
$
|
—
|
|
After one but within two years
|
|
191,860
|
|
Total
|
|
$
|
191,860
|
|
At December 31, 2020, the PPPLF borrowings are secured by PPP Loans totaling $191.9 million and bear interest at a fixed rate of 0.35% annually. There were no borrowings under the PPPLF during the year ended December 31, 2019.
Subordinated Notes
On September 30, 2016, we issued $50.0 million of Fixed-to-Floating Rate Subordinated Notes due 2026 (the “2016 Notes”). The 2016 Notes initially bear interest at 6.50% per annum, are payable semi-annually in arrears, to, but excluding, September 30, 2021, and, thereafter and to, but excluding, the maturity date or earlier redemption, interest shall be payable quarterly in arrears, at an annual floating rate equal to three-month LIBOR as determined for the applicable quarterly period, plus 5.345%. We may, at our option, beginning on September 30, 2021 and on any scheduled interest payment date thereafter, redeem the 2016 Notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the 2016 Notes to be redeemed plus accrued and unpaid interest to, but excluding, the date of redemption.
On November 27, 2019, we issued $39.5 million of Fixed-to-Floating Rate Subordinated Notes due 2029 (the “2019 Notes”). The 2019 Notes initially bear interest at 4.875% per annum, payable semi-annually in arrears, to, but excluding, November 27, 2024, and, thereafter and to, but excluding, the maturity date or earlier redemption, interest shall be payable quarterly in arrears, at an annual floating rate equal to a benchmark rate, initially three-month LIBOR, as determined for the applicable quarterly period, plus 3.330%. We may, at our option, beginning on November 27, 2024 and on any scheduled interest payment date thereafter, redeem the 2019 Notes, in whole or in part, at a redemption price equal to the outstanding principal amount of the 2019 Notes to be redeemed plus accrued and unpaid interest to, but excluding, the date of redemption.
The Notes are included on our consolidated balance sheet as liabilities; however, for regulatory purposes, the carrying value of these obligations is eligible for inclusion in Tier 2 regulatory capital.
Issuance costs related to the 2016 Notes and the 2019 Notes totaled $1.3 million and $1.2 million, respectively, and have been netted against the subordinated notes liability on the consolidated balance sheets. The debt issuance costs are being amortized using the effective interest method over the life of the 2016 Notes and the 2019 Notes as a component of interest expense. The carrying value of the 2016 Notes and the 2019 Notes totaled $87.5 million at December 31, 2020.
Junior Subordinated Debentures
The following provides a summary of our junior subordinated debentures as of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Face Value
|
|
Carrying Value
|
|
Maturity Date
|
|
Variable
Interest Rate
|
|
Interest Rate At December 31, 2020
|
National Bancshares Capital Trust II
|
|
$
|
15,464
|
|
|
$
|
13,220
|
|
|
September 2033
|
|
LIBOR + 3.00%
|
|
3.22%
|
National Bancshares Capital Trust III
|
|
17,526
|
|
|
12,975
|
|
|
July 2036
|
|
LIBOR + 1.64%
|
|
1.88%
|
ColoEast Capital Trust I
|
|
5,155
|
|
|
3,611
|
|
|
September 2035
|
|
LIBOR + 1.60%
|
|
1.84%
|
ColoEast Capital Trust II
|
|
6,700
|
|
|
4,703
|
|
|
March 2037
|
|
LIBOR + 1.79%
|
|
2.03%
|
Valley Bancorp Statutory Trust I
|
|
3,093
|
|
|
2,879
|
|
|
September 2032
|
|
LIBOR + 3.40%
|
|
3.65%
|
Valley Bancorp Statutory Trust II
|
|
3,093
|
|
|
2,684
|
|
|
July 2034
|
|
LIBOR + 2.75%
|
|
2.98%
|
|
|
$
|
51,031
|
|
|
$
|
40,072
|
|
|
|
|
|
|
|
These debentures are unsecured obligations and were issued to trusts that are unconsolidated subsidiaries. The trusts in turn issued trust preferred securities with identical payment terms to unrelated investors. The debentures may be called by the Company 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 2.24%. As part of the purchase accounting adjustments made with the National Bancshares, Inc. acquisition on October 15, 2013, the ColoEast acquisition on August 1, 2016, and the Valley acquisition on December 9, 2017, we adjusted the carrying value of the junior subordinated debentures to fair value as of the respective acquisition dates. The discount on the debentures will continue to 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 $40.1 million was allowed in the calculation of Tier I capital as of December 31, 2020.
Capital Resources and Liquidity Management
Capital Resources
Our stockholders’ equity totaled $726.8 million and $636.6 million as of December 31, 2020 and 2019, respectively. The increase in total equity was primarily due to $42.4 million of preferred stock issued during the year and our $64.0 million of net income, offset in part by $35.8 million of common stock repurchased during the year.
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 subsidiary. The management of liquidity at both levels is critical, because the holding company and our bank subsidiary 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-earning 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, securities sold under 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 or borrowings from the Federal Reserve, the issuance of debt securities 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 bank maintains correspondent relationships with other banks in order to sell loans or purchase overnight funds should additional liquidity be needed. As of December 31, 2020, TBK Bank had $523.9 million of unused borrowing capacity from the Federal Reserve Bank discount window and unsecured federal funds lines of credit with seven unaffiliated banks totaling $227.5 million, with no amounts advanced against those lines.
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 or TBK Bank’s financial statements. For further information regarding our regulatory capital requirements, see Note 19 – Regulatory Matters in the accompanying notes to the consolidated financial statements included elsewhere in this report.
Contractual Obligations
The following table summarizes our contractual obligations and other commitments to make future payments as of December 31, 2020. The amount of the obligations presented in the table reflect principal amounts only and exclude 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, and accrued interest payable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period - December 31, 2019
|
(Dollars in thousands)
|
Total
|
|
Less Than 1 Year
|
|
1 – 3 Years
|
|
4 – 5 Years
|
|
After 5 Years
|
Customer repurchase agreements
|
$
|
3,099
|
|
|
$
|
3,099
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
FHLB advances
|
105,000
|
|
|
75,000
|
|
|
—
|
|
|
—
|
|
|
30,000
|
|
Paycheck Protection Program Liquidity Facility
|
191,860
|
|
|
—
|
|
|
191,860
|
|
|
—
|
|
|
—
|
|
Subordinated notes
|
50,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
50,000
|
|
Junior subordinated debentures
|
51,031
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
51,031
|
|
Operating lease agreements
|
21,181
|
|
|
3,885
|
|
|
7,084
|
|
|
5,971
|
|
|
4,241
|
|
Time deposits with stated maturity dates
|
1,400,214
|
|
|
1,258,609
|
|
|
132,997
|
|
|
8,608
|
|
|
—
|
|
Total contractual obligations
|
$
|
1,822,385
|
|
|
$
|
1,340,593
|
|
|
$
|
331,941
|
|
|
$
|
14,579
|
|
|
$
|
135,272
|
|
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. For further information, see Note 16 – Off-Balance Sheet Loan Commitments in the accompanying notes to the consolidated financial statements included elsewhere in this report.
Critical Accounting Policies and Estimates
Certain of our accounting estimates are important to the portrayal of our financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates are susceptible to material changes as a result of changes in facts and circumstances. Facts and circumstances which could affect these judgments include, but are not limited to, changes in interest rates, changes in the performance of the economy and changes in the financial condition of borrowers. Management believes that determining the allowance for loan and lease losses is its most critical accounting estimate. Our accounting policies are discussed in detail in Note 1 – Summary of Significant Accounting Policies in the accompanying notes to the consolidated financial statements included elsewhere in this report.
Allowance for Credit Losses on Loans. Management considers the policies related to the allowance for credit losses on loans as the most critical to the financial statement presentation. The total allowance for credit losses on loans includes activity related to allowances calculated in accordance with Accounting Standards Codification (“ASC”) 326, Financial Instruments – Credit Losses. The allowance for credit losses is established through credit loss expense charged to current earnings. The amount maintained in the allowance reflects management’s estimate of the net amount not expected to be collected on the loans held for investment portfolio at the balance sheet date. The allowance for credit losses is comprised of specific reserves assigned to certain loans that don’t share general risk characteristics and general reserves on pools of loans that do share general risk characteristics. Factors contributing to the determination of specific reserves include the creditworthiness of the borrower, and more specifically, changes in the expected future receipt of principal and interest payments and/or in the value of pledged collateral. A reserve is recorded when the carrying amount of the loan exceeds the discounted estimated cash flows using the loan’s initial effective interest rate, when the carrying amount of the loan exceeds the determined loss rate, or the fair value of the collateral for certain collateral dependent loans. For purposes of establishing the general reserve, we stratify the loan portfolio into homogeneous groups of loans that possess similar loss potential characteristics and calculate the net amount expected to be collected over the life of the loans to estimate the credit losses in the loan portfolio. The Company’s methodologies for estimating the allowance for credit losses consider available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. Refer to “Allowance for Credit Losses” above and Note 1 – Summary of Significant Accounting Policies in the accompanying notes to the consolidated financial statements elsewhere in this report for further discussion of the risk factors considered by management in establishing the allowance for credit losses.
Adoption of New Accounting Standards
See Note 1 – Summary of Significant Accounting Policies in the accompanying notes to the consolidated financial statements included elsewhere in this report for details of recently issued accounting pronouncements and their expected impact on our consolidated financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Report of Independent Registered Public Accounting Firm
Shareholders and the Board of Directors of Triumph Bancorp, Inc.
Dallas, Texas
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Triumph Bancorp, Inc. (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.
Change in Accounting Principle
As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for credit losses effective January 1, 2020 due to the adoption of Accounting Standards Codification Topic 326: Financial Instruments – Credit Losses (“Topic 326”). The Company adopted the new credit loss standard using the modified retrospective approach such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles. The adoption of the new credit loss standard and its subsequent application is also communicated as a critical audit matter below.
Basis for Opinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report on Management’s Assessment of Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Allowance for Credit Losses – CECL Adoption and Reasonable and Supportable Forecasts
As described in Note 1 and presented in Note 4 to the financial statements, the Company adopted Topic 326 as of January 1, 2020. The current expected credit loss (“CECL”) impairment model requires an estimate of expected credit losses, measured over the contractual life of an instrument, which considers reasonable and supportable forecasts of future economic conditions in addition to information about past events and current conditions (see change in accounting principle explanatory paragraph above). As of December 31, 2020, the allowance for credit losses (“ACL”) of $95.7 million attributable to loans held for investment consisted of 1) an allocation for collateral dependent loans totaling $58.2 million of loss allocations on loans individually evaluated for impairment and 2) an allocation totaling $37.5 million of loss allocations on loans collectively evaluated (“pool basis”) for impairment.
The Company measures expected credit losses of loans on a pool basis when the loans share similar risk characteristics. Depending on the nature of the pool of loans with similar risk characteristics, the Company uses the discounted cash flow (“DCF”) method or a loss-rate method to estimate expected credit losses. Management has applied the loss-rate method to pools such as mortgage warehouse and factored receivables due to their short-term nature. The loans that are analyzed in the DCF method are greater in dollar amount, require more judgment, and have longer durations than those used in the loss-rate pools.
For loan pools utilizing the DCF approach, the Company performed a loss driver analysis to determine the economic factors, individually or in combination, which correlated to the historical loss experience used as a basis for the estimate. For all loan pools utilizing the DCF method, the Company utilizes national unemployment as the loss driver in addition to either the one-year percentage change in national retail sales, one-year percentage change in the national home price index, or the one-year percentage change in national gross domestic product depending on the nature of the underlying loan pool and the correlation of the index to the applicable pool. The development of the loss driver analysis and the application of the economic forecast is significant to the calculation as changes in the forecasts used in the DCF method could have a material effect on the Company’s financial statements.
Estimating reasonable and supportable forecasts requires significant judgment. Management leverages economic projections from a third party to inform its forecasts over the forecast period. Other internal and external indicators of economic forecasts are also considered by management when developing the forecasts. We identified auditing the reasonableness of forecasts in the ACL for loans using the DCF method as a critical audit matter as it involves especially subjective auditor judgment.
The primary audit procedures we performed in response to this critical audit matter included:
•Tested the operating effectiveness of controls over the Company’s ACL, including controls over the relevance and reliability of data used in assessing the forecasts in the DCF method and the reasonableness of the forecasts applied in the DCF method.
•Utilized the assistance of specialists in evaluating the appropriateness and mathematical accuracy of the loss driver analyses in the DCF method, and the relevance and reliability of data used in the development of the loss rate forecasts in the DCF method.
•Evaluated the reasonableness and appropriateness of the forecasting methodologies employed for suitability under the standard including, but not limited to, evaluating their conceptual soundness and inspecting and testing key assumptions and judgments.
Accounting for Transport Financial Solutions Business Combination
As described in Note 2 to the financial statements, Advance Business Capital LLC (“ABC”), a subsidiary of the Company, through a business combination acquired the factored receivables portfolio of Transport Financial Solutions (“TFS”), with a contractual balance of $108.7 million as of the acquisition date, July 7th, 2020. The purchase consideration included cash consideration of $108.4 million, 630,268 shares of the Company’s common stock valued at $13.9 million as of the acquisition date, and contingent consideration up to $9.9 million to be paid in cash following the twelve months period ending July 31, 2021. Subsequent to the closing of the acquisition, the Company determined that $62.2 million of the assets acquired at closing were advances to three large factoring clients (and their affiliated entities) of TFS pursuant to long-term contractual arrangements for services that had not yet been performed by the factoring clients. The Company subsequently entered into an amended purchase agreement where the shares previously distributed were liquidated and cash proceeds were returned to ABC, the contingent consideration was eliminated, and an indemnification agreement was entered into where the seller would cover up to $45.0 million of losses incurred related to the portfolio.
Business combinations are accounted for under Topic 805 – Business Combinations. Significant judgment must be applied when accounting for amended purchase agreements to determine if the amendment should be accounted for as part of the business combination or separately from the business combination. Due to the unusual nature of the transaction, it’s significance to the financial statements, and the challenging judgments associated with the accounting treatment, we classified the transaction as a critical audit matter.
The primary audit procedures we performed in response to this critical audit matter included:
•Tested the operating effectiveness of controls over management’s review of the accounting treatment of the transaction.
•Evaluated the significant terms of the original purchase agreement and the facts and circumstances around the reasons for the amended purchase agreement and the significant terms of the amended purchase agreement including management’s judgments as to whether the amended agreement should be accounted for as part of the business combination or separately from the business combination.
•Utilized the assistance of specialists to evaluate the accounting for the amended purchase agreement.
/s/ Crowe LLP
We have served as the Company's auditor since 2012.
Dallas, Texas
February 12, 2021
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2020 and 2019
(Dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2020
|
|
December 31,
2019
|
ASSETS
|
|
|
|
Cash and due from banks
|
$
|
85,525
|
|
|
$
|
67,747
|
|
Interest-bearing deposits with other banks
|
228,868
|
|
|
130,133
|
|
Total cash and cash equivalents
|
314,393
|
|
|
197,880
|
|
Securities - equity investments
|
5,826
|
|
|
5,437
|
|
Securities - available for sale
|
224,310
|
|
|
248,820
|
|
Securities - held to maturity, net of allowance for credit losses of $2,026 and $—, respectively, fair value $5,850 and $6,907, respectively
|
5,919
|
|
|
8,417
|
|
Loans held for sale
|
24,546
|
|
|
2,735
|
|
Loans, net of allowance for credit losses of $95,739 and $29,092, respectively
|
4,901,037
|
|
|
4,165,420
|
|
Federal Home Loan Bank and other restricted stock, at cost
|
6,751
|
|
|
19,860
|
|
Premises and equipment, net
|
103,404
|
|
|
96,595
|
|
Other real estate owned, net
|
1,432
|
|
|
3,009
|
|
Goodwill
|
163,209
|
|
|
158,743
|
|
Intangible assets, net
|
26,713
|
|
|
31,543
|
|
Bank-owned life insurance
|
41,608
|
|
|
40,954
|
|
Deferred tax asset, net
|
6,427
|
|
|
3,812
|
|
Indemnification asset
|
36,225
|
|
|
—
|
|
Other assets
|
73,991
|
|
|
77,072
|
|
Total assets
|
$
|
5,935,791
|
|
|
$
|
5,060,297
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
Liabilities
|
|
|
|
Deposits
|
|
|
|
Noninterest-bearing
|
$
|
1,352,785
|
|
|
$
|
809,696
|
|
Interest-bearing
|
3,363,815
|
|
|
2,980,210
|
|
Total deposits
|
4,716,600
|
|
|
3,789,906
|
|
Customer repurchase agreements
|
3,099
|
|
|
2,033
|
|
Federal Home Loan Bank advances
|
105,000
|
|
|
430,000
|
|
Paycheck Protection Program Liquidity Facility
|
191,860
|
|
|
—
|
|
Subordinated notes
|
87,509
|
|
|
87,327
|
|
Junior subordinated debentures
|
40,072
|
|
|
39,566
|
|
Other liabilities
|
64,870
|
|
|
74,875
|
|
Total liabilities
|
5,209,010
|
|
|
4,423,707
|
|
Commitments and contingencies - See Notes 14 and 15
|
|
|
|
Stockholders' equity - See Note 19
|
|
|
|
Preferred stock
|
45,000
|
|
|
—
|
|
Common stock, 24,868,218 and 24,964,961 shares outstanding, respectively
|
280
|
|
|
272
|
|
Additional paid-in-capital
|
489,151
|
|
|
473,251
|
|
Treasury stock, at cost
|
(103,052)
|
|
|
(67,069)
|
|
Retained earnings
|
289,583
|
|
|
229,030
|
|
Accumulated other comprehensive income
|
5,819
|
|
|
1,106
|
|
Total stockholders’ equity
|
726,781
|
|
|
636,590
|
|
Total liabilities and stockholders' equity
|
$
|
5,935,791
|
|
|
$
|
5,060,297
|
|
See accompanying notes to consolidated financial statements.
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2020, 2019 and 2018
(Dollar amounts in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Interest and dividend income:
|
|
|
|
|
|
Loans, including fees
|
$
|
198,214
|
|
|
$
|
195,648
|
|
|
$
|
160,723
|
|
Factored receivables, including fees
|
114,434
|
|
|
101,257
|
|
|
92,103
|
|
Securities
|
8,229
|
|
|
10,474
|
|
|
6,354
|
|
FHLB and other restricted stock
|
530
|
|
|
712
|
|
|
507
|
|
Cash deposits
|
708
|
|
|
3,062
|
|
|
3,289
|
|
Total interest and dividend income
|
322,115
|
|
|
311,153
|
|
|
262,976
|
|
Interest expense:
|
|
|
|
|
|
Deposits
|
27,403
|
|
|
40,225
|
|
|
23,058
|
|
Subordinated notes
|
5,363
|
|
|
3,553
|
|
|
3,351
|
|
Junior subordinated debentures
|
2,114
|
|
|
2,910
|
|
|
2,741
|
|
Other borrowings
|
2,507
|
|
|
8,562
|
|
|
6,776
|
|
Total interest expense
|
37,387
|
|
|
55,250
|
|
|
35,926
|
|
Net interest income
|
284,728
|
|
|
255,903
|
|
|
227,050
|
|
Credit loss expense
|
38,329
|
|
|
7,942
|
|
|
16,167
|
|
Net interest income after credit loss expense
|
246,399
|
|
|
247,961
|
|
|
210,883
|
|
Noninterest income:
|
|
|
|
|
|
Service charges on deposits
|
5,274
|
|
|
7,132
|
|
|
5,469
|
|
Card income
|
7,781
|
|
|
7,873
|
|
|
6,514
|
|
Net OREO gains (losses) and valuation adjustments
|
(616)
|
|
|
351
|
|
|
(514)
|
|
Net gains (losses) on sale of securities
|
3,226
|
|
|
61
|
|
|
(272)
|
|
Fee income
|
6,007
|
|
|
6,441
|
|
|
5,150
|
|
Insurance commissions
|
4,232
|
|
|
4,219
|
|
|
3,492
|
|
Gain on sale of subsidiary or division
|
9,758
|
|
|
—
|
|
|
1,071
|
|
Other
|
24,723
|
|
|
5,492
|
|
|
2,060
|
|
Total noninterest income
|
60,385
|
|
|
31,569
|
|
|
22,970
|
|
Noninterest expense:
|
|
|
|
|
|
Salaries and employee benefits
|
126,975
|
|
|
112,862
|
|
|
90,212
|
|
Occupancy, furniture and equipment
|
22,766
|
|
|
18,196
|
|
|
14,023
|
|
FDIC insurance and other regulatory assessments
|
1,520
|
|
|
298
|
|
|
1,129
|
|
Professional fees
|
9,349
|
|
|
7,288
|
|
|
8,939
|
|
Amortization of intangible assets
|
8,330
|
|
|
9,131
|
|
|
6,980
|
|
Advertising and promotion
|
4,718
|
|
|
6,126
|
|
|
4,974
|
|
Communications and technology
|
22,153
|
|
|
20,976
|
|
|
18,270
|
|
Other
|
26,263
|
|
|
29,207
|
|
|
22,826
|
|
Total noninterest expense
|
222,074
|
|
|
204,084
|
|
|
167,353
|
|
Net income before income tax expense
|
84,710
|
|
|
75,446
|
|
|
66,500
|
|
Income tax expense
|
20,686
|
|
|
16,902
|
|
|
14,792
|
|
Net income
|
64,024
|
|
|
58,544
|
|
|
51,708
|
|
Dividends on preferred stock
|
(1,701)
|
|
|
—
|
|
|
(578)
|
|
Net income available to common stockholders
|
$
|
62,323
|
|
|
$
|
58,544
|
|
|
$
|
51,130
|
|
Earnings per common share
|
|
|
|
|
|
Basic
|
$
|
2.56
|
|
|
$
|
2.26
|
|
|
$
|
2.06
|
|
Diluted
|
$
|
2.53
|
|
|
$
|
2.25
|
|
|
$
|
2.03
|
|
See accompanying notes to consolidated financial statements.
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31, 2020, 2019 and 2018
(Dollar amounts in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Net income
|
$
|
64,024
|
|
|
$
|
58,544
|
|
|
$
|
51,708
|
|
Other comprehensive income:
|
|
|
|
|
|
Unrealized gains (losses) on securities:
|
|
|
|
|
|
Unrealized holding gains (losses) arising during the period
|
8,578
|
|
|
3,065
|
|
|
(1,059)
|
|
Tax effect
|
(2,062)
|
|
|
(709)
|
|
|
240
|
|
Unrealized holding gains (losses) arising during the period, net of taxes
|
6,516
|
|
|
2,356
|
|
|
(819)
|
|
Reclassification of amount realized through sale or call of securities
|
(3,226)
|
|
|
(61)
|
|
|
272
|
|
Tax effect
|
800
|
|
|
14
|
|
|
(60)
|
|
Reclassification of amount realized through sale or call of securities, net of taxes
|
(2,426)
|
|
|
(47)
|
|
|
212
|
|
Change in unrealized gains (losses) on securities, net of tax
|
4,090
|
|
|
2,309
|
|
|
(607)
|
|
|
|
|
|
|
|
Unrealized gains (losses) on derivative financial instruments:
|
|
|
|
|
|
Unrealized holding gains (losses) arising during the period
|
782
|
|
|
—
|
|
|
—
|
|
Tax effect
|
(185)
|
|
|
—
|
|
|
—
|
|
Unrealized holding gains (losses) arising during the period, net of taxes
|
597
|
|
|
—
|
|
|
—
|
|
Reclassification of amount of (gains) losses recognized into income
|
34
|
|
|
—
|
|
|
—
|
|
Tax effect
|
(8)
|
|
|
—
|
|
|
—
|
|
Reclassification of amount of (gains) losses recognized into income, net of taxes
|
26
|
|
|
—
|
|
|
—
|
|
Change in unrealized gains (losses) on derivative financial instruments
|
623
|
|
|
—
|
|
|
—
|
|
Total other comprehensive income (loss)
|
4,713
|
|
|
2,309
|
|
|
(607)
|
|
Comprehensive income
|
$
|
68,737
|
|
|
$
|
60,853
|
|
|
$
|
51,101
|
|
See accompanying notes to consolidated financial statements.
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Years Ended December 31, 2020, 2019 and 2018
(Dollar amounts in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
Common Stock
|
|
Additional
Paid-in-
Capital
|
|
Treasury Stock
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Total
Stockholders'
Equity
|
|
Liquidation
Preference
Amount
|
|
Shares
Outstanding
|
|
Par
Amount
|
|
|
Shares
Outstanding
|
|
Cost
|
|
Retained
Earnings
|
|
Balance, January 1, 2018
|
$
|
9,658
|
|
|
20,820,445
|
|
|
$
|
209
|
|
|
$
|
264,855
|
|
|
91,951
|
|
|
$
|
(1,784)
|
|
|
$
|
119,356
|
|
$
|
(596)
|
|
|
$
|
391,698
|
|
Issuance of common stock, net of issuance costs
|
—
|
|
|
5,405,000
|
|
|
54
|
|
|
191,999
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
192,053
|
|
Issuance of restricted stock awards
|
—
|
|
|
65,001
|
|
|
1
|
|
|
(1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
Stock based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
2,735
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
2,735
|
|
Forfeiture of restricted stock awards
|
—
|
|
|
(2,448)
|
|
|
—
|
|
|
106
|
|
|
2,448
|
|
|
(106)
|
|
|
—
|
|
—
|
|
|
—
|
|
Stock option exercises, net
|
—
|
|
|
1,366
|
|
|
—
|
|
|
(4)
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
(4)
|
|
Purchase of treasury stock
|
—
|
|
|
(9,664)
|
|
|
—
|
|
|
—
|
|
|
9,664
|
|
|
(398)
|
|
|
—
|
|
—
|
|
|
(398)
|
|
Preferred stock converted to common stock
|
(9,658)
|
|
|
670,236
|
|
|
7
|
|
|
9,651
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
Series A Preferred dividends
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(273)
|
|
—
|
|
|
(273)
|
|
Series B Preferred dividends
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(305)
|
|
—
|
|
|
(305)
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
51,708
|
|
—
|
|
|
51,708
|
|
Other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
(607)
|
|
|
(607)
|
|
December 31, 2018
|
$
|
—
|
|
|
26,949,936
|
|
|
$
|
271
|
|
|
$
|
469,341
|
|
|
104,063
|
|
|
$
|
(2,288)
|
|
|
$
|
170,486
|
|
$
|
(1,203)
|
|
|
$
|
636,607
|
|
Issuance of restricted stock awards
|
—
|
|
|
104,413
|
|
|
1
|
|
|
(1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
Stock based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
3,654
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
3,654
|
|
Forfeiture of restricted stock awards
|
—
|
|
|
(8,602)
|
|
|
—
|
|
|
257
|
|
|
8,602
|
|
|
(257)
|
|
|
—
|
|
—
|
|
|
—
|
|
Stock option exercises, net
|
—
|
|
|
5,230
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
Purchase of treasury stock
|
—
|
|
|
(2,086,016)
|
|
|
—
|
|
|
—
|
|
|
2,086,016
|
|
|
(64,524)
|
|
|
—
|
|
—
|
|
|
(64,524)
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
58,544
|
|
—
|
|
|
58,544
|
|
Other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
2,309
|
|
|
2,309
|
|
December 31, 2019
|
$
|
—
|
|
|
24,964,961
|
|
|
$
|
272
|
|
|
$
|
473,251
|
|
|
2,198,681
|
|
|
$
|
(67,069)
|
|
|
$
|
229,030
|
|
$
|
1,106
|
|
|
$
|
636,590
|
|
Impact of adoption of ASU 2016-13
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,770)
|
|
—
|
|
|
(1,770)
|
|
Issuance of preferred stock, net of issuance costs
|
45,000
|
|
|
—
|
|
|
—
|
|
|
(2,636)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
42,364
|
|
Issuance of common stock, net of issuance costs
|
—
|
|
|
630,268
|
|
|
7
|
|
|
13,935
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
13,942
|
|
Issuance of restricted stock awards
|
—
|
|
|
138,417
|
|
|
1
|
|
|
(1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
Stock based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
4,618
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
4,618
|
|
Forfeiture of restricted stock awards
|
—
|
|
|
(6,067)
|
|
|
—
|
|
|
211
|
|
|
6,067
|
|
|
(211)
|
|
|
—
|
|
—
|
|
|
—
|
|
Stock option exercises, net
|
—
|
|
|
19,394
|
|
|
—
|
|
|
(227)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
|
(227)
|
|
Purchase of treasury stock
|
—
|
|
|
(878,755)
|
|
|
—
|
|
|
—
|
|
|
878,755
|
|
|
(35,772)
|
|
|
—
|
|
—
|
|
|
(35,772)
|
|
Preferred stock dividends
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,701)
|
|
—
|
|
|
(1,701)
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
64,024
|
|
—
|
|
|
64,024
|
|
Other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
4,713
|
|
|
4,713
|
|
December 31, 2020
|
$
|
45,000
|
|
|
24,868,218
|
|
|
$
|
280
|
|
|
$
|
489,151
|
|
|
3,083,503
|
|
|
$
|
(103,052)
|
|
|
$
|
289,583
|
|
$
|
5,819
|
|
|
$
|
726,781
|
|
See accompanying notes to consolidated financial statements.
