TRIUMPH FINANCIAL, INC. This section presents management's perspective on our financial condition and results of operations. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Company's interim consolidated financial statements and the accompanying notes included elsewhere in this Quarterly Report on Form 10-Q and with the consolidated financial statements and accompanying notes and other detailed information appearing in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2020 . To the extent that this discussion describes prior performance, the descriptions relate only to the periods listed, which may not be indicative of our future financial outcomes. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause results to differ materially from management's expectations. See the "Forward-Looking Statements" section of this discussion for further information on forward-looking statements. Overview We are a financial holding company headquartered inDallas, Texas and registered under the Bank Holding Company Act. As ofJune 30, 2021 , we had consolidated total assets of$6.016 billion , total loans held for investment of$4.831 billion , total deposits of$4.725 billion and total stockholders' equity of$792.4 million . Through our wholly owned bank subsidiary,TBK Bank , we offer traditional banking services, commercial finance product lines focused on businesses that require specialized financial solutions and national lending product lines that further diversify our lending operations. Traditional banking offerings include a full suite of lending and deposit products and services. These activities are focused on our 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 our overall operations. Our commercial finance product lines generate attractive returns and include asset-based lending and equipment lending products offered on a nationwide basis. Our national lending product lines include mortgage warehouse and liquid credit offered on a nationwide basis and provide further asset base diversification and stable deposits. Year to date, our aggregate outstanding balances for these banking products has decreased$443.1 million , or 11.4%, to$3.433 billion as ofJune 30, 2021 . The following table sets forth our banking loans: June 30, December 31, (Dollars in thousands) 2021 2020
Banking
Commercial real estate$ 701,576 $ 779,158 Construction, land development, land 185,444 219,647 1-4 family residential 135,288 157,147 Farmland 91,122 103,685 Commercial - General 290,562 340,850 Commercial - Paycheck Protection Program 135,307 189,857 Commercial - Agriculture 76,346 94,572 Commercial - Equipment 604,396 573,163 Commercial - Asset-based lending 181,394 180,488 Commercial - Liquid Credit 165,578 184,027 Consumer 12,389 15,838 Mortgage Warehouse 853,514 1,037,574 Total banking loans$ 3,432,916 $ 3,876,006 Our Banking products and services share basic processes and have similar economic characteristics. Our factoring subsidiary,Triumph Business Capital , operates in a highly specialized niche and earns substantially higher yields on its factored accounts receivable portfolio than our other lending products. This business also has a legacy and structure as a standalone company. Our payments business, TriumphPay, is a division ofTBK Bank and also operates in a highly specialized niche with unique processes and key performance indicators. 47 -------------------------------------------------------------------------------- Table of Contents We have determined our reportable segments are Banking, Factoring, Payments and Corporate. For the six months endedJune 30, 2021 , our Banking segment generated 55% of our total revenue (comprised of interest and noninterest income), our Factoring segment generated 42% of our total revenue, our Payments segment generated 3% of our total revenue, and our Corporate segment generated less than 1% of our total revenue. Second Quarter 2021 Overview Net income available to common stockholders for the three months endedJune 30, 2021 was$27.2 million , or$1.08 per diluted share, compared to net income to common stockholders for the three months endedJune 30, 2020 of$13.4 million , or$0.56 per diluted share. Excluding material gains and expenses related to merger and acquisition related activities, including divestitures, adjusted net income to common stockholders was$29.5 million , or$1.17 per diluted share, for the three months endedJune 30, 2021 and$6.1 million , or$0.25 per diluted share, for the three months endedJune 30, 2020 . For the three months endedJune 30, 2021 , our return on average common equity was 14.70% and