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Section 1: 10-Q (10-Q)

tbk-10q_20180331.htm

  

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended March 31, 2018

OR

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

For the transition period from              to            

Commission File Number 001-36722

 

TRIUMPH BANCORP, INC.

(Exact name of registrant as specified in its charter)

 

 

Texas

 

20-0477066

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

12700 Park Central Drive, Suite 1700

Dallas, Texas 75251

(Address of principal executive offices)

(214) 365-6900

(Registrant’s telephone number, including area code)

 

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

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

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

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

 (Do not check if a smaller reporting company)

Smaller reporting company

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act  

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

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

Common Stock — $0.01 par value, 26,242,376 shares, as of April 18, 2018

 

 

 


 

TRIUMPH BANCORP, INC.

FORM 10-Q

March 31, 2018

TABLE OF CONTENTS

 

PART I — FINANCIAL INFORMATION

 

 

    Item 1.

 

Financial Statements

 

 

 

   Consolidated Balance Sheets

2

 

 

   Consolidated Statements of Income

3

 

 

   Consolidated Statements of Comprehensive Income

4

 

 

   Consolidated Statements of Changes in Stockholders’ Equity

5

 

 

   Consolidated Statements of Cash Flows

6

 

 

   Condensed Notes to Consolidated Financial Statements

8

 

    Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

35

 

    Item 3.

 

Quantitative and Qualitative Disclosures About Market Risks

63

 

    Item 4.

 

Controls and Procedures

65

 

 

PART II — OTHER INFORMATION

 

 

    Item 1.

 

Legal Proceedings

65

 

    Item 1A.

 

Risk Factors

65

 

    Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

65

 

    Item 3.

 

Defaults Upon Senior Securities

65

 

    Item 4.

 

Mine Safety Disclosures

65

 

    Item 5.

 

Other Information

65

 

    Item 6.

 

Exhibits

66

 

 

 

 

i


 

PART I – FINANCIAL INFORMATION

ITEM 1

FINANCIAL STATEMENTS

 

 

 

 

1


 

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

March 31, 2018 and December 31, 2017

(Dollar amounts in thousands, except per share amounts)

 

 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

45,887

 

 

$

59,114

 

Interest bearing deposits with other banks

 

 

60,159

 

 

 

75,015

 

Total cash and cash equivalents

 

 

106,046

 

 

 

134,129

 

Securities - available for sale

 

 

192,916

 

 

 

250,603

 

Securities - equity investments

 

 

4,925

 

 

 

5,006

 

Securities - held to maturity, fair value of $8,111 and $7,527, respectively

 

 

8,614

 

 

 

8,557

 

Loans, net of allowance for loan and lease losses of $20,022 and $18,748, respectively

 

 

2,853,963

 

 

 

2,792,108

 

Assets held for sale

 

 

 

 

 

71,362

 

Federal Home Loan Bank stock, at cost

 

 

16,508

 

 

 

16,006

 

Premises and equipment, net

 

 

62,826

 

 

 

62,861

 

Other real estate owned, net

 

 

9,186

 

 

 

9,191

 

Goodwill

 

 

45,373

 

 

 

44,126

 

Intangible assets, net

 

 

18,550

 

 

 

19,652

 

Bank-owned life insurance

 

 

44,534

 

 

 

44,364

 

Deferred tax assets, net

 

 

8,849

 

 

 

8,959

 

Other assets

 

 

32,720

 

 

 

32,109

 

Total assets

 

$

3,405,010

 

 

$

3,499,033

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

 

 

Noninterest bearing

 

$

548,991

 

 

$

564,225

 

Interest bearing

 

 

1,984,507

 

 

 

2,057,123

 

Total deposits

 

 

2,533,498

 

 

 

2,621,348

 

Customer repurchase agreements

 

 

6,751

 

 

 

11,488

 

Federal Home Loan Bank advances

 

 

355,000

 

 

 

365,000

 

Subordinated notes

 

 

48,853

 

 

 

48,828

 

Junior subordinated debentures

 

 

38,734

 

 

 

38,623

 

Other liabilities

 

 

19,230

 

 

 

22,048

 

Total liabilities

 

 

3,002,066

 

 

 

3,107,335

 

Commitments and contingencies - See Note 8 and Note 9

 

 

 

 

 

 

 

 

Stockholders' equity - See Note 12

 

 

 

 

 

 

 

 

Preferred Stock

 

 

9,658

 

 