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2020, 2019 and 2018
(Dollar amounts in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Cash flows from operating activities:
|
|
|
|
|
|
Net income
|
$
|
64,024
|
|
|
$
|
58,544
|
|
|
$
|
51,708
|
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
|
|
|
|
|
|
Depreciation
|
10,720
|
|
|
8,135
|
|
|
5,720
|
|
Net accretion on loans
|
(10,711)
|
|
|
(5,568)
|
|
|
(8,296)
|
|
Amortization of subordinated notes issuance costs
|
182
|
|
|
116
|
|
|
101
|
|
Amortization of junior subordinated debentures
|
506
|
|
|
483
|
|
|
460
|
|
Net amortization on securities
|
(129)
|
|
|
205
|
|
|
947
|
|
Amortization of intangible assets
|
8,330
|
|
|
9,131
|
|
|
6,980
|
|
Deferred taxes
|
(2,080)
|
|
|
3,931
|
|
|
708
|
|
Credit loss expense
|
38,329
|
|
|
7,942
|
|
|
16,167
|
|
Stock based compensation
|
4,618
|
|
|
3,654
|
|
|
2,735
|
|
Net (gains) losses on sale of securities
|
(3,226)
|
|
|
(61)
|
|
|
272
|
|
Net (gains) losses on equity securities
|
(389)
|
|
|
(393)
|
|
|
—
|
|
Origination of loans held for sale
|
(60,867)
|
|
|
(32,570)
|
|
|
(4,317)
|
|
Purchases of loans held for sale
|
(50,765)
|
|
|
(30,486)
|
|
|
—
|
|
Proceeds from sale of loans originated for sale
|
109,471
|
|
|
63,080
|
|
|
3,495
|
|
Net gains on sale of loans
|
(3,585)
|
|
|
(653)
|
|
|
(46)
|
|
Net (gains) losses on loans transferred to loans held for sale
|
770
|
|
|
(1,669)
|
|
|
—
|
|
Net OREO (gains) losses and valuation adjustments
|
616
|
|
|
(351)
|
|
|
514
|
|
Net change in operating leases
|
1,054
|
|
|
181
|
|
|
—
|
|
Gain on sale of subsidiary or division
|
(9,758)
|
|
|
—
|
|
|
(1,071)
|
|
Contingent consideration paid
|
(22,000)
|
|
|
—
|
|
|
—
|
|
(Increase) decrease in other assets
|
12,215
|
|
|
(14,991)
|
|
|
(8,385)
|
|
Increase (decrease) in other liabilities
|
10,002
|
|
|
3,790
|
|
|
6,138
|
|
Net cash provided by (used in) operating activities
|
97,327
|
|
|
72,450
|
|
|
73,830
|
|
Cash flows from investing activities:
|
|
|
|
|
|
Purchases of securities available for sale
|
(133,970)
|
|
|
(80,459)
|
|
|
(19,875)
|
|
Proceeds from sales of securities available for sale
|
70,198
|
|
|
40,617
|
|
|
123,016
|
|
Proceeds from maturities, calls, and pay downs of securities available for sale
|
96,768
|
|
|
129,382
|
|
|
78,709
|
|
Proceeds from maturities, calls, and pay downs of securities held to maturity
|
693
|
|
|
993
|
|
|
1,053
|
|
Purchases of loans held for investment
|
(324,892)
|
|
|
(129,428)
|
|
|
—
|
|
Proceeds from sale of loans
|
165,877
|
|
|
47,832
|
|
|
9,781
|
|
Net change in loans
|
(632,517)
|
|
|
(506,816)
|
|
|
(388,276)
|
|
Purchases of premises and equipment, net
|
(17,574)
|
|
|
(21,338)
|
|
|
(18,776)
|
|
Net proceeds from sale of OREO
|
2,111
|
|
|
2,762
|
|
|
8,483
|
|
Proceeds from surrender of BOLI
|
—
|
|
|
—
|
|
|
4,623
|
|
(Purchases) redemptions of FHLB and other restricted stock, net
|
13,109
|
|
|
(3,917)
|
|
|
978
|
|
Cash paid for acquisitions, net of cash acquired
|
(108,375)
|
|
|
—
|
|
|
(141,872)
|
|
Proceeds from sale of subsidiary or division, net
|
93,835
|
|
|
—
|
|
|
73,849
|
|
Net cash provided by (used in) investing activities
|
(774,737)
|
|
|
(520,372)
|
|
|
(268,307)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
Net increase (decrease) in deposits
|
921,333
|
|
|
339,557
|
|
|
146,954
|
|
Increase (decrease) in customer repurchase agreements
|
1,066
|
|
|
(2,452)
|
|
|
(7,003)
|
|
Increase (decrease) in Federal Home Loan Bank advances
|
(325,000)
|
|
|
100,000
|
|
|
(35,737)
|
|
Proceeds from Paycheck Protection Program Liquidity Facility borrowings
|
231,370
|
|
|
—
|
|
|
—
|
|
Repayment of Paycheck Protection Program Liquidity Facility borrowings
|
(39,510)
|
|
|
—
|
|
|
—
|
|
Proceeds from issuance of subordinated notes, net
|
—
|
|
|
38,282
|
|
|
—
|
|
Issuance of common stock, net of issuance costs
|
—
|
|
|
—
|
|
|
192,053
|
|
Issuance of preferred stock, net of issuance costs
|
42,364
|
|
|
—
|
|
|
—
|
|
Stock option exercises
|
(227)
|
|
|
—
|
|
|
(4)
|
|
Purchase of treasury stock
|
(35,772)
|
|
|
(64,524)
|
|
|
(398)
|
|
Dividends on preferred stock
|
(1,701)
|
|
|
—
|
|
|
(578)
|
|
Net cash provided by (used in) financing activities
|
793,923
|
|
|
410,863
|
|
|
295,287
|
|
Net increase (decrease) in cash and cash equivalents
|
116,513
|
|
|
(37,059)
|
|
|
100,810
|
|
Cash and cash equivalents at beginning of period
|
197,880
|
|
|
234,939
|
|
|
134,129
|
|
Cash and cash equivalents at end of period
|
$
|
314,393
|
|
|
$
|
197,880
|
|
|
$
|
234,939
|
|
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2020, 2019 and 2018
(Dollar amounts in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Supplemental cash flow information:
|
|
|
|
|
|
Interest paid
|
$
|
41,743
|
|
|
$
|
52,006
|
|
|
$
|
31,965
|
|
Income taxes paid, net
|
$
|
12,080
|
|
|
$
|
17,748
|
|
|
$
|
12,839
|
|
Cash paid for operating lease liabilities
|
$
|
4,236
|
|
|
$
|
4,196
|
|
|
$
|
—
|
|
Supplemental noncash disclosures:
|
|
|
|
|
|
Loans transferred to OREO
|
$
|
1,150
|
|
|
$
|
3,360
|
|
|
$
|
514
|
|
Premises transferred to OREO
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,139
|
|
Loans transferred to loans held for sale
|
$
|
185,823
|
|
|
$
|
46,163
|
|
|
$
|
9,781
|
|
Assets transferred to assets held for sale
|
$
|
84,077
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Lease liabilities arising from obtaining right-of-use assets
|
$
|
1,777
|
|
|
$
|
2,557
|
|
|
$
|
—
|
|
See accompanying notes to consolidated financial statements.
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 CRA Holdings, LLC (“TCRA”), TBK Bank, SSB (“TBK Bank”), TBK Bank’s wholly owned factoring subsidiary Advance Business Capital LLC, which currently operates under the d/b/a of Triumph Business Capital (“TBC”), and TBK Bank’s wholly owned subsidiary Triumph Insurance Group, Inc. (“TIG”).
On June 30, 2020, the Company sold the assets of Triumph Premium Finance (“TPF”) and exited its premium finance line of business. TPF operated within the Company’s TBK Bank subsidiary.
On March 16, 2018, the Company sold the assets of Triumph Healthcare Finance (“THF”) and exited its healthcare asset based lending line of business. THF operated within the Company’s TBK Bank subsidiary.
See Note 2 – Business Combinations and Divestitures for additional information pertaining to the TPF and THF sales and the impact of the transactions on the Company’s consolidated financial statements.
Principles of Consolidation and Basis of Presentation
The Company consolidates subsidiaries in which it holds, directly or indirectly, a controlling financial interest. The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity or a variable interest entity under U.S. generally accepted accounting principles (“GAAP”). Voting interest entities are entities in which the total equity investment at risk is sufficient to enable the entity to finance itself independently and provides the equity holders with the obligation to absorb losses, the right to receive residual returns and the right to make decisions about the entity’s activities. The Company consolidates voting interest entities in which it has at least a majority of the voting interest. Variable interest entities (“VIEs”) are entities that lack one or more of the characteristics of a voting interest entity. A controlling financial interest in a VIE is present when an enterprise has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The enterprise with a controlling financial interest, known as the primary beneficiary, consolidates the VIE.
In consolidation, all significant intercompany accounts and transactions are eliminated. Investments in unconsolidated entities are accounted for using the equity method of accounting when the Company has the ability to exercise significant influence over operating and financing decisions. Investments that do not meet the criteria for equity method accounting are accounted for using the cost method of accounting.
The accounting and reporting policies of the Company and its subsidiaries conform to GAAP and general practice within the banking industry. Certain reclassifications have been made to prior year amounts to conform to the current year presentation. The Company uses the accrual basis of accounting for financial reporting purposes.
Use of Estimates
To prepare financial statements in conformity with GAAP management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ.
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Risks and Uncertainties
The outbreak of COVID-19 has adversely impacted a broad range of industries in which the Company’s customers operate and could impair their ability to fulfill their financial obligations to the Company. The Company’s business is dependent upon the willingness and ability of its employees and customers to conduct banking and other financial transactions. If the global response to contain COVID-19 escalates further or is unsuccessful, the Company could experience further material adverse effects on its business, financial condition, results of operations and cash flows. While it is not possible to know the full universe or extent that the impact of COVID-19, and resulting measures to curtail its spread, will have on the Company’s operations, the Company is disclosing potentially material items of which it is aware.
Financial position and results of operations
In keeping with guidance from regulators, the Company continues to work with COVID-19 affected customers. During the second quarter of 2020 we waived fees from a variety of sources, such as, but not limited to, insufficient funds and overdraft fees, ATM fees, account maintenance fees, etc. These reductions in fees were temporary and expired on June 1, 2020 resulting in a decrease in service charges on deposits fee income for the year ended December 31, 2020 compared to the same period during 2019. Should the pandemic and the global response escalate further, it is possible that the Company could reduce such fees in future periods; however, at this time, the Company is unable to project the materiality of such an impact on the results of operations in future periods.
The Company’s interest income could be reduced due to COVID-19. In keeping with guidance from regulators, the Company continues to work with COVID-19 affected borrowers to defer their payments, interest, and fees. While interest and fees continue to accrue to income, through normal GAAP accounting, should eventual credit losses on these deferred payments emerge, the related loans would be placed on nonaccrual status and interest income and fees accrued would be reversed. In such a scenario, interest income in future periods could be negatively impacted. As of December 31, 2020 the Company carries $726,000 of accrued interest income and fees on outstanding deferrals made to COVID-19 affected borrowers. At this time, the Company is unable to project the materiality of such an impact on future deferrals to COVID-19 affected borrowers, but recognizes the breadth of the economic impact may affect its borrowers’ ability to repay in future periods.
Capital and liquidity
Our reported and regulatory capital ratios could be adversely impacted by further credit loss expense. We rely on cash on hand as well as dividends from our subsidiary bank to service our debt. If our capital deteriorates such that our subsidiary bank is unable to pay dividends to us for an extended period of time, we may not be able to service our debt. We maintain access to multiple sources of liquidity. Wholesale funding markets have remained open to us, but rates for short-term funding have recently been volatile. If funding costs are elevated for an extended period of time, it could have an adverse effect on our net interest margin. If an extended recession caused large numbers of our deposit customers to withdraw their funds, we might become more reliant on volatile or more expensive sources of funding.
Intangible asset valuation
COVID-19 could cause a decline in the Company’s stock price or the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause us to perform a goodwill impairment test and result in an impairment charge being recorded for that period. In the event that the Company concludes that all or a portion of its goodwill is impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital.
It is possible that the lingering effects of COVID-19 could cause the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause us to perform an intangible asset impairment test and result in an impairment charge being recorded for that period. In the event that the Company concludes that all or a portion of its intangible assets are impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital.
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Lending operations and accommodations to borrowers
In keeping with regulatory guidance to work with borrowers during this unprecedented situation and as outlined in the Section 4013 of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), the Company is executing a payment deferral program for its commercial lending clients that are adversely affected by the pandemic. Depending on the demonstrated need of the client, the Company is deferring either the full loan payment or the principal component of the loan payment for 60 or 90 days. As of December 31, 2020, the Company’s balance sheet reflected 59 of these deferrals on outstanding loan balances of $104,597,000. In accordance with the CARES Act and March 2020 interagency guidance, these deferrals are not considered troubled debt restructurings. It is possible that these deferrals could be extended further under the CARES Act; however, the volume of these future potential extensions is unknown. It is also possible that in spite of our best efforts to assist our borrowers and achieve full collection of our investment, these deferred loans could result in future charge-offs with additional credit loss expense charged to earnings; however, the amount of any future charge-offs on deferred loans is unknown.
With the passage of the Paycheck Protection Program (“PPP”), administered by the Small Business Administration (“SBA”), the Company has participated in assisting its customers with applications for resources through the program. PPP loans have two-year and five-year terms and earn interest at a 1% coupon. The Company believes that the majority of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. As of December 31, 2020, the Company carried 1,913 PPP loans representing a book value of $189,857,000. The Company has received approximately $7,660,000 in total fees from the SBA, $4,570,000 of which were recognized in interest income and fees during the year ended December 31, 2020. The remaining fees will be amortized and recognized over the remaining lives of the loans. It is the Company’s understanding that loans funded through the PPP program are fully guaranteed by the U.S. government. Should those circumstances change, the Company could be required to establish an allowance for credit loss through additional credit loss expense charged to earnings.
Credit
The Company is working with customers directly affected by COVID-19. The Company is prepared to offer assistance in accordance with regulator guidelines. As a result of the current economic environment caused by the COVID-19 virus, the Company is engaging in communication with borrowers to understand their situation and the challenges faced, allowing the Company to respond proactively as needs and issues arise. Should the economy experience a prolonged period of poor economic conditions or should economic conditions worsen, the Company could experience further increases in its required allowance for credit losses (“ACL”) and record additional credit loss expense. It is possible that the Company’s asset quality measures could worsen at future measurement periods if the effects of COVID-19 are prolonged.
Held to Maturity Securities
At December 31, 2020, we held $7,945,000 in subordinated notes of three CLO securities managed by our former subsidiary. These securities are the junior-most in securitization capital structures, and are subject to suspension of distributions if the credit of the underlying loan portfolios deteriorates materially. During the year ended December 31, 2020, pandemic-related downgrades and default activity caused overcollateralization triggers to be tripped on two of the three CLO investments which had a material impact on expected cash flows used to calculate the ACL. At December 31, 2020, the CLO investments had recovered and none of the overcollateralization triggers were tripped. The required ACL on these balances was $2,026,000 December 31, 2020 resulting in $1,900,000 of credit loss expense recognized during the year ended December 31, 2020. Ultimately, the realized cash flows on CLO securities such as these will be driven by a variety of factors, including credit performance of the underlying loan portfolio, adjustments to the portfolio by the asset manager, and the timing of a potential call. Thus, we may not receive the full amount of cash distributions we expect to receive, which would cause us to record additional allowance for credit losses with a corresponding charge to credit loss expense through earnings. At December 31, 2020, the Company’s held to maturity securities were classified as nonaccrual.
Transportation
The Company’s transportation businesses may be affected by COVID-19 and the volatility in oil prices. The global supply disruption from China and Mexico, in combination with the U.S. supply chain challenges due to business disruptions and an overall decrease in consumer demand could have a material impact on freight volumes in the U.S., which could impact our factoring and transportation lending operations in future periods; however, the ultimate impact is unknown.
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Cash and Cash Equivalents
For the purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, other short-term investments and federal funds sold. All highly liquid investments with an initial maturity of less than 90 days are considered to be cash equivalents. Certain items, including loan and deposit transactions, customer repurchase agreements, and FHLB advances and repayments, are presented net in the statement of cash flows.
Debt Securities
The Company determines the classification of debt securities at the time of purchase. Debt securities that management has the positive intent and ability to hold to maturity are classified as held to maturity and recorded at amortized cost. Trading securities are recorded at fair value with changes in fair value included in earnings. Debt securities not classified as held to maturity or trading are classified as available for sale and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income (loss), net of tax.
Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific-identification method. Amortization of premiums and discounts are recognized in interest income over the period to maturity using the interest method, except for premiums on callable debt securities, which are amortized to their earliest call date.
The Company has made a policy election to exclude accrued interest from the amortized cost basis of debt securities and report accrued interest separately in other assets in the consolidated balance sheets. A debt security is placed on nonaccrual status at the time any principal or interest payments become more than 90 days delinquent or if full collection of interest or principal becomes uncertain. Accrued interest for a security placed on nonaccrual is reversed against interest income. There was no accrued interest related to debt securities reversed against interest income for the year ended December 31, 2020 and 2019.
Allowance for Credit Losses – Available for Sale Securities
For available for sale debt securities in an unrealized loss position, the Company evaluates the securities to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors. Any impairment that is not credit related is recognized in other comprehensive income, net of applicable taxes. Credit-related impairment is recognized as an allowance for credit losses (“ACL”) on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings. Both the ACL and the adjustment to net income may be reversed if conditions change. However, if the Company intends to sell an impaired available for sale debt security or more likely than not will be required to sell such a security before recovering its amortized cost basis, the entire impairment amount must be recognized in earnings with a corresponding adjustment to the security’s amortized cost basis. Because the security’s amortized cost basis is adjusted to fair value, there is no ACL in such a situation.
In evaluating available for sale debt securities in unrealized loss positions for impairment and the criteria regarding its intent or requirement to sell such securities, the Company considers the extent to which fair value is less than amortized cost, whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuers’ financial condition, among other factors.
Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the ACL when management believes the uncollectability of an available for sale debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met.
Accrued interest receivable is excluded from the estimate of credit losses.
Allowance for Credit Losses – Held to Maturity Securities
The allowance for credit losses on held to maturity securities is estimated on a collective basis by major security type. At December 31, 2020 and 2019, the Company’s held to maturity securities consisted of investments in the subordinated notes of collateralized loan obligation (“CLO”) funds. Expected credit losses for these securities are estimated using a discounted cash flow methodology which considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.
Accrued interest receivable is excluded from the estimate of credit losses.
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Equity Securities
Equity securities are recorded at fair value, with unrealized gains and losses included in earnings. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific-identification method.
Loans Held for Sale
The Company elects the fair value option for recording 1-4 family residential mortgage loans and commercial loans held for sale in accordance with Accounting Standards Codification (“ASC”) 825, “Financial Instruments”. The fair value of loans held for sale is determined based on outstanding commitments from investors to purchase such loans or prevailing market rates. Increases or decreases in the fair value of loans held for sale, if any, are charged to earnings and are recorded in noninterest income in the consolidated statements of income. Gains and losses on sales of loans are based on the difference between the final selling price and the carrying value of the related loan sold.
Mortgage loans held for sale are generally sold with servicing rights released.
Management occasionally transfers loans held for investment to loans held for sale. Gains or losses on the transfer of loans to loans held for sale are recorded in noninterest income in the consolidated statements of income.
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their amortized cost basis, which is the unpaid principal balance outstanding, net of unearned income, deferred loan fees and costs, premiums and discounts associated with acquisition date fair value adjustments on acquired loans, and any direct principal charge-offs. The Company has made a policy election to exclude accrued interest from the amortized cost basis of loans and report accrued interest separately from the related loan balance in other assets on consolidated balance sheets.
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. The accrual of interest income on loans is typically 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. All interest accrued but not received for a loan placed on nonaccrual is reversed 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. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. Under the cash basis method, interest income is recorded when the payment is received in cash. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Factored Receivables
The Company purchases invoices from its factoring clients in schedules or batches. To a much lesser extent, the Company will also make short-term advances to its clients on transportation contracts for upcoming loads. Cash is advanced to the client to the extent of the applicable advance rate, less fees, as set forth in the individual factoring agreements. The face value of the invoices purchased or amount advanced is recorded by the Company as factored receivables, and the unadvanced portions of the invoices purchased, less fees, are considered client reserves. The client reserves are held to settle any payment disputes or collection shortfalls, may be used to pay clients’ obligations to various third parties as directed by the client, are periodically released to or withdrawn by clients, and are reported as deposits in the consolidated balance sheets.
Unearned factoring fees and unearned net origination fees are deferred and recognized over the weighted average collection period for each client. Subsequent factoring fees are recognized in interest income as incurred by the client and deducted from the clients’ reserve balances.
Other factoring-related fees, which include wire transfer fees, carrier payment fees, fuel advance fees, and other similar fees, are reported by the Company as non-interest income.
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Acquired Loans
Acquired loans are recorded at fair value at the date of acquisition based on a discounted cash flow methodology that considers 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. Certain larger purchased loans are individually evaluated while certain purchased loans are grouped together according to similar risk characteristics and are 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.
Prior to January 1, 2020, loans acquired in a business combination that had evidence of deterioration of credit quality since origination and for which it was probable, at acquisition, that the Company would be unable to collect all contractually required payments receivable were considered purchased credit impaired (“PCI”). PCI loans were individually evaluated and recorded at fair value at the date of acquisition with no initial valuation allowance 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. The difference between the undiscounted cash flows expected at acquisition and the investment in the loan, or the “accretable yield,” was recognized as interest income on a level-yield method over the life of the loan. Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition, or the “nonaccretable difference,” were not recognized on the balance sheet and did not result in any yield adjustments, loss accruals or valuation allowances. Increases in expected cash flows, including prepayments, subsequent to the initial investment were recognized prospectively through adjustment of the yield on the loan over its remaining life. Decreases in expected cash flows were recognized as impairment. Valuation allowances on PCI loans reflected only losses incurred after the acquisition (meaning the present value of all cash flows expected at acquisition that ultimately were not to be received).
Subsequent to January 1, 2020, loans acquired in a business combination that have experienced more-than-insignificant deterioration in credit quality since origination are considered purchased credit deteriorated (“PCD”) loans. At the acquisition date, an estimate of expected credit losses is made for groups of PCD loans with similar risk characteristics and individual PCD loans without similar risk characteristics. This initial allowance for credit losses is allocated to individual PCD loans and added to the purchase price or acquisition date fair values to establish the initial amortized cost basis of the PCD loans. As the initial allowance for credit losses is added to the purchase price, there is no credit loss expense recognized upon acquisition of a PCD loan. Any difference between the unpaid principal balance of PCD loans and the amortized cost basis is considered to relate to noncredit factors and results in a discount or premium. Discounts and premiums are recognized through interest income on a level-yield method over the life of the loans. All loans considered to be PCI prior to January 1, 2020 were converted to PCD on that date.
For acquired loans not deemed purchased credit deteriorated at acquisition, the differences between the initial fair value and the unpaid principal balance are recognized as interest income on a level-yield basis over the lives of the related loans. At the acquisition date, an initial allowance for expected credit losses is estimated and recorded as credit loss expense.
The subsequent measurement of expected credit losses for all acquired loans is the same as the subsequent measurement of expected credit losses for originated loans.
Allowance for Credit Losses – Loans
Refer to the Adoption of New Accounting Standards within this footnote for discussion of the change in methodology used to calculate the ACL effective January 1, 2020.
Under the current expected credit loss model adopted by the Company on January 1, 2020, the allowance for credit losses on loans is a valuation allowance estimated at each balance sheet date in accordance with US GAAP that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans.
The Company estimates the ACL on loans based on the underlying assets’ amortized cost basis, which is the amount at which the financing receivable is originated or acquired, adjusted for applicable accretion or amortization of premium, discount, and net deferred fees or costs, collection of cash, and charge-offs. In the event that collection of principal becomes uncertain, the Company has policies in place to reverse accrued interest in a timely manner. Therefore, the Company has made a policy election to exclude accrued interest from the measurement of ACL.
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Expected credit losses are reflected in the allowance for credit losses through a charge to credit loss expense. When the Company deems all or a portion of a financial asset to be uncollectible the appropriate amount is written off and the ACL is reduced by the same amount. The Company applies judgment to determine when a financial asset is deemed uncollectible; however, generally speaking, an asset will be considered uncollectible no later than when all efforts at collection have been exhausted. Subsequent recoveries, if any, are credited to the ACL when received.
The Company measures expected credit losses of financial assets on a collective (pool) basis, when the financial assets share similar risk characteristics. Depending on the nature of the pool of financial assets with similar risk characteristics, the Company uses a discounted cash flow (“DCF”) method or a loss-rate method to estimate expected credit losses.
The Company’s methodologies for estimating the ACL consider available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. The methodologies apply historical loss information, adjusted for asset-specific characteristics, economic conditions at the measurement date, and forecasts about future economic conditions expected to exist through the contractual lives of the financial assets that are reasonable and supportable, to the identified pools of financial assets with similar risk characteristics for which the historical loss experience was observed. The Company’s methodologies revert back to historical loss information on a straight-line basis over eight quarters when it can no longer develop reasonable and supportable forecasts.
The Company has identified the following pools of financial assets with similar risk characteristics for measuring expected credit losses:
Commercial Real Estate — This category of loans consists of the following loan types:
Non-farm Non-residential — This category includes real estate loans for a variety of commercial property types and purposes, including owner occupied commercial real estate loans primarily secured by commercial office or industrial buildings, warehouses or retail buildings where the owner of the building occupies the property. Repayment terms vary considerably, interest rates are fixed or variable, and are structured for full, partial, or no amortization of principal. This category also includes investment real estate loans that are primarily secured by office and industrial buildings, warehouses, small retail shopping centers and various special purpose properties. Generally, these types of loans are thought to involve a greater degree of credit risk than owner occupied commercial real estate as they are more sensitive to adverse economic conditions.
Multi-family residential — Investment real estate loans are primarily secured by non-owner occupied apartment or multifamily residential buildings. Generally, these types of loans are thought to involve a greater degree of credit risk than owner occupied commercial real estate as they are more sensitive to adverse economic conditions.
Construction, land development, land —This category of loans consists of loans to finance the ground up construction, improvement and/or carrying for sale after the completion of construction of owner occupied and non-owner occupied residential and commercial properties, and loans secured by raw or improved land. The repayment of construction loans is generally dependent upon the successful completion of the improvements by the builder for the end user, or sale of the property to a third-party. Repayment of land secured loans are dependent upon the successful development and sale of the property, the sale of the land as is, or the outside cash flow of the owners to support the retirement of the debt.
1-4 family residential — This category of loans includes both first and junior liens on residential real estate. Home equity revolving lines of credit and home equity term loans are included in this group of loans.
Farmland — These loans are principally loans to purchase farmland.
Commercial — Commercial loans are loans for commercial, corporate and business purposes. The Company’s commercial business loan portfolio is comprised of loans for a variety of purposes and across a variety of industries. These loans include general commercial and industrial loans, loans to purchase capital equipment, agriculture operating loans and other business loans for working capital and operational purposes. Commercial loans are generally secured by accounts receivable, inventory and other business assets. Also included in commercial loans are our Paycheck Protection ("PPP") loans originated during 2020.
A portion of the commercial loan portfolio consists of specialty commercial finance products as follows:
Equipment — Equipment finance loans are commercial loans primarily secured by new or used revenue producing, essential-use equipment from major manufacturers that is movable, may be used in more than one type of business, and generally has broad resale markets. Core markets include transportation, construction, and waste. Loan terms do not exceed the economic life of the equipment and typically are 60 months or less.
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Asset-based Lending — These loans are originated to borrowers to support general working capital needs. The asset-based loan structure involves advances of loan proceeds against a borrowing base which typically consists of accounts receivable, identified readily marketable inventory, or other collateral of the borrower. The maximum amount a customer may borrow at any time is fixed as a percentage of the borrowing base outstanding.
A portion of the commercial loan portfolio also consists of the following national lending product:
Liquid Credit — Broadly syndicated leveraged loans secured by a variety of collateral types.
Factored Receivables — The Company operates as a factor by purchasing accounts receivable from its clients, then collecting the receivable from the account debtor. The Company’s smaller factoring relationships are typically structured as “non-recourse” relationships (i.e., the Company retains the credit risk associated with the ability of the account debtor on a purchased invoice to ultimately make payment) and the Company’s larger factoring relationships are typically structured as “recourse” relationships (i.e., the Company’s client agrees to repurchase any invoices for which payment is not ultimately received from the account debtor). Advances initially made to the client to acquire the receivables are typically at a discount to the invoice value. The discount balance is held in client reserves, net of the Company’s compensation. The client reserves are held to settle any payment disputes or collection shortfalls, may be used to pay clients’ obligations to various third parties as directed by the client, are periodically released to or withdrawn by clients, and are reported as deposits.
Consumer — Loans used for personal use, typically on an unsecured basis, and client overdrafts.
Mortgage Warehouse — Mortgage Warehouse facilities are provided to unaffiliated mortgage origination companies and are collateralized by 1-4 family residential loans. The originator closes new mortgage loans with the intent to sell these loans to third-party investors for a profit. The Company provides funding to the mortgage companies for the period between the origination and their sale of the loan. The Company has a policy that requires that it separately validate that each residential mortgage loan was underwritten consistent with the underwriting requirements of the final investor or market standards prior to advancing funds. The Company is repaid with the proceeds received from sale of the mortgage loan to the final investor.
Discounted Cash Flow Method
The Company uses the discounted cash flow method to estimate expected credit losses for the commercial real estate, construction, land development, land, 1-4 family residential, commercial (excluding liquid credit), and consumer loan pools. For each of these loan segments, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, curtailments, time to recovery, probability of default, and loss given default. The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on historical internal data.