our return on average assets was 1.84%. Net income available to common stockholders for the six months endedJune 30, 2021 was$60.3 million , or$2.39 per diluted share, compared to net income available to common stockholders for the six months endedJune 30, 2020 of$9.0 million , or$0.37 per diluted share. Excluding material gains and expenses related to merger and acquisition related activities, including divestitures, adjusted net income to common stockholders was$62.6 million , or$2.48 per diluted share, for the six months endedJune 30, 2021 and$1.7 million , or$0.07 per diluted share, for the six months endedJune 30, 2020 . For the six months endedJune 30, 2021 , our return on average common equity was 16.85% and our return on average assets was 2.06%. AtJune 30, 2021 , we had total assets of$6.016 billion , including gross loans of$4.831 billion , compared to$5.936 billion of total assets and$4.997 billion of gross loans atDecember 31, 2020 . Total loans decreased$165.6 million during the six months endedJune 30, 2021 . Our Banking loans, which constitute 71% of our total loan portfolio atJune 30, 2021 , decreased from$3.876 billion in aggregate as ofDecember 31, 2020 to$3.433 billion as ofJune 30, 2021 , a decrease of 11.4%. Our Factoring factored receivables, which constitute 27% of our total loan portfolio atJune 30, 2021 , increased from$1.037 billion in aggregate as ofDecember 31, 2020 to$1.284 billion as ofJune 30, 2021 , an increase of 23.9%. Our Payments factored receivables, which constitute 2.0% of our total loan portfolio atJune 30, 2021 , increased from$84.2 million in aggregate as ofDecember 31, 2020 to$114.0 million as ofJune 30, 2021 , an increase of 35.4%. AtJune 30, 2021 , we had total liabilities of$5.223 billion , including total deposits of$4.725 billion , compared to$5.209 billion of total liabilities and$4.717 billion of total deposits atDecember 31, 2020 . Deposits increased$8.9 million during the six months endedJune 30, 2021 . AtJune 30, 2021 , we had total stockholders' equity of$792.4 million . During the six months endedJune 30, 2021 , total stockholders' equity increased$65.6 million , primarily due to our net income during the period. Capital ratios remained strong with Tier 1 capital and total capital to risk weighted assets ratios of 10.33% and 12.65%, respectively, atJune 30, 2021 . 2021 Items of Note HubTran, Inc. OnJune 1, 2021 , we, through TriumphPay, a division of our wholly-owned subsidiaryTBK Bank, SSB , entered into a definitive agreement to acquireHubTran, Inc. , a cloud-based provider of automation software for the trucking industry's back-office, for$97 million in cash subject to customary purchase price adjustments. The acquisition of HubTran allows us to create a payments network that will allow freight brokers and factors to lower costs, remove inefficiencies, reduce fraud and add value for their stakeholders. TriumphPay already offered tools and services to increase automation, mitigate fraud, create back-office efficiency and improve the payment experience. Through the acquisition of HubTran, TriumphPay created additional value through the enhancement of its presentment, audit, and payment capabilities for shippers, third party logistics companies (i.e., freight brokers) and their carriers, and factors. The acquisition of HubTran was a meaningful inflection point in the operations of TriumphPay as the TriumphPay strategy has shifted from a capital-intensive on-balance sheet product with a focus on interest income to a payments network for the trucking industry with a focus on fee revenue. HubTran brings integrations and in-process integrations with over 220 freight brokers and more than 50 factors. For further information on the above transaction, see Note 2 - Business Combinations and Divestitures in the accompanying condensed notes to the consolidated financial statements included elsewhere in this report. 