Triumph Financial, Inc.

Good morning and welcome to Triumph Bancorp's first quarter 2021 earnings call. All participants will be in listen-only mode. If you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I'd now like to turn the call over to Mr. Luke Wise, Investor Relations Officer. Go ahead.

Good morning. Welcome to the Triumph Bancorp conference call to discuss our first quarter 2021 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 joined 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, Todd Ritterbush, our Chief Lending Officer, and Jeff Brenner, our CEO of Triumph Business Capital. After this 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, everyone.

For the first quarter, we earned net income to common stockholders of $33.1 million, or $1.32 per diluted share. There are so many good things to talk about this quarter, it's hard to know where to start. Therefore, I will start by providing an update on the only negative item of note I have to report on today, and that being the continuing developments associated with our acquisition of TFS. Then we will move on to addressing the many great things impacting this quarter and the future of our business. We acquired the Transportation Factoring Assets of Transport Financial Solutions, or TFS, from Covenant Logistics Group in the third quarter of 2020. Upon discovering several issues related to TFS post-closing, Covenant agreed to indemnify us for up to $45 million of losses incurred on the $60 million of overadvanced receivables acquired in the original transaction. By the end of last year, we had fully reserved for the entire $41.3 million relationship to the largest customer in this portfolio. In the first quarter, given new adverse developments with that customer, we charged off the entire $41.3 million relationship, which had no impact on earnings given that it had been fully reserved in prior periods. Covenant has reimbursed us $35.6 million of this charge-off in accordance with the indemnification agreement, which they funded by drawing on their secured credit facility with us. At quarter end, our entire remaining over-formula advanced position is down from $62.1 million at year end to $10.6 million. In the first quarter, we increased our related reserve by $2.9 million to fully reserve for the remaining $10.6 million balance. This had the effect of increasing our credit loss expense and ACL by $2.9 million. We summarized the TFS impact in our earnings release. However, to state it simply here, the net impact on first quarter results of the additional $2.9 million reserve and the upward revaluation of the remaining indemnification asset led to a pre-tax gain of $1.8 million. In conclusion on this topic, I want to say something that is not entirely germane to this call. The TFS transaction was a mess. But the leadership at Covenant Logistics Group consists of some of the finest and most honorable people I know in our industry. They have been people of their word throughout this workout. As it relates to the diverted $19.2 million currently in dispute with the U.S. Postal Service and our former client, the process continues to work its way through litigation, and we have no material updates at this time. Based upon our legal analysis and discussions with our counsel advising us on this matter, we continue to believe it is probable that we will prevail in our action against the USPS and that they have the financial capacity to pay us what we are owed. Therefore, we continue to carry this receivable without a specific reserve at the end of the quarter. Staying on non-core matters but now turning to good news, we released $9.5 million of reserves due to improved economic forecast this quarter. Our current ACL stands at $48 million, including an existing specific reserve of $10.6 million on the remaining portion of the TFS acquisition. Prior to the pandemic, our ACL as a percentage of loans was around 70 basis points. And should macroeconomic conditions continue to improve, it is possible that we could return to that level. Our current level is at 0.94%. Now let's turn to the great core things that happened this quarter. This was another record quarter for TBK on many fronts. We continue to grow our deposit base. Non-interest-bearing deposits grew approximately 285 million and now represent 34% of total deposits. Our loan-to-deposit ratio is relatively unchanged at 106%. Our loan yields this quarter were 7.24%. NIM is 6.06%. Looking out into the second quarter, we project that expenses will grow to approximately $63.4 million, incorporating continued investment in our transportation-related businesses. Now I would like to turn the call over to Todd Ritterbush, our Chief Lending Officer.