Triumph Financial Stock

Triumph Financial, Inc. operates as a financial holding company for TBK Bank, SSB (TBK Bank) that offers a line of payments, factoring and banking services.

Banking

Through its wholly owned bank subsidiary, TBK Bank, the company offers traditional banking services, commercial lending product lines focused on businesses that require specialized financial solutions and national lending product lines that further diversify its lending operations. The company’s banking operations commenced in 2010 and include a branch network developed through organic growth and acquisition, including concentrations in the front range of Colorado, the Quad Cities market in Iowa and Illinois and a full service branch in Dallas, Texas. The company’s traditional banking offerings include a full suite of lending and deposit products and services. These activities are focused on the company’s local market areas and some products are offered on a nationwide basis. They generate a stable source of core deposits and a diverse asset base to support the company’s overall operations. The company’s asset-based lending and equipment lending products are offered on a nationwide basis and generate attractive returns. Additionally, the company offers mortgage warehouse and purchase liquid credit lending products on a nationwide basis to provide further asset base diversification. The company’s mortgage warehouse program also offers stable deposits. The company’s Banking products and services share basic processes and have similar economic characteristics.

Factoring

In addition to its traditional banking operations, the company operates a factoring business focused primarily on serving the over-the-road trucking industry. This business involves the provision of working capital to the trucking industry through the purchase of invoices generated by small to medium sized trucking fleets (Carriers) at a discount to provide immediate working capital to such Carriers. The company commenced these operations in 2012 through the acquisition of its factoring subsidiary, Triumph Financial Services, LLC (Triumph Financial Services). Triumph Financial Services operates in a highly specialized niche and earns substantially higher yields on its factored accounts receivable portfolio than the company’s other lending products. Given its acquisition, this business has a legacy and structure as a standalone company. The company’s Factoring products and services share basic processes and have similar economic characteristics.

Payments

The company’s payments business, TriumphPay, is a division of its wholly owned bank subsidiary, TBK Bank, and is a payments network for the over-the-road trucking industry. TriumphPay was originally designed as a platform to manage Carrier payments for third party logistics companies, or 3PLs (Brokers) and the manufacturers and other businesses that contract directly for the shipment of goods (Shippers), with a focus on increasing on-balance sheet factored receivable transactions through the offering of quick pay transactions for Carriers receiving such payments through the TriumphPay platform. During 2021, TriumphPay acquired HubTran, Inc., a software platform that offers workflow solutions for the processing and approval of Carrier Invoices for approval by Brokers or purchase by the factoring businesses providing working capital to Carriers (Factors). Following such acquisition, the TriumphPay strategy shifted from a capital-intensive on-balance sheet product with a greater focus on interest income to a payments network for the trucking industry with a focus on fee revenue. TriumphPay connects Brokers, Shippers, Factors and Carriers through forward-thinking solutions that help each party successfully manage the life cycle of invoice presentment for services provided by Carrier through the processing and audit of such invoice to its ultimate payment to the Carrier or the Factor providing working capital to such Carrier. TriumphPay offers supply chain finance to Brokers, allowing them to pay their Carriers faster and drive Carrier loyalty. TriumphPay provides tools and services to increase automation, mitigate fraud, create back-office efficiency and improve the payment experience. The company’s Payments products and services share basic processes and have similar economic characteristics.

As of December 31, 2023, the company’s business is primarily focused on providing financial services to participants in the for-hire trucking ecosystem in the United States, including Brokers, Shippers, Factors and Carriers. Within such ecosystem the company operates its TriumphPay payments platform, which connects such parties to streamline and optimize the presentment, audit and payment of transportation invoices, and it acts as capital provider to the Carrier industry through its factoring subsidiary, Triumph Financial Services.

The company’s business is conducted through four segments (Banking, Factoring, Payments, and Corporate).

The Banking segment includes the operations of TBK Bank. The Banking segment derives its revenue principally from investments in interest-earning assets as well as noninterest income typical for the banking industry.

The Factoring segment includes the operations of Triumph Financial Services with revenue derived from factoring services.

The Payments segment includes the operations of the TBK Bank's TriumphPay division, which is the payments network for presentment, audit, and payment of over-the-road trucking invoices. The Payments segment derives its revenue from transaction fees and interest income on factored receivables related to invoice payments. Payments’ factored receivables consist of invoices where the company offers a Carrier a quick pay opportunity to receive payment at a discount in advance of the standard payment term for such invoice in exchange for the assignment of such invoice to it; and factoring transactions where the company purchases receivables payable to such freight brokers from their shipper clients. Payments also offers commercial loans that result from the company’s offering certain Brokers an additional liquidity option through the ability to settle their invoices with the company on an extended term following its payment to their Carriers.