48 -------------------------------------------------------------------------------- Table of Contents Misdirected Payments As ofJune 30, 2021 we carry a separate$19.4 million receivable (the "Misdirected Payments") payable by theUnited States Postal Service ("USPS") arising from accounts factored to the largest over-formula advance carrier. This amount is separate from the acquired Over-Formula Advances described in the 2020 Items of Note section below. The amounts represented by this receivable were paid by theUSPS directly to such customer in contravention of notices of assignment delivered to, and previously honored by, theUSPS , which amount was then not remitted back to us by such customer as required. TheUSPS disputes their obligation to make such payment, citing purported deficiencies in the notices delivered to them. In addition to commencing litigation against such customer, we have also filed a declaratory judgment action inUnited States Federal District Court for the Southern District of Florida seeking a ruling that theUSPS was obligated to make the payments represented by this receivable directly to us. Based on our legal analysis and discussions with our counsel advising us on this matter, we believe it is probable that we will prevail in such action and that theUSPS will have the capacity to make payment on such receivable. Consequently, we have not reserved for such balance as ofJune 30, 2021 . The full amount of such receivable is reflected in non-performing and past due factored receivables as ofJune 30, 2021 in accordance with our policy. As ofJune 30, 2021 , the entire$19.4 million Misdirected Payments amount was greater than 90 days past due. 2020 Items of Note Transport Financial Solutions OnJuly 8, 2020 , we, through our wholly-owned subsidiaryAdvance Business Capital LLC ("ABC"), acquired the transportation factoring assets (the "TFS Acquisition") of Transport Financial Solutions ("TFS"), a wholly owned subsidiary of Covenant Logistics Group, Inc. ("CVLG"), in exchange for cash consideration of$108.4 million , 630,268 shares of the Company's common stock valued at approximately$13.9 million , and contingent consideration of up to approximately$9.9 million to be paid in cash following the twelve-month period endingJuly 31, 2021 . Subsequent to the closing of the TFS Acquisition, the Company identified that approximately$62.2 million of the assets acquired at closing were advances against future payments to be made to three large clients (and their affiliated entities) of TFS pursuant to long-term contractual arrangements between the obligor on such contracts and such clients (and their affiliated entities) for services that had not yet been performed. OnSeptember 23, 2020 , the Company andABC entered into an Account Management Agreement, Amendment to Purchase Agreement and Mutual Release (the "Agreement") withCVLG and Covenant Transport Solutions, LLC a wholly owned subsidiary of CVLG ("CTS" and, together with CVLG, "Covenant"). Pursuant to the Agreement, the parties agreed to certain amendments to that certain Accounts Receivable Purchase Agreement (the "ARPA"), dated as ofJuly 8, 2020 , by and amongABC , as buyer, CTS, as seller, and the Company, as buyer indirect parent. Such amendments include: •Return of the portion of the purchase price paid under the ARPA consisting of 630,268 shares of Company common stock, which will be accomplished through the sale of such shares by CVLG pursuant to the terms of the Agreement and the surrender of the cash proceeds of such sale (net of brokerage or underwriting fees and commissions) to the Company; •Elimination of the earn-out consideration potentially payable to CTS under the ARPA; and •Modification of the indemnity provisions under the ARPA to eliminate the existing indemnifications for breaches of representations and warranties and to replace such with a newly established indemnification by Covenant in the eventABC incurs losses related to the$62.2 million in over-formula advances made to specified clients identified in the Agreement (the "Over-Formula Advance Portfolio"). Under the terms of the new indemnification arrangement, Covenant will be responsible for and will indemnifyABC for 100% of the first$30 million of any losses incurred byABC related to the Over-Formula Advance Portfolio, and for 50% of the next$30 million of any losses incurred byABC , for total indemnification by Covenant of$45 million . Covenant's indemnification obligations under the Agreement are secured by a pledge of equipment collateral by Covenant with an estimated net orderly liquidation value of$60 million (the "Equipment Collateral"). The Company's wholly-owned bank subsidiary,TBK Bank, SSB , has provided Covenant with a$45 million line of credit, also secured by the Equipment Collateral, the proceeds of which may be drawn to satisfy Covenant's indemnification obligations under the Agreement. Pursuant to the Agreement, Triumph and Covenant have agreed to certain terms related to the management of the Over-Formula Advance Portfolio, and the terms by which Covenant may provide assistance to maximize recovery on the Over-Formula Advance Portfolio. 