The Company uses regression analysis of historical internal and peer data to determine suitable loss drivers to utilize when modeling lifetime probability of default and loss given default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the loss drivers. For all loan pools utilizing the DCF method, management utilizes and forecasts national unemployment as a loss driver. Management also utilizes and forecasts either one-year percentage change in national retail sales, one-year percentage change in the national home price index, or one-year percentage change in national gross domestic product as a second loss driver depending on the nature of the underlying loan pool and how well that loss driver correlates to expected future losses.
For all DCF models, management has determined that four quarters represents a reasonable and supportable forecast period and reverts back to a historical loss rate over eight quarters on a straight-line basis. Management leverages economic projections from a reputable and independent third-party to inform its loss driver forecasts over the four-quarter forecast period. Other internal and external indicators of economic forecasts are also considered by management when developing the forecast metrics.
The combination of adjustments for credit expectations (default and loss) and timing expectations (prepayment, curtailment, and time to recovery) produces an expected cash flow stream at the instrument level. Instrument effective yield is calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce an instrument-level net present value of expected cash flows (“NPV”). An ACL is established for the difference between the instrument’s NPV and amortized cost basis.
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Loss-Rate Method
The Company uses a loss-rate method to estimate expected credit losses for the farmland, liquid credit, premium finance, factored receivable, and mortgage warehouse loan pools. For each of these loan segments, the Company applies an expected loss ratio based on internal and peer historical losses adjusted as appropriate for qualitative factors. Qualitative loss factors are based on management's judgment of company, market, industry or business specific data, changes in underlying loan composition of specific portfolios, trends relating to credit quality, delinquency, non-performing and adversely rated loans, and reasonable and supportable forecasts of economic conditions.
Collateral Dependent Financial Assets
Loans that do not share risk characteristics are evaluated on an individual basis. For collateral dependent financial assets where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the financial asset to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date. When repayment is expected to be from the operation of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the financial asset exceeds the present value of expected cash flows from the operation of the collateral. When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized costs basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell. The ACL may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset.
The Company’s estimate of the ACL reflects losses expected over the remaining contractual life of the assets. The contractual term does not consider extensions, renewals or modifications unless the Company has identified an expected troubled debt restructuring.
A loan that has been modified or renewed is considered a troubled debt restructuring (“TDR”) when two conditions are met: 1) the borrower is experiencing financial difficulty and 2) concessions are made for the borrower's benefit that would not otherwise be considered for a borrower or transaction with similar credit risk characteristics. The Company’s ACL reflects all effects of a TDR when an individual asset is specifically identified as a reasonably expected TDR. The Company has determined that a TDR is reasonably expected no later than the point when the lender concludes that modification is the best course of action and it is at least reasonably possible that the troubled borrower will accept some form of concession from the lender to avoid a default. Reasonably expected TDRs and executed non-performing TDRs are evaluated individually to determine the required ACL. TDRs performing in accordance with their modified contractual terms for a reasonable period of time may be included in the Company’s existing pools based on the underlying risk characteristics of the loan to measure the ACL.
Paycheck Protection Program
With the passage of the PPP, the Company has actively participated in assisting its customers with applications for loans through the program. Loans funded through the PPP program are fully guaranteed by the U.S. government subject to certain representations and warranties. This guarantee exists at the inception of the loans and throughout the lives of the loans and was not entered into separately and apart from the loans. ASC 326 requires credit enhancements that mitigate credit losses, such as the U.S. government guarantee on PPP loans, to be considered in estimating credit losses. The guarantee is considered “embedded” and, therefore, is considered when estimating credit loss on the PPP loans. Given that the loans are fully guaranteed by the U.S. government and absent any specific loss information on any of our PPP loans, the Company does not carry an ACL on its PPP loans at December 31, 2020.
Loan Commitments and Allowance for Credit Losses on Off-Balance Sheet Credit Exposures
Financial instruments include off-balance sheet credit instruments, such as commitments to make loans, commitments to purchase broadly syndicated loans, and commercial letters of credit, issued to meet customer financing needs. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company records an allowance for credit losses on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancelable, through a charge to credit loss expense in the Company’s consolidated statements of income. The ACL on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur, and is included in other liabilities on the Company’s consolidated balance sheets.
Federal Home Loan Bank (“FHLB”) Stock
The Company is a member of the FHLB system. Members of the FHLB are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost, is restricted as to redemption, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.
Premises and Equipment
Land is carried at cost. Depreciable assets are stated at cost less accumulated depreciation. Leasehold improvements are capitalized and depreciated using the straight-line method over the terms of the respective leases or the estimated useful lives of the improvements, whichever is shorter. Buildings and related components are generally depreciated using the straight-line method with useful lives ranging from thirty to forty years. Automobiles are depreciated using the straight-line method with five year useful lives, and the aircraft is depreciated using an accelerated method with a twenty year useful life. Furniture, fixtures and equipment are depreciated using the straight-line method with useful lives ranging from three to ten years.
The Company leases certain properties and equipment under operating leases. For leases in effect upon adoption of Accounting Standards Update 2016-2, “Leases (Topic 842)” at January 1, 2019 and for any leases commencing thereafter, the Company recognizes a liability to make lease payments, the “lease liability”, and an asset representing the right to use the underlying asset during the lease term, the “right-of-use asset”. The lease liability is measured at the present value of the remaining lease payments, discounted at the Company’s incremental borrowing rate. The right-of-use asset is measured at the amount of the lease liability adjusted for the remaining balance of any lease incentives received, any cumulative prepaid or accrued rent if the lease payments are uneven throughout the lease term, any unamortized initial direct costs, and any impairment of the right-of-use-asset. Operating lease expense consists of a single lease cost calculated so that the remaining cost of the lease is allocated over the remaining lease term on a straight-line basis, variable lease payments not included in the lease liability, and any impairment of the right-of-use asset.
Certain of the Company’s leases contain options to renew the lease; however, these renewal options are not included in the calculation of the lease liabilities as they are not reasonably certain to be exercised. The Company’s leases do not contain residual value guarantees or material variable lease payments. The Company does not have any material restrictions or covenants imposed by leases that would impact the Company’s ability to pay dividends or cause the Company to incur additional financial obligations.
The Company has made an accounting policy election to not apply the recognition requirements in Topic 842 to short-term leases. The Company has also elected to use the practical expedient to make an accounting policy election for property leases to include both lease and nonlease components as a single component and account for it as a lease.
The Company’s leases are not complex; therefore there were no significant assumptions or judgements made in applying the requirements of Topic 842, including the determination of whether the contracts contained a lease, the allocation of consideration in the contracts between lease and nonlease components, and the determination of the discount rates for the leases.
Foreclosed Assets
Assets acquired through loan foreclosure are initially recorded at fair value less costs to sell, establishing a new cost basis. Any write-down in the carrying value of a property at the time of acquisition is charged-off to the allowance for loan and lease losses. After foreclosure, foreclosed assets are carried at the lower of the recorded investment in the asset or the fair value less costs to sell. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Operating costs after acquisition are expensed.
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Goodwill
Goodwill represents the excess of the cost of businesses acquired over the fair value of the net assets acquired. In accordance with ASC 350-20, "Intangibles- Goodwill and Other", the Company evaluates goodwill for impairment on an annual basis or on an interim basis if an event occurs or circumstances change that would more likely than not reduce the fair value below its carrying amount, in accordance with ASC 350-20. The Company’s annual goodwill impairment testing date is October 1.
The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining the need to perform the test for goodwill impairment (the qualitative method). If the qualitative method cannot be used or if it determines, based on the qualitative method, that the fair value is more likely than not less than the carrying amount, the Company compares the estimated fair value of a reporting unit with its carrying amount, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount of a reporting unit exceeds its estimated fair value, the Company will record an impairment charge based on that difference. Our annual goodwill impairment test did not identify any goodwill impairment for the years ended December 31, 2020, 2019, and 2018.
Identifiable Intangible Assets
Intangible assets are acquired assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in combination with a related contract, asset, or liability. The Company's intangible assets primarily relate to core deposits and customer relationships. Intangible assets with definite useful lives are amortized on an accelerated basis over their estimated life. Intangible assets, premises and equipment and other long-lived assets are tested for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value with a charge to amortization of intangible assets.
Bank Owned Life Insurance
The Company has purchased life insurance policies on certain key employees. The purchase of these life insurance policies allows the Company to use tax-advantaged rates of return. Bank-owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.
Derivative Financial Instruments
The Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. At December 31, 2020, the Company had one cash flow hedge position and no fair value or foreign currency hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. Unrealized gains or losses are reported as other comprehensive income or loss.
To qualify for the use of hedge accounting, a derivative must be effective at inception and expected to be continuously effective in offsetting the risk being hedged. A statistical regression analysis is performed at inception and at each reporting period thereafter to evaluate hedge effectiveness.
In accordance with the FASB’s fair value measurement guidance, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes
The Company files a consolidated tax return with its subsidiaries and is taxed as a C corporation. Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The Company recognizes interest and penalties related to income tax matters in income tax expense.
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 may 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. Changes in assumptions or in market conditions could significantly affect these estimates.
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 December 31, 2020 and 2019 estimated fair value for non-impaired loans and deposits are judgmental and may not represent amounts to be received if the Company were to sell or transfer such items.
Revenue from Contracts with Customers
The Company records revenue from contracts with customers in accordance with Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (“Topic 606”). Under Topic 606, the Company must identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) the Company satisfies a performance obligation. Significant revenue has not been recognized in the current reporting period that results from performance obligations satisfied in previous periods.
The Company’s primary sources of revenue are derived from interest and dividends earned on loans, investment securities, and other financial instruments that are not within the scope of Topic 606. The Company has evaluated the nature of its contracts with customers and determined that further disaggregation of revenue from contracts with customers into more granular categories beyond what is presented in the Consolidated Statements of Income was not necessary. The Company generally fully satisfies its performance obligations on its contracts with customers as services are rendered and the transaction prices are typically fixed; charged either on a periodic basis or based on activity. Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, the Company has made no significant judgments in applying the revenue guidance prescribed in ASC 606 that affect the determination of the amount and timing of revenue from contracts with customers.
Operating Segments
The Company’s reportable segments are comprised of strategic business units primarily based upon industry categories and to a lesser extent, the core competencies relating to product origination, distribution methods, operations and servicing. Segment determination also considered organizational structure and our segment reporting is consistent with the presentation of financial information to the chief operating decision maker to evaluate segment performance, develop strategy, and allocate resources. Our chief operating decision maker is the Chief Executive Officer of Triumph Bancorp, Inc. We have determined our reportable segments are Banking, Factoring, and Corporate.
The banking segment includes the operations of TBK Bank and TriumphPay. The 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 commercial factoring services which are originated through the commercial finance division of TBK Bank.
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The factoring segment includes the operations of TBC with revenue derived from factoring services.
The corporate segment includes holding company financing and investment activities and management and administrative expenses to support the overall operations of the Company.
Comprehensive Income (Loss)
Comprehensive income (loss) consists of net income and other comprehensive income (loss). Other comprehensive income includes unrealized gains and losses on debt securities available for sale and cash flow hedges, net of taxes, which are also recognized as a separate component of equity.
Loss Contingencies
Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe such matters exist that will have a material effect on the financial statements.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales when control over the assets has been relinquished. Control over transferred assets is deemed to be relinquished when (i) the assets have been isolated from the Company, (ii) the transferee has the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (iii) the Company does not maintain effective control over the transferred assets through either (a) an agreement that entitles and obligates the Company to repurchase or redeem them before their maturity or (b) the ability to unilaterally cause the transferee to return specific assets.
Stock Based Compensation
Compensation cost is recognized for stock based payment awards issued to employees and directors, based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options, a Monte Carlo simulation is utilized to estimate the fair value of market based performance stock units, and the market price of the Company’s common stock at the date of grant is used for restricted stock awards, restricted stock units, and performance based performance stock units. Compensation cost is recognized over the required service period, generally defined as the vesting period. The Company recognizes forfeitures of nonvested awards as they occur.
Earnings Per Common Share
Basic earnings per common share is net income less dividends on preferred stock divided by the weighted average number of common shares outstanding during the period excluding nonvested restricted stock awards. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable under stock warrants, restricted stock, stock options, and preferred shares that are convertible to common shares.
Advertising Costs
Advertising costs are expensed as incurred.
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Adoption of New Accounting Standards
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 makes significant changes to the accounting for credit losses on financial instruments presented on an amortized cost basis and disclosures about them. The new current expected credit loss (“CECL”) impairment model requires an estimate of expected credit losses, measured over the contractual life of an instrument, which considers reasonable and supportable forecasts of future economic conditions in addition to information about past events and current conditions. The standard provides significant flexibility and requires a high degree of judgment with regards to pooling financial assets with similar risk characteristics and adjusting the relevant historical loss information in order to develop an estimate of expected lifetime losses. ASU 2016-13 permits the use of estimation techniques that are practical and relevant to the Company’s circumstances, as long as they are applied consistently over time and faithfully estimate expected credit losses in accordance with the standard. The ASU lists several common credit loss methods that are acceptable such as a discounted cash flow (“DCF”) method, loss-rate method and roll-rate method. In addition, ASU 2016-13 amends the accounting for credit losses on debt securities and purchased financial assets with credit deterioration.
The Company adopted ASU 2016-13 on January 1, 2020 using the modified retrospective approach. Results for the periods beginning after January 1, 2020 are presented under Accounting Standards Codification (“ASC”) 326 while prior period amounts continue to be reported in accordance with previously applicable US GAAP. The Company recorded a net reduction of retained earnings of $1,770,000 upon adoption. The transition adjustment includes an increase in the allowance for credit losses on loans of $269,000, an increase in the allowance for credit losses on held to maturity debt securities of $126,000, and an increase in the allowance for credit losses on off-balance sheet credit exposures of $1,918,000, net of the corresponding increases in deferred tax assets of $543,000.
The Company adopted ASU 2016-13 using the prospective transition approach for financial assets purchased with credit deterioration (“PCD”) that were previously classified as purchased credit impaired (“PCI”) and accounted for under ASC 310-30. In accordance with the standard, the Company did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. The remaining discount on the PCD assets was determined to be related to noncredit factors and will be accreted into interest income on a level-yield method over the life of the loans.
In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). ASU 2017-04 simplifies the accounting for goodwill impairment for all entities by requiring impairment charges to be based on the first step in the previous two-step impairment test. Under the new guidance, if a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. The standard eliminates the prior requirement to calculate a goodwill impairment charge using Step 2, which requires an entity to calculate any impairment charge by comparing the implied fair value of goodwill with its carrying amount. ASU 2017-04 was effective for the Company on January 1, 2020 and did not have a material impact on the Company’s financial statements.
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820) - Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”). ASU 2018-13 modifies the disclosure requirements on fair value measurements by requiring that Level 3 fair value disclosures include the range and weighted average of significant unobservable inputs used to develop those fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 was effective for the Company on January 1, 2020 and did not have a material impact on the Company’s financial statement disclosures.
In August 2018, the FASB issued ASU 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract” (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. ASU 2018-15 was effective for the Company on January 1, 2020 and did not have a material impact on the Company’s financial statements.
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law. Section 4013 of the CARES Act, “Temporary Relief From Troubled Debt Restructurings,” provides banks the option to temporarily suspend certain requirements under U.S. GAAP related to troubled debt restructurings (“TDR”) for a limited period of time to account for the effects of COVID-19. To qualify for Section 4013 of the CARES Act, borrowers must have been current at December 31, 2019. All modifications are eligible so long as they are executed between March 1, 2020 and the earlier of (i) December 31, 2020, or (ii) the 60th day after the end of the COVID-19 national emergency declared by the President of the U.S. Multiple modifications of the same credits are allowed and there is no cap on the duration of the modification. On December 21, 2020, certain provisions of the CARES Act, including the temporary suspension of certain requirements related to TDRs, were extended through December 31, 2021. See Note 4 of the footnotes to the consolidated financial statements for disclosure of the impact to date.
In March 2020, various regulatory agencies, including the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation, (“the agencies”) issued an interagency statement on loan modifications and reporting for financial institutions working with customers affected by the Coronavirus. The interagency statement was effective immediately and impacted accounting for loan modifications. Under Accounting Standards Codification 310-40, “Receivables – Troubled Debt Restructurings by Creditors,” (“ASC 310-40”), a restructuring of debt constitutes a troubled debt restructuring (“TDR”) if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grands a concession to the debtor that it would not otherwise consider. The agencies confirmed with the staff of the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not to be considered TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. Almost all of the Company’s modifications fall under Section 4013 of the CARES Act and thus, the interagency statement has had very little impact on the Company to date.
NOTE 2 — BUSINESS COMBINATIONS AND DIVESTITURES
Transport Financial Solutions
On July 8, 2020, the Company, through its wholly-owned subsidiary Advance Business Capital LLC (“ABC”), acquired the transportation factoring assets and certain personnel (the “TFS Acquisition”) of Transport Financial Solutions (“TFS”), a wholly owned subsidiary of Covenant Logistics Group, Inc. ("CVLG"), in exchange for cash consideration of $108,375,000, 630,268 shares of the Company’s common stock valued at approximately $13,942,000, and contingent consideration of up to approximately $9,900,000 to be paid in cash following the twelve-month period ending July 31, 2021.
Subsequent to the closing of the TFS Acquisition, the Company identified that approximately $62,200,000 of the assets acquired at closing were advances against future payments to be made to three large clients (and their affiliated entities) of TFS pursuant to long-term contractual arrangements between the obligor on such contracts and such clients (and their affiliated entities) for services that had not yet been performed.
On September 23, 2020, the Company and ABC entered into an Account Management Agreement, Amendment to Purchase Agreement and Mutual Release (the “Agreement”) with CVLG and Covenant Transport Solutions, LLC, a wholly owned subsidiary of CVLG (“CTS” and, together with CVLG, "Covenant"). Pursuant to the Agreement, the parties agreed to certain amendments to that certain Accounts Receivable Purchase Agreement (the “ARPA”), dated as of July 8, 2020, by and among ABC, as buyer, CTS, as seller, and the Company, as buyer indirect parent. Such amendments include:
•Return of the portion of the purchase price paid under the ARPA consisting of 630,268 shares of Company common stock, which was accomplished through the sale of such shares by Covenant pursuant to the terms of the Agreement and the surrender of the cash proceeds of such sale (net of brokerage or underwriting fees and commissions) to the Company;
•Elimination of the earn-out consideration potentially payable to CTS under the ARPA; and
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
•Modification of the indemnity provisions under the ARPA that eliminated the existing indemnifications for breaches of representations and warranties and replaced such with a newly established indemnification by Covenant in the event ABC incurs losses related to the $62,200,000 in over-formula advances made to specified clients identified in the Agreement (the “Over-Formula Advance Portfolio”). Under the terms of the new indemnification arrangement, Covenant is responsible for and will indemnify ABC for 100% of the first $30,000,000 of any losses incurred by ABC related to the Over-Formula Advance Portfolio, and for 50% of the next $30,000,000 of any losses incurred by ABC, for total indemnification by Covenant of $45,000,000.
Covenant’s indemnification obligations under the Agreement are secured by a pledge of equipment collateral by Covenant with an estimated net orderly liquidation value of $60,000,000 (the “Equipment Collateral”). The Company’s wholly-owned bank subsidiary, TBK Bank, SSB, has provided Covenant with a $45,000,000 line of credit, also secured by the Equipment Collateral, the proceeds of which may be drawn to satisfy Covenant’s indemnification obligations under the Agreement.
Pursuant to the Agreement, Triumph and Covenant agreed to certain terms related to the management of the Over-Formula Advance Portfolio, and the terms by which Covenant may provide assistance to maximize recovery on the Over-Formula Advance Portfolio.
Pursuant to the Agreement, the Company and Covenant provided mutual releases to each other related to any and all claims related to the transactions contemplated by the ARPA or the Over-Formula Advance Portfolio.
The measurement period for this transaction was open at the time the Agreement was executed and the Company has determined that there is a clear and direct link between the Agreement and the ARPA. Therefore, the terms of the Agreement have been incorporated into the Company's purchase accounting which has resulted in the elimination of the contingent consideration component of the ARPA, the recognition of a receivable due from Covenant as part of the consideration for the transaction, and an indemnification asset to reflect the modification of Covenant's indemnification obligations.
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the estimated fair values of assets acquired, liabilities assumed, consideration transferred, and the resulting goodwill is as follows:
|
|
|
|
|
|
(Dollars in thousands)
|
|
Assets acquired:
|
|
Factored receivables
|
$107,524
|
Allowance for credit losses
|
(37,415)
|
Factored receivables, net of ACL
|
70,109
|
Intangible assets
|
3,500
|
Indemnification asset
|
30,959
|
Deferred income taxes
|
1,448
|
|
106,016
|
Liabilities assumed:
|
|
Deposits
|
5,361
|
|
5,361
|
Fair value of net assets acquired
|
100,655
|
Consideration:
|
|
Cash paid
|
108,375
|
Stock consideration
|
13,942
|
Receivable due from seller subsequent to liquidation of stock consideration
|
(17,196)
|
Total consideration
|
105,121
|
Goodwill
|
$4,466
|
The acquired assets were allocated to the Company’s Factoring segment. The Company has recognized goodwill of $4,466,000, which was calculated as the excess of the fair value of consideration exchanged as compared to the fair value of identifiable net assets acquired and was allocated to the Company’s Factoring segment. The goodwill in this acquisition resulted from expected synergies and expansion in the factoring market. The goodwill is not deductible for tax purposes.
Consideration included a receivable due from Covenant subsequent to liquidation of the stock consideration with an acquisition date fair value of $17,196,000. The fair value of the receivable due from Covenant for initial purchase accounting measurement purposes was based on the Company's stock price on the date of the Agreement, less an estimate of broker commissions and discounts. During the year ended December 31, 2020, the entirety of the acquired stock was sold by Covenant and Covenant delivered net proceeds of $28,064,000. The Company recognized $10,868,000 of other noninterest income measured as the difference between the initial purchase accounting measurement and the amount of net proceeds delivered to the Company upon liquidation.
The intangible assets recognized include a customer relationship intangible asset with an acquisition date fair value of $3,500,000 which will be amortized utilizing an accelerated method over its eight year estimated useful life.
The indemnification asset was measured separately from the related covered portfolio. It is not contractually embedded in the covered portfolio nor is it transferable with the covered portfolio should the Company choose to dispose of the portfolio or a portion of the portfolio. The indemnification asset at the time of the TFS Acquisition had a fair value of $30,959,000, measured as the present value of the estimated cash payments expected to be received from Covenant for probable losses on the covered Over-Formula Advance Portfolio. These cash flows were discounted at a rate to reflect the uncertainty of the timing and receipt of the payments from Covenant. The amount ultimately collected for this asset will be dependent upon the performance of the underlying covered portfolio, the passage of time, and Covenant's willingness and ability to make necessary payments. The terms of the Agreement are such that indemnification has no expiration date and the Company will continue to carry the indemnification asset until ultimate resolution of the covered portfolio. The Company has elected the fair value option for the indemnification asset. The indemnification asset is reviewed quarterly and changes to the asset are recorded as adjustments to other noninterest income or expense, as appropriate, within the Consolidated Statements of Income. The Company's estimate of probable losses on the covered portfolio increased between the acquisition date and year end resulting in an increase in the value of the indemnification asset of $5,266,000 to $36,225,000 at December 31, 2020.
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The contractually required payments and the fair value at acquisition of factored receivables purchased for which there was not, at acquisition, evidence of more than insignificant deterioration of credit quality since origination (non-PCD loans) totaled $45,228,000 and $44,962,000, respectively.
Management determined that the $62,200,000 in Over-Formula Advances obtained through the TFS Acquisition had experienced more than insignificant credit deterioration since origination and thus, deemed those Over-Formula Advances to be purchased credit deteriorated ("PCD"). Other, less significant factored receivables were also considered to be PCD. The following table presents information at the acquisition date for factored receivables purchased for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination:
|
|
|
|
|
|
(Dollars in thousands)
|
|
Purchase price of loans at acquisition
|
$25,147
|
Allowance for credit losses at acquisition
|
37,415
|
Non-credit discount/(premium) at acquisition
|
941
|
Par value of acquired loans at acquisition
|
$63,503
|
Revenue and earnings of TFS since the acquisition date have not been disclosed as the acquired company was merged into the Company and separate financial information is not readily available. The initial accounting for the acquisition has not been completed because the fair values of the assets acquired and liabilities assumed have not yet been finalized.
Expenses related to the acquisition, including professional fees and other transaction costs, totaling $827,000 were recorded in noninterest expense in the consolidated statements of income during the year ended December 31, 2020.
Triumph Premium Finance
On April 20, 2020, the Company entered into an agreement to sell the assets (the “Disposal Group”) of Triumph Premium Finance (“TPF”) and exit its premium finance line of business. The sale closed on June 30, 2020.
A summary of the carrying amount of the assets in the Disposal Group and the gain on sale is as follows:
|
|
|
|
|
|
(Dollars in thousands)
|
|
Carrying amount of assets in the disposal group:
|
|
Loans
|
$
|
84,504
|
|
Premises and equipment, net
|
45
|
|
Other assets
|
11
|
|
|
84,560
|
|
Carrying amount of liabilities in the disposal group:
|
|
Other liabilities
|
479
|
|
Total carrying amount
|
$
|
84,081
|
|
Total consideration received
|
94,531
|
|
Gain on sale of division
|
10,450
|
|
Transaction costs
|
692
|
|
Gain on sale of division, net of transaction costs
|
$
|
9,758
|
|
The Disposal Group was included in the Banking segment, and the loans in the Disposal Group were previously included in the commercial loan portfolio.
First Bancorp of Durango, Inc. and Southern Colorado Corp.
Effective September 8, 2018 the Company acquired (i) First Bancorp of Durango, Inc. (“FBD”) and its community banking subsidiaries, The First National Bank of Durango and Bank of New Mexico and (ii) Southern Colorado Corp. (“SCC”) and its community banking subsidiary, Citizens Bank of Pagosa Springs, in all-cash transactions. The acquisitions expanded the Company’s market in Colorado and into New Mexico and further diversified the Company’s loan, customer, and deposit base.
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the estimated fair values of assets acquired, liabilities assumed, consideration transferred, and the resulting goodwill is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
FBD
|
|
SCC
|
|
Total
|
Assets acquired:
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
151,973
|
|
|
$
|
14,299
|
|
|
$
|
166,272
|
|
Securities
|
237,183
|
|
|
33,477
|
|
|
270,660
|
|
Loans held for sale
|
1,238
|
|
|
—
|
|
|
1,238
|
|
Loans
|
256,384
|
|
|
31,454
|
|
|
287,838
|
|
FHLB stock
|
786
|
|
|
129
|
|
|
915
|
|
Premises and equipment
|
7,495
|
|
|
840
|
|
|
8,335
|
|
Other real estate owned
|
213
|
|
|
—
|
|
|
213
|
|
Intangible assets
|
11,915
|
|
|
2,154
|
|
|
14,069
|
|
Other assets
|
2,715
|
|
|
403
|
|
|
3,118
|
|
|
669,902
|
|
|
82,756
|
|
|
752,658
|
|
Liabilities assumed:
|
|
|
|
|
|
Deposits
|
601,194
|
|
|
73,464
|
|
|
674,658
|
|
Federal Home Loan Bank advances
|
737
|
|
|
—
|
|
|
737
|
|
Other liabilities
|
1,313
|
|
|
64
|
|
|
1,377
|
|
|
603,244
|
|
|
73,528
|
|
|
676,772
|
|
Fair value of net assets acquired
|
66,658
|
|
|
9,228
|
|
|
75,886
|
|
Cash consideration transferred
|
134,667
|
|
|
13,294
|
|
|
147,961
|
|
Goodwill
|
$
|
68,009
|
|
|
$
|
4,066
|
|
|
$
|
72,075
|
|
The Company has recognized goodwill of $72,075,000, which was calculated as the excess of both the consideration exchanged and the liabilities assumed as compared to the fair value of identifiable net assets acquired and was allocated to the Company’s Banking segment. The goodwill in these acquisitions resulted from expected synergies and expansion in the Colorado market and into the New Mexico market. The goodwill will be deducted for tax purposes. The intangible assets recognized in the transactions are being amortized utilizing an accelerated method over their ten year estimated useful lives.
