Triumph Bancorp, Inc.

Hello everyone and welcome to the Triumph Bancorp first quarter 2022 earnings call. My name is Emma and I'll be coordinating your call today. If you would like to ask a question during the presentation, you may do so by pressing star followed by the number one on your telephone keypad. If you wish to withdraw your question, please press star followed by the number two. When preparing to ask your question, please ensure that your line is unmuted locally. I will now pass the call over to the Senior Vice President of Investor Relations, Luke Wise, to begin. Please go ahead, Luke.

Good morning. Welcome to the Triumph Bank Corp conference call to discuss our first quarter 2022 financial results. Before we get started, I would like to remind you that this presentation may include forward-looking statements. Those statements are subject to risks and uncertainties that could cause actual and anticipated results to differ. The company undertakes no obligation to publicly revise any forward-looking statements. If you're logged into our webcast, please refer to the slide presentation available online, including our Safe Harbor Statement on slide two. For those joining by phone, please note that the Safe Harbor Statement and presentation are available on our website at www.triumphbankcorp.com. All comments made during today's call are subject to that Safe Harbor Statement. I'm joined this morning by Triumph's Vice Chairman and CEO, Aaron Graff, our Chief Financial Officer, Brad Boss, Todd Ritterbush, President of TBK Bank, Jeff Brenner, our CEO of Triumph Business Capital, and Melissa Foreman, our newly appointed president of Triumph Pay. After the presentation, we will be happy to address any questions you may have. At this time, I'd like to turn the call over to Aaron. Aaron?