49 -------------------------------------------------------------------------------- Table of Contents Pursuant to the Agreement, the Company and Covenant have provided mutual releases to each other related to any and all claims related to the transactions contemplated by the ARPA or the Over-Formula Advance Portfolio. Also in connection the Agreement, Covenant agreed to dismiss, with prejudice, the declaratory judgment action filed in the 95thJudicial District Court of Dallas County, Texas (removed to theUnited States District Court, Northern District ofTexas ), related to the ARPA and the transactions contemplated. Further discussion regarding activity related to the TFS Acquisition can be found below. Triumph Premium Finance OnApril 20, 2020 , we entered into an agreement to sell the assets (the "Disposal Group ") of Triumph Premium Finance ("TPF") and exit our premium finance line of business. The decision to sell TPF was made during the three months endedMarch 31, 2020 , and atMarch 31, 2020 , the carrying amount of theDisposal Group was transferred to assets held for sale. The transaction closed onJune 30, 2020 , and the assets of theDisposal Group , consisting primarily of$84.5 million of premium finance loans, was sold for a gain on sale of$9.8 million . For further information on the above transactions, see Note 2 - Business Combinations and Divestitures in the accompanying condensed notes to the consolidated financial statements included elsewhere in this report. Preferred Stock Offering OnJune 19, 2020 , we issued 45,000 shares of 7.125% Series C Fixed-Rate Non-Cumulative Perpetual Preferred Stock, par value$0.01 per share, with a liquidation preference of$1,000 per share through an underwritten public offering of 1,800,000 depositary shares, each representing a 1/40th ownership interest in a share of the Series C Preferred Stock. Total gross proceeds from the preferred stock offering were$45.0 million . Net proceeds after underwriting discounts and offering expenses were$42.4 million . The net proceeds will be used for general corporate purposes. Stock Repurchase Program During the three months endedMarch 31, 2020 , we repurchased 871,319 shares into treasury stock under our stock repurchase program at an average price of$40.81 , for a total of$35.6 million , effectively completing the$50.0 million stock repurchase program authorized by our board of directors onOctober 16, 2019 . There were no shares repurchased during the remainder of fiscal year 2020. Recent Developments: COVID-19 and the Legislative Action Significant progress has been made to combat the outbreak of COVID-19; however, the global pandemic has adversely impacted a broad range of industries in which the Company's customers operate and could still impair their ability to fulfill their financial obligations to the Company. While employee availability has had no material impact on operations to date, a resurgence of COVID-19 has the potential to create widespread business continuity issues for the Company.Congress , the President, and theFederal Reserve have taken several actions designed to cushion the economic fallout. The Coronavirus Aid, Relief and Economic Security ("CARES") Act was signed into law at the end ofMarch 2020 as a$2 trillion legislative package. The goal of the CARES Act was to curb the economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors through programs like the Paycheck Protection Program ("PPP") and Main Street Lending Program ("MSLP"). DuringDecember 2020 , many provisions of the CARES Act were extended through the end of 2021. In addition to the general impact of COVID-19, certain provisions of the CARES Act as well as other recent legislative and regulatory relief efforts have had a material impact on the Company's 2020 and 2021 operations and could continue to impact operations going forward. The Company's business is dependent upon the willingness and ability of its employees and customers to conduct banking and other financial transactions. While it appears that epidemiological and macroeconomic conditions are trending in a positive direction as ofJune 30, 2021 , if there is a resurgence in the virus, the Company could experience further adverse effects on its business, financial condition, results of operations and cash flows. While it is not possible to know the full universe or extent that the impact of COVID-19, and any potential resulting measures to curtail its spread, will have on the Company's future operations, the Company is disclosing potentially material items of which it is aware. 