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Section 1: 10-Q (10-Q)

tbk-10q_20190331.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, 2019

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 every Interactive Data File required to be submitted 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 such files).    Yes      No  

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

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

 

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, 26,705,437 shares, as of April 17, 2019

 

 

 


 

TRIUMPH BANCORP, INC.

FORM 10-Q

March 31, 2019

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

36

 

    Item 3.

 

Quantitative and Qualitative Disclosures About Market Risks

64

 

    Item 4.

 

Controls and Procedures

66

 

 

PART II — OTHER INFORMATION

 

 

    Item 1.

 

Legal Proceedings

66

 

    Item 1A.

 

Risk Factors

66

 

    Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

66

 

    Item 3.

 

Defaults Upon Senior Securities

66

 

    Item 4.

 

Mine Safety Disclosures

66

 

    Item 5.

 

Other Information

66

 

    Item 6.

 

Exhibits

67

 

 

 

 

i


 

PART I – FINANCIAL INFORMATION

ITEM 1

FINANCIAL STATEMENTS

 

 

 

 

1


 

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

March 31, 2019 and December 31, 2018

(Dollar amounts in thousands, except per share amounts)

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

61,726

 

 

$

96,218

 

Interest bearing deposits with other banks

 

 

110,224

 

 

 

138,721

 

Total cash and cash equivalents

 

 

171,950

 

 

 

234,939

 

Securities - equity investments

 

 

5,183

 

 

 

5,044

 

Securities - available for sale

 

 

339,465

 

 

 

336,423

 

Securities - held to maturity, fair value of $7,278 and $7,326, respectively

 

 

8,499

 

 

 

8,487

 

Loans held for sale

 

 

610

 

 

 

2,106

 

Loans, net of allowance for loan and lease losses of $27,605 and $27,571, respectively

 

 

3,585,264

 

 

 

3,581,073

 

Federal Home Loan Bank stock, at cost

 

 

21,191

 

 

 

15,943

 

Premises and equipment, net

 

 

84,931

 

 

 

83,392

 

Other real estate owned, net

 

 

3,073

 

 

 

2,060

 

Goodwill

 

 

158,743

 

 

 

158,743

 

Intangible assets, net

 

 

38,272

 

 

 

40,674

 

Bank-owned life insurance

 

 

40,667

 

 

 

40,509

 

Deferred tax assets, net

 

 

7,608

 

 

 

8,438

 

Other assets

 

 

64,327

 

 

 

41,948

 

Total assets

 

$

4,529,783

 

 

$

4,559,779

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

 

 

Noninterest bearing

 

$

667,597

 

 

$

724,527

 

Interest bearing

 

 

2,646,843

 

 

 

2,725,822

 

Total deposits

 

 

3,314,440

 

 

 

3,450,349

 

Customer repurchase agreements

 

 

3,727

 

 

 

4,485

 

Federal Home Loan Bank advances

 

 

405,000

 

 

 

330,000

 

Subordinated notes

 

 

48,956

 

 

 

48,929

 

Junior subordinated debentures

 

 

39,200

 

 

 

39,083

 

Other liabilities

 

 

72,244

 

 

 

50,326

 

Total liabilities

 

 

3,883,567

 

 

 

3,923,172

 

Commitments and contingencies - See Note 8 and Note 9

 

 

 

 

 

 

 

 

Stockholders' equity - See Note 12

 

 

 

 

 

 

 

 

Common stock, 26,709,411 and 26,949,936 shares outstanding, respectively

 

 

271

 

 

 

271

 

Additional paid-in-capital

 

 

470,292

 

 

 

469,341

 

Treasury stock, at cost

 

 

(9,881

)

 

 

(2,288

)

Retained earnings

 

 

185,274

 

 

 

170,486

 

Accumulated other comprehensive income (loss)

 

 

260

 

 

 

(1,203

)

Total stockholders’ equity

 

 

646,216

 

 

 

636,607

 

Total liabilities and stockholders' equity

 

$

4,529,783

 

 

$

4,559,779

 

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, 2019 and 2018

(Dollar amounts in thousands, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Interest and dividend income:

 

 

 

 

 

 

 

 

Loans, including fees

 

$

45,094

 

 

$

36,883

 

Factored receivables, including fees

 

 

24,556

 

 

 

15,303

 

Securities

 

 

2,644

 

 

 

1,310

 

FHLB stock

 

 

192

 

 

 

105

 

Cash deposits

 

 

778

 

 

 

517

 

Total interest income

 

 

73,264

 

 

 

54,118

 

Interest expense:

 

 

 

 

 

 

 

 

Deposits

 

 

8,218

 

 

 

4,277

 

Subordinated notes

 

 

839

 

 

 

837

 

Junior subordinated debentures

 

 

760

 

 

 

597

 

Other borrowings

 

 

2,136

 

 

 

1,277

 

Total interest expense

 

 

11,953

 

 

 

6,988

 

Net interest income

 

 

61,311

 

 

 

47,130

 

Provision for loan losses

 

 

1,014

 

 

 

2,548

 

Net interest income after provision for loan losses

 

 

60,297

 