The Corporate segment includes holding company financing and investment activities.

Principal Products and Services

Banking

The company’s banking products and services include a variety of traditional banking services offered through its bank subsidiary, TBK Bank. These products and services focus on serving the local communities in which the company operates and creating full banking relationships with both personal and commercial clients.

TBK Bank operates retail branch networks in three geographic markets, such as a mid-western division consisting of ten branches in the Quad Cities Metropolitan Area of Iowa and Illinois, together with other branches throughout central and northwestern Illinois and branch in northeastern Illinois; a western division consisting of branches located throughout Colorado, branches in far western Kansas and branches in New Mexico; and a Dallas division consisting of branches. Through this branch network, the company offers its customers a variety of financial products and services that both augment its revenue (fee and interest income) and help it expands and retains its core deposit network, including checking and savings accounts, debit cards, and electronic banking. The company’s Dallas corporate office also serves as the center for its treasury management operations, which offers full-service commercial banking functionality. The company’s treasury management operations generate fee income for it, while also enhancing its core deposit portfolio, as the company is able to offer its commercial lending clients a full-service banking relationship meeting all of their business needs.

The company originates a full suite of commercial and retail loans, including commercial real estate loans, construction and development loans, residential real estate loans, commercial agriculture, general commercial loans, and consumer loans primarily focused on customers in and around its community banking markets. These loan types include the following:

Commercial Real Estate Loans: The company originates real estate loans to finance commercial property that is owner-occupied, as well as commercial property owned by real estate investors. The real estate securing its existing commercial real estate loans include a wide variety of property types, such as office buildings, warehouses, production facilities, hotels and mixed-use residential/commercial and multifamily properties. The company originates these loans both in its community banking markets and on a nationwide basis.

Commercial Construction, Land and Land Development Loans: The company offers loans to small-to-mid-sized businesses to construct owner-occupied properties, as well as loans to developers of commercial real estate investment properties and residential developments. These loans are typically disbursed as construction progresses and carry interest rates that vary with the prime rate. In certain instances, these loans can be converted to commercial real estate loans upon completion of their associated projects. The company originates these loans both in its community banking markets and on a nationwide basis.

Residential Real Estate Loans: The company originates first and second mortgage loans to its individual customers primarily for the purchase of primary and secondary residences, with a focus on offering these loans as an additional product to customers in its retail banking markets.

Agriculture Loans: The company originates a variety of loans to borrowers in the agriculture industry, including real estate loans secured by farmland, equipment financing for specific agriculture equipment, including irrigation systems, crop input loans primarily focused on corn, wheat and soybeans, and loans secured by cattle and other livestock. The company originates these loans primarily in the areas surrounding its community banking markets in Iowa, Illinois, Colorado, New Mexico, and Kansas.

Consumer Loans: The company also originates personal loans for its retail banking customers. These loans originate exclusively out of its community banking operations in Texas, Iowa, Illinois, Colorado, New Mexico, and Kansas.

Commercial Loans: The company offers commercial loans to small-to-mid-sized businesses across a variety of industries. These loans include general commercial and industrial loans, loans to purchase capital equipment and business loans for working capital and operational purposes.

The company also offers commercial loans that focus on serving clients requiring more specialized financial products and services on a national basis and across a variety of industries, with a particular focus on clients in the transportation industry. The combination of these products that are offered to its clients in the transportation industry, specifically over the road trucking, when coupled together with its other products and services, such as personal and small business checking, treasury management, insurance brokerage, and fuel cards, position the company to provide a complete suite of products and services to this market, ranging from owner-operators to sizable fleets.

Equipment Loans: The company originates equipment 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. The company’s equipment loans are typically fully amortizing, fixed rate loans secured by the underlying collateral with a term of three to five years. Equipment lending to transportation clients constituted approximately 86% of its total equipment lending portfolio as of December 31, 2023. Equipment loans are reported within commercial loans in the notes to its consolidated financial statements.

Asset-Based Loans: The company originates asset-based loans to borrowers to support general working capital needs. The company’s 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 asset borrowing base. These loans typically bear interest at a floating rate comprised of SOFR or the prime rate plus a premium and include certain other transaction fees, such as origination and unused line fees. The company targets asset-based loan facilities between $1 million and $20 million and originate asset-based loans across a variety of industries.

Triumph Insurance Group: The company provides insurance brokerage services through Triumph Insurance Group, an agency primarily focused on meeting the insurance needs of its commercial finance clients, particularly its factoring clients in the transportation industry and its equipment lending clients.

The company offers other lending products and services on a nationwide basis that provide further asset diversification within its loan portfolio.