50 -------------------------------------------------------------------------------- Table of Contents Financial position and results of operations Pertaining to ourJune 30, 2021 financial condition and results of operations, improving conditions around COVID-19 had a material impact on our allowance for credit losses ("ACL"). We have not yet experienced material charge-offs related to COVID-19 and our ACL calculation and resulting provision for credit losses are significantly impacted by changes in forecasted economic conditions. Given that forecasted economic scenarios have brightened significantly sinceDecember 31, 2020 , our required ACL decreased during the six months endedJune 30, 2021 . Refer to our discussion of the ACL in Note 1 and Note 4 of our unaudited financial statements as well as further discussion later on in MD&A. Should economic conditions worsen as a result of a resurgence in the virus and resulting measures to curtail its spread, we could experience increases in our required ACL and record additional credit loss expense. The execution of the payment deferral program discussed in the following commentary assisted our ratio of past due loans to total loans as well other asset quality ratios atJune 30, 2021 . It is possible that our asset quality measures could worsen at future measurement periods if the effects of COVID-19 are prolonged. The Company's interest income could be reduced due to COVID-19. In keeping with guidance from regulators, the Company continues to work with COVID-19 affected borrowers to defer their payments, interest, and fees. While interest and fees continue to accrue to income, through normal GAAP accounting, should eventual credit losses on these deferred payments emerge, the related loans would be placed on nonaccrual status and interest income and fees accrued would be reversed. In such a scenario, interest income in future periods could be negatively impacted. As ofJune 30, 2021 , the Company carried$0.2 million of accrued interest income and fees on outstanding deferrals made to COVID-19 affected borrowers. This is down from$0.7 million of accrued interest income and fees on outstanding deferrals atDecember 31, 2020 . At this time, the Company is unable to project the materiality of such an impact on future deferrals to COVID-19 affected borrowers, but recognizes the breadth of the economic impact may affect its borrowers' ability to repay in future periods. Capital and liquidity As ofJune 30, 2021 , all of our capital ratios, and our subsidiary bank's capital ratios, were in excess of all regulatory requirements. While we believe that we have sufficient capital to withstand a double-dip economic recession brought about by a resurgence in COVID-19, our reported and regulatory capital ratios could be adversely impacted by further credit loss expense. We rely on cash on hand as well as dividends from our subsidiary bank to service our debt. If our capital deteriorates such that our subsidiary bank is unable to pay dividends to us for an extended period of time, we may not be able to service our debt. We maintain access to multiple sources of liquidity. Wholesale funding markets have remained open to us, but rates for short term funding can be volatile. If an extended recession caused large numbers of our deposit customers to withdraw their funds, we might become more reliant on volatile or more expensive sources of funding. Asset valuation COVID-19 has not affected our ability to account timely for the assets on our balance sheet; however, this could change in future periods. While certain valuation assumptions and judgments have changed to account for pandemic-related circumstances such as widening credit spreads, we do not anticipate significant changes in methodology used to determine the fair value of assets measured in accordance with GAAP. As ofJune 30, 2021 , our goodwill was not impaired and we did not have any impairment with respect to our intangible assets, premises and equipment or other long-lived assets. Our processes, controls and business continuity plan The Company's preparedness efforts, coupled with quick and decisive plan implementation, has resulted in minimal impacts to operations as a result of COVID-19. AtJune 30, 2021 , many of our employees continue to work remotely with no disruption to our operations. We have not incurred additional material cost related to our remote working strategy to date, nor do we anticipate incurring material cost in future periods. As ofJune 30, 2021 , we don't anticipate significant challenges to our ability to maintain our systems and controls in light of the measures we have taken to prevent the spread of COVID-19. The Company does not currently face any material resource constraint through the implementation of our business continuity plans. 