 

9,658

 

Common stock, 20,824,509 and 20,820,445 shares outstanding, respectively

 

 

209

 

 

 

209

 

Additional paid-in-capital

 

 

265,406

 

 

 

264,855

 

Treasury stock, at cost

 

 

(1,853

)

 

 

(1,784

)

Retained earnings

 

 

131,234

 

 

 

119,356

 

Accumulated other comprehensive income (loss)

 

 

(1,710

)

 

 

(596

)

Total stockholders’ equity

 

 

402,944

 

 

 

391,698

 

Total liabilities and stockholders' equity

 

$

3,405,010

 

 

$

3,499,033

 

See accompanying condensed notes to consolidated financial statements.

 

 

 

 

2


 

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

For the Three Months Ended March 31, 2018 and 2017

(Dollar amounts in thousands, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2018

 

 

2017

 

Interest and dividend income:

 

 

 

 

 

 

 

 

Loans, including fees

 

$

36,883

 

 

$

25,185

 

Factored receivables, including fees

 

 

15,303

 

 

 

9,167

 

Securities

 

 

1,310

 

 

 

1,611

 

FHLB stock

 

 

105

 

 

 

42

 

Cash deposits

 

 

517

 

 

 

327

 

Total interest income

 

 

54,118

 

 

 

36,332

 

Interest expense:

 

 

 

 

 

 

 

 

Deposits

 

 

4,277

 

 

 

2,869

 

Subordinated notes

 

 

837

 

 

 

835

 

Junior subordinated debentures

 

 

597

 

 

 

465

 

Other borrowings

 

 

1,277

 

 

 

344

 

Total interest expense

 

 

6,988

 

 

 

4,513

 

Net interest income

 

 

47,130

 

 

 

31,819

 

Provision for loan losses

 

 

2,548

 

 

 

7,678

 

Net interest income after provision for loan losses

 

 

44,582

 

 

 

24,141

 

Noninterest income:

 

 

 

 

 

 

 

 

Service charges on deposits

 

 

1,145

 

 

 

980

 

Card income

 

 

1,244

 

 

 

827

 

Net OREO gains (losses) and valuation adjustments

 

 

(88

)

 

 

11

 

Net gains (losses) on sale of securities

 

 

(272

)

 

 

 

Fee income

 

 

800

 

 

 

583

 

Insurance commissions

 

 

714

 

 

 

590

 

Asset management fees

 

 

 

 

 

1,717

 

Gain on sale of subsidiary or division

 

 

1,071

 

 

 

20,860

 

Other

 

 

558

 

 

 

1,717

 

Total noninterest income

 

 

5,172

 

 

 

27,285

 

Noninterest expense:

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

19,404

 

 

 

21,958

 

Occupancy, furniture and equipment

 

 

3,054

 

 

 

2,359

 

FDIC insurance and other regulatory assessments

 

 

199

 

 

 

226

 

Professional fees

 

 

1,640

 

 

 

1,968

 

Amortization of intangible assets

 

 

1,117

 

 

 

1,111

 

Advertising and promotion

 

 

1,029

 

 

 

938

 

Communications and technology

 

 

3,359

 

 

 

2,174

 

Other

 

 

4,240

 

 

 

4,103

 

Total noninterest expense

 

 

34,042

 

 

 

34,837

 

Net income before income tax

 

 

15,712

 

 

 

16,589

 

Income tax expense

 

 

3,644

 

 

 

6,116

 

Net income

 

 

12,068

 

 

 

10,473

 

Dividends on preferred stock

 

 

(190

)

 

 

(192

)

Net income available to common stockholders

 

$

11,878

 

 

$

10,281

 

Earnings per common share

 

 

 

 

 

 

 

 

Basic

 

$

0.57

 

 

$

0.57

 

Diluted

 

$

0.56

 

 

$

0.55

 

See accompanying condensed notes to consolidated financial statements.

 

 

 

3


 

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Three Months Ended March 31, 2018 and 2017

(Dollar amounts in thousands, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2018

 

 

2017

 

Net income

 

$

12,068

 

 

$

10,473

 

Other comprehensive income:

 

 

 

 

 

 

 

 

Unrealized gains (losses) on securities:

 

 

 

 

 

 

 

 

Unrealized holding gains (losses) arising during the period

 

 

(1,708

)

 

 

335

 

Reclassification of amount realized through sale of securities

 

 

272

 

 

 

 

Tax effect

 

 

322

 

 

 

(125

)

Total other comprehensive income (loss)

 

 

(1,114

)

 

 

210

 

Comprehensive income

 

$

10,954

 

 

$

10,683

 

See accompanying condensed notes to consolidated financial statements.

