Triumph Financial, Inc.

Good day and welcome to the Triumph Bancorp, Inc. First Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Luke Wise, Senior Vice President, Finance and Investment Relations. Please go ahead.

Good morning. Welcome to the Triumph Bancorp conference call to discuss our first quarter 2020 financial results. Before we get started, I'd 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 are 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 Graft, our Chief Financial Officer, Bryce Fowler, and Todd Ritterbush, our Chief Lending Officer. After the presentation, we'll 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. I will provide a review of our first quarter results, which are largely a rearview mirror look at the way things were before the late March market disruptions. We are also providing information on what we've observed in our business since the downturn and what we have done and are doing in response. For the first time since going public in 2014, we are reporting a quarterly loss, which totals $4.5 million, or 18 cents per diluted share. Our first quarter results were heavily influenced by the implementation of the new Current Expected Credit Loss, or CECL, accounting standard. CECL requires us to estimate and record an allowance for on- and off-balance sheet credit loss considering expected economic conditions over the remaining contractual term of our portfolio. Considering the financial turmoil experienced, this was certainly an interesting and challenging quarter to implement CECL. Total credit expense was $20.3 million. $17.4 million of this reflected as a credit loss expense and relates to our on-balance sheet loan portfolio. $2.9 million of the total credit expense relates to our reserve for off-balance sheet commitments to lend and is included in other non-interest expense in the income statement. Cumulatively, this had a 420 basis point impact on our efficiency ratio for the quarter. The allowance for credit loss for all loans on the balance sheet increased to $44.7 million, or 1.04% of total loans. Prior to the change in the economic environment and outlook, the allowance as a percentage of loans under CECL on January 1st was 70 basis points. The 34 basis point increase in the allowance is primarily due to a much less favorable economic outlook over the next four quarters. The increase is also affected by a mixed shift of our loan portfolio. The numbers underlying the $17.4 million credit loss expense reflect a continuation of acceptable trends seen in recent quarters, with net charge-offs of $1.5 million, or four basis points, and net changes in specific reserves of $2.3 million. The remainder of the credit expense is due to approximately $225 million of net loan growth for the quarter, as well as the change in loan mix and economic outlook. Past due loans increased 25 basis points from Q4 to 1.99% of total loans, while non-performing assets to total assets increased by 22 basis points to 1.09%. We previously have talked about tightening our credit standards over the last year as part of the strategic shift of our business. While we did not foresee this type of disruption coming, and while it's definitely still early, it seems those efforts have put us in a better position than we otherwise would have been. As I mentioned earlier, under CECL we also maintain an allowance for unfunded loan commitments. This allowance is reflected in other liabilities and increased by $2.9 million this quarter to $5.5 million on $572 million of commitments. These commitments include $127 million for liquid credit loans we committed to acquire but were unsettled as of quarter end. The initial credit cost was reflected in other expense. Conversely, when these liquid credit loans settle in future periods, the reserve for unfunded commitments will be reduced through other expense and offset by an increase in provision expense for on-balance sheet loans with no impact to net income. Deposits were a bright spot for us again in the first quarter. Non-interest-bearing deposits grew $37 million and are up $162 million since we increased our focus on deposit gathering at the end of the second quarter in 2019. On the interest-bearing side, we quickly and sharply reduced rates in response to recent market conditions and have seen no adverse impact to balances. Due to COVID-19, our Dallas branch opening has been delayed, but we are ready to go as soon as circumstances allow. Finally, this quarter we classified the assets of our Triumph Premium Finance lending group as held for sale as we are exploring selling this business. We do not see this business as core to TBK. We will, however, continue to offer insurance premium finance to our trucking clients following the sale of this platform. Now I'd like to turn the call over to Todd Ritterbush, our Chief Lending Officer, to talk about our community bank lending and the efforts underway to support our communities and customers in light of the unprecedented impact of COVID-19.