51 -------------------------------------------------------------------------------- Table of Contents Lending operations and accommodations to borrowers In keeping with regulatory guidance to work with borrowers during this unprecedented situation and as outlined in the CARES Act, the Company is executing a payment deferral program for its clients that are adversely affected by the pandemic. Depending on the demonstrated need of the client, the Company is deferring either the full loan payment or the principal component of the loan payment for a stated period of time. As ofJune 30, 2021 , the Company's balance sheet reflected 10 of these deferrals on outstanding loan balances of$53.7 million . In accordance with the CARES Act andMarch 2020 interagency guidance, these short term deferrals are not considered troubled debt restructurings. It is possible that these deferrals could be extended further under the CARES Act; however, the volume of these future potential extensions is unknown. It is also possible that in spite of our best efforts to assist our borrowers and achieve full collection of our investment, these deferred loans could result in future charge-offs with additional credit loss expense charged to earnings; however, the amount of any future charge-offs on deferred loans is unknown. AtJune 30, 2021 , 98% of the$53.7 million COVID deferral balance was made up of three relationships. With the passage of the PPP, administered by theSmall Business Administration ("SBA"), the Company has actively participated in assisting its customers with applications for resources through the program. PPP loans generally have a two-year or five-year term and earn interest at 1%. The Company believes that these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. As ofJune 30, 2021 , the Company carried 1,390 PPP loans representing a book value of$135.3 million . The Company recognized$2.9 million in fees from the SBA on PPP loans during the six months endedJune 30, 2021 and carries$5.2 million of deferred fees on PPP loans at quarter end. The remaining fees will be amortized and recognized over the life of the associated loans. It is the Company's understanding that loans funded through the PPP program are fully guaranteed by theU.S. government. Should those circumstances change, the Company could be required to establish an allowance for credit loss through additional credit loss expense charged to earnings. Credit While all industries have and will continue to experience adverse impacts as a result of COVID-19 virus, we had exposures (on balance sheet loans and commitments to lend) in the following loan categories considered to be "at-risk" of significant impact as ofJune 30, 2021 . The exposures reported below exclude fully guaranteed PPP loans. Retail Lending: The Company's exposure to retail atJune 30, 2021 equated to approximately$160.8 million , or 3.3% of total loans, summarized as follows: •30% new and used vehicle lending; mostly dealer floorplan •26% retail real estate •19% grocery stores, pet stores, pharmacies, gas stations and convenience stores •7% factoring •18% other types of retail lending AtJune 30, 2021 there were no retail loans in deferral through our CARES Act deferral program. Office Lending: The Company's exposure to office lending atJune 30, 2021 equated to approximately$187.6 million , or 3.9% of total loans, summarized as follows: •84% non-owner occupied facilities. •15% owner occupied facilities •1% construction development lending AtJune 30, 2021 there were no office lending loans in deferral through our CARES Act deferral program. Hospitality Lending: The Company's exposure to hospitality atJune 30, 2021 equated to approximately$119.8 million , or 2.5% of total loans. These were mostly smaller loans purchased through our bank acquisitions and secured by hotels. AtJune 30, 2021 there were$18.7 million of hospitality loans in deferral through our CARES Act deferral program. Restaurants: The Company's exposure to restaurants atJune 30, 2021 equated to approximately$32.4 million , or less than 1% of total loans. AtJune 30, 2021 there were no restaurant loans in deferral through our CARES Act deferral program. 