In connection with the acquisitions, the Company acquired loans both with and without evidence of credit quality deterioration since origination. The acquired loans were initially recorded at fair value with no carryover of any allowance for loan and lease losses. Acquired loans were segregated between those considered to be purchased credit impaired (“PCI”) loans and those without credit impairment at acquisition. The following table presents details of the estimated fair value of acquired loans at the acquisition date:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Excluding PCI Loans
|
|
PCI Loans
|
|
Total Loans
Acquired
|
(Dollars in thousands)
|
FBD
|
|
SCC
|
|
Total
|
|
FBD
|
|
SCC
|
|
Total
|
|
Commercial real estate
|
$
|
140,955
|
|
|
$
|
11,894
|
|
|
$
|
152,849
|
|
|
$
|
832
|
|
|
$
|
200
|
|
|
$
|
1,032
|
|
|
$
|
153,881
|
|
Construction, land development, land
|
13,949
|
|
|
5,229
|
|
|
19,178
|
|
|
3,081
|
|
|
—
|
|
|
3,081
|
|
|
22,259
|
|
1-4 family residential properties
|
59,228
|
|
|
10,180
|
|
|
69,408
|
|
|
75
|
|
|
—
|
|
|
75
|
|
|
69,483
|
|
Farmland
|
5,709
|
|
|
1,207
|
|
|
6,916
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,916
|
|
Commercial
|
26,125
|
|
|
2,121
|
|
|
28,246
|
|
|
1,020
|
|
|
—
|
|
|
1,020
|
|
|
29,266
|
|
Factored receivables
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer
|
5,410
|
|
|
623
|
|
|
6,033
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,033
|
|
Mortgage warehouse
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
$
|
251,376
|
|
|
$
|
31,254
|
|
|
$
|
282,630
|
|
|
$
|
5,008
|
|
|
$
|
200
|
|
|
$
|
5,208
|
|
|
$
|
287,838
|
|
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following presents information at the acquisition date for non-PCI loans acquired in the transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
FBD
|
|
SCC
|
|
Total
|
Contractually required principal and interest payments
|
$
|
318,674
|
|
|
$
|
38,590
|
|
|
$
|
357,264
|
|
Contractual cash flows not expected to be collected
|
$
|
4,255
|
|
|
$
|
550
|
|
|
$
|
4,805
|
|
Fair value at acquisition
|
$
|
251,376
|
|
|
$
|
31,254
|
|
|
$
|
282,630
|
|
The following presents information at the acquisition date for PCI loans acquired in the transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
FBD
|
|
SCC
|
|
Total
|
Contractually required principal and interest payments
|
$
|
10,511
|
|
|
$
|
269
|
|
|
$
|
10,780
|
|
Contractual cash flows not expected to be collected (nonaccretable difference)
|
2,570
|
|
|
5
|
|
|
2,575
|
|
Expected cash flows at acquisition
|
7,941
|
|
|
264
|
|
|
8,205
|
|
Interest component of expected cash flows (accretable yield)
|
2,933
|
|
|
64
|
|
|
2,997
|
|
Fair value of loans acquired with deterioration of credit quality
|
$
|
5,008
|
|
|
$
|
200
|
|
|
$
|
5,208
|
|
The following table presents unaudited supplemental pro forma information for the years ended December 31, 2018 and 2017 as if the FBD and SCC acquisitions had occurred at the beginning of 2017. The supplemental pro forma information includes adjustments for interest income on loans acquired, depreciation expense on property acquired, amortization of intangibles arising from the transactions, and the related income tax effects. Additionally, because FBD and SCC were Subchapter S corporations before the acquisitions and did not incur any federal income tax liabilities, adjustments have been included to estimate the impact of federal income taxes on FBD and SCC’s net income for the periods presented. The supplemental pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transactions been completed on the assumed date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
(Dollars in thousands)
|
FBD
|
|
SCC
|
|
Total
|
Net interest income
|
$
|
241,322
|
|
|
$
|
228,797
|
|
|
$
|
243,069
|
|
Noninterest income
|
$
|
26,473
|
|
|
$
|
23,412
|
|
|
$
|
26,915
|
|
Net income
|
$
|
52,269
|
|
|
$
|
51,541
|
|
|
$
|
52,102
|
|
Basic earnings per common share
|
$
|
2.00
|
|
|
$
|
2.05
|
|
|
$
|
1.99
|
|
Diluted earnings per common share
|
$
|
1.97
|
|
|
$
|
2.01
|
|
|
$
|
1.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
(Dollars in thousands)
|
FBD
|
|
SCC
|
|
Total
|
Net interest income
|
$
|
176,154
|
|
|
$
|
158,166
|
|
|
$
|
178,636
|
|
Noninterest income
|
$
|
45,570
|
|
|
$
|
41,166
|
|
|
$
|
46,080
|
|
Net income
|
$
|
39,211
|
|
|
$
|
36,475
|
|
|
$
|
39,466
|
|
Basic earnings per common share
|
$
|
1.68
|
|
|
$
|
1.83
|
|
|
$
|
1.66
|
|
Diluted earnings per common share
|
$
|
1.65
|
|
|
$
|
1.79
|
|
|
$
|
1.63
|
|
Revenue and earnings of FBD and SCC since the acquisition date have not been disclosed as the acquired companies were merged into the Company and separate financial information is not readily available.
Expenses related to the acquisitions, including professional fees and other transaction costs, totaling $5,871,000 were recorded in noninterest expense in the consolidated statements of income during the year ended December 31, 2018.
Interstate Capital Corporation
On June 2, 2018, the Company acquired substantially all of the operating assets of, and assumed certain liabilities associated with, Interstate Capital Corporation’s (“ICC”) accounts receivable factoring business and other related financial services. ICC operates out of offices located in El Paso, Texas and provides invoice factoring to small and medium-sized businesses.
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the estimated fair values of assets acquired, liabilities assumed, consideration transferred, and the resulting goodwill is as follows:
|
|
|
|
|
|
(Dollars in thousands)
|
|
Assets acquired:
|
|
Cash and cash equivalents
|
$
|
75
|
|
Factored receivables
|
131,017
|
|
Premises and equipment
|
279
|
|
Intangible assets
|
13,920
|
|
Other assets
|
144
|
|
|
145,435
|
|
Liabilities assumed:
|
|
Deposits
|
7,389
|
|
Other liabilities
|
763
|
|
|
8,152
|
|
Fair value of net assets acquired
|
137,283
|
|
Consideration:
|
|
Cash paid
|
160,258
|
|
Contingent consideration
|
20,000
|
|
Total consideration
|
180,258
|
|
Goodwill
|
$
|
42,975
|
|
ICC’s net assets acquired were allocated to the Company’s Factoring segment whose factoring operations were significantly expanded as a result of the transaction. The Company has recognized goodwill of $42,975,000, which was calculated as the excess of both the fair value of cash consideration exchanged and the fair value of the contingent liability assumed as compared to the fair value of identifiable net assets acquired and was allocated to the Company’s Factoring segment. The goodwill in this acquisition resulted from expected synergies and expansion in the factoring market. The goodwill will be deducted for tax purposes. The intangible assets recognized include a customer relationship intangible asset with an acquisition date fair value of $13,500,000, which is being amortized utilizing an accelerated method over its eight year estimated useful life, and a trade name intangible asset with an acquisition date fair value of $420,000, which is being amortized on a straight-line basis over its three year estimated useful life.
Consideration paid included contingent consideration with an acquisition date fair value of $20,000,000. The contingent consideration is based on a proprietary index designed to approximate the rise and fall of transportation invoice prices subsequent to acquisition and is correlated to monthly movements in average invoice prices historically experienced by ICC. At the end of a 30 month earnout period, a final average index price will be calculated and the contingent consideration will be settled in cash based on the final average index price. Final contingent consideration payout will range from $0 to $22,000,000, and the fair value of the associated liability will be remeasured each reporting period with changes in fair value recorded in noninterest income in the consolidated statements of income. The full $22,000,000 of contingent consideration was paid out during the year ended December 31, 2020.
Revenue and earnings of ICC since the acquisition date have not been disclosed as the acquired company was merged into the Company and separate financial information is not readily available.
Expenses related to the acquisition, including professional fees and other transaction costs, totaling $1,094,000 were recorded in noninterest expense in the consolidated statements of income during the year ended December 31, 2018.
Triumph Healthcare Finance
On January 19, 2018, the Company entered into an agreement to sell the assets (the “Disposal Group”) of Triumph Healthcare Finance (“THF”) and exit its healthcare asset based lending line of business. At December 31, 2017, the carrying amount of the Disposal Group was transferred to assets held for sale. The sale closed on March 16, 2018.
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the carrying amount of the assets in the Disposal Group and the gain on sale is as follows:
|
|
|
|
|
|
(Dollars in thousands)
|
|
Carrying amount of assets in the disposal group:
|
|
Loans
|
$
|
70,147
|
|
Premises and equipment, net
|
19
|
|
Goodwill
|
1,457
|
|
Intangible assets, net
|
958
|
|
Other assets
|
197
|
|
Total carrying amount
|
72,778
|
|
Total consideration received
|
74,017
|
|
Gain on sale of division
|
1,239
|
|
Transaction costs
|
168
|
|
Gain on sale of division, net of transaction costs
|
$
|
1,071
|
|
The Disposal Group was included in the Banking segment, and the loans in the Disposal Group were previously included in the commercial loan portfolio.
NOTE 3 — SECURITIES
Equity Securities with Readily Determinable Fair Values
The Company held equity securities with fair values of $5,826,000 and $5,437,000 at December 31, 2020 and 2019, respectively. The gross realized and unrealized gains (losses) recognized on equity securities with readily determinable fair values in noninterest income in the Company’s consolidated statements of income were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2020
|
|
2019
|
Unrealized gains (losses) on equity securities still held at the reporting date
|
|
$
|
389
|
|
|
$
|
393
|
|
Realized gains (losses) on equity securities sold during the period
|
|
—
|
|
|
—
|
|
|
|
$
|
389
|
|
|
$
|
393
|
|
Debt Securities
Debt securities have been classified in the financial statements as available for sale or held to maturity. The following table summarizes the amortized cost, fair value, and allowance for credit losses of debt securities and the corresponding amounts of gross unrealized gains and losses of available for sale securities recognized in accumulated other comprehensive income (loss) and gross unrecognized gains and losses of held to maturity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Allowance for Credit Losses
|
|
Fair
Value
|
December 31, 2020
|
|
|
|
|
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agency obligations
|
|
$
|
14,942
|
|
|
$
|
146
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
15,088
|
|
Mortgage-backed securities, residential
|
|
26,547
|
|
|
1,139
|
|
|
(2)
|
|
|
—
|
|
|
27,684
|
|
Asset-backed securities
|
|
7,091
|
|
|
—
|
|
|
(52)
|
|
|
—
|
|
|
7,039
|
|
State and municipal
|
|
36,238
|
|
|
1,157
|
|
|
—
|
|
|
—
|
|
|
37,395
|
|
CLO Securities
|
|
118,128
|
|
|
4,335
|
|
|
(259)
|
|
|
—
|
|
|
122,204
|
|
Corporate bonds
|
|
11,373
|
|
|
205
|
|
|
(5)
|
|
|
—
|
|
|
11,573
|
|
SBA pooled securities
|
|
3,200
|
|
|
133
|
|
|
(6)
|
|
|
—
|
|
|
3,327
|
|
Total available for sale securities
|
|
$
|
217,519
|
|
|
$
|
7,115
|
|
|
$
|
(324)
|
|
|
$
|
—
|
|
|
$
|
224,310
|
|
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
December 31, 2020
|
|
|
|
|
Held to maturity securities:
|
|
|
|
|
|
|
|
|
CLO securities
|
|
$
|
7,945
|
|
|
$
|
—
|
|
|
$
|
(2,095)
|
|
|
$
|
5,850
|
|
Allowance for credit losses
|
|
(2,026)
|
|
|
|
|
|
|
|
Total held to maturity securities, net of ACL
|
|
$
|
5,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
December 31, 2019
|
|
|
|
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
U.S. Government agency obligations
|
|
$
|
39,679
|
|
|
$
|
115
|
|
|
$
|
(34)
|
|
|
$
|
39,760
|
|
U.S. Treasury notes
|
|
37,324
|
|
|
728
|
|
|
(36)
|
|
|
38,016
|
|
Mortgage-backed securities, residential
|
|
8,039
|
|
|
—
|
|
|
(80)
|
|
|
7,959
|
|
Asset-backed securities
|
|
31,746
|
|
|
327
|
|
|
(8)
|
|
|
32,065
|
|
State and municipal
|
|
75,592
|
|
|
39
|
|
|
(358)
|
|
|
75,273
|
|
Corporate bonds
|
|
50,889
|
|
|
695
|
|
|
(1)
|
|
|
51,583
|
|
SBA pooled securities
|
|
4,112
|
|
|
53
|
|
|
(1)
|
|
|
4,164
|
|
Total available for sale securities
|
|
$
|
247,381
|
|
|
$
|
1,957
|
|
|
$
|
(518)
|
|
|
$
|
248,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
December 31, 2019
|
|
|
|
|
Held to maturity securities:
|
|
|
|
|
|
|
|
|
CLO securities
|
|
$
|
8,417
|
|
|
$
|
—
|
|
|
$
|
(1,510)
|
|
|
$
|
6,907
|
|
The amortized cost and estimated fair value of debt securities at December 31, 2020, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale Securities
|
|
Held to Maturity Securities
|
(Dollars in thousands)
|
Amortized
Cost
|
|
Fair
Value
|
|
Amortized
Cost
|
|
Fair
Value
|
Due in one year or less
|
$
|
26,603
|
|
|
$
|
26,873
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Due from one year to five years
|
12,119
|
|
|
12,394
|
|
|
—
|
|
|
—
|
|
Due from five years to ten years
|
23,434
|
|
|
24,944
|
|
|
7,945
|
|
|
5,850
|
|
Due after ten years
|
118,525
|
|
|
122,049
|
|
|
—
|
|
|
—
|
|
|
180,681
|
|
|
186,260
|
|
|
7,945
|
|
|
5,850
|
|
Mortgage-backed securities, residential
|
26,547
|
|
|
27,684
|
|
|
—
|
|
|
—
|
|
Asset-backed securities
|
7,091
|
|
|
7,039
|
|
|
—
|
|
|
—
|
|
SBA pooled securities
|
3,200
|
|
|
3,327
|
|
|
—
|
|
|
—
|
|
|
$
|
217,519
|
|
|
$
|
224,310
|
|
|
$
|
7,945
|
|
|
$
|
5,850
|
|
Proceeds from sales of debt securities and the associated gross gains and losses are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
2020
|
|
2019
|
|
2018
|
Proceeds
|
$
|
70,198
|
|
|
$
|
40,617
|
|
|
$
|
123,016
|
|
Gross gains
|
3,233
|
|
|
133
|
|
|
3
|
|
Gross losses
|
(140)
|
|
|
(125)
|
|
|
(273)
|
|
Net gains and losses from calls of securities
|
133
|
|
|
53
|
|
|
(2)
|
|
Debt securities with a carrying amount of approximately $73,056,000 and $48,237,000 at December 31, 2020 and 2019, respectively, were pledged to secure public deposits, customer repurchase agreements, and for other purposes required or permitted by law.
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accrued interest on available for sale securities totaled $1,233,000 and $1,685,000 at December 31, 2020 and 2019, respectively, and was included in other assets in the Consolidated Balance Sheets.
The following table summarizes available for sale debt securities in an unrealized loss position for which an allowance for credit losses has not been recorded, aggregated by investment category and length of time that individual securities have been in a continuous loss position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
12 Months or More
|
|
Total
|
(Dollars in thousands)
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
December 31, 2020
|
|
|
|
|
|
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agency obligations
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Mortgage-backed securities, residential
|
|
100
|
|
|
(1)
|
|
|
215
|
|
|
(1)
|
|
|
315
|
|
|
(2)
|
|
Asset-backed securities
|
|
129
|
|
|
—
|
|
|
6,911
|
|
|
(52)
|
|
|
7,040
|
|
|
(52)
|
|
State and municipal
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
CLO Securities
|
|
12,083
|
|
|
(93)
|
|
|
29,785
|
|
|
(166)
|
|
|
41,868
|
|
|
(259)
|
|
Corporate bonds
|
|
498
|
|
|
(5)
|
|
|
150
|
|
|
—
|
|
|
648
|
|
|
(5)
|
|
SBA pooled securities
|
|
889
|
|
|
(6)
|
|
|
29
|
|
|
—
|
|
|
918
|
|
|
(6)
|
|
Total available for sale securities
|
|
$
|
13,699
|
|
|
$
|
(105)
|
|
|
$
|
37,090
|
|
|
$
|
(219)
|
|
|
$
|
50,789
|
|
|
$
|
(324)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
12 Months or More
|
|
Total
|
(Dollars in thousands)
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
December 31, 2019
|
|
|
|
|
|
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agency obligations
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,331
|
|
|
$
|
(34)
|
|
|
$
|
12,331
|
|
|
$
|
(34)
|
|
Mortgage-backed securities, residential
|
|
3,549
|
|
|
(29)
|
|
|
777
|
|
|
(7)
|
|
|
4,326
|
|
|
(36)
|
|
Asset-backed securities
|
|
2,986
|
|
|
(36)
|
|
|
4,973
|
|
|
(44)
|
|
|
7,959
|
|
|
(80)
|
|
State and municipal
|
|
562
|
|
|
—
|
|
|
3,426
|
|
|
(8)
|
|
|
3,988
|
|
|
(8)
|
|
CLO Securities
|
|
58,160
|
|
|
(358)
|
|
|
—
|
|
|
—
|
|
|
58,160
|
|
|
(358)
|
|
Corporate bonds
|
|
—
|
|
|
—
|
|
|
149
|
|
|
(1)
|
|
|
149
|
|
|
(1)
|
|
SBA pooled securities
|
|
354
|
|
|
—
|
|
|
9
|
|
|
(1)
|
|
|
363
|
|
|
(1)
|
|
Total available for sale securities
|
|
$
|
65,611
|
|
|
$
|
(423)
|
|
|
$
|
21,665
|
|
|
$
|
(95)
|
|
|
$
|
87,276
|
|
|
$
|
(518)
|
|
Management evaluates available for sale debt securities in unrealized loss positions to determine whether the impairment is due to credit-related factors or noncredit-related factors. Consideration is given to (1)the extent to which the fair value is 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.
At December 31, 2020, the Company had 42 available for sale debt securities in an unrealized loss position without an allowance for credit losses. Management does not have the intent to sell any of these securities 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 securities approach their maturity date or repricing date or if market yields for such investments decline. Accordingly, as of December 31, 2020, management believes that the unrealized losses detailed in the previous table are due to noncredit-related factors, including changes in interest rates and other market conditions, and therefore no losses have been recognized in the Company’s consolidated statements of income.
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the activity in the allowance for credit losses for held to maturity debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Year Ended December 31,
|
Held to Maturity CLO Securities
|
|
2020
|
|
2019
|
|
2018
|
Allowance for credit losses:
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Impact of adopting ASC 326
|
|
126
|
|
|
—
|
|
|
—
|
|
Credit loss expense
|
|
1,900
|
|
|
—
|
|
|
—
|
|
Allowance for credit losses ending balance
|
|
$
|
2,026
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The Company’s held to maturity securities are investments in the unrated subordinated notes of collateralized loan obligation funds. These securities are the junior-most in securitization capital structures, and are subject to suspension of distributions if the credit of the underlying loan portfolios deteriorates materially. During the year ended December 31, 2020, pandemic-related downgrades and default activity caused overcollateralization triggers to be tripped on two of the three CLO investments which had a material impact on expected cash flows used to calculate the ACL. At year end, there were no overcollateralization triggers that remained tripped. Ultimately, the realized cash flows on CLO securities such as these will be driven by a variety of factors, including credit performance of the underlying loan portfolio, adjustments to the portfolio by the asset manager, and the timing of a potential call. At December 31, 2020, the Company’s held to maturity securities were classified as nonaccrual.
NOTE 4 — LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans Held for Sale
The following table presents loans held for sale:
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
December 31, 2020
|
|
December 31, 2019
|
1-4 family residential
|
$
|
6,319
|
|
|
$
|
2,735
|
|
Commercial
|
18,227
|
|
|
—
|
|
Total loans held for sale
|
$
|
24,546
|
|
|
$
|
2,735
|
|
Loans Held for Investment and Allowance for Credit Losses
The following table presents the amortized cost and unpaid principal for loans held for investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
(Dollars in thousands)
|
Amortized Cost
|
|
Unpaid
Principal
|
|
Difference
|
|
Amortized Cost
|
|
Unpaid
Principal
|
|
Difference
|
Commercial real estate
|
$
|
779,158
|
|
|
$
|
782,614
|
|
|
$
|
(3,456)
|
|
|
$
|
1,046,961
|
|
|
$
|
1,051,684
|
|
|
$
|
(4,723)
|
|
Construction, land development, land
|
219,647
|
|
|
220,021
|
|
|
(374)
|
|
|
160,569
|
|
|
162,335
|
|
|
(1,766)
|
|
1-4 family residential properties
|
157,147
|
|
|
157,731
|
|
|
(584)
|
|
|
179,425
|
|
|
180,340
|
|
|
(915)
|
|
Farmland
|
103,685
|
|
|
104,522
|
|
|
(837)
|
|
|
154,975
|
|
|
156,995
|
|
|
(2,020)
|
|
Commercial
|
1,562,957
|
|
|
1,579,841
|
|
|
(16,884)
|
|
|
1,342,683
|
|
|
1,346,444
|
|
|
(3,761)
|
|
Factored receivables
|
1,120,770
|
|
|
1,122,008
|
|
|
(1,238)
|
|
|
619,986
|
|
|
621,697
|
|
|
(1,711)
|
|
Consumer
|
15,838
|
|
|
15,863
|
|
|
(25)
|
|
|
21,925
|
|
|
21,994
|
|
|
(69)
|
|
Mortgage warehouse
|
1,037,574
|
|
|
1,037,574
|
|
|
—
|
|
|
667,988
|
|
|
667,988
|
|
|
—
|
|
Total
|
4,996,776
|
|
|
$
|
5,020,174
|
|
|
$
|
(23,398)
|
|
|
4,194,512
|
|
|
$
|
4,209,477
|
|
|
$
|
(14,965)
|
|
Allowance for credit losses
|
(95,739)
|
|
|
|
|
|
|
(29,092)
|
|
|
|
|
|
|
$
|
4,901,037
|
|
|
|
|
|
|
$
|
4,165,420
|
|
|
|
|
|
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The difference between the amortized cost and unpaid principal balance is primarily (1) premiums and discounts associated with acquired loans totaling $18,511,000 and $13,573,000 at December 31, 2020 and 2019, respectively, and (2) net deferred origination and factoring fees totaling $4,887,000 and $1,392,000 at December 31, 2020 and 2019, respectively.
Accrued Interest on loans, which is excluded from the amortized cost of loans held for investment, totaled $18,198,000 and $18,553,000 at December 31, 2020 and December 31, 2019, respectively, and was included in other assets in the Consolidated Balance Sheets.
As of December 31, 2020, most of the Company’s non-factoring business activity is with customers located within certain states. The states of Texas (22%), Colorado (17%), Illinois (12%), and Iowa (6%), make up 57% 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. At December 31, 2019, the states of Texas (27%), Colorado (23%), Illinois (13%), and Iowa (7%) made up 70% of the Company’s gross loans, excluding factored receivables.
A majority (90%) of the Company’s factored receivables, representing approximately 20% of the total loan portfolio as of December 31, 2020, are transportation receivables. At December 31, 2019, 77% of our factored receivables, representing approximately 11% of our total loan portfolio, were transportation receivables.
At December 31, 2020 and 2019, the Company had $145,892,000 and $66,754,000, respectively, of customer reserves associated with factored receivables which are 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 and are periodically released to or withdrawn by customers. Customer reserves are reported as deposits in the consolidated balance sheets.
At December 31, 2020 the balance of the Over-Formula Advance Portfolio included in factored receivables was $62,100,000.
As of December 31, 2020 the Company carries a separate $19,600,000 receivable (the “Misdirected Payments”) payable by the United States Postal Service (“USPS”) arising from accounts factored to the largest Over-Formula Advance Portfolio carrier. This amount is included in factored receivables and is separate from the aforementioned Over-Formula Advance Portfolio. The amounts represented by this receivable were paid by the USPS directly to such customer in contravention of notices of assignment delivered to, and previously honored by, the USPS, which amount was then not remitted back to the Company by such customer as required. The USPS disputes their obligation to make such payment, citing purported deficiencies in the notices delivered to them. In addition to commencing litigation against such customer, the Company has also filed a declaratory judgment action in Federal District Court for the Southern District of Florida seeking a ruling that the USPS was obligated to make the payments represented by this receivable directly to the Company. Based on our legal analysis and discussions with our counsel advising us on this matter, the Company believes it is probable that it will prevail in such action and that the USPS will have the capacity to make payment on such receivable. Consequently, the Company has not reserved for such balance as of December 31, 2020.
Loans with carrying amounts of $2,255,441,000 and $1,301,851,000 at December 31, 2020 and 2019, respectively, were pledged to secure Federal Home Loan Bank borrowing capacity and, beginning in 2020, to secure Paycheck Protection Program Liquidity Facility borrowings and Federal Reserve Bank discount window borrowing capacity.
During the year ended December 31, 2020, loans with carrying amounts of $185,823,000 were transferred from loans held for investment to loans held for sale at fair value concurrently with management’s change in intent and decision to sell the loans. During the year ended December 31, 2020, certain loans transferred to held for sale were sold resulting in proceeds of $165,877,000, and the Company recognized net losses on transfers and sales of loans, which were recorded as other noninterest income in the consolidated statements of income, of $770,000.
During the year ended December 31, 2019, loans with carrying amounts of $46,163,000 were transferred from loans held for investment to loans held for sale at fair value concurrently with management’s change in intent and decision to sell the loans. During the year ended December 31, 2019, certain loans transferred to held for sale were sold resulting in proceeds of $47,832,000 and net gains on transfers and sales of loans, which were recorded as other noninterest income in the Consolidated Statements of Income, of $1,669,000.
During the year ended December 31, 2018, a related party loan with a carrying amount of $9,781,000 was transferred to loans held for sale as the Company made the decision to sell the loan. The loan was subsequently sold at its par value for no gain or loss. See Note 18 – Related Party Transactions for further information regarding the sale of the related party loan.
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Allowance for Credit Losses
The Company’s estimate of the ACL reflects losses expected over the remaining contractual life of the assets. The contractual term does not consider extensions, renewals or modifications unless the Company has identified an expected troubled debt restructuring. The activity in the allowance for credit losses (“ACL”) related to loans held for investment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Beginning
Balance
|
|
Impact of Adopting ASC 326
|
|
Initial ACL on Loans Purchased with Credit Deterioration
|
|
Credit Loss Expense
|
|
Charge-offs
|
|
Recoveries
|
|
Reclassification
To Held For Sale
|
|
Ending
Balance
|
Year ended December 31, 2020
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
5,353
|
|
|
$
|
1,372
|
|
|
$
|
—
|
|
|
$
|
3,607
|
|
|
$
|
(320)
|
|
|
$
|
170
|
|
|
$
|
—
|
|
|
$
|
10,182
|
|
Construction, land development, land
|
|
1,382
|
|
|
(187)
|
|
|
—
|
|
|
2,005
|
|
|
(23)
|
|
|
241
|
|
|
—
|
|
|
3,418
|
|
1-4 family residential properties
|
|
308
|
|
|
513
|
|
|
—
|
|
|
378
|
|
|
(27)
|
|
|
53
|
|
|
—
|
|
|
1,225
|
|
Farmland
|
|
670
|
|
|
437
|
|
|
—
|
|
|
(355)
|
|
|
—
|
|
|
80
|
|
|
—
|
|
|
832
|
|
Commercial
|
|
12,566
|
|
|
(184)
|
|
|
—
|
|
|
11,336
|
|
|
(2,344)
|
|
|
1,115
|
|
|
(449)
|
|
|
22,040
|
|
Factored receivables
|
|
7,657
|
|
|
(1,630)
|
|
|
37,415
|
|
|
16,079
|
|
|
(3,201)
|
|
|
143
|
|
|
—
|
|
|
56,463
|
|
Consumer
|
|
488
|
|
|
(52)
|
|
|
—
|
|
|
562
|
|
|
(573)
|
|
|
117
|
|
|
—
|
|
|
542
|
|
Mortgage warehouse
|
|
668
|
|
|
—
|
|
|
—
|
|
|
369
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,037
|
|
|
|
$
|
29,092
|
|
|
$
|
269
|
|
|
$
|
37,415
|
|
|
$
|
33,981
|
|
|
$
|
(6,488)
|
|
|
$
|
1,919
|
|
|
$
|
(449)
|
|
|
$
|
95,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Beginning
Balance
|
|
Provision
|
|
Charge-offs
|
|
Recoveries
|
|
Ending
Balance
|
Year ended December 31, 2019
|
|
|
|
|
|
Commercial real estate
|
|
$
|
4,493
|
|
|
$
|
1,163
|
|
|
$
|
(304)
|
|
|
$
|
1
|
|
|
$
|
5,353
|
|
Construction, land development, land
|
|
1,134
|
|
|
234
|
|
|
(78)
|
|
|
92
|
|
|
1,382
|
|
1-4 family residential properties
|
|
317
|
|
|
71
|
|
|
(141)
|
|
|
61
|
|
|
308
|
|
Farmland
|
|
535
|
|
|
400
|
|
|
(265)
|
|
|
—
|
|
|
670
|
|
Commercial
|
|
12,865
|
|
|
2,580
|
|
|
(3,326)
|
|
|
447
|
|
|
12,566
|
|
Factored receivables
|
|
7,299
|
|
|
2,556
|
|
|
(2,494)
|
|
|
296
|
|
|
7,657
|
|
Consumer
|
|
615
|
|
|
583
|
|
|
(876)
|
|
|
166
|
|
|
488
|
|
Mortgage warehouse
|
|
313
|
|
|
355
|
|
|
—
|
|
|
—
|
|
|
668
|
|
|
|
$
|
27,571
|
|
|
$
|
7,942
|
|
|
$
|
(7,484)
|
|
|
$
|
1,063
|
|
|
$
|
29,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Beginning
Balance
|
|
Provision
|
|
Charge-offs
|
|
Recoveries
|
|
Ending
Balance
|
Year ended December 31, 2018
|
|
|
|
|
|
Commercial real estate
|
|
$
|
3,435
|
|
|
$
|
1,044
|
|
|
$
|
(90)
|
|
|
$
|
104
|
|
|
$
|
4,493
|
|
Construction, land development, land
|
|
883
|
|
|
293
|
|
|
(59)
|
|
|
17
|
|
|
1,134
|
|
1-4 family residential properties
|
|
293
|
|
|
23
|
|
|
(17)
|
|
|
18
|
|
|
317
|
|
Farmland
|
|
310
|
|
|
425
|
|
|
(200)
|
|
|
—
|
|
|
535
|
|
Commercial
|
|
8,150
|
|
|
10,052
|
|
|
(5,855)
|
|
|
518
|
|
|
12,865
|
|
Factored receivables
|
|
4,597
|
|
|
3,857
|
|
|
(1,224)
|
|
|
69
|
|
|
7,299
|
|
Consumer
|
|
783
|
|
|
457
|
|
|
(989)
|
|
|
364
|
|
|
615
|
|
Mortgage warehouse
|
|
297
|
|
|
16
|
|
|
—
|
|
|
—
|
|
|
313
|
|
|
|
$
|
18,748
|
|
|
$
|
16,167
|
|
|
$
|
(8,434)
|
|
|
$
|
1,090
|
|
|
$
|
27,571
|
|
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The ACL as of December 31, 2020 was estimated using the current expected credit loss model. Management determined that the $62,200,000 in Over-Formula Advances and some smaller immaterial factored receivables obtained through the TFS Acquisition had experienced more than insignificant credit deterioration since origination and thus deemed those Over-Formula Advances to be purchased credit deteriorated ("PCD"). This resulted in recording a $37,415,000 ACL on the PCD assets through purchase accounting during the year ended December 31, 2020. There was no initial impact to credit loss expense resulting from the PCD determination. At December 31, 2020, the ACL on the Over-Formula Advance PCD assets increased by $11,548,000 and the total ACL on all acquired PCD assets was $48,963,000. The change in ACL on PCD assets subsequent to acquisition was charged to credit loss expense. The primary reasons for the increase in required ACL during the year ended December 31, 2020 are the $48,963,000 PCD ACL and significant projected deterioration of the loss drivers that the Company forecasts to calculate expected losses during the period.