 

 

44,582

 

Noninterest income:

 

 

 

 

 

 

 

 

Service charges on deposits

 

 

1,606

 

 

 

1,145

 

Card income

 

 

1,844

 

 

 

1,244

 

Net OREO gains (losses) and valuation adjustments

 

 

209

 

 

 

(88

)

Net gains (losses) on sale of securities

 

 

(11

)

 

 

(272

)

Fee income

 

 

1,612

 

 

 

800

 

Insurance commissions

 

 

919

 

 

 

714

 

Gain on sale of subsidiary or division

 

 

 

 

 

1,071

 

Other

 

 

1,359

 

 

 

558

 

Total noninterest income

 

 

7,538

 

 

 

5,172

 

Noninterest expense:

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

26,439

 

 

 

19,404

 

Occupancy, furniture and equipment

 

 

4,522

 

 

 

3,054

 

FDIC insurance and other regulatory assessments

 

 

299

 

 

 

199

 

Professional fees

 

 

1,865

 

 

 

1,640

 

Amortization of intangible assets

 

 

2,402

 

 

 

1,117

 

Advertising and promotion

 

 

1,604

 

 

 

1,029

 

Communications and technology

 

 

4,874

 

 

 

3,359

 

Other

 

 

6,561

 

 

 

4,240

 

Total noninterest expense

 

 

48,566

 

 

 

34,042

 

Net income before income tax

 

 

19,269

 

 

 

15,712

 

Income tax expense

 

 

4,481

 

 

 

3,644

 

Net income

 

 

14,788

 

 

 

12,068

 

Dividends on preferred stock

 

 

 

 

 

(190

)

Net income available to common stockholders

 

$

14,788

 

 

$

11,878

 

Earnings per common share

 

 

 

 

 

 

 

 

Basic

 

$

0.55

 

 

$

0.57

 

Diluted

 

$

0.55

 

 

$

0.56

 

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, 2019 and 2018

(Dollar amounts in thousands, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Net income

 

$

14,788

 

 

$

12,068

 

Other comprehensive income:

 

 

 

 

 

 

 

 

Unrealized gains (losses) on securities:

 

 

 

 

 

 

 

 

Unrealized holding gains (losses) arising during the period

 

 

1,893

 

 

 

(1,708

)

Reclassification of amount realized through sale of securities

 

 

11

 

 

 

272

 

Tax effect

 

 

(441

)

 

 

322

 

Total other comprehensive income (loss)

 

 

1,463

 

 

 

(1,114

)

Comprehensive income

 

$

16,251

 

 

$

10,954

 

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, 2019 and 2018

(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, 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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2019

 

$

 

 

 

26,949,936

 

 

$

271

 

 

$

469,341

 

 

 

104,063

 

 

$

(2,288

)

 

$

170,486

 

 

$

(1,203

)

 

$

636,607

 

Issuance of restricted stock awards

 

 

 

 

 

8,063

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation

 

 

 

 

 

 

 

 

 

 

 

911

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

911

 

Forfeiture of restricted stock awards

 

 

 

 

 

(1,276

)

 

 

 

 

 

40

 

 

 

1,276

 

 

 

(40

)

 

 

 

 

 

 

 

 

 

Purchase of treasury stock

 

 

 

 

 

(247,312

)

 

 

 

 

 

 

 

 

247,312

 

 

 

(7,553

)

 

 

 

 

 

 

 

 

(7,553

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14,788

 

 

 

 

 

 

14,788

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,463

 

 

 

1,463

 

Balance, March 31, 2019

 

$

 

 

 

26,709,411

 

 

$

271

 

 

$

470,292

 

 

 

352,651

 

 

$

(9,881

)

 

$

185,274

 

 

$

260

 

 

$

646,216

 

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, 2019 and 2018

(Dollar amounts in thousands, except per share amounts)

(Unaudited)

  

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

14,788

 

 

$

12,068

 

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

 

 

 

 

 

 

 

 

Depreciation

 

 

1,961

 

 

 

1,216

 

Net accretion on loans

 

 

(1,557

)

 

 

(1,977

)

Amortization of subordinated notes issuance costs

 

 

27

 

 

 

25

 

Amortization of junior subordinated debentures

 

 

117

 

 

 

111

 

Net amortization on securities

 

 

174

 

 

 

331

 

Amortization of intangible assets

 

 

2,402

 

 

 

1,117

 

Deferred taxes

 

 

389

 

 

 

439

 

Provision for loan losses

 

 

1,014

 

 

 

2,548

 

Stock based compensation

 

 

911

 

 

 

486

 

Net (gains) losses on sale of debt securities

 

 

11

 

 

 

272

 

Net (gains) losses on equity securities

 

 

(139

)

 

 

75

 

Origination of loans held for sale

 

 

(4,010

)

 

 

 

Proceeds from sale of loans originated for sale

 

 

5,594

 

 

 

 

Net gains on sale of loans

 

 

(88

)

 

 

 

Net OREO (gains) losses and valuation adjustments

 

 

(209

)

 

 

88

 

Gain on sale of subsidiary or division

 

 