52 -------------------------------------------------------------------------------- Table of Contents Health Care and Senior Care Lending: The Company's exposure to health care and senior care atJune 30, 2021 equated to$44.5 million , or less than 1% of total loans. AtJune 30, 2021 there were no health care and senior care loans in deferral through our CARES Act deferral program. We continue to work with customers directly affected by COVID-19. We are prepared to offer assistance in accordance with regulator guidelines. As a result of the current economic environment caused by the COVID-19 virus, we continue to engage in communication with borrowers to better understand their situation and the challenges faced, allowing us to respond proactively as needs and issues arise. Trucking transportation The second quarter of 2021 featured freight demand and tonnage increases that have not been seen in several years. Consequently, rates remained at record highs. Imports through ocean ports and fromMexico were significant. Both carriers and freight brokers have experienced increased revenue and higher profit levels. Increased spot rates held up across all transportation modes including trucking and as a result, the number of new trucking authorities was high with new entrants coming into the industry. 53 -------------------------------------------------------------------------------- Table of Contents Financial Highlights Three Months Ended June 30, Six Months Ended June 30, (Dollars in thousands, except per share amounts) 2021 2020 2021 2020 Income Statement Data: Interest income$ 94,688 $ 74,398 $ 183,041 $ 149,812 Interest expense 4,406 10,147 9,739 23,061 Net interest income 90,282 64,251 173,302 126,751 Credit loss expense (benefit) (1,806) 13,609 (9,651) 33,907 Net interest income after credit loss expense 92,088 50,642 182,953 92,844
(benefit)
Gain on sale of subsidiary or division - 9,758 - 9,758 Other noninterest income 13,896 10,271 28,187 17,748 Noninterest income 13,896 20,029 28,187 27,506 Noninterest expense 70,798 52,726 131,690 107,479 Net income (loss) before income taxes 35,186 17,945 79,450 12,871 Income tax expense (benefit) 7,204 4,505 17,545 3,881 Net income (loss)$ 27,982 $ 13,440 $ 61,905 $ 8,990 Dividends on preferred stock (802) - (1,603) - Net income available (loss) to common stockholders$ 27,180 $ 13,440 $ 60,302 $ 8,990 Per Share Data: Basic earnings (loss) per common share$ 1.10 $ 0.56 $ 2.44 $ 0.37 Diluted earnings (loss) per common share$ 1.08 $ 0.56 $ 2.39 $ 0.37 Weighted average shares outstanding - basic 24,724,128 23,987,049 24,699,754 24,150,689 Weighted average shares outstanding - diluted 25,209,007 24,074,442 25,193,041 24,294,507 Adjusted Per Share Data(1): Adjusted diluted earnings per common share$ 1.17 $ 0.25 $ 2.48 $ 0.07 Adjusted weighted average shares outstanding 25,209,007 24,074,442 25,193 24,295
- diluted
Performance ratios - Annualized:
Return on average assets 1.84 % 0.99 % 2.06 % 0.35 %
Return on average total equity 14.27 % 8.86 % 16.28 % 2.92 %
Return on average common equity 14.70 % 8.94 % 16.85 % 2.94 %
Return on average tangible common equity (1) 20.92 % 12.96 % 23.52 % 4.23 %
Yield on loans(2) 7.77 % 6.52 % 7.51 % 6.85 %
Cost of interest bearing deposits 0.31 % 1.08 % 0.36 % 1.21 %
Cost of total deposits 0.20 % 0.79 % 0.24 % 0.92 %
Cost of total funds 0.34 % 0.85 % 0.38 % 1.03 %
Net interest margin(2) 6.47 % 5.11 % 6.27 % 5.36 %
Efficiency ratio 67.96 % 62.56 % 65.36 % 69.68 %
Adjusted efficiency ratio (1) 65.09 % 70.75 % 63.87 % 74.38 %
Net noninterest expense to average assets 3.75 % 2.40 % 3.45 % 3.09 %
Adjusted net noninterest expense to average
assets (1) 3.55 % 3.11 % 3.35 % 3.47 %
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June 30, December 31,
(Dollars in thousands, except per share amounts) 2021 2020
Balance Sheet Data:
Total assets $ 6,015,877 $ 5,935,791
Cash and cash equivalents 444,439 314,393
Investment securities 205,139 236,055
Loans held for investment, net 4,785,521 4,901,037
Total liabilities 5,223,489 5,209,010
Noninterest bearing deposits 1,803,552 1,352,785
Interest bearing deposits 2,921,898 3,363,815
FHLB advances 130,000 105,000
Paycheck Protection Program Liquidity Facility 139,673 191,860
Subordinated notes 87,620
87,509
Junior subordinated debentures 40,333
40,072
Total stockholders' equity 792,388
726,781
Preferred stockholders' equity 45,000 45,000 Common stockholders' equity 747,388 681,781 Per Share Data: Book value per share$ 29.76 $ 27.42 Tangible book value per share (1)$ 18.35 $
19.78
Shares outstanding end of period 25,109,703 24,868,218 Asset Quality ratios(3): Past due to total loans 2.28 % 3.22 % Nonperforming loans to total loans 1.06 % 1.16 % Nonperforming assets to total assets 0.97 % 1.15 % ACL to nonperforming loans 88.92 % 164.98 % ACL to total loans 0.95 % 1.92 % Net charge-offs to average loans(4) 0.86 %
0.10 %