The Company uses the discounted cash flow (DCF) method to estimate ACL for the commercial real estate, construction, land development, land, 1-4 family residential, commercial (excluding liquid credit), and consumer loan pools. For all loan pools utilizing the DCF method, the Company utilizes and forecasts national unemployment as a loss driver. The Company also utilizes and forecasts either one-year percentage change in national retail sales (commercial real estate – non multifamily, commercial general, commercial agriculture, commercial asset-based lending, commercial equipment finance, consumer), one-year percentage change in the national home price index (1-4 family residential and construction, land development, land), or one-year percentage change in national gross domestic product (commercial real estate – multifamily) as a second loss driver depending on the nature of the underlying loan pool and how well that loss driver correlates to expected future losses. Consistent forecasts of the loss drivers are used across the loan segments.
For all DCF models at December 31, 2020, the Company has determined that four quarters represents a reasonable and supportable forecast period and reverts back to a historical loss rate over eight quarters on a straight-line basis. The Company leverages economic projections from a reputable and independent third-party to inform its loss driver forecasts over the four-quarter forecast period. Other internal and external indicators of economic forecasts are also considered by the Company when developing the forecast metrics. At December 31, 2020, as compared to January 1, 2020, the Company forecasted a significantly higher national unemployment rate, a lower one-year percentage change in national retail sales, a lower one-year percentage change in the national home price index, and a somewhat higher one-year percentage change in national gross domestic product over the reasonable and supportable forecast period. Specifically regarding the forecasts used to calculate the December 31, 2020 ACL, management expects unemployment to remain persistently above pre-pandemic levels over the forecast period. Percentage change in retail sales is assumed to return to pre-pandemic levels given additional federal stimulus and the expected broad distribution of a COVID-19 vaccine. A gradual decline in the percentage change in national home price index is expected over the forecasted period as the effects of the pandemic on home prices are expected to lag behind other loss drivers. Percentage change in GDP growth is forecasted to increase over the projected period as the national economy comes back on line over the next four quarters.
The Company uses a loss-rate method to estimate expected credit losses for the farmland, liquid credit, premium finance, factored receivable, and mortgage warehouse loan pools. For each of these loan segments, the Company applies an expected loss ratio based on internal and peer historical losses adjusted as appropriate for qualitative factors. Qualitative loss factors are based on the Company's judgment of company, market, industry or business specific data, changes in underlying loan composition of specific portfolios, trends relating to credit quality, delinquency, non-performing and adversely rated loans, and reasonable and supportable forecasts of economic conditions. Loss factors used to calculate the required ACL on pools that use the loss-rate method reflect the forecasted economic conditions described above.
For the year ended December 31, 2020, the Company carried a PCD ACL of $48,963,000 previously discussed. The projected economic impact of COVID-19 on the Company’s loss drivers and assumptions over the reasonable and supportable forecast period created the need for $16,700,000 of additional ACL. The increase in required ACL was also driven by net charge-offs of $4,569,000 (which carried reserves of $1,000,000 at the time of charge-off), and net new specific allowances recorded on non-PCD individual loans of $5,100,000. The increase was partially offset by changes in mix in the underlying portfolio eligible to receive an ACL.
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses, and the related ACL allocated to these loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Real Estate
|
|
Accounts
Receivable
|
|
Equipment
|
|
Other
|
|
Total
|
|
ACL
Allocation
|
December 31, 2020
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
12,454
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
162
|
|
|
$
|
12,616
|
|
|
$
|
1,334
|
|
Construction, land development, land
|
|
2,317
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,317
|
|
|
271
|
|
1-4 family residential
|
|
1,948
|
|
|
—
|
|
|
—
|
|
|
248
|
|
|
2,196
|
|
|
34
|
|
Farmland
|
|
2,189
|
|
|
—
|
|
|
143
|
|
|
198
|
|
|
2,530
|
|
|
—
|
|
Commercial
|
|
1,813
|
|
|
—
|
|
|
5,842
|
|
|
9,352
|
|
|
17,007
|
|
|
5,163
|
|
Factored receivables
|
|
—
|
|
|
92,437
|
|
|
—
|
|
|
—
|
|
|
92,437
|
|
|
51,371
|
|
Consumer
|
|
—
|
|
|
—
|
|
|
—
|
|
|
253
|
|
|
253
|
|
|
37
|
|
Mortgage warehouse
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
20,721
|
|
|
$
|
92,437
|
|
|
$
|
5,985
|
|
|
$
|
10,213
|
|
|
$
|
129,356
|
|
|
$
|
58,210
|
|
At December 31, 2020 the balance of the Over-Formula Advance Portfolio included in factored receivables was $62,100,000 and carried an ACL allocation of $48,485,000. At December 31, 2020 the balance of Misdirected Payments included in factored receivables was $19,600,000 and carried no ACL allocation.
The following table presents loans individually and collectively evaluated for impairment, as well as purchased credit impaired (“PCI”) loans, and their respective allowance for credit loss allocations as of December 31, 2019, as determined in accordance with ASC 310 prior to the adoption of ASU 2016-13:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Loan Evaluation
|
|
ALLL Allocations
|
December 31, 2019
|
|
Individually
|
|
Collectively
|
|
PCI
|
|
Total loans
|
|
Individually
|
|
Collectively
|
|
PCI
|
|
Total ALLL
|
Commercial real estate
|
|
$
|
7,455
|
|
|
$
|
1,030,439
|
|
|
$
|
9,067
|
|
|
$
|
1,046,961
|
|
|
$
|
344
|
|
|
$
|
5,009
|
|
|
$
|
—
|
|
|
$
|
5,353
|
|
Construction, land development, land
|
|
2,138
|
|
|
155,985
|
|
|
2,446
|
|
|
160,569
|
|
|
271
|
|
|
1,111
|
|
|
—
|
|
|
1,382
|
|
1-4 family residential properties
|
|
1,728
|
|
|
177,189
|
|
|
508
|
|
|
179,425
|
|
|
33
|
|
|
275
|
|
|
—
|
|
|
308
|
|
Farmland
|
|
6,638
|
|
|
148,233
|
|
|
104
|
|
|
154,975
|
|
|
—
|
|
|
670
|
|
|
—
|
|
|
670
|
|
Commercial
|
|
15,618
|
|
|
1,326,515
|
|
|
550
|
|
|
1,342,683
|
|
|
1,278
|
|
|
11,284
|
|
|
4
|
|
|
12,566
|
|
Factored receivables
|
|
15,947
|
|
|
604,039
|
|
|
—
|
|
|
619,986
|
|
|
3,178
|
|
|
4,479
|
|
|
—
|
|
|
7,657
|
|
Consumer
|
|
327
|
|
|
21,598
|
|
|
—
|
|
|
21,925
|
|
|
9
|
|
|
479
|
|
|
—
|
|
|
488
|
|
Mortgage warehouse
|
|
—
|
|
|
667,988
|
|
|
—
|
|
|
667,988
|
|
|
—
|
|
|
668
|
|
|
—
|
|
|
668
|
|
|
|
$
|
49,851
|
|
|
$
|
4,131,986
|
|
|
$
|
12,675
|
|
|
$
|
4,194,512
|
|
|
$
|
5,113
|
|
|
$
|
23,975
|
|
|
$
|
4
|
|
|
$
|
29,092
|
|
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents information pertaining to impaired loans as of December 31, 2019, as determined in accordance with ASC 310 prior to the adoption of ASU 2016-13:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans and PCI Impaired Loans
With a Valuation Allowance
|
|
Impaired Loans
Without a Valuation Allowance
|
(Dollars in thousands)
|
Recorded
Investment
|
|
Unpaid
Principal
|
|
Related
Allowance
|
|
Recorded
Investment
|
|
Unpaid
Principal
|
December 31, 2019
|
|
|
|
|
Commercial real estate
|
$
|
878
|
|
|
$
|
907
|
|
|
$
|
344
|
|
|
$
|
6,577
|
|
|
$
|
6,643
|
|
Construction, land development, land
|
935
|
|
|
935
|
|
|
271
|
|
|
1,203
|
|
|
1,305
|
|
1-4 family residential properties
|
35
|
|
|
22
|
|
|
33
|
|
|
1,693
|
|
|
1,799
|
|
Farmland
|
—
|
|
|
—
|
|
|
—
|
|
|
6,638
|
|
|
6,819
|
|
Commercial
|
6,032
|
|
|
6,053
|
|
|
1,278
|
|
|
9,586
|
|
|
9,751
|
|
Factored receivables
|
15,940
|
|
|
15,940
|
|
|
3,178
|
|
|
7
|
|
|
7
|
|
Consumer
|
17
|
|
|
16
|
|
|
9
|
|
|
310
|
|
|
311
|
|
Mortgage warehouse
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
PCI
|
71
|
|
|
55
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
$
|
23,908
|
|
|
$
|
23,928
|
|
|
$
|
5,117
|
|
|
$
|
26,014
|
|
|
$
|
26,635
|
|
The following table presents average impaired loans, as determined in accordance with ASC 310 prior to the adoption of ASU 2016-13, and interest recognized on such loans, for the years ended December 31, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
December 31, 2019
|
|
December 31, 2018
|
(Dollars in thousands)
|
Average
Impaired Loans
|
|
Interest
Recognized
|
|
Average
Impaired Loans
|
|
Interest
Recognized
|
Commercial real estate
|
$
|
7,276
|
|
|
$
|
117
|
|
|
$
|
4,055
|
|
|
$
|
86
|
|
Construction, land development, land
|
1,114
|
|
|
35
|
|
|
113
|
|
|
—
|
|
1-4 family residential properties
|
2,031
|
|
|
47
|
|
|
2,486
|
|
|
77
|
|
Farmland
|
7,031
|
|
|
107
|
|
|
5,612
|
|
|
197
|
|
Commercial
|
16,386
|
|
|
605
|
|
|
21,885
|
|
|
870
|
|
Factored receivables
|
11,353
|
|
|
—
|
|
|
5,742
|
|
|
—
|
|
Consumer
|
341
|
|
|
7
|
|
|
369
|
|
|
14
|
|
Mortgage warehouse
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
PCI
|
71
|
|
|
—
|
|
|
35
|
|
|
—
|
|
|
$
|
45,603
|
|
|
$
|
918
|
|
|
$
|
40,297
|
|
|
$
|
1,244
|
|
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Past Due and Nonaccrual Loans
The following tables present an aging of contractually past due loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Past Due
30-59 Days
|
|
Past Due
60-90 Days
|
|
Past Due 90
Days or More
|
|
Total Past Due
|
|
Current
|
|
Total
|
|
Past Due 90
Days or More
Still Accruing
|
December 31, 2020
|
|
|
|
|
|
|
Commercial real estate
|
$
|
1,512
|
|
|
$
|
147
|
|
|
$
|
7,623
|
|
|
$
|
9,282
|
|
|
$
|
769,876
|
|
|
$
|
779,158
|
|
|
$
|
—
|
|
Construction, land development, land
|
185
|
|
|
1,001
|
|
|
323
|
|
|
1,509
|
|
|
218,138
|
|
|
219,647
|
|
|
22
|
|
1-4 family residential properties
|
1,978
|
|
|
448
|
|
|
952
|
|
|
3,378
|
|
|
153,769
|
|
|
157,147
|
|
|
—
|
|
Farmland
|
407
|
|
|
1,000
|
|
|
300
|
|
|
1,707
|
|
|
101,978
|
|
|
103,685
|
|
|
—
|
|
Commercial
|
2,084
|
|
|
1,765
|
|
|
5,770
|
|
|
9,619
|
|
|
1,553,338
|
|
|
1,562,957
|
|
|
35
|
|
Factored receivables
|
33,377
|
|
|
28,506
|
|
|
72,717
|
|
|
134,600
|
|
|
986,170
|
|
|
1,120,770
|
|
|
72,717
|
|
Consumer
|
385
|
|
|
116
|
|
|
81
|
|
|
582
|
|
|
15,256
|
|
|
15,838
|
|
|
—
|
|
Mortgage warehouse
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,037,574
|
|
|
1,037,574
|
|
|
—
|
|
|
$
|
39,928
|
|
|
$
|
32,983
|
|
|
$
|
87,766
|
|
|
$
|
160,677
|
|
|
$
|
4,836,099
|
|
|
$
|
4,996,776
|
|
|
$
|
72,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Past Due
30-59 Days
|
|
Past Due
60-90 Days
|
|
Past Due 90
Days or More
|
|
Total Past Due
|
|
Current
|
|
Total
|
|
Past Due 90
Days or More
Still Accruing
|
December 31, 2019
|
|
|
|
|
|
|
Commercial real estate
|
$
|
1,752
|
|
|
$
|
1,328
|
|
|
$
|
1,759
|
|
|
$
|
4,839
|
|
|
$
|
1,042,122
|
|
|
$
|
1,046,961
|
|
|
$
|
—
|
|
Construction, land development, land
|
1,785
|
|
|
842
|
|
|
361
|
|
|
2,988
|
|
|
157,581
|
|
|
160,569
|
|
|
—
|
|
1-4 family residential properties
|
1,396
|
|
|
723
|
|
|
554
|
|
|
2,673
|
|
|
176,752
|
|
|
179,425
|
|
|
—
|
|
Farmland
|
52
|
|
|
132
|
|
|
2,376
|
|
|
2,560
|
|
|
152,415
|
|
|
154,975
|
|
|
—
|
|
Commercial
|
4,444
|
|
|
4,154
|
|
|
9,555
|
|
|
18,153
|
|
|
1,324,530
|
|
|
1,342,683
|
|
|
—
|
|
Factored receivables
|
29,118
|
|
|
7,182
|
|
|
4,226
|
|
|
40,526
|
|
|
579,460
|
|
|
619,986
|
|
|
4,226
|
|
Consumer
|
508
|
|
|
429
|
|
|
183
|
|
|
1,120
|
|
|
20,805
|
|
|
21,925
|
|
|
—
|
|
Mortgage warehouse
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
667,988
|
|
|
667,988
|
|
|
—
|
|
|
$
|
39,055
|
|
|
$
|
14,790
|
|
|
$
|
19,014
|
|
|
$
|
72,859
|
|
|
$
|
4,121,653
|
|
|
$
|
4,194,512
|
|
|
$
|
4,226
|
|
At December 31, 2020, total past due Over-Formula Advances recorded in factored receivables was $62,100,000. Substantially all of the Over-Formula Advance balance is considered past due 90 days or more. Aging of the Over-Formula Advances is based upon the service month on which the advances were made by TFS prior to acquisition. Additionally, the entire $19,600,000 Misdirected Payments amount recorded in factored receivables was past due at December 31, 2020. Of this amount, approximately $6,000,000 was considered past due 90 days or more. Given the nature of factored receivables, these assets are disclosed as past due 90 days or more still accruing; however, the Company is not recognizing income on the assets at December 31, 2020. Historically, any income recognized on factored receivables that are past due 90 days or more has not been material.
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the amortized cost basis of loans on nonaccrual status and the amortized cost basis of loans on nonaccrual status for which there was no related allowance for credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
(Dollars in thousands)
|
|
Nonaccrual
|
|
Nonaccrual
With No ACL
|
|
Nonaccrual
|
|
Nonaccrual
With No ACL
|
Commercial real estate
|
|
$
|
9,945
|
|
|
$
|
3,461
|
|
|
$
|
7,501
|
|
|
$
|
6,623
|
|
Construction, land development, land
|
|
2,294
|
|
|
1,199
|
|
|
3,922
|
|
|
2,987
|
|
1-4 family residential
|
|
1,848
|
|
|
1,651
|
|
|
1,730
|
|
|
1,694
|
|
Farmland
|
|
2,531
|
|
|
2,531
|
|
|
6,494
|
|
|
6,494
|
|
Commercial
|
|
17,202
|
|
|
4,891
|
|
|
16,080
|
|
|
9,977
|
|
Factored receivables
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer
|
|
253
|
|
|
188
|
|
|
327
|
|
|
310
|
|
Mortgage warehouse
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
$
|
34,073
|
|
|
$
|
13,921
|
|
|
$
|
36,054
|
|
|
$
|
28,085
|
|
The following table presents accrued interest on nonaccrual loans reversed through interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(Dollars in thousands)
|
|
2020
|
|
2019
|
|
2018
|
Commercial real estate
|
|
$
|
438
|
|
|
$
|
58
|
|
|
$
|
73
|
|
Construction, land development, land
|
|
1
|
|
|
44
|
|
|
1
|
|
1-4 family residential
|
|
32
|
|
|
12
|
|
|
4
|
|
Farmland
|
|
39
|
|
|
27
|
|
|
65
|
|
Commercial
|
|
86
|
|
|
32
|
|
|
142
|
|
Factored receivables
|
|
—
|
|
|
—
|
|
|
—
|
|
Consumer
|
|
2
|
|
|
3
|
|
|
5
|
|
Mortgage warehouse
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
$
|
598
|
|
|
$
|
176
|
|
|
$
|
290
|
|
There was no interest earned on nonaccrual loans during the years ended December 31, 2020, 2019, and 2018.
The following table presents information regarding nonperforming loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
December 31, 2020
|
|
December 31, 2019
|
Nonaccrual loans(1)
|
|
$
|
34,073
|
|
|
$
|
36,054
|
|
Factored receivables greater than 90 days past due
|
|
13,927
|
|
|
4,226
|
|
Other nonperforming factored receivables(2)
|
|
10,029
|
|
|
—
|
|
Troubled debt restructurings accruing interest
|
|
3
|
|
|
333
|
|
|
|
$
|
58,032
|
|
|
$
|
40,613
|
|
(1) Includes troubled debt restructurings of $13,321,000 and $4,888,000 at December 31, 2020 and 2019, respectively.
(2) Other nonperforming factored receivables represent the portion of the Over-Formula Advance Portfolio that is not covered by Covenant's indemnification. This amount is also considered Classified from a risk rating perspective.
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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 – Pass rated loans have low to average risk and are not otherwise classified.
Classified – Classified loans 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. Certain classified loans have 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 (Prior to the Adoption of ASU 2016-13) – At acquisition, PCI loans had the characteristics of classified 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.
Management considers the guidance in ASC 310-20 when determining whether a modification, extension, or renewal of loan constitutes a current period origination. Generally, current period renewals of credit are re-underwritten at the point of renewal and considered current period originations for purposes of the table below. As of December 31, 2020 and 2019, based on the most recent analysis performed, the risk category of loans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving
Loans
|
|
Revolving
Loans
Converted
To Term
Loans
|
|
Total
|
(Dollars in thousands)
|
|
|
|
|
|
December 31, 2020
|
|
2020
|
|
2019
|
|
2018
|
|
2017
|
|
2016
|
|
Prior
|
|
|
|
Commercial real estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
271,406
|
|
|
$
|
94,085
|
|
|
$
|
62,075
|
|
|
$
|
49,115
|
|
|
$
|
27,921
|
|
|
$
|
230,731
|
|
|
$
|
27,666
|
|
|
$
|
908
|
|
|
$
|
763,907
|
|
Classified
|
|
10,298
|
|
|
2,239
|
|
|
133
|
|
|
1,367
|
|
|
664
|
|
|
550
|
|
|
—
|
|
|
—
|
|
|
15,251
|
|
Total commercial real estate
|
|
$
|
281,704
|
|
|
$
|
96,324
|
|
|
$
|
62,208
|
|
|
$
|
50,482
|
|
|
$
|
28,585
|
|
|
$
|
231,281
|
|
|
$
|
27,666
|
|
|
$
|
908
|
|
|
$
|
779,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, land development, land
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
72,149
|
|
|
$
|
12,490
|
|
|
$
|
11,829
|
|
|
$
|
5,820
|
|
|
$
|
8,946
|
|
|
$
|
105,584
|
|
|
$
|
12
|
|
|
$
|
500
|
|
|
$
|
217,330
|
|
Classified
|
|
2,031
|
|
|
34
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
252
|
|
|
—
|
|
|
—
|
|
|
2,317
|
|
Total construction, land development, land
|
|
$
|
74,180
|
|
|
$
|
12,524
|
|
|
$
|
11,829
|
|
|
$
|
5,820
|
|
|
$
|
8,946
|
|
|
$
|
105,836
|
|
|
$
|
12
|
|
|
$
|
500
|
|
|
$
|
219,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 family residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
58,300
|
|
|
$
|
11,280
|
|
|
$
|
11,425
|
|
|
$
|
8,982
|
|
|
$
|
4,400
|
|
|
$
|
20,167
|
|
|
$
|
35,326
|
|
|
$
|
5,320
|
|
|
$
|
155,200
|
|
Classified
|
|
1,473
|
|
|
149
|
|
|
137
|
|
|
23
|
|
|
11
|
|
|
49
|
|
|
105
|
|
|
—
|
|
|
1,947
|
|
Total 1-4 family residential
|
|
$
|
59,773
|
|
|
$
|
11,429
|
|
|
$
|
11,562
|
|
|
$
|
9,005
|
|
|
$
|
4,411
|
|
|
$
|
20,216
|
|
|
$
|
35,431
|
|
|
$
|
5,320
|
|
|
$
|
157,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farmland
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
37,212
|
|
|
$
|
10,095
|
|
|
$
|
7,388
|
|
|
$
|
15,262
|
|
|
$
|
7,908
|
|
|
$
|
20,572
|
|
|
$
|
1,421
|
|
|
$
|
486
|
|
|
$
|
100,344
|
|
Classified
|
|
994
|
|
|
407
|
|
|
403
|
|
|
—
|
|
|
22
|
|
|
590
|
|
|
925
|
|
|
—
|
|
|
3,341
|
|
Total farmland
|
|
$
|
38,206
|
|
|
$
|
10,502
|
|
|
$
|
7,791
|
|
|
$
|
15,262
|
|
|
$
|
7,930
|
|
|
$
|
21,162
|
|
|
$
|
2,346
|
|
|
$
|
486
|
|
|
$
|
103,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
470,477
|
|
|
$
|
162,203
|
|
|
$
|
127,569
|
|
|
$
|
94,154
|
|
|
$
|
70,405
|
|
|
$
|
181,312
|
|
|
$
|
416,197
|
|
|
$
|
11,396
|
|
|
$
|
1,533,713
|
|
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classified
|
|
8,128
|
|
|
2,390
|
|
|
983
|
|
|
190
|
|
|
4,470
|
|
|
2,787
|
|
|
10,296
|
|
|
—
|
|
|
29,244
|
|
Total commercial
|
|
$
|
478,605
|
|
|
$
|
164,593
|
|
|
$
|
128,552
|
|
|
$
|
94,344
|
|
|
$
|
74,875
|
|
|
$
|
184,099
|
|
|
$
|
426,493
|
|
|
$
|
11,396
|
|
|
$
|
1,562,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Factored receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
1,081,316
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,081,316
|
|
Classified
|
|
39,454
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
39,454
|
|
Total factored receivables
|
|
$
|
1,120,770
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,120,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
8,382
|
|
|
$
|
2,251
|
|
|
$
|
1,336
|
|
|
$
|
1,258
|
|
|
$
|
688
|
|
|
$
|
1,594
|
|
|
$
|
74
|
|
|
$
|
—
|
|
|
$
|
15,583
|
|
Classified
|
|
146
|
|
|
28
|
|
|
18
|
|
|
36
|
|
|
11
|
|
|
16
|
|
|
—
|
|
|
—
|
|
|
255
|
|
Total consumer
|
|
$
|
8,528
|
|
|
$
|
2,279
|
|
|
$
|
1,354
|
|
|
$
|
1,294
|
|
|
$
|
699
|
|
|
$
|
1,610
|
|
|
$
|
74
|
|
|
$
|
—
|
|
|
$
|
15,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage warehouse
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
1,037,574
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,037,574
|
|
Classified
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total mortgage warehouse
|
|
$
|
1,037,574
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,037,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
3,036,816
|
|
|
$
|
292,404
|
|
|
$
|
221,622
|
|
|
$
|
174,591
|
|
|
$
|
120,268
|
|
|
$
|
559,960
|
|
|
$
|
480,696
|
|
|
$
|
18,610
|
|
|
$
|
4,904,967
|
|
Classified
|
|
62,524
|
|
|
5,247
|
|
|
1,674
|
|
|
1,616
|
|
|
5,178
|
|
|
4,244
|
|
|
11,326
|
|
|
—
|
|
|
91,809
|
|
Total loans
|
|
$
|
3,099,340
|
|
|
$
|
297,651
|
|
|
$
|
223,296
|
|
|
$
|
176,207
|
|
|
$
|
125,446
|
|
|
$
|
564,204
|
|
|
$
|
492,022
|
|
|
$
|
18,610
|
|
|
$
|
4,996,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Pass
|
|
Classified
|
|
PCI
|
|
Total
|
December 31, 2019
|
|
|
|
|
Commercial real estate
|
|
$
|
1,030,358
|
|
|
$
|
7,536
|
|
|
$
|
9,067
|
|
|
$
|
1,046,961
|
|
Construction, land development, land
|
|
155,985
|
|
|
2,138
|
|
|
2,446
|
|
|
160,569
|
|
1-4 family residential
|
|
177,177
|
|
|
1,740
|
|
|
508
|
|
|
179,425
|
|
Farmland
|
|
144,777
|
|
|
10,094
|
|
|
104
|
|
|
154,975
|
|
Commercial
|
|
1,313,042
|
|
|
29,091
|
|
|
550
|
|
|
1,342,683
|
|
Factored receivables
|
|
604,774
|
|
|
15,212
|
|
|
—
|
|
|
619,986
|
|
Consumer
|
|
21,594
|
|
|
331
|
|
|
—
|
|
|
21,925
|
|
Mortgage warehouse
|
|
667,988
|
|
|
—
|
|
|
—
|
|
|
667,988
|
|
|
|
$
|
4,115,695
|
|
|
$
|
66,142
|
|
|
$
|
12,675
|
|
|
$
|
4,194,512
|
|
Troubled Debt Restructurings
The Company had a recorded investment in troubled debt restructurings of $13,324,000 and $5,221,000 as of December 31, 2020 and 2019, respectively. The Company had allocated specific allowances for these loans of $2,469,000 and $718,000 at December 31, 2020 and 2019, respectively, and had not committed to lend additional amounts.
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the pre- and post-modification recorded investment of loans modified as troubled debt restructurings during the years ended December 31, 2020, 2019, and 2018. The Company did not grant principal reductions on any restructured loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Extended
Amortization
Period
|
|
Payment
Deferrals
|
|
AB Note
Restructure
|
|
Extended
Maturity and
Reduced
Interest Rate
|
|
Total
Modifications
|
|
Number of
Loans
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
—
|
|
|
$
|
727
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
727
|
|
|
3
|
Construction, land development, land
|
|
8
|
|
|
981
|
|
|
—
|
|
|
—
|
|
|
989
|
|
|
2
|
1-4 family residential properties
|
|
—
|
|
|
171
|
|
|
—
|
|
|
—
|
|
|
171
|
|
|
1
|
Farmland
|
|
3,486
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,486
|
|
|
1
|
Commercial
|
|
4,714
|
|
|
9,877
|
|
|
—
|
|
|
—
|
|
|
14,591
|
|
|
22
|
|
|
$
|
8,208
|
|
|
$
|
11,756
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
19,964
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,597
|
|
|
$
|
—
|
|
|
$
|
4,597
|
|
|
1
|
1-4 family residential properties
|
|
—
|
|
|
38
|
|
|
—
|
|
|
—
|
|
|
38
|
|
|
2
|
Commercial
|
|
1,762
|
|
|
115
|
|
|
—
|
|
|
593
|
|
|
2,470
|
|
|
11
|
|
|
$
|
1,762
|
|
|
$
|
153
|
|
|
$
|
4,597
|
|
|
$
|
593
|
|
|
$
|
7,105
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
—
|
|
|
$
|
589
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
589
|
|
|
2
|
1-4 family residential properties
|
|
103
|
|
|
—
|
|
|
—
|
|
—
|
|
|
103
|
|
|
2
|
Farmland
|
|
263
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
263
|
|
|
1
|
Commercial
|
|
875
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
875
|
|
|
10
|
|
|
$
|
1,241
|
|
|
$
|
589
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,830
|
|
|
15
|
During the year ended December 31, 2020, the Company had one loan modified as a troubled debt restructuring with a recorded investment of $5,741,000 for which there was a payment default within twelve months following the modification. The payment defaults did not result in incremental allowance allocations or charge-offs. During the year ended December 31, 2019, the Company had three loans modified as troubled debt restructurings with a recorded investment of $680,000 for which there were payment defaults within twelve months following the modification. There were no loans modified as troubled debt restructurings during the year ended December 31, 2018 for which there was a payment default during the year then ended. Default is determined at 90 or more days past due, charge-off, or foreclosure.