Mortgage Warehouse Facilities: Mortgage warehouse arrangements allow unaffiliated mortgage originators to close one-to-four family real estate loans in their own name and manage their cash flow needs until the loans are sold to investors.

The mortgage warehouse customers are located across the U.S. and originate loans primarily through traditional retail, wholesale and correspondent business models. These customers are strategically targeted for their experienced management teams and thoroughly analyzed to ensure long-term and profitable business models.

As of December 31, 2023, the company had 13 mortgage banking company customers. The average mortgage loan being purchased by the company reflects a blend of both Conforming and Government loan characteristics, including an average loan to value ratio (LTV) of 77%, an average credit score of 711 and an average loan size of $267 thousand.

Liquid Credit Loans: The company purchases broadly syndicated leveraged loans secured by a variety of collateral types. Given the highly liquid nature of these products, the company is able to opportunistically scale this loan portfolio over time depending on opportunities in the syndicated loan market and other areas of its business.

Factoring

The company offers factoring services to its customers across a variety of industries, with a focus in transportation factoring. In contrast to a lending relationship, in a factoring transaction the company directly purchases the receivables generated by its clients at a discount to their face value. These transactions are structured to provide its clients with immediate liquidity to meet operating expenses when there is a mismatch between payments to its client for a good or service.

The company’s transportation factoring clients include small owner-operator trucking companies (one-to-four trucks), mid-sized fleets (5-to-50 trucks), large fleets (more than 50 trucks), and freight broker relationships whereby it manages all Carrier payments on behalf of a Broker client. Factoring for transportation businesses constituted approximately 96% of its total factoring portfolio at December 31, 2023, calculated based on the gross receivables from the purchase of invoices from such trucking businesses compared to its total gross receivables in the purchase of factored receivables as of such date. The company’s non-transportation factoring business targets small businesses with annual sales between $1 million and $50 million in industries, such as manufacturing, distribution, and staffing.

Payments

The company’s TriumphPay platform is a payments network for the over-the-road trucking industry. TriumphPay connects Brokers, Shippers, Factors, and Carriers through forward-thinking solutions that help each party successfully process, settle and manage Carrier payments and drive growth. Revenues are derived from transaction fees and interest income on factored receivables and commercial loans related to invoice payments. Payments’ factored receivables consist of invoices where the company offers a Carrier a quick pay opportunity to receive payment at a discount in advance of the standard payment term for such invoice in exchange for the assignment of such invoice to it; and factoring transactions where the company purchases receivables payable to such freight brokers from their shipper clients. Payments also offers commercial loans that result from its offering certain Brokers an additional liquidity option through the ability to settle their invoices with the company on an extended term following its payment to their Carriers.

Credit Risk Management

The company mitigates credit risk through disciplined underwriting of each transaction it originates, as well as active credit management processes and procedures to manage risk and minimize loss throughout the life of a transaction. The company seeks to maintain a broadly diversified loan portfolio in terms of type of customer, type of loan product, geographic area and industries in which its business customers are engaged. The company has developed tailored underwriting criteria and credit management processes for each of the various loan product types it offers customers.

Underwriting

In evaluating each potential loan relationship, the company adheres to a disciplined underwriting evaluation process including the following:

understanding of the customer’s financial condition and ability to repay the loan;

verifying that the primary and secondary sources of repayment are adequate in relation to the amount and structure of the loan;

observing appropriate loan to value guidelines for collateral secured loans;

maintaining its targeted levels of diversification for the loan portfolio, including industry, collateral, geography, and product type; and

ensuring that each loan is properly documented with perfected liens on collateral.

The company’s non-owner occupied commercial real estate loans are generally secured by income producing property with adequate margins, supported by a history of profitable operations and cash flows and proven operating stability in the case of commercial loans. The company’s commercial real estate loans and commercial loans are often supported by personal guarantees from the principals of the borrower.

With respect to its asset-based loans, in addition to an overall evaluation of the borrower and the transaction considering the applicable criteria, the company also engages in an evaluation of the assets comprising the borrowing base for such loans, to confirm that such assets are readily recoverable and recoverable at rates in excess of the advance rate for such loans.

The company’s transportation payments products (i.e., factoring and TriumphPay) require specialized underwriting processes. For each factoring transaction, in addition to a credit evaluation of its client, the company also evaluates the creditworthiness of underlying account debtors, because account debtors represent the substantive underlying credit risk. Transportation factoring also presents the additional challenge of underwriting high volumes of invoices of predominantly low value per invoice and managing credit requests for a large industry pool of account debtors. The company facilitates this process through a proprietary web-based Online Broker Credit application, which processes invoice purchase approval requests for its clients through an online proprietary scoring model and delivers either preliminary responses for small dollar requests or immediate referral to its servicing personnel for larger dollar requests. The company also sets and monitors concentration limits for individual account debtors that are tracked across all of its clients (as multiple clients may have outstanding invoices from a particular account debtor). For each Broker or Shipper client, for whom the company will be originating quick pay or supply chain finance transactions, it conducts an in-depth credit evaluation and underwriting process.