Thank you, Luke. Good morning. For the first quarter, we earned net income to common stockholders of $23.5 million, or $0.93 per diluted share. This was a very good quarter for TBK. We saw the typical seasonality that accompanies the first quarter of every year. However, in this case, despite a modest pullback in volume, invoice prices remained elevated such that purchases at Triumph Business Capital were flat with the fourth quarter of 2021. Triumph Pay saw the number of invoices decline only slightly while the dollar value of invoices paid continued to climb. Overall, I am incredibly proud of this team. we controlled the things we can control, executing on those items with distinction, and continued to make investments in the unique opportunity before us. In the first quarter, we announced the first conforming transactions in our Triumph Pay platform. As a reminder, a conforming transaction is a payment from a fully enabled Triumph Pay payor, either a freight broker or a shipper, to a fully enabled Triumph Pay payee, either a carrier or their factoring company. Parties on both sides of the transaction are connected via API with Triumph Pay, which largely automates the process. What began with a beta test of two brokers and five factors in mid-January is now 39 brokers and 17 factors, including five of the 20 largest factors and two of the 30 largest brokers. While volumes are not material from a financial perspective, the progress forward seems to validate our thesis that this is a solution the market desires. From January 11th through March 31st, we processed 53,000 conforming transactions, totaling $132 million in freight spend. Conforming payment volume continues to scale rapidly with February and March volumes of $43 million and $86 million, respectively. As of the end of the quarter, we were processing 1,600 invoices a day, or about $3.8 million in payment volume as conforming transactions. In total, during the first quarter, Triumph Pay processed approximately 4 million invoices, paying just under 127,000 distinct carriers. We have now paid 168,000 distinct carriers in the last 12 months. First quarter payments processed totaled approximately $5.7 billion, an 8.8% increase over the prior quarter, and a 147.7% increase from Q1 2021. Triumph Pay's annual run rate payment volume exiting the quarter was over $24 billion. We listed as one of our metrics that matter the continued growth in both factors and brokers that make up both sides of the network. As a reminder, the sales cycle for Tier 1 brokers can be multiple years. We only announce Tier 1 additions by name when they are integrated and we are providing services on their behalf. In the first quarter, we added another three factoring companies as Triumph Pay audit clients, bringing the total number to 72. We also continued to add brokers to the network, bringing our total count of freight brokers to 558. who are try and pay customers, try and pay audit customers, or both. This number is down four brokers since our announcement earlier in March because we made some minor system adjustments to consolidate customer entity reporting. This approach is more consistent with how we think about our customers and prevents a broker's subsidiary from being reported as a separate customer, even if it operates as such. We think this is a more accurate way to look at things. As a result of this move, 28 brokers were removed from the broker count, but they didn't actually leave the ecosystem. These reductions were offset by 27 new broker additions. Those changes, along with the removal of some brokers due to acquisitions and the consolidation, also affected counts for the quarter. Of the 27 brokers added in the corner, all were Tier 2s, 3s, and 4s. Seven of the brokers were integrated on Triumph Payments, 14 on audit and six on both payments and audit. Overall, we have three factors and 44 brokers currently in the integration queue, including one tier one factor and four tier one brokers with expected go lives over the next three quarters. Every quarter we discuss how many distinct carriers we paid in the last quarter and trailing 12 months or since inception. Another important carrier number is the number of registered carriers on the network. These are carriers that have claimed their profile in Triumph Pay and are now fully integrated for payments, paperwork, and all the benefits of the network. We added 15,000 new registered carriers in the first quarter, bringing the total number to just over 106,000 carriers who have claimed their profile on the Triumph Pay network. Triumph Business Capital also had a very strong quarter. Average purchases per day exceeded 60 million again for the quarter and the dollar volume of invoices purchased was 4.04 billion, a 62.2% increase over the first quarter of 2021. That's an annualized run rate of approximately 16.1 billion in purchases. Average transportation invoice sizes were $2,401 for the quarter, up $110 from Q4 of 2021. Triumph Business Capital purchased approximately 1.6 million invoices, down just 3.9% from the prior quarter, and a 34.9% increase over the first quarter of 2021. Triumph Business Capital ended the quarter with $1.67 billion in accounts receivable and receivables held for sale, a 48.9% increase over the first quarter of 2021. This team just continues to surpass expectations, achieving results that, even without the benefit of strong invoice prices, continue to break previous internal records. There has been a lot written and said over the last few weeks about an imminent freight recession. Our outlook is not as negative as the prevailing narrative in the media. Indeed, the market has rationalized as anyone would expect, but consider this fact. Our April month-to-date average transportation invoice size is approximately $2,300. That threshold of $2,300 per invoice has only been exceeded in four individual months since 2007. We are not economists, but we do closely follow several key market indicators in the sector in addition to our own internal statistics. What our data shows is a gradual drop from historic rates per mile offset by rising fuel costs. There has not been a significant drop-off in freight tonnage. At Triumph Business Capital, we have seen trucking clients adjust to small rate adjustments on a downward curve, But the carnage some are predicting typically only occurs when a recession dramatically and swiftly reduces tonnage, which leaves trucks parked. We do not see any sign of that in the near future. In my opinion, the media has seized on one side of a narrative to drive clicks, and the market has just followed along. Regardless of the direction of freight, our job is to serve our customers in good times and in recessionary times. We have to be nimble enough to keep the business when everyone wants in and wise enough to structure our deals to weather the inevitable headwinds. Our history shows we know how to do this well, and we plan to continue that trend. Our revenue may fluctuate with the transportation market, but we are well prepared to handle a slowdown in trucking. One benefit of a slowdown in the trucking market is a heightened focus on the bottom line among our prospects. When margins are thin, people have to look for every advantage. The promise of Triumph Pay is to save our customers more than they pay us to use it. Getting the market's attention is easier when the tide goes out a bit and it's not just a race to cover loads or buy invoices. Thus, I expect any market weakness to create opportunities for us. Our focus doesn't change with short-term moves in our stock price or the transportation market. We are building something that will benefit everyone. It is our primary mission, and we will accomplish it. Last quarter, I offered expectations on Q1 expenses at about $80 million, excluding any strategic equity grant adjustments, and we were just short of that estimate. We currently expect Q2 expenses of about $85 million, inclusive of expenses related to the disposal group, as we continue to invest in the opportunity we see in front of us. Finally, let's turn to some unusual items this quarter. As we continue to focus our efforts on the opportunities in the transportation market, we are in discussions to sell 15 TBK bank branches in rural Colorado and Kansas. The $159 million of loans and $20 million of other assets in these branches are now reflected in assets held for sale on our balance sheet, and $367 million of branch deposits likewise are reflected as deposits held for sale. Moving the loans to held for sale status created a $970,000 benefit to our credit loss expense in the first quarter. And once closed, we expect a reduction in quarterly revenue and expenses of about $2.25 million for revenue and $2 million for expenses, respectively. Second, in another focusing effort, we have moved approximately half of the non-transportation portion of our factory business, about $70 million in net funds employed, to held for sale, anticipating a divestiture in the second quarter. This move created a $420,000 benefit to our credit loss expense in the first quarter, and once closed, we expect a reduction in quarterly revenue and expenses of about $2.7 million in revenue and $300,000 in expenses, respectively. As evidenced by these moves, We will continue to simplify our operating model, focusing our strategy, capital, and energy on the opportunities we see before us in our transportation-related businesses. Let me be clear. For Triumph, nothing is as important as establishing a ubiquitous payments network for the trucking industry. Everything we do begins with that end in mind. We will continue to maintain diversity of revenue and funding as appropriate, but overall, our business model is narrowing its focus onto our ultimate goal. With that, we will turn the call over for questions.