82: Quick Look: Triumph Bancorp (TBK)
Fin-tech-truck could be a way for this Texas-based bank to differentiate itself.
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Quick Look: Triumph Bancorp, Inc.
A conversation with a new friend led me to take a look at Triumph Bancorp. This friend knows the leadership of TBK and urged me to take a look. This quick look might turn into full Watchlist Investing Deep Dive. Right now it’s more of a way for me to think through my first impressions of TBK and its business.
TBK was founded in 2011 by Aaron Graft. Specifically, Graft and a group of investors purchased a failing bank, resuscitated it, and used it as a platform. Today that platform consists of five elements:
TBK Bank, a Texas state savings bank
Triumph Business Capital, an invoice factoring business
Triumph Pay, a payments network
Triumph Commercial Finance, an asset-based lender
Triumph Insurance
Interestingly, these are different businesses but with one primary focus according to management. TBK has set its sights on the trucking industry.
The thesis is simple: there is a lot of friction in the trucking industry. It operates, as Graft says, like your grandmother going to the grocery store and using a check for payment. She has to take out her purse, get her checkbook out, etc. It takes a long time.
What TBK aims to do is make structured data the norm such that things become seamless. With TBK sitting in the middle of course. With structured data savings can be shared among all parties involved and truckers can get paid more quickly.
Right now, however, the fintech (or fin-truck, rather) is a small part of its business. Factoring represented $1.7 billion of the bank’s $6 billion of total assets at FYE 2021. Payments was even smaller at just $293 million. The growth prospects are certainly exciting. But there’s also a massive traditional bank to manage all the while, and that’s where I start to squirm a bit.
In reading the latest annual letter and watching the video below (a great interview BTW), it seems that the emphasis and focus are on invoice factoring and payments. The risk is that the team loses sight of the over $3 billion of bank loans on the balance sheet.
Take a look at the loan book (from the 2021 annual report):
Those are a lot of different asset classes to manage.
The one bright spot I see is the decline in assets. This might seem odd at first, and perhaps counterintuitive. But I like the fact that management isn’t trying to show growth everywhere and at all times to please Wall Street.
Growing a bank is easy, just lower your rates and/or credit standards and borrowers will line up for your cheap (and mispriced) capital. As the banking saying goes, “Anyone can loan money. The trick is to get it back.” That TBK is pulling back on traditional banking to focus on its bright spots and core business is a plus.
Looking at TBK purely from a banking perspective, its 1.87% return on assets in 2021 is very good. Leveraged about 8x, that turns into an ROE of 14.5%.
Because TBK has both traditional banking and factoring/payments businesses its consolidated non-performing asset and charge-off ratios don’t make sense on the surface. TBK does breakout NPL’s by category, which is helpful. But I don’t see a charge-off rate detailed in the analysis of the banking segment, although the footnotes do note they were “insignificant” in 2021 and $1.6 million in 2020. Not that it really matters anyway given today’s generally healthy credit environment. The real test will come in five and ten years through a business and credit cycle or two.
The share price of TBK has come down from a high of $135 in November 2021 to $61 today. Today’s price implies a market cap of $1.5 billion or 1.8x book value (higher if considering tangible book).
Today’s valuation is probably appropriate if TBK can continue to execute its plan and not run into any major credit issues in its portfolio. Right now I’m going to sit on the sidelines watching and learning.
Stay rational! —Adam