Capital ratios: Tier 1 capital to average assets 9.73 % 10.80 % Tier 1 capital to risk-weighted assets 10.33 % 10.60 % Common equity Tier 1 capital to risk-weighted assets 8.74 % 9.05 % Total capital to risk-weighted assets 12.65 % 13.03 % Total stockholders' equity to total assets 13.17 % 12.24 % Tangible common stockholders' equity ratio (1) 8.04 %
8.56 %
(1)The Company uses certain non-GAAP financial measures to provide meaningful
supplemental information regarding the Company's operational performance and to
enhance investors' overall understanding of such financial performance. The
non-GAAP measures used by the Company include the following:
•"Adjusted diluted earnings per common share" is defined as adjusted net income
available to common stockholders divided by adjusted weighted average diluted
common shares outstanding. Excluded from net income available to common
stockholders are material gains and expenses related to merger and
acquisition-related activities, including divestitures, net of tax. In our
judgment, the adjustments made to net income available to common stockholders
allow management and investors to better assess our performance in relation to
our core net income by removing the volatility associated with certain
acquisition-related items and other discrete items that are unrelated to our
core business. Weighted average diluted common shares outstanding are adjusted
as a result of changes in their dilutive properties given the gain and expense
adjustments described herein.
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•"Adjusted efficiency ratio" is defined as noninterest expenses divided by our
operating revenue, which is equal to net interest income plus noninterest
income. Also excluded are material gains and expenses related to merger and
acquisition-related activities, including divestitures. In our judgment, the
adjustments made to operating revenue allow management and investors to better
assess our performance in relation to our core operating revenue by removing the
volatility associated with certain acquisition-related items and other discrete
items that are unrelated to our core business.
•"Adjusted net noninterest expense to average total assets" is defined as
noninterest expenses net of noninterest income divided by total average assets.
Excluded are material gains and expenses related to merger and
acquisition-related activities, including divestitures. This metric is used by
our management to better assess our operating efficiency.
•"Tangible common stockholders' equity" is defined as common stockholders'
equity less goodwill and other intangible assets.
•"Total tangible assets" is defined as total assets less goodwill and other
intangible assets.
•"Tangible book value per share" is defined as tangible common stockholders'
equity divided by total common shares outstanding. This measure is important to
investors interested in changes from period-to-period in book value per share
exclusive of changes in intangible assets.
•"Tangible common stockholders' equity ratio" is defined as the ratio of
tangible common stockholders' equity divided by total tangible assets. We
believe that this measure is important to many investors in the marketplace who
are interested in relative changes from period-to period in common equity and
total assets, each exclusive of changes in intangible assets.
•"Return on average tangible common equity" is defined as net income available
to common stockholders divided by average tangible common stockholders' equity.
(2)Performance ratios include discount accretion on purchased loans for the
periods presented as follows:
Three Months Ended June 30, Six Months Ended June 30,
(Dollars in thousands, except per share
amounts) 2021 2020 2021 2020
Loan discount accretion $ 2,161 $ 2,139 $ 5,662 $ 4,273
(3)Asset quality ratios exclude loans held for sale, except for non-performing
assets to total assets.
(4)Net charge-offs to average loans ratios are for the six months ended June 30,
2021 and the year ended December 31, 2020 .
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Table of Contents GAAP Reconciliation of Non-GAAP Financial Measures We believe the non-GAAP financial measures included above provide useful information to management and investors that is supplementary to our financial condition, results of operations and cash flows computed in accordance with GAAP; however, we acknowledge that our non-GAAP financial measures have a number of limitations. The following reconciliation table provides a more detailed analysis of the non-GAAP financial measures:
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