 

 

 

(1,071

)

Net change in operating leases

 

 

30

 

 

 

 

(Increase) decrease in other assets

 

 

(948

)

 

 

(1,780

)

Increase (decrease) in other liabilities

 

 

301

 

 

 

(4,498

)

Net cash provided by (used in) operating activities

 

 

20,768

 

 

 

9,450

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of securities available for sale

 

 

(60,146

)

 

 

 

Proceeds from sales of securities available for sale

 

 

37,467

 

 

 

34,196

 

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

 

 

21,122

 

 

 

21,210

 

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

 

 

220

 

 

 

185

 

Net change in loans

 

 

(4,452

)

 

 

(62,509

)

Purchases of premises and equipment, net

 

 

(3,500

)

 

 

(1,181

)

(Purchases) redemptions of FHLB stock, net

 

 

(5,248

)

 

 

(502

)

Proceeds from sale of subsidiary or division, net

 

 

 

 

 

73,849

 

Net cash provided by (used in) investing activities

 

 

(14,537

)

 

 

65,248

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net increase (decrease) in deposits

 

 

(135,909

)

 

 

(87,850

)

Increase (decrease) in customer repurchase agreements

 

 

(758

)

 

 

(4,737

)

Increase (decrease) in Federal Home Loan Bank advances

 

 

75,000

 

 

 

(10,000

)

Stock option exercises

 

 

 

 

 

(4

)

Purchase of treasury stock

 

 

(7,553

)

 

 

 

Dividends on preferred stock

 

 

 

 

 

(190

)

Net cash provided by (used in) financing activities

 

 

(69,220

)

 

 

(102,781

)

Net increase (decrease) in cash and cash equivalents

 

 

(62,989

)

 

 

(28,083

)

Cash and cash equivalents at beginning of period

 

 

234,939

 

 

 

134,129

 

Cash and cash equivalents at end of period

 

$

171,950

 

 

$

106,046

 

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, 2019 and 2018

(Dollar amounts in thousands, except per share amounts)

(Unaudited)

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

10,164

 

 

$

7,562

 

Income taxes paid, net

 

$

42

 

 

$

48

 

Cash paid for operating lease liabilities (See Note 1)

 

$

1,023

 

 

$

 

Supplemental noncash disclosures:

 

 

 

 

 

 

 

 

Loans transferred to OREO

 

$

804

 

 

$

83

 

Lease liabilities arising from obtaining right-of-use assets (See Note 1)

 

$

530

 

 

$

 

 

 

 

 

 

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.

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, 2018. Operating results for the three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.

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.

Premises and Equipment

The Company leases certain properties and equipment under operating leases. For leases in effect upon adoption of Accounting Standards Update 2016-02, “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.

 

8


TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Adoption of New Accounting Standards

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 new standard was adopted by the Company on January 1, 2019. ASU 2016-02 provides for a modified retrospective transition approach requiring lessees to recognize and measure leases on the balance sheet at the beginning of either the earliest period presented or as of the beginning of the period of adoption. The Company elected to apply ASU 2016-02 as of the beginning of the period of adoption (January 1, 2019) and will not restate comparative periods. Adoption of ASU 2016-02 resulted in the recognition of lease liabilities totaling $21,918,000 and the recognition of right-of-use assets totaling $22,123,000 as of the date of adoption. Lease liabilities and right-of-use assets are reflected in other liabilities and other assets, respectively. The initial balance sheet gross up upon adoption was primarily related to operating leases of certain real estate properties. The Company has no finance leases or material subleases or leasing arrangements for which it is the lessor of property or equipment. The Company has elected to apply the package of practical expedients allowed by the new standard under which the Company need not reassess whether any expired or existing contracts are leases or contain leases, the Company need not reassess the lease classification for any expired or existing lease, and the Company need not reassess initial direct costs for any existing leases. Adoption of ASU 2016-02 is not expected to materially change the Company’s recognition of lease expense in future periods. See Note 5 – Premises and Equipment for additional disclosures related to leases.

Newly Issued, But Not Yet Effective Accounting Standards

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”). ASU 2016-13 makes significant changes to the accounting for credit losses on financial instruments and disclosures about them. The new current expected credit loss (CECL) impairment model will require 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, determining the contractual terms of said financial assets and adjusting the relevant historical loss information in order to develop an estimate of expected lifetime 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. The Company will adopt ASU 2016-13 on January 1, 2020. 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. 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. Depending on the nature of each identified pool of financial assets with similar risk characteristics, the Company currently plans on implementing a DCF method or a loss-rate method to estimate expected credit losses. The Company expects ASU 2016-13 to have a significant impact on the Company’s accounting policies, internal controls over financial reporting and footnote disclosures. The Company has assessed its data and system needs and has begun designing its financial models to estimate expected credit losses in accordance with the standard. Further development, testing and evaluation of said models is required to determine 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

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.

 

9


TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

A summary of the estimate 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 will be amortized utilizing an accelerated method over their ten year estimated useful lives. The initial accounting for the acquisitions has not been completed because the fair values of the assets acquired and liabilities assumed have not yet been finalized.

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