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the year ended December 31, 2020, the Company modified $628,022,000 in loans for borrowers impacted by the COVID-19 pandemic. These modifications primarily consisted of payment deferrals to assist customers. As these modifications related to the COVID-19 pandemic and qualify under the provisions of either Section 4013 of the CARES act or Interagency Guidance, they are not considered troubled debt restructurings. The following table summarized the amortized cost of loans with payments currently in deferral and the accrued interest related to the loans with payments currently in deferral at December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Total
Loans
|
|
Balance of
Loans Currently
in Deferral
|
|
Percentage
of Portfolio
|
|
Accrued
Interest
Receivable
|
December 31, 2020
|
|
|
|
|
Commercial real estate
|
|
$
|
779,158
|
|
|
$
|
69,980
|
|
|
9
|
%
|
|
$
|
357
|
|
Construction, land development, land
|
|
219,647
|
|
|
18,821
|
|
|
9
|
%
|
|
183
|
|
1-4 family residential
|
|
157,147
|
|
|
1,129
|
|
|
1
|
%
|
|
15
|
|
Farmland
|
|
103,685
|
|
|
—
|
|
|
—
|
%
|
|
—
|
|
Commercial
|
|
1,562,957
|
|
|
14,561
|
|
|
1
|
%
|
|
166
|
|
Factored receivables
|
|
1,120,770
|
|
|
—
|
|
|
—
|
%
|
|
—
|
|
Consumer
|
|
15,838
|
|
|
106
|
|
|
1
|
%
|
|
5
|
|
Mortgage warehouse
|
|
1,037,574
|
|
|
—
|
|
|
—
|
%
|
|
—
|
|
Total
|
|
$
|
4,996,776
|
|
|
$
|
104,597
|
|
|
2
|
%
|
|
$
|
726
|
|
Residential Real Estate Loans In Process of Foreclosure
At December 31, 2020 and 2019, the Company had $251,000 and $87,000, respectively, in 1-4 family residential real estate loans for which formal foreclosure proceedings were in process.
Purchased Credit Impaired Loans (Prior to the Adoption of ASU 2016-13)
The following table summarizes information pertaining to loans that were identified as purchased credit impaired prior to the adoption of ASU 2016-13:
|
|
|
|
|
|
(Dollars in thousands)
|
December 31,
2019
|
Contractually required principal and interest:
|
|
Real estate loans
|
$
|
14,015
|
|
Commercial loans
|
677
|
|
Outstanding contractually required principal and interest
|
$
|
14,692
|
|
Gross carrying amount included in loans receivable
|
$
|
12,675
|
|
The changes in accretable yield in regard to loans transferred at acquisition for which it was probable that all contractually required payments would not be collected are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(Dollars in thousands)
|
2019
|
|
2018
|
Accretable yield, beginning balance
|
$
|
5,711
|
|
|
$
|
2,793
|
|
Additions
|
—
|
|
|
2,997
|
|
Accretion
|
(3,835)
|
|
|
(1,430)
|
|
Reclassification from nonaccretable to accretable yield
|
257
|
|
|
1,351
|
|
Disposals
|
(814)
|
|
|
—
|
|
Accretable yield, ending balance
|
$
|
1,319
|
|
|
$
|
5,711
|
|
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 — OTHER REAL ESTATE OWNED
Other real estate owned activity was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(Dollars in thousands)
|
2020
|
|
2019
|
|
2018
|
Beginning balance
|
$
|
3,009
|
|
|
$
|
2,060
|
|
|
$
|
9,191
|
|
Acquired through business acquisition
|
—
|
|
|
—
|
|
|
213
|
|
Loans transferred to OREO
|
1,150
|
|
|
3,360
|
|
|
514
|
|
Premises transferred to OREO
|
—
|
|
|
—
|
|
|
1,139
|
|
Net OREO gains (losses) and valuation adjustments
|
(616)
|
|
|
351
|
|
|
(514)
|
|
Sales of OREO
|
(2,111)
|
|
|
(2,762)
|
|
|
(8,483)
|
|
Ending balance
|
$
|
1,432
|
|
|
$
|
3,009
|
|
|
$
|
2,060
|
|
NOTE 6 — PREMISES AND EQUIPMENT
Premises and Equipment
Premises and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
December 31,
2020
|
|
December 31,
2019
|
Land
|
$
|
12,992
|
|
|
$
|
13,139
|
|
Buildings
|
51,377
|
|
|
50,525
|
|
Leasehold improvements
|
25,203
|
|
|
21,842
|
|
Automobiles and aircraft
|
15,542
|
|
|
6,060
|
|
Furniture, fixtures and equipment
|
29,204
|
|
|
25,989
|
|
|
134,318
|
|
|
117,555
|
|
Accumulated depreciation
|
(30,914)
|
|
|
(20,960)
|
|
|
$
|
103,404
|
|
|
$
|
96,595
|
|
Depreciation expense was $10,720,000, $8,135,000 and $5,720,000 for the years ended December 31, 2020, 2019 and 2018, respectively.
Leases
The Company leases certain premises and equipment under operating leases. At December 31, 2020 and 2019, the Company had lease liabilities totaling $19,148,000 and $21,042,000, respectively, and right-of-use assets totaling $18,118,000 and $21,066,000, respectively, related to these leases. Lease liabilities and right-of-use assets are reflected in other liabilities and other assets, respectively. For the years ended December 31, 2020 and 2019, the weighted average remaining lease term for operating leases was 7.2 years and 6.6 years, respectively, and the weighted average discount rate used in the measurement of operating lease liabilities was 3.2% and 3.4%, respectively.
Lease costs were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(Dollars in thousands)
|
2020
|
|
2019
|
Operating lease cost
|
$
|
5,290
|
|
|
$
|
4,377
|
|
Short-term lease cost
|
—
|
|
|
—
|
|
Variable lease cost
|
422
|
|
|
333
|
|
Total lease cost
|
$
|
5,712
|
|
|
$
|
4,710
|
|
Rent expense for the year ended December 31, 2018, prior to the adoption of ASU 2016-2, was $3,229,000.
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
There were no sale and leaseback transactions, leveraged leases, or lease transactions with related parties during the year ended December 31, 2020. At December 31, 2020, the Company did not have any leases that had not yet commenced, but will create significant rights and obligations for the Company.
A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total operating lease liability is as follows:
|
|
|
|
|
|
(Dollars in thousands)
|
December 31, 2020
|
Lease payments due:
|
|
Within one year
|
$
|
3,885
|
|
After one but within two years
|
3,810
|
|
After two but within three years
|
3,274
|
|
After three but within four years
|
3,046
|
|
After four but within five years
|
2,925
|
|
After five years
|
4,241
|
|
Total undiscounted cash flows
|
21,181
|
|
Discount on cash flows
|
(2,033)
|
|
Total lease liability
|
$
|
19,148
|
|
NOTE 7 — GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
December 31,
2020
|
|
December 31,
2019
|
Goodwill
|
$
|
163,209
|
|
|
$
|
158,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
(Dollars in thousands)
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Carrying
Amount
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Carrying
Amount
|
Core deposit intangibles
|
$
|
43,578
|
|
|
$
|
(27,436)
|
|
|
$
|
16,142
|
|
|
$
|
43,578
|
|
|
$
|
(22,258)
|
|
|
$
|
21,320
|
|
Other intangible assets
|
19,200
|
|
|
(8,629)
|
|
|
10,571
|
|
|
15,700
|
|
|
(5,477)
|
|
|
10,223
|
|
|
$
|
62,778
|
|
|
$
|
(36,065)
|
|
|
$
|
26,713
|
|
|
$
|
59,278
|
|
|
$
|
(27,735)
|
|
|
$
|
31,543
|
|
The changes in goodwill and intangible assets by operating segment during the year are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Banking
|
|
Factoring
|
|
Corporate
|
|
Total
|
Beginning balance
|
|
$
|
129,272
|
|
|
$
|
61,014
|
|
|
$
|
—
|
|
|
$
|
190,286
|
|
Acquired goodwill
|
|
—
|
|
|
4,466
|
|
|
—
|
|
|
4,466
|
|
Acquired intangibles
|
|
—
|
|
|
3,500
|
|
|
—
|
|
|
3,500
|
|
Amortization of intangibles
|
|
(5,390)
|
|
|
(2,940)
|
|
|
—
|
|
|
(8,330)
|
|
Ending balance
|
|
$
|
123,882
|
|
|
$
|
66,040
|
|
|
$
|
—
|
|
|
$
|
189,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Banking
|
|
Factoring
|
|
Corporate
|
|
Total
|
Beginning balance
|
|
$
|
135,477
|
|
|
$
|
63,940
|
|
|
$
|
—
|
|
|
$
|
199,417
|
|
Amortization of intangibles
|
|
(6,205)
|
|
|
(2,926)
|
|
|
—
|
|
|
(9,131)
|
|
Ending balance
|
|
$
|
129,272
|
|
|
$
|
61,014
|
|
|
$
|
—
|
|
|
$
|
190,286
|
|
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Banking
|
|
Factoring
|
|
Corporate
|
|
Total
|
Beginning balance
|
|
$
|
54,910
|
|
|
$
|
8,868
|
|
|
$
|
—
|
|
|
$
|
63,778
|
|
Acquired goodwill
|
|
72,075
|
|
|
42,975
|
|
|
—
|
|
|
115,050
|
|
Acquired intangibles
|
|
14,069
|
|
|
13,933
|
|
|
—
|
|
|
28,002
|
|
Amortization of intangibles
|
|
(5,144)
|
|
|
(1,836)
|
|
|
—
|
|
|
(6,980)
|
|
Divestiture of intangibles
|
|
(433)
|
|
|
—
|
|
|
—
|
|
|
(433)
|
|
Ending balance
|
|
$
|
135,477
|
|
|
$
|
63,940
|
|
|
$
|
—
|
|
|
$
|
199,417
|
|
No goodwill or intangibles have been assigned to the Corporate operating segment.
Impairment exists when a reporting unit’s carrying value of goodwill exceeds its fair value. The Company assesses goodwill for impairment at its reporting units that contain goodwill, Banking and Factoring. A goodwill impairment test was performed on the Company's reporting units as of October 1, 2020. The goodwill impairment test did not identify any goodwill impairment.
After performing an impairment test comparing the carrying value of intangible assets to the fair value of intangible assets during the years ended December 31, 2020, 2019 and 2018, it was determined that the fair value of the intangible assets exceeded their carrying amount and thus no intangible asset impairment was recorded.
Generally, material acquired intangible assets are being amortized utilizing an accelerated method over their estimated useful lives, which range from 8 to 10 years. The future amortization schedule for the Company’s intangible assets is as follows:
|
|
|
|
|
|
(Dollars in thousands)
|
|
2021
|
$
|
7,399
|
|
2022
|
6,054
|
|
2023
|
4,771
|
|
2024
|
3,605
|
|
2025
|
2,472
|
|
Thereafter
|
2,412
|
|
|
$
|
26,713
|
|
NOTE 8 — EQUITY METHOD INVESTMENT
On October 17, 2019, the Company made a minority equity investment of $8,000,000 in Warehouse Solutions Inc. (“WSI”), purchasing 8% of the common stock of WSI and receiving warrants to purchase an additional 10% of the common stock of WSI upon exercise of the warrants at a later date. WSI provides technology solutions to help reduce supply chain costs for a global client base across multiple industries.
The following table presents the Company’s investment in WSI, allocated to the purchased common stock and the purchased warrants:
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
December 31,
2020
|
|
December 31,
2019
|
Common stock
|
$
|
5,037
|
|
|
$
|
4,813
|
|
Warrants
|
3,224
|
|
|
3,224
|
|
Total investment
|
$
|
8,261
|
|
|
$
|
8,037
|
|
The entire investment is included in other assets within the Company’s consolidated balance sheets. Although the Company holds less than 20% of the voting stock of WSI, the investment in common stock is accounted for using the equity method as the Company’s representation on WSI’s board of directors, which is disproportionately larger in size than the common stock investment held, demonstrates that it has significant influence over the investee. The difference between the amount at which the investment in common stock is carried and the amount of underlying equity in net assets does not have a material impact on the Company’s equity method earnings.
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has made an accounting policy election to record its equity method earnings from the investment in WSI common stock on a one quarter lag. Equity method earnings from the investment were not material for the year ended December 31, 2020, and as the Company’s initial investment was made during the quarter ended December 31, 2019, the Company did not recognize any equity method earnings from the investment during the year ended December 31, 2019.
NOTE 9 — VARIABLE INTEREST ENTITIES
Collateralized Loan Obligation Funds - Closed
The Company holds investments in the subordinated notes of the following closed Collateralized loan Obligation ("CLO") funds:
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
Offering
Date
|
|
Offering
Amount
|
Trinitas CLO IV, LTD (Trinitas IV)
|
June 2, 2016
|
|
$
|
406,650
|
|
Trinitas CLO V, LTD (Trinitas V)
|
September 22, 2016
|
|
$
|
409,000
|
|
Trinitas CLO VI, LTD (Trinitas VI)
|
June 20, 2017
|
|
$
|
717,100
|
|
The net carrying amounts of the Company’s investments in the subordinated notes of the CLO funds, which represent the Company’s maximum exposure to loss as a result of its involvement with the CLO funds, totaled $5,919,000 and $8,417,000 at December 31, 2020 and 2019, respectively, and are classified as held to maturity securities within the Company’s consolidated balance sheets.
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 and that the Company holds variable interests in the entities in the form of its investments in the subordinated notes of the entities. However, the Company also concluded that the Company does not have the power to direct the activities that most significantly impact the entities’ economic performance. As a result, the Company is not the primary beneficiary and therefore is not required to consolidate the assets, liabilities, equity or operations of the CLO funds in the Company’s financial statements.
NOTE 10 — DERIVATIVE FINANCIAL INSTRUMENTS
The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s interest-bearing deposits.
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Beginning in 2020, such derivatives were used to hedge the variable cash flows associated with interest-bearing deposits.
For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in Accumulated Other Comprehensive Income and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate interest-bearing deposits. During 2021, the Company estimates that an additional $98,000 will be reclassified as an increase in interest expense.
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Balance Sheet as of December 31, 2020. There were no such derivatives outstanding at December 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets
|
|
|
As of December 31, 2020
|
(Dollars in thousands)
|
|
Notional
Amount
|
|
Balance
Sheet Location
|
|
Fair Value
Total
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
200,000
|
|
|
Other Assets
|
|
$
|
816
|
|
The table below presents the effect of fair value and cash flow hedge accounting on Accumulated Other Comprehensive Income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Amount of
Gain or (Loss)
Recognized
in OCI on
Derivative
|
|
Amount of
Gain or (Loss)
Recognized in
OCI Included
Component
|
|
Location of
Gain or (Loss)
Recognized from
AOCI into
Income
|
|
Amount of
Gain or (Loss)
Reclassified
from AOCI
into Income
|
|
Amount of
Gain or (Loss)
Reclassified
from AOCI
into Income
Included
Component
|
Year Ended December 31, 2020
|
|
|
|
|
|
Derivatives in cash flow hedging relationships:
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
623
|
|
|
$
|
623
|
|
|
Interest Expense
|
|
$
|
26
|
|
|
$
|
26
|
|
The Company has agreements with each of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, then the Company could also be declared in default on its derivative obligations.
The Company has agreements with certain of its derivative counterparties that contain a provision where if the company fails to maintain its status as a well capitalized institution, then the Company could be required to post additional collateral.
As of December 31, 2020, the fair value of derivatives in a net liability position, which includes accrued interest, related to these agreements was $0. As of December 31, 2020, the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions at December 31, 2020, it could have been required to settle its obligations under the agreements at their termination value of $0.
NOTE 11 — DEPOSITS
Deposits are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
December 31, 2020
|
|
December 31, 2019
|
Noninterest-bearing demand
|
$
|
1,352,785
|
|
|
$
|
809,696
|
|
Interest-bearing demand
|
688,680
|
|
|
580,323
|
|
Individual retirement accounts
|
92,584
|
|
|
104,472
|
|
Money market
|
393,325
|
|
|
497,105
|
|
Savings
|
421,488
|
|
|
363,270
|
|
Certificates of deposit
|
790,844
|
|
|
1,084,425
|
|
Brokered time deposits
|
516,786
|
|
|
350,615
|
|
Other brokered deposits
|
460,108
|
|
|
—
|
|
Total deposits
|
$
|
4,716,600
|
|
|
$
|
3,789,906
|
|
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2020, scheduled maturities of time deposits, including certificates of deposits, individual retirement accounts and brokered time deposits, are as follows:
|
|
|
|
|
|
(Dollars in thousands)
|
December 31, 2020
|
Within one year
|
$
|
1,258,609
|
|
After one but within two years
|
117,535
|
|
After two but within three years
|
15,462
|
|
After three but within four years
|
8,608
|
|
After four but within five years
|
—
|
|
Total
|
$
|
1,400,214
|
|
Time deposits, including individual retirement accounts, certificates of deposit, and brokered time deposits, with individual balances of $250,000 and greater totaled $164,441,000 and $252,529,000 at December 31, 2020 and 2019, respectively.
NOTE 12 — BORROWINGS AND BORROWING CAPACITY
Customer Repurchase Agreements
Customer repurchase agreements are overnight customer sweep arrangements. Information concerning customer repurchase agreements is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
December 31,
2020
|
|
December 31,
2019
|
Amount outstanding at end of the year
|
$
|
3,099
|
|
|
$
|
2,033
|
|
Weighted average interest rate at end of the year
|
0.03
|
%
|
|
0.03
|
%
|
Average daily balance during the year
|
$
|
6,716
|
|
|
$
|
7,823
|
|
Weighted average interest rate during the year
|
0.03
|
%
|
|
0.02
|
%
|
Maximum month-end balance during the year
|
$
|
14,192
|
|
|
$
|
14,463
|
|
Customer repurchase agreements are secured by pledged securities with carrying amounts as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
December 31,
2020
|
|
December 31,
2019
|
Asset-backed securities
|
$
|
4,987
|
|
|
$
|
—
|
|
U.S. Government agency obligations
|
—
|
|
|
2,997
|
|
|
$
|
4,987
|
|
|
$
|
2,997
|
|
FHLB Advances
FHLB advances are collateralized by assets, including a blanket pledge of certain loans. FHLB advances and weighted average interest rates at end of period by contractual maturity are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate
|
|
Variable Rate
|
(Dollars in thousands)
|
Balance Outstanding
|
|
Weighted Average Interest Rate
|
|
Balance Outstanding
|
|
Weighted Average Interest Rate
|
2021
|
$
|
75,000
|
|
|
0.10
|
%
|
|
$
|
—
|
|
|
—
|
|
2027
|
—
|
|
|
—
|
|
|
30,000
|
|
|
0.33
|
%
|
|
$
|
75,000
|
|
|
0.10
|
%
|
|
$
|
30,000
|
|
|
0.33
|
%
|
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information concerning FHLB advances is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
December 31,
2020
|
|
December 31,
2019
|
Amount outstanding at end of the year
|
$
|
105,000
|
|
|
$
|
430,000
|
|
Weighted average interest rate at end of the year
|
0.17
|
%
|
|
1.58
|
%
|
Average daily balance during the year
|
$
|
342,264
|
|
|
$
|
369,548
|
|
Weighted average interest rate during the year
|
0.58
|
%
|
|
2.32
|
%
|
Maximum month-end balance during the year
|
$
|
850,000
|
|
|
$
|
530,000
|
|
The Company’s unused borrowing capacity with the FHLB is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
December 31,
2020
|
|
December 31,
2019
|
Borrowing capacity
|
$
|
1,351,542
|
|
|
$
|
1,300,985
|
|
Borrowings outstanding
|
105,000
|
|
|
430,000
|
|
Unused borrowing capacity
|
$
|
1,246,542
|
|
|
$
|
870,985
|
|
Paycheck Protection Program Liquidity Facility (“PPPLF”)
The PPPLF is a lending facility offered by the Federal Reserve Banks to facilitate lending to small businesses under the Paycheck Protection Program. Borrowings under the PPPLF are secured by Paycheck Protection Program Loans (“PPP loans”) guaranteed by the Small Business Administration (“SBA”) and mature at the same time as the PPP Loan pledged to secure the extension of credit. The maturity dates of the borrowings will be accelerated if the underlying PPP Loan goes into default and Company sells the PPP Loan to the SBA to realize on the SBA guarantee or if the Company receives any loan forgiveness reimbursement from the SBA for the underlying PPP Loan.
Information concerning borrowings under the PPPLF is summarized as follows for the year ended December 31, 2020:
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
December 31,
2020
|
Amount outstanding at end of period
|
|
$
|
191,860
|
|
Weighted average interest rate at end of period
|
|
0.35
|
%
|
Average amount outstanding during the period
|
|
143,608
|
|
Weighted average interest rate during the period
|
|
0.35
|
%
|
Highest month end balance during the period
|
|
223,809
|
|
At December 31, 2020, scheduled maturities of PPPLF borrowings are as follows:
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
December 31,
2020
|
Within one year
|
|
$
|
—
|
|
After one but within two years
|
|
191,860
|
|
Total
|
|
$
|
191,860
|
|
At December 31, 2020, the PPPLF borrowings are secured by PPP Loans totaling $191,860,000 and bear interest at a fixed rate of 0.35% annually. There were no borrowings under the PPPLF during the year ended December 31, 2019.
Federal Funds Purchased
The Company had no federal funds purchased at December 31, 2020 or 2019. However, as of December 31, 2020, the Company had unsecured federal funds lines of credit with seven unaffiliated banks totaling $227,500,000.
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Federal Reserve Bank Discount Window
During the year ended December 31, 2020, the Company entered into agreements with the Federal Reserve Bank of Dallas to borrow from its discount window. The Company had no Federal Reserve Bank discount window borrowings outstanding at December 31, 2020. At December 31, 2020, the Company had $523,900,000 of unused borrowing capacity from the Federal Reserve Bank discount window, to which the Company pledged loans with an outstanding balance of $711,172,000. The Company did not participate in the Federal Reserve Bank discount window program during the year ended December 31, 2019.
Subordinated Notes
On September 30, 2016, the Company issued $50,000,000 of Fixed-to-Floating Rate Subordinated Notes due 2026 (the “2016 Notes”). The 2016 Notes initially bear interest at 6.50% per annum, payable semi-annually in arrears, to, but excluding, September 30, 2021, and, thereafter and to, but excluding, the maturity date or earlier redemption, interest shall be payable quarterly in arrears, at an annual floating rate equal to three-month LIBOR as determined for the applicable quarterly period, plus 5.345%. The Company may, at its option, beginning on September 30, 2021 and on any scheduled interest payment date thereafter, redeem the 2016 Notes, in whole or in part, at a redemption price equal to the outstanding principal amount of the 2016 Notes to be redeemed plus accrued and unpaid interest to, but excluding, the date of redemption.
The 2016 Notes are included on the consolidated balance sheets as liabilities at their carrying values of $49,153,000 and $49,037,000 at December 31, 2020 and 2019, respectively; however, for regulatory purposes, the carrying value of these obligations were eligible for inclusion in Tier 2 regulatory capital. Issuance costs related to the Notes totaled $1,324,000, including an underwriting discount of 1.5%, or $750,000, and have been netted against the subordinated notes liability on the balance sheet. The underwriting discount and other debt issuance costs are being amortized using the effective interest method through maturity and recognized as a component of interest expense.
On November 27, 2019, the Company issued $39,500,000 of Fixed-to-Floating Rate Subordinated Notes due 2029 (the “2019 Notes”). The 2019 Notes initially bear interest at 4.875% per annum, payable semi-annually in arrears, to, but excluding, November 27, 2024, and, thereafter and to, but excluding, the maturity date or earlier redemption, interest shall be payable quarterly in arrears, at an annual floating rate equal to a benchmark rate, initially three-month LIBOR, as determined for the applicable quarterly period, plus 3.330%. The Company may, at its option, beginning on November 27, 2024 and on any scheduled interest payment date thereafter, redeem the 2019 Notes, in whole or in part, at a redemption price equal to the outstanding principal amount of the 2019 Notes to be redeemed plus accrued and unpaid interest to, but excluding, the date of redemption.
The 2019 Notes are included on the consolidated balance sheets as liabilities at their carrying values of $38,356,000 and $38,290,000 at December 31, 2020 and 2019, respectively; however, for regulatory purposes, the carrying value of these obligations were eligible for inclusion in Tier 2 regulatory capital. Issuance costs related to the Notes totaled $1,218,000, including an underwriting discount of 1.5%, or $593,000, and have been netted against the subordinated notes liability on the balance sheet. The underwriting discount and other debt issuance costs are being amortized using the effective interest method through maturity and recognized as a component of interest expense.
The 2016 Notes and the 2019 Notes are subordinated in right of payment to the Company’s existing and future senior indebtedness and are structurally subordinated to the Company’s subsidiaries’ existing and future indebtedness and other obligations.
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Junior Subordinated Debentures
The following provides a summary of the Company’s junior subordinated debentures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Face Value
|
|
Carrying Value
|
|
Maturity Date
|
|
Variable
Interest Rate
|
|
Interest Rate At December 31, 2020
|
National Bancshares Capital Trust II
|
|
$
|
15,464
|
|
|
$
|
13,220
|
|
|
September 2033
|
|
LIBOR + 3.00%
|
|
3.22%
|
National Bancshares Capital Trust III
|
|
17,526
|
|
|
12,975
|
|
|
July 2036
|
|
LIBOR + 1.64%
|
|
1.88%
|
ColoEast Capital Trust I
|
|
5,155
|
|
|
3,611
|
|
|
September 2035
|
|
LIBOR + 1.60%
|
|
1.84%
|
ColoEast Capital Trust II
|
|
6,700
|
|
|
4,703
|
|
|
March 2037
|
|
LIBOR + 1.79%
|
|
2.03%
|
Valley Bancorp Statutory Trust I
|
|
3,093
|
|
|
2,879
|
|
|
September 2032
|
|
LIBOR + 3.40%
|
|
3.65%
|
Valley Bancorp Statutory Trust II
|
|
3,093
|
|
|
2,684
|
|
|
July 2034
|
|
LIBOR + 2.75%
|
|
2.98%
|
|
|
$
|
51,031
|
|
|
$
|
40,072
|
|
|
|
|
|
|
|
These debentures are unsecured obligations due to trusts that are unconsolidated subsidiaries. The debentures were issued in conjunction with the trusts’ issuances of obligated capital securities. The trusts used the proceeds from the issuances of their capital securities to buy floating rate junior subordinated deferrable interest debentures that bear the same interest rate and terms as the capital securities. These debentures are the trusts’ only assets and the interest payments from the debentures finance the distributions paid on the capital securities. These debentures rank junior and are subordinate in the right of payment to all other debt of the Company.
As part of the purchase accounting adjustments made with the National Bancshares, Inc. acquisition on October 15, 2013, the ColoEast acquisition on August 1, 2016, and the Valley acquisition on December 9, 2017, the Company adjusted the carrying value of the junior subordinated debentures to fair value as of the respective acquisition dates. The discount on the debentures will continue to be amortized through maturity and recognized as a component of interest expense.
The debentures may be called by the Company at par plus any accrued but unpaid interest. Interest on the debentures is calculated quarterly. The distribution rate payable on the capital securities is cumulative and payable quarterly in arrears. The Company has the right to defer payments on interest on the debentures at any time by extending the interest payment period for a period not exceeding 20 consecutive quarters with respect to each deferral period, provided that no extension period may extend beyond the redemption or maturity date of the debentures.
The debentures are included on the consolidated balance sheet as liabilities; however, for regulatory purposes, the carrying value of these obligations are eligible for inclusion in Tier I regulatory capital, subject to certain limitations. All of the carrying value of $40,072,000 and $39,566,000 was allowed in the calculation of Tier I regulatory capital as of December 31, 2020 and 2019, respectively.
NOTE 13 — EMPLOYEE BENEFIT PLANS
401(k) Plan
The Company sponsors a 401(k) benefit plan that allows employee contributions up to the maximum tax-deferred limitations established by the Internal Revenue Code, which are matched by the Company equal to 100% of the first 4% of the compensation contributed. Expense related to the 401(k) matching contributions for the years ended December 31, 2020, 2019 and 2018 was $2,519,000, $2,306,000 and $1,838,000, respectively.
