Overview of Triumph Financial, Inc.

Triumph Financial, Inc. is a financial holding company headquartered in Dallas, Texas that offers a diverse range of payments, factoring, and banking services. As of September 30, 2024, the company had $5.866 billion in total assets, $4.333 billion in total loans, $4.707 billion in total deposits, and $885.8 million in total stockholders’ equity.

The company operates through three main business segments:

1. Banking: Provides traditional banking services, commercial lending, and national lending products through the company’s TBK Bank subsidiary. This segment generated 61% of the company’s total revenue in the first nine months of 2024.

2. Factoring: Provides working capital to the trucking industry by purchasing invoices from medium to large trucking fleets at a discount through the company’s Triumph Financial Services subsidiary. This segment generated 30% of total revenue.

3. Payments: Operates the TriumphPay payments network, which connects brokers, shippers, factors, and carriers in the trucking industry to streamline invoice processing and payments. This segment generated 9% of total revenue.

Financial Performance Highlights

For the three months ended September 30, 2024, Triumph Financial reported net income available to common stockholders of $4.5 million, or $0.19 per diluted share, compared to $12.0 million, or $0.51 per diluted share, for the same period in 2023. This decrease was primarily driven by higher credit loss expense and noninterest expense.

For the nine months ended September 30, 2024, the company reported net income available to common stockholders of $9.8 million, or $0.42 per diluted share, compared to $29.1 million, or $1.23 per diluted share, for the same period in 2023. The decrease was again due to higher credit loss expense and noninterest expense.

Revenue and Profit Trends

Net interest income, which is the difference between interest earned on assets and interest paid on liabilities, decreased 2.9% to $88.7 million for the three months ended September 30, 2024, and decreased 4.9% to $262.6 million for the nine months ended September 30, 2024, compared to the same periods in 2023. This was primarily due to a decrease in loan yields and an increase in the cost of interest-bearing liabilities.

Noninterest income, which includes fees, commissions, and other revenue, increased 30.5% to $17.5 million for the three months ended September 30, 2024, and increased 38.2% to $49.7 million for the nine months ended September 30, 2024, compared to the same periods in 2023. The increase was driven by higher fees earned by the Payments segment and increased rental income.

Credit loss expense, which represents the amount set aside to cover expected loan losses, increased significantly to $4.3 million for the three months ended September 30, 2024, and $14.3 million for the nine months ended September 30, 2024, compared to $0.8 million and $6.1 million, respectively, for the same periods in 2023. This increase was primarily due to higher specific reserves and net charge-offs.

Noninterest expense, which includes salaries, occupancy costs, and other operating expenses, increased 10.9% to $95.6 million for the three months ended September 30, 2024, and 6.6% to $283.4 million for the nine months ended September 30, 2024, compared to the same periods in 2023. The increase was driven by higher salaries and benefits, occupancy costs, and amortization of intangible assets.

As a result of these factors, the company’s net income available to common stockholders decreased 62.1% to $4.5 million for the three months ended September 30, 2024, and 66.1% to $9.8 million for the nine months ended September 30, 2024, compared to the same periods in 2023.

Segment Performance

Banking Segment The Banking segment’s operating income decreased 21.4% for the three months ended September 30, 2024, compared to the same period in 2023. This was primarily due to a 9.2% decrease in net interest income, a $3.3 million increase in credit loss expense, and a slight increase in noninterest expense.

The decrease in net interest income was driven by lower yields on loans and higher interest expense on deposits. Credit loss expense increased due to higher net charge-offs and specific reserves. Noninterest income increased due to higher fees and commissions.

Factoring Segment The Factoring segment’s operating income decreased 7.6% for the three months ended September 30, 2024, compared to the same period in 2023. This was primarily due to a 14.8% decrease in noninterest income, partially offset by a 4.3% increase in net interest income.

The decrease in noninterest income was driven by lower early termination fees, partially offset by a gain on the company’s revenue share asset. Net interest income increased due to higher average net funds employed, partially offset by a decrease in the intersegment interest allocation.

Payments Segment The Payments segment’s operating loss decreased 30.2% for the three months ended September 30, 2024, compared to the same period in 2023. This was primarily due to a 32.2% increase in net interest income and a 31.2% increase in noninterest income, partially offset by a 14.0% increase in noninterest expense.

The increase in net interest income was driven by higher average rates and increased intersegment interest allocations. Noninterest income increased due to higher payment and audit fees. Noninterest expense increased due to higher salaries and benefits, communications and technology, and software amortization.

Strengths and Weaknesses

Strengths:

• Diversified business model with three distinct revenue streams (Banking, Factoring, Payments)
• Strong market position in the trucking industry through the Factoring and Payments segments
• Stable core deposit base from the Banking segment to support operations
• Solid capital and liquidity positions

Weaknesses:

• Significant exposure to the trucking industry, which has faced headwinds due to softening freight markets and excess capacity
• Increasing credit loss expense, particularly in the Factoring segment, due to the challenging industry conditions
• Rising noninterest expense, driven by higher salaries, occupancy costs, and intangible asset amortization
• Declining net interest margin due to higher funding costs and lower loan yields

Outlook and Future Prospects

The outlook for Triumph Financial remains cautious, as the company continues to navigate the challenging conditions in the trucking industry. The softness in freight markets and excess capacity have put pressure on the Factoring segment, leading to lower invoice prices and increased credit losses.

To address these challenges, the company is focusing on enhancing efficiency and profitability in the Factoring segment, with a greater emphasis on technology initiatives and diversifying its factoring income. The Payments segment is also shifting its strategy from a capital-intensive, interest-income focused model to an open-loop payments network that generates more fee-based revenue.

In the Banking segment, the company is working to maintain its stable deposit base and diversify its lending portfolio to offset the impact of the trucking industry headwinds. The recent acquisition of a building to serve as the company’s new headquarters is also expected to provide some operational efficiencies.

Overall, Triumph Financial’s ability to navigate the current industry challenges and execute on its strategic initiatives will be crucial in determining its future performance and growth prospects. Investors and analysts will be closely monitoring the company’s progress in improving profitability, managing credit risk, and diversifying its revenue streams.