 

 

 

 

4


 

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Three Months Ended March 31, 2018 and 2017

(Dollar amounts in thousands, except per share amounts)

(Unaudited)

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Treasury Stock

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Liquidation

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Preference

 

 

Shares

 

 

Par

 

 

Paid-in-

 

 

Shares

 

 

 

 

 

 

Retained

 

 

Comprehensive

 

 

Stockholders'

 

 

 

Amount

 

 

Outstanding

 

 

Amount

 

 

Capital

 

 

Outstanding

 

 

Cost

 

 

Earnings

 

 

Income (Loss)

 

 

Equity

 

Balance, January 1, 2017

 

$

9,746

 

 

 

18,078,247

 

 

$

182

 

 

$

197,157

 

 

 

76,118

 

 

$

(1,374

)

 

$

83,910

 

 

$

(276

)

 

$

289,345

 

Issuance of restricted stock awards

 

 

 

 

 

5,174

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation

 

 

 

 

 

 

 

 

 

 

 

702

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

702

 

Forfeiture of restricted stock awards

 

 

 

 

 

(251

)

 

 

 

 

 

7

 

 

 

251

 

 

 

(7

)

 

 

 

 

 

 

 

 

 

Purchase of treasury stock

 

 

 

 

 

(4,401

)

 

 

 

 

 

 

 

 

4,401

 

 

 

(113

)

 

 

 

 

 

 

 

 

(113

)

Series A Preferred dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(90

)

 

 

 

 

 

(90

)

Series B Preferred dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(102

)

 

 

 

 

 

(102

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,473

 

 

 

 

 

 

10,473

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

210

 

 

 

210

 

Balance, March 31, 2017

 

$

9,746

 

 

 

18,078,769

 

 

$

182

 

 

$

197,866

 

 

 

80,770

 

 

$

(1,494

)

 

$

94,191

 

 

$

(66

)

 

$

300,425

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2018

 

$

9,658

 

 

 

20,820,445

 

 

$

209

 

 

$

264,855

 

 

 

91,951

 

 

$

(1,784

)

 

$

119,356

 

 

$

(596

)

 

$

391,698

 

Issuance of restricted stock awards

 

 

 

 

 

5,492

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation

 

 

 

 

 

 

 

 

 

 

 

486

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

486

 

Forfeiture of restricted stock awards

 

 

 

 

 

(1,574

)

 

 

 

 

 

69

 

 

 

1,574

 

 

 

(69

)

 

 

 

 

 

 

 

 

 

Stock options exercised

 

 

 

 

 

146

 

 

 

 

 

 

(4

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4

)

Series A Preferred dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(90

)

 

 

 

 

 

(90

)

Series B Preferred dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(100

)

 

 

 

 

 

(100

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,068

 

 

 

 

 

 

12,068

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,114

)

 

 

(1,114

)

Balance, March 31, 2018

 

$

9,658

 

 

 

20,824,509

 

 

$

209

 

 

$

265,406

 

 

 

93,525

 

 

$

(1,853

)

 

$

131,234

 

 

$

(1,710

)

 

$

402,944

 

See accompanying condensed notes to consolidated financial statements.

 

 

 

 

5


TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended March 31, 2018 and 2017

(Dollar amounts in thousands, except per share amounts)

(Unaudited)

  

 

Three Months Ended March 31,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

12,068

 

 

$

10,473

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

1,216

 

 

 

958

 

Net accretion on loans and deposits

 

 

(1,977

)

 

 

(1,080

)

Amortization of subordinated notes issuance costs

 

 

25

 

 

 

23

 

Amortization of junior subordinated debentures

 

 

111

 

 

 

100

 

Net amortization on securities

 

 

331

 

 

 

644

 

Amortization of intangible assets

 

 

1,117

 

 

 

1,111

 

Deferred taxes

 

 

439

 

 

 

3,023

 

Provision for loan losses

 

 

2,548

 

 

 

7,678

 

Stock based compensation

 

 

486

 

 

 

702

 

Net (gains) losses on sale of securities

 

 

272

 

 

 

 

Net (gain) loss on loans transferred to loans held for sale

 

 

 

 

 

46

 