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 — INCOME TAXES
Income tax expense consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(Dollars in thousands)
|
2020
|
|
2019
|
|
2018
|
Income tax expense:
|
|
|
|
|
|
Current
|
$
|
22,766
|
|
|
$
|
12,971
|
|
|
$
|
14,091
|
|
Deferred
|
(2,080)
|
|
|
3,908
|
|
|
708
|
|
Change in valuation allowance for deferred tax asset
|
—
|
|
|
23
|
|
|
(7)
|
|
Income tax expense
|
$
|
20,686
|
|
|
$
|
16,902
|
|
|
$
|
14,792
|
|
Effective tax rates differ from federal statutory rates applied to income before income taxes due to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(Dollars in thousands)
|
2020
|
|
2019
|
|
2018
|
Tax provision computed at federal statutory rate
|
$
|
17,789
|
|
|
$
|
15,844
|
|
|
$
|
13,965
|
|
Effect of:
|
|
|
|
|
|
State taxes, net
|
2,919
|
|
|
1,704
|
|
|
1,716
|
|
Bank-owned life insurance
|
(121)
|
|
|
(114)
|
|
|
(141)
|
|
Tax exempt interest
|
(250)
|
|
|
(442)
|
|
|
(436)
|
|
Change in valuation allowance for deferred tax asset
|
—
|
|
|
23
|
|
|
(7)
|
|
Other
|
349
|
|
|
(113)
|
|
|
(305)
|
|
Income tax expense
|
$
|
20,686
|
|
|
$
|
16,902
|
|
|
$
|
14,792
|
|
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred income taxes reflect the net tax effects of temporary differences between the recorded amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
2020
|
|
2019
|
Deferred tax assets
|
|
|
|
Federal net operating loss carryforwards
|
$
|
4,067
|
|
|
$
|
5,034
|
|
State net operating loss carryforwards
|
459
|
|
|
552
|
|
Acquired loan basis
|
(184)
|
|
|
450
|
|
Other real estate owned
|
64
|
|
|
44
|
|
AMT credit carryforward
|
—
|
|
|
714
|
|
Allowance for loan losses
|
24,317
|
|
|
6,828
|
|
Accrued liabilities
|
2,675
|
|
|
1,744
|
|
Lease liability
|
4,598
|
|
|
4,994
|
|
Other
|
2,181
|
|
|
1,925
|
|
Total deferred tax assets
|
38,177
|
|
|
22,285
|
|
Deferred tax liabilities
|
|
|
|
Goodwill and intangible assets
|
2,452
|
|
|
2,143
|
|
Fair value adjustment on junior subordinated debentures
|
2,449
|
|
|
2,564
|
|
Premises and equipment
|
10,767
|
|
|
6,142
|
|
Installment gain on sale of subsidiary
|
1,049
|
|
|
1,816
|
|
Lease right-of-use asset
|
4,172
|
|
|
4,815
|
|
Unrealized gain on securities available for sale
|
1,601
|
|
|
339
|
|
Derivative financial instruments
|
193
|
|
|
—
|
|
Indemnification asset
|
8,575
|
|
|
—
|
|
Other
|
214
|
|
|
376
|
|
Total deferred tax liabilities
|
31,472
|
|
|
18,195
|
|
Net deferred tax asset before valuation allowance
|
6,705
|
|
|
4,090
|
|
Valuation allowance
|
(278)
|
|
|
(278)
|
|
Net deferred tax asset
|
$
|
6,427
|
|
|
$
|
3,812
|
|
The Company's federal and state net operating loss carryforwards as of December 31, 2020 were $19,365,000 and $10,649,000, respectively, which will expire at various dates from 2031 through 2035. The Company has a Federal Alternative Minimum Tax Credit carryforward of $0 as of December 31, 2020. The Company has a valuation allowance on certain net operating loss carryforwards that are not expected to be realized before expiration.
The Company's federal and state net operating loss carryforwards as of December 31, 2019 were $23,970,000 and $13,340,000, respectively. The Company had a Federal Alternative Minimum Tax Credit carryforward of $714,000 as of December 31, 2019.
An Internal Revenue Code Section 382 (“Section 382”) ownership change was triggered as part of previous acquisitions. A significant portion of the deferred tax asset relating to the Company's net operating loss carryforwards is subject to the annual limitation rules under Section 382. The utilization of tax carryforward attributes acquired from the EJ Financial Corp. (2010) acquisition is subject to an annual limitation of $341,000. The utilization of tax carryforward attributes acquired from the National Bancshares, Inc. (2013) acquisition is subject to an annual limitation of $2,040,000. Any remaining tax attribute carryforwards generated prior to the Section 382 ownership change in 2013 are subject to an annual limitation of $3,696,000.
The utilization of deferred tax assets related to the net operating loss and tax credit carryforwards acquired from the ColoEast (2016) stock acquisition are subject to an annual limitation of $1,906,000 under Section 382 rules.
At December 31, 2020 and 2019, the Company had no amounts recorded for uncertain tax positions and does not expect any material changes in uncertain tax benefits during the next 12 months. The Company recognizes interest and penalties related to income tax matters in income tax expense.
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company is subject to U.S. federal income tax as well as income tax in various states. The Company is generally not subject to examination by taxing authorities for years prior to 2017.
NOTE 15 — LEGAL CONTINGENCIES
Various legal claims arise 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.
NOTE 16 — 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 financial instruments.
The contractual amounts of financial instruments with off-balance sheet risk were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
(Dollars in thousands)
|
Fixed Rate
|
|
Variable Rate
|
|
Total
|
|
Fixed Rate
|
|
Variable Rate
|
|
Total
|
Unused lines of credit
|
$
|
43,406
|
|
|
$
|
547,430
|
|
|
$
|
590,836
|
|
|
$
|
49,057
|
|
|
$
|
444,028
|
|
|
$
|
493,085
|
|
Standby letters of credit
|
$
|
5,464
|
|
|
$
|
8,429
|
|
|
$
|
13,893
|
|
|
$
|
3,017
|
|
|
$
|
3,781
|
|
|
$
|
6,798
|
|
Commitments to purchase loans
|
$
|
—
|
|
|
$
|
66,373
|
|
|
$
|
66,373
|
|
|
$
|
—
|
|
|
$
|
22,004
|
|
|
$
|
22,004
|
|
Mortgage warehouse commitments
|
$
|
—
|
|
|
$
|
417,722
|
|
|
$
|
417,722
|
|
|
$
|
—
|
|
|
$
|
340,502
|
|
|
$
|
340,502
|
|
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.
Commitments to purchase loans represent loans purchased by the Company that have not yet settled.
Mortgage warehouse commitments are unconditionally cancellable and represent the unused capacity on mortgage warehouse facilities the Company has approved. The Company reserves the right to refuse to buy any mortgage loans offered for sale by a customer, for any reason, at the Company’s sole and absolute discretion.
The Company records an allowance for credit losses on off-balance sheet credit exposures through a charge to credit loss expense on the Company’s consolidated statements of income. At December 31, 2020 and 2019, the allowance for credit losses on off balance sheet credit exposures totaled $5,005,000 and $638,000, respectively, and was included in other liabilities on the Company’s consolidated balance sheets. For the year ended December 31, 2020, credit loss expense for off balance sheet credit exposures was $2,448,000. For the years ended December 31, 2019 and 2018, credit loss expense for off balance sheet credit exposures was $99,000 and $37,000, respectively, and was included in other noninterest expense on the Company’s consolidated statements of income.
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17 — 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.
Assets and liabilities measured at fair value on a recurring basis are summarized in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Fair Value Measurements Using
|
|
Total
Fair Value
|
December 31, 2020
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Assets measured at fair value on a recurring basis
|
|
|
|
|
|
|
|
|
Securities available for sale
|
|
|
|
|
|
|
|
|
U.S. Government agency obligations
|
|
$
|
—
|
|
|
$
|
15,088
|
|
|
$
|
—
|
|
|
$
|
15,088
|
|
Mortgage-backed securities, residential
|
|
—
|
|
|
27,684
|
|
|
—
|
|
|
27,684
|
|
Asset-backed securities
|
|
—
|
|
|
7,039
|
|
|
—
|
|
|
7,039
|
|
State and municipal
|
|
—
|
|
|
37,395
|
|
|
—
|
|
|
37,395
|
|
CLO Securities
|
|
—
|
|
|
122,204
|
|
|
—
|
|
|
122,204
|
|
Corporate bonds
|
|
—
|
|
|
11,573
|
|
|
—
|
|
|
11,573
|
|
SBA pooled securities
|
|
—
|
|
|
3,327
|
|
|
—
|
|
|
3,327
|
|
|
|
$
|
—
|
|
|
$
|
224,310
|
|
|
$
|
—
|
|
|
$
|
224,310
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
|
|
|
|
|
|
Mutual fund
|
|
$
|
5,826
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,826
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale
|
|
$
|
—
|
|
|
$
|
24,546
|
|
|
$
|
—
|
|
|
$
|
24,546
|
|
|
|
|
|
|
|
|
|
|
Indemnification asset
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
36,225
|
|
|
$
|
36,225
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments (cash flow hedges)
|
|
|
|
|
|
|
|
|
Interest rate swap
|
|
$
|
—
|
|
|
$
|
816
|
|
|
$
|
—
|
|
|
$
|
816
|
|
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Fair Value Measurements Using
|
|
Total
Fair Value
|
December 31, 2019
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Assets measured at fair value on a recurring basis
|
|
|
|
|
|
|
|
|
Securities available for sale
|
|
|
|
|
|
|
|
|
U.S. Government agency obligations
|
|
$
|
—
|
|
|
$
|
39,760
|
|
|
$
|
—
|
|
|
$
|
39,760
|
|
Mortgage-backed securities, residential
|
|
—
|
|
|
38,016
|
|
|
—
|
|
|
38,016
|
|
Asset-backed securities
|
|
—
|
|
|
7,959
|
|
|
—
|
|
|
7,959
|
|
State and municipal
|
|
—
|
|
|
32,065
|
|
|
—
|
|
|
32,065
|
|
CLO Securities
|
|
—
|
|
|
75,273
|
|
|
—
|
|
|
75,273
|
|
Corporate bonds
|
|
—
|
|
|
51,583
|
|
|
—
|
|
|
51,583
|
|
SBA pooled securities
|
|
—
|
|
|
4,164
|
|
|
—
|
|
|
4,164
|
|
|
|
$
|
—
|
|
|
$
|
248,820
|
|
|
$
|
—
|
|
|
$
|
248,820
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
|
|
|
|
|
|
Mutual fund
|
|
$
|
5,437
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,437
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale
|
|
$
|
—
|
|
|
$
|
2,735
|
|
|
$
|
—
|
|
|
$
|
2,735
|
|
|
|
|
|
|
|
|
|
|
Liabilities measured at fair value on a recurring basis
|
|
|
|
|
|
|
|
|
ICC Contingent consideration
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
21,622
|
|
|
$
|
21,622
|
|
The Company used the following methods and assumptions to estimate fair value of financial instruments that are measured at fair value on a recurring basis:
Securities available for sale – The fair values of debt securities available for sale are determined by third-party matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).
Equity securities – The fair values of equity securities are determined based on quoted market prices in active markets and are classified in Level 1 of the valuation hierarchy.
Loans held for sale – The fair value of loans held for sale is determined using commitments on hand from investors or prevailing market prices and are classified in Level 2 of the valuation hierarchy.
Derivative Financial Instruments – Currently, the Company uses interest rate swaps as part of its cash flow strategy to manage its interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The derivative financial instrument fair value is considered a Level 2 classification.
Indemnification Asset
The fair value of the indemnification asset is calculated as the present value of the estimated cash payments expected to be received from Covenant for probable losses on the covered Over-Formula Advance Portfolio. The cash flows are discounted at a rate to reflect the uncertainty of the timing and receipt of the payments from Covenant. The indemnification asset is reviewed quarterly and changes to the asset are recorded as adjustments to other noninterest income or expense, as appropriate, within the Consolidated Statements of Income. The indemnification asset fair value is considered a Level 3 classification. At December 31, 2020, the estimated cash payments expected to be received from Covenant for probable losses on the covered Over-Formula Advance Portfolio were $39,200,000 and a discount rate of 8.8% was applied to calculate the present value of the indemnification asset.
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the opening balance to the closing balance of the fair value of the indemnification asset is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
2020
|
|
2019
|
|
2018
|
Beginning balance
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Indemnification asset recognized in business combination
|
30,959
|
|
|
—
|
|
|
—
|
|
Change in fair value of indemnification asset recognized in earnings
|
5,266
|
|
|
—
|
|
|
—
|
|
Ending balance
|
$
|
36,225
|
|
|
$
|
—
|
|
|
$
|
—
|
|
ICC contingent consideration – The fair value of the ICC contingent consideration is based on a proprietary index designed to approximate the rise and fall of transportation invoice prices subsequent to acquisition and is correlated to monthly movements in average invoice prices historically experienced by ICC. The index is calculated by a third-party data analytics firm and is correlated to monthly movements in average invoice prices historically experienced by ICC. At the end of the earnout period, a final average index price was calculated and the contingent consideration was settled in cash based on the final average index price, with a payout ranging from $0 to $22,000,000. The fair value of the contingent consideration was calculated each reporting period, and changes in the fair value of the contingent consideration are recorded in noninterest income in the consolidated statements of income. The fair value was classified in Level 3 of the valuation hierarchy. At December 31, 2019, the fair value calculation of the contingent consideration resulted in an estimated payout of $22,000,000 and a discount rate of 1.7% was applied to calculate the present value of the contingent consideration. During the year ended December 31, 2020, the maximum $22,000,000 of contingent consideration was paid out.
A reconciliation of the opening balance to the closing balance of the fair value of the contingent consideration is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
2020
|
|
2019
|
|
2018
|
Beginning balance
|
$
|
21,622
|
|
|
$
|
20,745
|
|
|
$
|
—
|
|
Contingent consideration recognized in business combination
|
—
|
|
|
—
|
|
|
20,000
|
|
Change in fair value of contingent consideration recognized in earnings
|
378
|
|
|
877
|
|
|
745
|
|
Consideration settlement payments
|
(22,000)
|
|
|
—
|
|
|
—
|
|
Ending balance
|
$
|
—
|
|
|
$
|
21,622
|
|
|
$
|
20,745
|
|
There were no transfers between levels for the years ended December 31, 2020 and 2019.
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 December 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Fair Value Measurements Using
|
|
Total
Fair Value
|
December 31, 2020
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Collateral dependent loans
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,107
|
|
|
$
|
5,107
|
|
Construction, land development, land
|
|
—
|
|
|
—
|
|
|
824
|
|
|
824
|
|
1-4 family residential properties
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial
|
|
—
|
|
|
—
|
|
|
2,355
|
|
|
2,355
|
|
Factored receivables
|
|
—
|
|
|
—
|
|
|
41,065
|
|
|
41,065
|
|
Consumer
|
|
—
|
|
|
—
|
|
|
3
|
|
|
3
|
|
Other real estate owned (1):
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
—
|
|
|
—
|
|
|
273
|
|
|
273
|
|
1-4 family residential properties
|
|
—
|
|
|
—
|
|
|
114
|
|
|
114
|
|
Farmland
|
|
—
|
|
|
—
|
|
|
209
|
|
|
209
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
49,950
|
|
|
$
|
49,950
|
|
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Fair Value Measurements Using
|
|
Total
Fair Value
|
December 31, 2019
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Impaired loans
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
534
|
|
|
$
|
534
|
|
Construction, land development, land
|
|
—
|
|
|
—
|
|
|
664
|
|
|
664
|
|
1-4 family residential properties
|
|
—
|
|
|
—
|
|
|
2
|
|
|
2
|
|
Commercial
|
|
—
|
|
|
—
|
|
|
4,754
|
|
|
4,754
|
|
Factored receivables
|
|
—
|
|
|
—
|
|
|
12,762
|
|
|
12,762
|
|
Consumer
|
|
—
|
|
|
—
|
|
|
8
|
|
|
8
|
|
PCI
|
|
—
|
|
|
—
|
|
|
67
|
|
|
67
|
|
Other real estate owned (1):
|
|
|
|
|
|
|
|
|
Commercial real estate
|
|
—
|
|
|
—
|
|
|
388
|
|
|
388
|
|
1-4 family residential properties
|
|
—
|
|
|
—
|
|
|
89
|
|
|
89
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
19,268
|
|
|
$
|
19,268
|
|
(1) Represents the fair value of OREO that was adjusted subsequent to its initial classification as OREO.
As of December 31, 2020 and 2019, the only Level 3 assets with material unobservable inputs are associated with impaired loans and OREO.
Collateral Dependent Loans Specific Allocation of ACL
A loan is considered to be a collateral dependent loan when, based on current information and events, the Company expects repayment of the financial assets to be provided substantially through the operation or sale of the collateral and the Company has determined that the borrower is experiencing financial difficulty as of the measurement date. The ACL 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. For real estate loans, fair value of the 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. For non-real estate loans, fair value of the loan’s collateral may be determined using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business.
OREO
OREO is primarily 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 charged to the ACL. 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.
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The estimated fair values of the Company’s financial instruments not measured at fair value on a recurring or non-recurring basis were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Carrying
Amount
|
|
Fair Value Measurements Using
|
|
Total
Fair Value
|
(Dollars in thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
314,393
|
|
|
$
|
314,393
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
314,393
|
|
Securities - held to maturity
|
5,919
|
|
|
—
|
|
|
—
|
|
|
5,850
|
|
|
5,850
|
|
Loans not previously presented, gross
|
4,953,399
|
|
|
195,739
|
|
|
—
|
|
|
4,783,143
|
|
|
4,978,882
|
|
FHLB and other restricted stock
|
6,751
|
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
Accrued interest receivable
|
19,435
|
|
|
19,435
|
|
|
—
|
|
|
—
|
|
|
19,435
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
Deposits
|
4,716,600
|
|
|
—
|
|
|
4,719,625
|
|
|
—
|
|
|
4,719,625
|
|
Customer repurchase agreements
|
3,099
|
|
|
—
|
|
|
3,099
|
|
|
—
|
|
|
3,099
|
|
Federal Home Loan Bank advances
|
105,000
|
|
|
—
|
|
|
105,000
|
|
|
—
|
|
|
105,000
|
|
Paycheck Protection Program Liquidity Facility
|
191,860
|
|
|
—
|
|
|
191,860
|
|
|
—
|
|
|
191,860
|
|
Subordinated notes
|
87,509
|
|
|
—
|
|
|
89,413
|
|
|
—
|
|
|
89,413
|
|
Junior subordinated debentures
|
40,072
|
|
|
—
|
|
|
40,379
|
|
|
—
|
|
|
40,379
|
|
Accrued interest payable
|
4,270
|
|
|
4,270
|
|
|
—
|
|
|
—
|
|
|
4,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Carrying
Amount
|
|
Fair Value Measurements Using
|
|
Total
Fair Value
|
(Dollars in thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
197,880
|
|
|
$
|
197,880
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
197,880
|
|
Securities - held to maturity
|
8,417
|
|
|
—
|
|
|
—
|
|
|
6,907
|
|
|
6,907
|
|
Loans not previously presented, gross
|
4,170,604
|
|
|
83,454
|
|
|
—
|
|
|
4,086,597
|
|
|
4,170,051
|
|
FHLB and other restricted stock
|
19,860
|
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
Accrued interest receivable
|
20,322
|
|
|
20,322
|
|
|
—
|
|
|
—
|
|
|
20,322
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
Deposits
|
3,789,906
|
|
|
—
|
|
|
3,793,603
|
|
|
—
|
|
|
3,793,603
|
|
Customer repurchase agreements
|
2,033
|
|
|
—
|
|
|
2,033
|
|
|
—
|
|
|
2,033
|
|
Federal Home Loan Bank advances
|
430,000
|
|
|
—
|
|
|
430,000
|
|
|
—
|
|
|
430,000
|
|
Subordinated notes
|
87,327
|
|
|
—
|
|
|
93,877
|
|
|
—
|
|
|
93,877
|
|
Junior subordinated debentures
|
39,566
|
|
|
—
|
|
|
40,700
|
|
|
—
|
|
|
40,700
|
|
Accrued interest payable
|
9,367
|
|
|
9,367
|
|
|
—
|
|
|
—
|
|
|
9,367
|
|
For those financial instruments not previously described, the following methods and assumptions were used by the Company in estimating the fair values of financial instruments as disclosed herein:
Cash and Cash Equivalents
For financial instruments with a shorter term or with no stated maturity, prevailing market rates, and limited credit risk, the carrying amounts approximate fair value and are considered a Level 1 classification.
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Securities held to maturity
The fair values of the Company’s investments in the subordinated notes of Trinitas IV, Trinitas V, and Trinitas VI classified as securities held to maturity are determined based on the securities’ discounted projected future cash flows (net present value), resulting in a Level 3 classification.
Loans
Loans include loans held for investment, excluding impaired loans previously described above. For variable rate loans that reprice frequently and have no significant changes in credit risk, excluding previously presented impaired loans measured at fair value on a non-recurring basis, fair values are based on carrying values. Fair values for fixed rate loans are estimated using discounted cash flow analyses. The discount rates used to determine the fair value of loans use interest rate spreads that reflect factors such as liquidity, credit, and nonperformance risk of the loans. These loans are considered a Level 3 classification.
The fair values of commercial loans in the Company’s liquid credit portfolio are determined based on quoted market prices in active markets and are considered a Level 1 classification.
FHLB and other restricted stock
FHLB and other restricted stock is restricted to member banks and there are restrictions placed on its transferability. As a result, the fair value of FHLB and other restricted stock was not practicable to determine.
Deposits
The fair values disclosed for demand deposits and non-maturity transaction accounts are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts) and are considered a Level 2 classification. Fair values for fixed rate time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered on time deposits to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.
Customer repurchase agreements
The carrying amount of customer repurchase agreements approximates fair value due to their short-term nature. The customer repurchase agreement fair value is considered a Level 2 classification.
Federal Home Loan Bank advances
The Company’s FHLB advances have variable rates or a maturity of less than three months and therefore fair value materially approximates carrying value and is considered a Level 2 classification.
Paycheck Protection Program Liquidity Fund
The Company’s PPPLF borrowings correspond to PPP loans and are expected to be short-term in duration, therefore fair value materially approximates carrying value and is considered a Level 2 classification.
Subordinated notes
The subordinated notes were valued based on quoted market prices, but due to limited trading activity for the subordinated notes in these markets, the subordinated notes are considered a Level 2 classification.
Junior subordinated debentures
The junior subordinated debentures were valued by discounting future cash flows using current interest rates for similar financial instruments, resulting in a Level 2 classification.
Accrued Interest Receivable and Accrued Interest Payable
The carrying amounts of accrued interest receivable and accrued interest payable approximate their fair values given the short-term nature of the receivables and are considered a Level 1 classification.
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 — RELATED-PARTY TRANSACTIONS
In the ordinary course of business, we have granted loans to executive officers, directors, and their affiliates were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(Dollars in thousands)
|
2020
|
|
2019
|
Beginning balance
|
$
|
39,651
|
|
|
$
|
39,520
|
|
New loans and advances
|
500
|
|
|
952
|
|
Repayments and sales
|
(786)
|
|
|
(821)
|
|
Effect of changes in composition of related parties
|
(35,473)
|
|
|
—
|
|
Ending balance
|
$
|
3,892
|
|
|
$
|
39,651
|
|
At December 31, 2020 and 2019, there were no loans to executive officers, directors, or their affiliates that were considered non-performing or potential problem loans.
During the year ended December 31, 2018, a related party loan with a carrying amount of $9,781,000 was transferred to loans held for sale as the Company made the decision to sell the loan. The loan was subsequently sold at its par value for no gain or loss.
Deposits from executive officers, directors, and their affiliates at December 31, 2020 and 2019 were $30,294,000 and $5,641,000, respectively.
NOTE 19 — REGULATORY MATTERS
The Company (on a consolidated basis) and TBK Bank 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 or TBK Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and TBK Bank 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 regulation to ensure capital adequacy require the Company and TBK Bank to maintain minimum amounts and ratios (set forth in the table below) of total, common equity Tier 1, and Tier 1 capital to risk weighted assets, and of Tier 1 capital to average assets. Management believes, as of December 31, 2020, the Company and TBK Bank meet all capital adequacy requirements to which they are subject.
As of December 31, 2020, TBK Bank’s capital ratios exceeded those levels necessary to be categorized as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized,” TBK Bank must maintain minimum total risk based, common equity Tier 1 risk based, Tier 1 risk based, and Tier 1 leverage ratios as set forth in the table below. There are no conditions or events since December 31, 2020 that management believes have changed TBK Bank’s category.
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The actual capital amounts and ratios for the Company and TBK Bank are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
Minimum for Capital
Adequacy Purposes
|
|
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
|
(Dollars in thousands)
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
As of December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
Triumph Bancorp, Inc.
|
|
$715,142
|
|
13.0%
|
|
$440,087
|
|
8.0%
|
|
N/A
|
|
N/A
|
TBK Bank, SSB
|
|
$653,359
|
|
12.1%
|
|
$431,973
|
|
8.0%
|
|
$539,966
|
|
10.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital (to risk weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
Triumph Bancorp, Inc.
|
|
$581,580
|
|
10.6%
|
|
$329,196
|
|
6.0%
|
|
N/A
|
|
N/A
|
TBK Bank, SSB
|
|
$608,737
|
|
11.3%
|
|
$323,223
|
|
6.0%
|
|
$430,964
|
|
8.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common equity Tier 1 capital (to risk weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
Triumph Bancorp, Inc.
|
|
$496,508
|
|
9.0%
|
|
$248,254
|
|
4.5%
|
|
N/A
|
|
N/A
|
TBK Bank, SSB
|
|
$608,737
|
|
11.3%
|
|
$242,417
|
|
4.5%
|
|
$350,158
|
|
6.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital (to average assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
Triumph Bancorp, Inc.
|
|
$581,580
|
|
10.8%
|
|
$215,400
|
|
4.0%
|
|
N/A
|
|
N/A
|
TBK Bank, SSB
|
|
$608,737
|
|
11.3%
|
|
$215,482
|
|
4.0%
|
|
$269,353
|
|
5.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital (to risk weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
Triumph Bancorp, Inc.
|
|
$604,832
|
|
12.8%
|
|
$378,020
|
|
8.0%
|
|
N/A
|
|
N/A
|
TBK Bank, SSB
|
|
$555,213
|
|
12.0%
|
|
$370,142
|
|
8.0%
|
|
$462,678
|
|
10.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital (to risk weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
Triumph Bancorp, Inc.
|
|
$487,775
|
|
10.3%
|
|
$284,141
|
|
6.0%
|
|
N/A
|
|
N/A
|
TBK Bank, SSB
|
|
$525,490
|
|
11.4%
|
|
$276,574
|
|
6.0%
|
|
$368,765
|
|
8.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common equity Tier 1 capital (to risk weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
Triumph Bancorp, Inc.
|
|
$448,209
|
|
9.5%
|
|
$212,310
|
|
4.5%
|
|
N/A
|
|
N/A
|
TBK Bank, SSB
|
|
$525,490
|
|
11.4%
|
|
$207,430
|
|
4.5%
|
|
$299,621
|
|
6.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital (to average assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
Triumph Bancorp, Inc.
|
|
$487,775
|
|
10.0%
|
|
$195,110
|
|
4.0%
|
|
N/A
|
|
N/A
|
TBK Bank, SSB
|
|
$525,490
|
|
10.9%
|
|
$192,840
|
|
4.0%
|
|
$241,050
|
|
5.0%
|
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As permitted by the interim final rule issued on March 27, 2020 by the federal banking regulatory agencies, the Company has elected the option to delay the estimated impact on regulatory capital of ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which was effective January 1, 2020. The initial impact of adoption of ASU 2016-13 as well as 25% of the quarterly increases in the allowance for credit losses subsequent to adoption of ASU 2016-13 (collectively the “transition adjustments”) will be delayed for two years. After two years, the cumulative amount of the transition adjustments will become fixed and will be phased out of the regulatory capital calculations evenly over a three year period, with 75% recognized in year three, 50% recognized in year four, and 25% recognized in year five. After five years, the temporary regulatory capital benefits will be fully reversed.
Dividends paid by TBK Bank are limited to, without prior regulatory approval, current year earnings and earnings less dividends paid during the preceding two years.
The capital conservation buffer set forth by the Basel III regulatory capital framework was 2.5% at December 31, 2020 and December 31, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress and requires increased capital levels for the purpose of capital distributions and other payments. Failure to meet the full amount of the buffer will result in restrictions on the Company’s ability to make capital distributions, including dividend payments and stock repurchases, and to pay discretionary bonuses to executive officers. At December 31, 2020, the Company’s and TBK Bank’s risk based capital exceeded the required capital conservation buffer.
NOTE 20 — STOCKHOLDERS’ EQUITY
The following summarizes the Company’s capital structure.
Preferred Stock Series C
|
|
|
|
|
|
|
|
|
(Dollars in thousands, except per share amounts)
|
|
December 31, 2020
|
Shares authorized
|
|
51,750
|
|
Shares issued
|
|
45,000
|
|
Shares outstanding
|
|
45,000
|
|
Par value per share
|
|
$
|
0.01
|
|
Liquidation preference per share
|
|
$
|
1,000
|
|
Liquidation preference amount
|
|
$
|
45,000
|
|
Dividend rate
|
|
7.125
|
%
|
Dividend payment dates
|
|
Quarterly
|
On June 19, 2020, the Company issued 45,000 shares of 7.125% Series C Fixed-Rate Non-Cumulative Perpetual Preferred Stock, par value $0.01 per share, with a liquidation preference of $1,000 per share through an underwritten public offering of 1,800,000 depositary shares, each representing a 1/40th ownership interest in a share of the Series C Preferred Stock. Total gross proceeds from the preferred stock offering were $45,000,000. Net proceeds after underwriting discounts and offering expenses were $42,364,000. The net proceeds will be used for general corporate purposes.
Series C Preferred Stock holders are entitled to quarterly cash dividends accruing at the rate per annum of 7.125% beginning September 30, 2020, applied to the liquidation preference value of the stock. Any dividends not paid shall not accumulate but will be waived and not payable by the Company. Payments of dividends are subject to declaration by the board of the Company. The Series C Preferred Stock is not redeemable by the holder and is senior to the Company’s common stock. The Series C Preferred stock may be redeemed in whole or in part by the Company at liquidation value (i) on any dividend payment date on or after June 30, 2025 or (ii) within 90 days following a regulatory capital treatment event (as defined in the Statement of Designation), subject to regulatory approval.
Preferred Stock Series A and Series B
On October 26, 2018, 45,500 Preferred Stock Series A shares with a liquidation value of $4,550,000 were converted to 315,773 shares of common stock at the option of the holders at their preferred to common stock conversion ratio of 6.94008.