The company’s bank implements its underwriting evaluation and approval process through a tiered system of loan authorities. Under these authorities, transactions at certain identified levels are eligible to be approved by a designated officer or a combination of designated officers.

Ongoing Credit Risk Management

The company also performs ongoing risk monitoring and review processes for all credit exposures. Although the company grades and classifies its loans internally, it has an independent third-party professional firm perform regular loan reviews to confirm loan classification. The company strives to identify potential problem loans early in an effort to seek resolution of these situations before the loans create a loss, record any necessary charge-offs promptly and maintain adequate allowance levels for expected credit losses in the loan portfolio. In general, whenever a particular loan or overall borrower relationship is downgraded to pass-watch or substandard based on one or more standard loan grading factors, its credit officers engage in active evaluation of the asset to determine the appropriate resolution strategy.

In addition to its general credit risk management processes, the company employs specialized risk management processes and procedures for certain of its commercial lending products, in particular its asset-based lending and transportation payments products. With respect to its asset-based lending relationships, the company generally requires dominion over the borrower’s cash accounts in order to actively control and manage the cash flows from the conversion of borrowing base collateral into cash and its application to the loan. The company also engages in active review and monitoring of the borrowing base collateral itself, including field audits typically conducted on a 90 to 180 day cycle.

With respect to its factoring operations, the company employs a proprietary risk management program whereby each client is assigned a risk score based on measurable criteria. The company’s risk model is largely geared toward early detection and mitigation of fraud, which the company represents the most material risk of loss in this asset class. This scoring and risk allocation methodology helps the company to manage and control fraud and credit risk.

Marketing

The company markets its payments services, loans, and other products and services through a variety of channels. Fundamentally, the company focuses on a high-touch direct sales model and building long-term relationships with its customers. In its community banking markets, its lending officers actively solicit new and existing businesses in the communities the company serves. For its product lines offered on a nationwide basis, the company typically maintains sales personnel across the country with designated regional responsibilities for clients within their territories. The company market its products and services through secondary channels, including e-marketing and search engine optimization, as well as key strategic sourcing relationships. The company’s suite of complementary commercial lending product options and its other available banking services, including payments services, treasury management services, and its insurance brokerage initiatives, allow it to offer full-service banking relationships to clients and industries that have historically been served by smaller non-bank commercial finance companies.

Deposits

Deposits are the company’s primary source of funds to support its earning assets. The company offers depository products, including checking, savings, money market and certificates of deposit with a variety of rates. Deposits at the company’s bank subsidiary are insured by the Federal Deposit Insurance Corporation (FDIC) up to statutory limits. The company maintains branch office in Dallas, Texas, dedicated to deposit generation activities.

Regulation

The company is a financial holding company registered under the Bank Holding Company Act of 1956, as amended (BHC Act) and is subject to supervision and regulation by the Federal Reserve. The company has elected to be a financial holding company (FHC). Deposits at the company’s bank subsidiary are insured by the Federal Deposit Insurance Corporation (FDIC) up to statutory limits.

The company is required to file annual and quarterly reports with the Federal Reserve and such additional information as the Federal Reserve may require pursuant to the BHC Act.

TBK Bank is a Texas state savings bank and is subject to various requirements and restrictions under the laws of the United States and Texas and to regulation, supervision and regular examination by the Federal Deposit Insurance Corporation (FDIC) and the Department of Savings and Mortgage Lending (DSML). TBK Bank is required to file reports with the FDIC and the DSML concerning its activities and financial condition in addition to obtaining regulatory approvals before entering into certain transactions such as mergers with, or acquisitions of, other financial institutions.

As a Texas state savings bank, TBK Bank is required to meet a Qualified Thrift Lender (QTL) test to avoid certain restrictions on its activities. TBK Bank is currently, and expects to remain, in compliance with QTL standards.

The company’s bank’s loan operations are also subject to federal laws applicable to credit transactions, such as the federal Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers; the Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves; the Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit; the Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies; the Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies; and the rules and regulations of the various governmental agencies charged with the responsibility of implementing these federal laws.

In addition, the company’s subsidiary bank’s deposit operations are subject to the Electronic Funds Transfer Act and Regulation E issued by the Federal Reserve to implement that act, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services.

History

The company was incorporated in 2003. It was formerly knowns as Triumph Bancorp, Inc. and changed its name to Triumph Financial, Inc. in 2022.