Net OREO (gains) losses and valuation adjustments

 

 

88

 

 

 

(11

)

Gain on sale of subsidiary or division

 

 

(1,071

)

 

 

(20,860

)

Income from CLO warehouse investments

 

 

 

 

 

(964

)

(Increase) decrease in other assets

 

 

(1,705

)

 

 

509

 

Increase (decrease) in other liabilities

 

 

(4,498

)

 

 

1,262

 

Net cash provided by (used in) operating activities

 

 

9,450

 

 

 

3,614

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of securities available for sale

 

 

 

 

 

(4,817

)

Proceeds from sales of securities available for sale

 

 

34,196

 

 

 

 

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

 

 

21,210

 

 

 

24,706

 

Proceeds from maturities, calls, and pay downs of securities held to maturity

 

 

185

 

 

 

4,109

 

Proceeds from sale of loans

 

 

 

 

 

1,919

 

Net change in loans

 

 

(62,509

)

 

 

(7,947

)

Purchases of premises and equipment, net

 

 

(1,181

)

 

 

(405

)

Net proceeds from sale of OREO

 

 

 

 

 

683

 

(Purchases) redemptions of FHLB stock, net

 

 

(502

)

 

 

1,263

 

Proceeds from sale of subsidiary or division, net

 

 

73,849

 

 

 

10,269

 

Net cash provided by (used in) investing activities

 

 

65,248

 

 

 

29,780

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net increase (decrease) in deposits

 

 

(87,850

)

 

 

8,503

 

Increase (decrease) in customer repurchase agreements

 

 

(4,737

)

 

 

(22

)

Increase (decrease) in Federal Home Loan Bank advances

 

 

(10,000

)

 

 

(30,000

)

Stock option exercises

 

 

(4

)

 

 

 

Purchase of treasury stock

 

 

 

 

 

(113

)

Dividends on preferred stock

 

 

(190

)

 

 

(192

)

Net cash provided by (used in) financing activities

 

 

(102,781

)

 

 

(21,824

)

Net increase (decrease) in cash and cash equivalents

 

 

(28,083

)

 

 

11,570

 

Cash and cash equivalents at beginning of period

 

 

134,129

 

 

 

114,514

 

Cash and cash equivalents at end of period

 

$

106,046

 

 

$

126,084

 

See accompanying condensed notes to consolidated financial statements.

 


 

6


 

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended March 31, 2018 and 2017

(Dollar amounts in thousands, except per share amounts)

(Unaudited)

 

 

Three Months Ended March 31,

 

 

 

2018

 

 

2017

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

7,562

 

 

$

5,269

 

Income taxes paid (refunds received), net

 

$

48

 

 

$

(917

)

Supplemental noncash disclosures:

 

 

 

 

 

 

 

 

Loans transferred to OREO

 

$

83

 

 

$

5,960

 

Premises transferred to OREO

 

$

 

 

$

273

 

Loans transferred to loans held for sale

 

$

 

 

$

1,965

 

Securities held to maturity purchased, not settled

 

$

 

 

$

3,260

 

Consideration received from sale of subsidiary

 

$

 

 

$

12,123

 

 

 

 

 

 

7


TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Triumph Bancorp, Inc. (collectively with its subsidiaries, “Triumph”, or the “Company” as applicable) is a financial holding company headquartered in Dallas, Texas. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries Triumph CRA Holdings, LLC (“TCRA”), TBK Bank, SSB (“TBK Bank”), TBK Bank’s wholly owned 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 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 details of the THF sale and its impact on our consolidated financial statements.

On March 31, 2017 the Company sold its membership interests in its wholly owned subsidiary Triumph Capital Advisors, LLC (“TCA”). See Note 2 – Business Combinations and Divestitures for details of the TCA sale and its impact on our consolidated financial statements.

Principles of Consolidation and Basis of Presentation

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

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all normal and recurring adjustments considered necessary for a fair presentation. Transactions between the subsidiaries have been eliminated. These condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. Operating results for the three months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.

The Company has three reportable segments consisting of Banking, Factoring, and Corporate. The Company’s Chief Executive Officer uses segment results to make operating and strategic decisions.

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, there is little judgment involved in applying Topic 606 that significantly affects the determination of the amount and timing of revenue from contracts with customers.