On October 26, 2018, 51,076 Preferred Stock Series B shares outstanding with a liquidation value of $5,108,000 were converted to 354,463 shares of common stock at the option of the holders at their preferred to common stock conversion ratio of 6.94008.
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
There were no preferred shares issued or outstanding at December 31, 2019 or 2018.
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(Dollars in thousands, except per share amounts)
|
2020
|
|
2019
|
Shares authorized
|
50,000,000
|
|
|
50,000,000
|
|
Shares issued
|
27,951,721
|
|
|
27,163,642
|
|
Treasury shares
|
3,083,503
|
|
|
2,198,681
|
|
Shares outstanding
|
24,868,218
|
|
|
24,964,961
|
|
Par value per share
|
$
|
0.01
|
|
|
$
|
0.01
|
|
Common Stock Offerings
On April 12, 2018, the Company completed an underwritten common stock offering issuing 5,405,000 shares of the Company’s common stock, including 705,000 shares sold pursuant to the underwriters’ full exercise of their option to purchase additional shares, at $37.50 per share for total gross proceeds of $202,688,000. Net proceeds from the offering, after deducting the underwriting discount and offering expenses, were $192,053,000.
Stock Repurchase Program
During the year ended December 31, 2020, the Company purchased 871,319 shares into treasury stock under the Company's stock repurchase program at an average price of $40.81, for a total of $35,600,000, effectively completing the $50,000,000 stock repurchase program authorized by the Company's board of directors on October 16, 2019.
During the year ended December 31, 2019, the Company purchased 2,080,791 shares into treasury stock under the Company's stock repurchase program at an average price of $30.90, for a total of $64,366,000, under the stock repurchase programs authorized by the Company's board of directors on October 29, 2018, July 17, 2019, and October 16, 2019.
There were no stock repurchases made under stock repurchase programs during the year ended December 31, 2018.
NOTE 21 — STOCK BASED COMPENSATION
Stock based compensation expense that has been charged against income was $4,618,000, $3,654,000 and $2,735,000 for the years ended December 31, 2020, 2019 and 2018, respectively.
2014 Omnibus Incentive Plan
The Company’s 2014 Omnibus Incentive Plan (“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 2,000,000 shares.
Restricted Stock Awards
A summary of changes in the Company’s nonvested Restricted Stock Awards (“RSAs”) under the Omnibus Incentive Plan for the year ended December 31, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested RSAs
|
|
Shares
|
|
Weighted Average
Grant Date
Fair Value
|
Nonvested at January 1, 2020
|
|
148,349
|
|
|
$
|
31.86
|
|
Granted
|
|
138,417
|
|
|
26.54
|
|
Vested
|
|
(75,163)
|
|
|
29.64
|
|
Forfeited
|
|
(6,067)
|
|
|
29.44
|
|
Nonvested at December 31, 2020
|
|
205,536
|
|
|
$
|
29.17
|
|
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RSAs granted to employees under the Omnibus Incentive Plan generally vest over three to four years, but vesting periods may vary. The fair value of shares vested during the years ended December 31, 2020, 2019 and 2018, totaled $1,988,000, $1,466,000, and $2,625,000, respectively. Compensation expense for RSAs will be recognized on an accelerated basis over the vesting period of the awards based on the fair value of the stock at the issue date. As of December 31, 2020, there was $2,808,000 of total unrecognized compensation cost related to nonvested RSAs. The cost is expected to be recognized over a remaining weighted average period of 2.91 years.
Restricted Stock Units
A summary of changes in the Company’s nonvested Restricted Stock Units (“RSUs”) under the Omnibus Incentive Plan for the year ended December 31, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested RSUs
|
|
Shares
|
|
Weighted Average
Grant Date
Fair Value
|
Nonvested at January 1, 2020
|
|
55,228
|
|
|
$
|
38.75
|
|
Granted
|
|
38,801
|
|
|
26.25
|
|
Vested
|
|
—
|
|
|
—
|
|
Forfeited
|
|
(4,316)
|
|
|
38.75
|
|
Nonvested at December 31, 2020
|
|
89,713
|
|
|
$
|
33.34
|
|
RSUs granted to employees under the Omnibus Incentive Plan vest after five years. Compensation expense for the RSUs will be recognized over the vesting period of the awards based on the fair value of the stock at the issue date. As of December 31, 2020, there was $1,689,000 of unrecognized compensation cost related to the nonvested RSUs. The cost is expected to be recognized over a remaining period of 2.33 years.
Market Based Performance Stock Units
A summary of changes in the Company’s nonvested Market Based Performance Stock Units (“Market Based PSUs”) under the Omnibus Incentive Plan for the year ended December 31, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested Market Based PSUs
|
|
Shares
|
|
Weighted Average
Grant Date
Fair Value
|
Nonvested at January 1, 2020
|
|
67,707
|
|
|
$
|
37.71
|
|
Granted
|
|
22,220
|
|
|
29.93
|
|
Vested
|
|
—
|
|
|
—
|
|
Forfeited
|
|
(4,316)
|
|
|
38.57
|
|
Nonvested at December 31, 2020
|
|
85,611
|
|
|
$
|
35.65
|
|
Market Based PSUs granted to employees under the Omnibus Incentive Plan vest after three to five years. The number of shares issued upon vesting will range from 0% to 175% of the shares granted based on the Company’s relative total shareholder return (“TSR”) as compared to the TSR of a specified group of peer banks. Compensation expense for the Market Based PSUs will be recognized over the vesting period of the awards based on the fair value of the award at the grant date. The fair value of Market Based PSUs granted is estimated using a Monte Carlo simulation.
The fair value of the Market Based PSUs granted was determined using the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2020
|
|
2019
|
Grant date
|
May 1, 2020
|
|
May 1, 2019
|
Performance period
|
3.00 Years
|
|
3.00 years
|
Stock price
|
$
|
26.25
|
|
|
$
|
30.82
|
|
Triumph stock price volatility
|
43.02
|
%
|
|
28.29
|
%
|
Risk-free rate
|
0.25
|
%
|
|
2.25
|
%
|
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Expected volatilities were determined based on the historical volatilities of the Company and the specified peer group. The risk-free interest rate for the performance period was derived from the Treasury constant maturities yield curve on the valuation date.
As of December 31, 2020, there was $1,598,000 of unrecognized compensation cost related to the nonvested Market Based PSUs. The cost is expected to be recognized over a remaining period of 2.21 years.
Performance Based Performance Stock Units
A summary of changes in the Company’s nonvested Performance Based Performance Stock Units (“Performance Based PSUs”) under the Omnibus Incentive Plan for the year ended December 31, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested Performance Based PSUs
|
|
Shares
|
|
Weighted Average
Grant Date
Fair Value
|
Nonvested at January 1, 2020
|
|
254,000
|
|
|
$
|
38.02
|
|
Granted
|
|
10,125
|
|
|
26.25
|
|
Vested
|
|
—
|
|
|
—
|
|
Forfeited
|
|
(7,500)
|
|
|
38.02
|
|
Nonvested at December 31, 2020
|
|
256,625
|
|
|
$
|
37.56
|
|
Performance Based PSUs granted to employees under the Omnibus Incentive Plan vest after three years. The number of shares issued upon vesting will range from 0% to 200% of the shares granted based on the Company’s cumulative diluted earnings per share over the performance period. Compensation expense for the Performance Based PSUs will be estimated each period based on the fair value of the stock at the grant date and the most probable outcome of the performance condition, adjusted for the passage of time within the vesting period of the awards. As of December 31, 2020, the maximum unrecognized compensation cost related to the nonvested Performance Based PSUs was $19,275,000, and the remaining performance period over which the cost could be recognized was 2.00 years. No compensation cost was recorded during the year ended December 31, 2020.
Stock Options
A summary of changes in the Company’s stock options under the Omnibus Incentive Plan for the year ended December 31, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
Shares
|
|
Weighted Average
Exercise Price
|
|
Weighted Average
Remaining
Contractual Term
(In Years)
|
|
Aggregate
Intrinsic Value
(In Thousands)
|
Outstanding at January 1, 2020
|
|
225,055
|
|
|
$
|
24.10
|
|
|
|
|
|
Granted
|
|
32,937
|
|
|
24.66
|
|
|
|
|
|
Exercised
|
|
(29,121)
|
|
|
16.02
|
|
|
|
|
|
Forfeited
|
|
(443)
|
|
|
38.75
|
|
|
|
|
|
Expired
|
|
(442)
|
|
|
38.75
|
|
|
|
|
|
Outstanding at December 31, 2020
|
|
227,986
|
|
|
$
|
25.16
|
|
|
6.89
|
|
$
|
5,332
|
|
|
|
|
|
|
|
|
|
|
Fully vested shares and shares expected to vest at December 31, 2020
|
|
227,986
|
|
|
$
|
25.16
|
|
|
6.89
|
|
$
|
5,332
|
|
|
|
|
|
|
|
|
|
|
Shares exercisable at December 31, 2020
|
|
145,253
|
|
|
$
|
22.49
|
|
|
6.18
|
|
$
|
3,785
|
|
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information related to the stock options for the years ended December 31, 2020, 2019 and 2018 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(Dollars in thousands, except per share amounts)
|
2020
|
|
2019
|
|
2018
|
Aggregate intrinsic value of options exercised
|
$
|
940
|
|
|
$
|
155
|
|
|
$
|
59
|
|
Cash received from option exercises
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Tax benefit realized from option exercises
|
$
|
197
|
|
|
$
|
33
|
|
|
$
|
12
|
|
Weighted average fair value of options granted (per share)
|
$
|
8.85
|
|
|
$
|
10.03
|
|
|
$
|
13.22
|
|
Fair value of vested awards
|
$
|
471
|
|
|
$
|
465
|
|
|
$
|
313
|
|
Stock options awarded to employees under the Omnibus Incentive Plan are generally granted with an exercise price equal to the market price of the Company’s common stock at the date of grant, vest over four years, and have ten years contractual terms. The fair value of stock options granted is estimated at the date of grant using the Black-Scholes option-pricing model.
The fair value of the stock options granted was determined using the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Risk-free interest rate
|
0.46
|
%
|
|
2.33
|
%
|
|
2.85
|
%
|
Expected term
|
6.25 years
|
|
6.25 years
|
|
6.25 years
|
Expected stock price volatility
|
33.83
|
%
|
|
27.46
|
%
|
|
28.07
|
%
|
Dividend yield
|
—
|
|
|
—
|
|
|
—
|
|
Expected volatilities were determined based on a blend of the Company’s historical volatility and historical volatilities of a peer group of companies with a similar size, industry, stage of life cycle, and capital structure. The expected term of the options granted was determined based on the SEC simplified method, which calculates the expected term as the mid-point between the weighted average time to vesting and the contractual term. The risk-free interest rate for the expected term of the options was derived from the Treasury constant maturity yield curve on the valuation date.
As of December 31, 2020, there was $321,000 of unrecognized compensation cost related to nonvested stock options. The cost is expected to be recognized over a remaining weighted average period of 2.67 years.
Employee Stock Purchase Plan
During the year ended December 31, 2019, the Company’s Board of Directors adopted, and the Company’s stockholders approved, the Triumph Bancorp, Inc. 2019 Employee Stock Purchase Plan (“ESPP”). Under the ESPP, 2,500,000 shares of common stock were reserved for issuance. The ESPP enables eligible employees to purchase the Company’s common stock at a price per share equal to 85% of the lower of the fair market value of the common stock at the beginning or end of each six month offering period. The first offering period has not yet commenced.
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 22 — PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
The following tables present parent company only condensed financial information.
Condensed Parent Company Only Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
December 31,
2020
|
|
December 31,
2019
|
ASSETS
|
|
|
|
Cash and cash equivalents
|
$
|
51,183
|
|
|
$
|
35,914
|
|
Securities - held to maturity
|
5,919
|
|
|
8,417
|
|
Loans
|
—
|
|
|
719
|
|
Investment in bank subsidiary
|
793,938
|
|
|
713,348
|
|
Investment in non-bank subsidiaries
|
4,592
|
|
|
5,542
|
|
Other assets
|
866
|
|
|
1,174
|
|
Total assets
|
$
|
856,498
|
|
|
$
|
765,114
|
|
LIABILITIES AND EQUITY
|
|
|
|
Subordinated notes
|
$
|
87,509
|
|
|
$
|
87,327
|
|
Junior subordinated debentures
|
40,072
|
|
|
39,566
|
|
Intercompany payables
|
178
|
|
|
318
|
|
Accrued expenses and other liabilities
|
1,958
|
|
|
1,313
|
|
Total liabilities
|
129,717
|
|
|
128,524
|
|
Stockholders' equity
|
726,781
|
|
|
636,590
|
|
Total liabilities and equity
|
$
|
856,498
|
|
|
$
|
765,114
|
|
Condensed Parent Company Only Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(Dollars in thousands)
|
2020
|
|
2019
|
|
2018
|
Interest income
|
$
|
270
|
|
|
$
|
1,163
|
|
|
$
|
2,014
|
|
Interest expense
|
(7,477)
|
|
|
(6,464)
|
|
|
(6,092)
|
|
Credit loss expense
|
(1,899)
|
|
|
83
|
|
|
8
|
|
Other income
|
(20)
|
|
|
(187)
|
|
|
5
|
|
Salaries and employee benefits expense
|
(606)
|
|
|
(613)
|
|
|
(523)
|
|
Other expense
|
(2,376)
|
|
|
(2,069)
|
|
|
(3,710)
|
|
Income (loss) before income tax and income from subsidiaries
|
(12,108)
|
|
|
(8,087)
|
|
|
(8,298)
|
|
Income tax (expense) benefit
|
2,631
|
|
|
193
|
|
|
1,049
|
|
Dividends from subsidiaries and equity in undistributed subsidiary income
|
73,501
|
|
|
66,438
|
|
|
58,957
|
|
Net income
|
64,024
|
|
|
58,544
|
|
|
51,708
|
|
Dividends on preferred stock
|
(1,701)
|
|
|
—
|
|
|
(578)
|
|
Net income available to common stockholders
|
$
|
62,323
|
|
|
$
|
58,544
|
|
|
$
|
51,130
|
|
Comprehensive income attributable to Parent
|
$
|
68,071
|
|
|
$
|
60,853
|
|
|
$
|
51,101
|
|
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Condensed Parent Company Only Statements of Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(Dollars in thousands)
|
2020
|
|
2019
|
|
2018
|
Cash flows from operating activities:
|
|
|
|
|
|
Net income
|
$
|
64,024
|
|
|
$
|
58,544
|
|
|
$
|
51,708
|
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
|
|
|
|
|
|
Equity in undistributed subsidiary income
|
(58,501)
|
|
|
(35,938)
|
|
|
(58,957)
|
|
Net accretion of securities
|
(221)
|
|
|
(923)
|
|
|
(983)
|
|
Amortization of junior subordinated debentures
|
506
|
|
|
483
|
|
|
460
|
|
Amortization of subordinated notes issuance costs
|
182
|
|
|
116
|
|
|
101
|
|
Stock based compensation
|
315
|
|
|
315
|
|
|
320
|
|
Credit loss expense
|
1,900
|
|
|
—
|
|
|
—
|
|
Change in other assets
|
337
|
|
|
2,438
|
|
|
1,273
|
|
Change in accrued expenses and other liabilities
|
505
|
|
|
(4,771)
|
|
|
(6,458)
|
|
Net cash provided by (used in) operating activities
|
9,047
|
|
|
20,264
|
|
|
(12,536)
|
|
Cash flows from investing activities:
|
|
|
|
|
|
Investment in subsidiaries
|
146
|
|
|
—
|
|
|
(59,038)
|
|
Proceeds from maturities, calls, and pay downs of securities held to maturity
|
693
|
|
|
993
|
|
|
1,053
|
|
Net change in loans
|
719
|
|
|
9,193
|
|
|
1,134
|
|
Cash used in acquisition of subsidiaries, net
|
—
|
|
|
—
|
|
|
(137,806)
|
|
Net cash provided by (used in) investing activities
|
1,558
|
|
|
10,186
|
|
|
(194,657)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
Proceeds from issuance of subordinated notes, net
|
—
|
|
|
38,282
|
|
|
—
|
|
Issuance of common stock, net of issuance costs
|
—
|
|
|
—
|
|
|
192,053
|
|
Issuance of preferred stock, net of issuance costs
|
42,364
|
|
|
—
|
|
|
—
|
|
Dividends on preferred stock
|
(1,701)
|
|
|
—
|
|
|
(578)
|
|
Purchase of treasury stock
|
(35,772)
|
|
|
(64,524)
|
|
|
(398)
|
|
Stock option exercises
|
(227)
|
|
|
—
|
|
|
(4)
|
|
Net cash provided by (used in) financing activities
|
4,664
|
|
|
(26,242)
|
|
|
191,073
|
|
Net increase (decrease) in cash and cash equivalents
|
15,269
|
|
|
4,208
|
|
|
(16,120)
|
|
Cash and cash equivalents at beginning of period
|
35,914
|
|
|
31,706
|
|
|
47,826
|
|
Cash and cash equivalents at end of period
|
$
|
51,183
|
|
|
$
|
35,914
|
|
|
$
|
31,706
|
|
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 23 — EARNINGS PER SHARE
The factors used in the earnings per share computation follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(Dollars in thousands)
|
2020
|
|
2019
|
|
2018
|
Basic
|
|
|
|
|
|
Net income to common stockholders
|
$
|
62,323
|
|
|
$
|
58,544
|
|
|
$
|
51,130
|
|
Weighted average common shares outstanding
|
24,387,932
|
|
|
25,941,395
|
|
|
24,791,448
|
|
Basic earnings per common share
|
$
|
2.56
|
|
|
$
|
2.26
|
|
|
$
|
2.06
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
Net income to common stockholders
|
$
|
62,323
|
|
|
$
|
58,544
|
|
|
$
|
51,130
|
|
Dilutive effect of preferred stock
|
—
|
|
|
—
|
|
|
578
|
|
Net income to common stockholders - diluted
|
$
|
62,323
|
|
|
$
|
58,544
|
|
|
$
|
51,708
|
|
Weighted average common shares outstanding
|
24,387,932
|
|
|
25,941,395
|
|
|
24,791,448
|
|
Dilutive effects of:
|
|
|
|
|
|
Assumed conversion of Preferred A
|
—
|
|
|
—
|
|
|
258,674
|
|
Assumed conversion of Preferred B
|
—
|
|
|
—
|
|
|
290,375
|
|
Assumed exercises of stock options
|
64,104
|
|
|
63,808
|
|
|
84,126
|
|
Restricted stock awards
|
86,498
|
|
|
47,242
|
|
|
52,851
|
|
Restricted stock units
|
25,978
|
|
|
3,441
|
|
|
3,039
|
|
Performance stock units - market based
|
51,304
|
|
|
4,119
|
|
|
—
|
|
Performance stock units - performance based
|
—
|
|
|
—
|
|
|
—
|
|
Average shares and dilutive potential common shares
|
24,615,816
|
|
|
26,060,005
|
|
|
25,480,513
|
|
Diluted earnings per common share
|
$
|
2.53
|
|
|
$
|
2.25
|
|
|
$
|
2.03
|
|
Shares that were not considered in computing diluted earnings per common share because they were antidilutive are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2020
|
|
2019
|
|
2018
|
Assumed conversion of Preferred A
|
—
|
|
|
—
|
|
|
—
|
|
Assumed conversion of Preferred B
|
—
|
|
|
—
|
|
|
—
|
|
Stock options
|
64,947
|
|
|
66,019
|
|
|
51,952
|
|
Restricted stock awards
|
—
|
|
|
—
|
|
|
—
|
|
Restricted stock units
|
—
|
|
|
—
|
|
|
—
|
|
Performance stock units - market based
|
—
|
|
|
55,228
|
|
|
59,658
|
|
Performance stock units - performance based
|
256,625
|
|
|
254,000
|
|
|
—
|
|
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 24 — BUSINESS SEGMENT INFORMATION
The following presents the Company’s operating segments. The accounting policies of the segments are the same as those described in Note 1 – Summary of Significant Accounting Policies. Transactions between segments consist primarily of borrowed funds. Beginning in 2019, intersegment interest expense is allocated to the Factoring segment based on Federal Home Loan Bank advance rates. Prior to 2019, intersegment interest was calculated based on the Company’s prime rate. Credit loss expense is allocated based on the segment’s ACL determination. 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 TBC. General factoring services not originated through TBC are included in the Banking segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
|
Banking
|
|
Factoring
|
|
Corporate
|
|
Consolidated
|
Total interest income
|
|
$
|
212,452
|
|
|
$
|
109,391
|
|
|
$
|
272
|
|
|
$
|
322,115
|
|
Intersegment interest allocations
|
|
12,371
|
|
|
(12,371)
|
|
|
—
|
|
|
—
|
|
Total interest expense
|
|
29,911
|
|
|
—
|
|
|
7,476
|
|
|
37,387
|
|
Net interest income (expense)
|
|
194,912
|
|
|
97,020
|
|
|
(7,204)
|
|
|
284,728
|
|
Credit loss expense
|
|
20,389
|
|
|
16,042
|
|
|
1,898
|
|
|
38,329
|
|
Net interest income (expense) after credit loss expense
|
|
174,523
|
|
|
80,978
|
|
|
(9,102)
|
|
|
246,399
|
|
Gain on sale of subsidiary or division
|
|
9,758
|
|
|
—
|
|
|
—
|
|
|
9,758
|
|
Other noninterest income
|
|
29,503
|
|
|
21,010
|
|
|
114
|
|
|
50,627
|
|
Noninterest expense
|
|
163,995
|
|
|
54,011
|
|
|
4,068
|
|
|
222,074
|
|
Operating income (loss)
|
|
$
|
49,789
|
|
|
$
|
47,977
|
|
|
$
|
(13,056)
|
|
|
$
|
84,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
|
Banking
|
|
Factoring
|
|
Corporate
|
|
Consolidated
|
Total interest income
|
|
$
|
211,742
|
|
|
$
|
98,247
|
|
|
$
|
1,164
|
|
|
$
|
311,153
|
|
Intersegment interest allocations
|
|
11,294
|
|
|
(11,294)
|
|
|
—
|
|
|
—
|
|
Total interest expense
|
|
48,786
|
|
|
—
|
|
|
6,464
|
|
|
55,250
|
|
Net interest income (expense)
|
|
174,250
|
|
|
86,953
|
|
|
(5,300)
|
|
|
255,903
|
|
Credit loss expense
|
|
5,533
|
|
|
2,486
|
|
|
(77)
|
|
|
7,942
|
|
Net interest income (expense) after credit loss expense
|
|
168,717
|
|
|
84,467
|
|
|
(5,223)
|
|
|
247,961
|
|
Noninterest income
|
|
26,875
|
|
|
4,727
|
|
|
(33)
|
|
|
31,569
|
|
Noninterest expense
|
|
148,620
|
|
|
51,780
|
|
|
3,684
|
|
|
204,084
|
|
Operating income (loss)
|
|
$
|
46,972
|
|
|
$
|
37,414
|
|
|
$
|
(8,940)
|
|
|
$
|
75,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
Banking
|
|
Factoring
|
|
Corporate
|
|
Consolidated
|
Total interest income
|
|
$
|
170,871
|
|
|
$
|
90,092
|
|
|
$
|
2,013
|
|
|
$
|
262,976
|
|
Intersegment interest allocations
|
|
20,191
|
|
|
(20,191)
|
|
|
—
|
|
|
—
|
|
Total interest expense
|
|
29,834
|
|
|
—
|
|
|
6,092
|
|
|
35,926
|
|
Net interest income (expense)
|
|
161,228
|
|
|
69,901
|
|
|
(4,079)
|
|
|
227,050
|
|
Credit loss expense
|
|
12,373
|
|
|
3,802
|
|
|
(8)
|
|
|
16,167
|
|
Net interest income (expense) after credit loss expense
|
|
148,855
|
|
|
66,099
|
|
|
(4,071)
|
|
|
210,883
|
|
Gain on sale of subsidiary or division
|
|
1,071
|
|
|
—
|
|
|
—
|
|
|
1,071
|
|
Other noninterest income
|
|
18,364
|
|
|
3,483
|
|
|
52
|
|
|
21,899
|
|
Noninterest expense
|
|
119,283
|
|
|
43,495
|
|
|
4,575
|
|
|
167,353
|
|
Operating income (loss)
|
|
$
|
49,007
|
|
|
$
|
26,087
|
|
|
$
|
(8,594)
|
|
|
$
|
66,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Banking
|
|
Factoring
|
|
Corporate
|
|
Eliminations
|
|
Consolidated
|
Total assets
|
|
$
|
5,907,373
|
|
|
$
|
1,121,704
|
|
|
$
|
861,967
|
|
|
$
|
(1,955,253)
|
|
|
$
|
5,935,791
|
|
Gross loans held for investment
|
|
$
|
4,872,494
|
|
|
$
|
1,036,369
|
|
|
$
|
800
|
|
|
$
|
(912,887)
|
|
|
$
|
4,996,776
|
|
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Banking
|
|
Factoring
|
|
Corporate
|
|
Eliminations
|
|
Consolidated
|
Total assets
|
|
$
|
4,976,009
|
|
|
$
|
662,002
|
|
|
$
|
771,048
|
|
|
$
|
(1,348,762)
|
|
|
$
|
5,060,297
|
|
Gross loans held for investment
|
|
$
|
4,108,735
|
|
|
$
|
573,372
|
|
|
$
|
1,519
|
|
|
$
|
(489,114)
|
|
|
$
|
4,194,512
|
|
NOTE 25 — QUARTERLY FINANCIAL DATA (UNAUDITED)
The following presents quarterly financial data for the years ended December 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2020
|
(Dollars in thousands)
|
Fourth
Quarter
|
|
Third
Quarter
|
|
Second
Quarter
|
|
First
Quarter
|
Interest income
|
$
|
89,939
|
|
|
$
|
82,364
|
|
|
$
|
74,398
|
|
|
$
|
75,414
|
|
Interest expense
|
6,341
|
|
|
7,985
|
|
|
10,147
|
|
|
12,914
|
|
Net interest income
|
83,598
|
|
|
74,379
|
|
|
64,251
|
|
|
62,500
|
|
Credit loss expense
|
4,680
|
|
|
(258)
|
|
|
13,609
|
|
|
20,298
|
|
Net interest income after credit loss expense
|
78,918
|
|
|
74,637
|
|
|
50,642
|
|
|
42,202
|
|
Gain on sale of subsidiary or division
|
—
|
|
|
—
|
|
|
9,758
|
|
|
—
|
|
Other noninterest income
|
22,386
|
|
|
10,493
|
|
|
10,271
|
|
|
7,477
|
|
Noninterest income
|
22,386
|
|
|
10,493
|
|
|
20,029
|
|
|
7,477
|
|
Noninterest expense
|
59,298
|
|
|
55,297
|
|
|
52,726
|
|
|
54,753
|
|
Net income before income taxes
|
42,006
|
|
|
29,833
|
|
|
17,945
|
|
|
(5,074)
|
|
Income tax expense
|
9,876
|
|
|
6,929
|
|
|
4,505
|
|
|
(624)
|
|
Net income
|
32,130
|
|
|
22,904
|
|
|
13,440
|
|
|
(4,450)
|
|
Dividends on preferred stock
|
(802)
|
|
|
(899)
|
|
|
—
|
|
|
—
|
|
Net income available to common stockholders
|
$
|
31,328
|
|
|
$
|
22,005
|
|
|
$
|
13,440
|
|
|
$
|
(4,450)
|
|
Earnings per common share
|
|
|
|
|
|
|
|
Basic
|
$
|
1.27
|
|
|
$
|
0.89
|
|
|
$
|
0.56
|
|
|
$
|
(0.18)
|
|
Diluted
|
$
|
1.25
|
|
|
$
|
0.89
|
|
|
$
|
0.56
|
|
|
$
|
(0.18)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
(Dollars in thousands)
|
Fourth
Quarter
|
|
Third
Quarter
|
|
Second
Quarter
|
|
First
Quarter
|
Interest income
|
$
|
81,171
|
|
|
$
|
79,415
|
|
|
$
|
77,303
|
|
|
$
|
73,264
|
|
Interest expense
|
14,763
|
|
|
14,650
|
|
|
13,884
|
|
|
11,953
|
|
Net interest income
|
66,408
|
|
|
64,765
|
|
|
63,419
|
|
|
61,311
|
|
Credit loss expense
|
382
|
|
|
2,865
|
|
|
3,681
|
|
|
1,014
|
|
Net interest income after credit loss expense
|
66,026
|
|
|
61,900
|
|
|
59,738
|
|
|
60,297
|
|
Noninterest income
|
8,666
|
|
|
7,742
|
|
|
7,623
|
|
|
7,538
|
|
Noninterest expense
|
52,661
|
|
|
52,153
|
|
|
50,704
|
|
|
48,566
|
|
Net income before income taxes
|
22,031
|
|
|
17,489
|
|
|
16,657
|
|
|
19,269
|
|
Income tax expense
|
5,322
|
|
|
3,172
|
|
|
3,927
|
|
|
4,481
|
|
Net income
|
16,709
|
|
|
14,317
|
|
|
12,730
|
|
|
14,788
|
|
Dividends on preferred stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net income available to common stockholders
|
$
|
16,709
|
|
|
$
|
14,317
|
|
|
$
|
12,730
|
|
|
$
|
14,788
|
|
Earnings per common share
|
|
|
|
|
|
|
|
Basic
|
$
|
0.67
|
|
|
$
|
0.56
|
|
|
$
|
0.48
|
|
|
$
|
0.55
|
|
Diluted
|
$
|
0.66
|
|
|
$
|
0.56
|
|
|
$
|
0.48
|
|
|
$
|
0.55
|
|