 

 

8


TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Income Taxes

On December 22, 2017, the United States enacted tax reform legislation commonly known as the Tax Cuts and Jobs Act (the “Tax Act”), resulting in significant modifications to existing law. Authoritative guidance and interpretation by regulatory bodies is ongoing, and as such, the accounting for the effects of the Tax Act is not final and the full impact of the new regulation is still being evaluated.

Adoption of New Accounting Standards

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU replaces most existing revenue recognition guidance in GAAP. The new standard was effective for the Company on January 1, 2018. Adoption of ASU 2014-09 did not have a material impact on the Company’s consolidated financial statements and related disclosures as the Company’s primary sources of revenues are derived from interest and dividends earned on loans, investment securities, and other financial instruments that are not within the scope of ASU 2014-09. The Company’s revenue recognition pattern for revenue streams within the scope of ASU 2014-09, including but not limited to service charges on deposit accounts and gains/losses on the sale of OREO, did not change significantly from current practice. The standard permits the use of either the full retrospective or modified retrospective transition method. The Company elected to use the modified retrospective transition method which requires application of ASU 2014-09 to uncompleted contracts at the date of adoption however, periods prior to the date of adoption will not be retrospectively revised as the impact of the ASU on uncompleted contracts at the date of adoption was not material.  

In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). The guidance affects the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements of financial instruments. ASU 2016-01 was effective for the Company on January 1, 2018 and resulted in separate classification of equity securities previously included in available for sale securities on the consolidated balance sheets with changes in the fair value of the equity securities captured in the consolidated statements of income. See Note 3 – Securities for disclosures related to equity securities. Adoption of the standard also resulted in the use of an exit price rather than an entrance price to determine the fair value of loans not measured at fair value on a non-recurring basis in the consolidated balance sheets. See Note 10 – Fair Value Disclosures for further information regarding the valuation of these loans.

In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,” (“ASU 2017-01”) to improve such definition and, as a result, assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or as business combinations. The definition of a business impacts many areas of accounting including acquisitions, disposals, goodwill and consolidation. ASU 2017-01 was effective for the Company on January 1, 2018 and is to be applied under a prospective approach. The Company expects the adoption of this new guidance to impact the determination of whether future acquisitions are considered business combinations.

Newly Issued, But Not Yet Effective Accounting Standards

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). The FASB issued this ASU to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet by lessees for those leases classified as operating leases under current U.S. GAAP and disclosing key information about leasing arrangements. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Early application of this ASU is permitted for all entities. Adoption of ASU 2016-02 is not expected to have a material impact on the Company’s consolidated financial statements. The Company leases certain properties and equipment under operating leases that will result in the recognition of lease assets and lease liabilities on the Company’s balance sheet under the ASU, however, the majority of the Company’s properties and equipment are owned, not leased. At March 31, 2018, the Company had contractual operating lease commitments of approximately $10,222,000, before considering renewal options that are generally present.

 

9


TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). Among other things, ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to form their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, ASU 2016-13 amends the accounting for credit losses on debt securities and purchased financial assets with credit deterioration. The amendments in ASU 2016-13 are effective for fiscal years beginning after December 31, 2019, and interim periods within those years for public business entities that are SEC filers. Early adoption is permitted for fiscal years, and interim periods within those years, beginning after December 15, 2018, however, the Company does not currently plan to early adopt the ASU. The Company has formed a cross functional team that is assessing the Company’s data and system needs and evaluating the impact that adoption of this standard will have on the financial condition and results of operations of the Company.

 

NOTE 2 – Business combinations AND DIVESTITURES

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.

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.

Valley Bancorp, Inc.

Effective December 9, 2017, the Company acquired Valley Bancorp, Inc. (“Valley”) and its community banking subsidiary, Valley Bank & Trust, in an all-cash transaction. Valley Bank & Trust serves individuals and business customers from seven locations across the northern front range including Brighton, Dacono, Denver, Hudson, Westminster and Strasburg, Colorado. Valley Bank & Trust was merged into TBK Bank upon closing. The acquisition expanding the Company’s market in Colorado and further diversified the Company’s loan, customer, and deposit base.

 

10


TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

 

Initial Values

 

 

Measurement

 

 

 

 

 

 

 

Recorded at

 

 

Period

 

 

Adjusted

 

(Dollars in thousands)

 

Acquisition Date

 

 

Adjustments

 

 

Values

 

Assets acquired:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

38,473

 

 

$

 

 

$

38,473

 

Securities

 

 

97,687

 

 

 

 

 

 

97,687

 

Loans

 

 

171,199