Q3 2020 Triumph Bancorp Inc Earnings Call
Good morning, everyone and welcome to the Triumph Bancorp Inc. third quarter 2020 earnings call.
All participants will be in a within only mode should you need assistance. Please.
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No.
[music] an opportunity to ask questions docket.
Good question Press Star.
And then one to withdraw your question you May Press Star two please.
Today's event is recorded.
At this time I'd like to turn the call whatsoever to do.
Oh I see.
Vice President Finance and Investor Relations Sir Please go ahead.
Good morning, welcome to the Triumph Bancorp conference call to discuss our third 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 statement.
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.
For those joining by phone. Please note that the safe Harbor statement and presentation are available on our website at www Dot triumph Bancorp Dot com.
Comments made during today's call are subject to not stay safe Harbor statement.
I'm joined this morning by trying to Spice Chairman and CEO earn Graf, our Chief Financial Officer, Brian Lawlor Taverner Bush, our chief lending officer, and Jeff Brenner, our CEO of trying to discount the price.
Doesn't taste and we'll be happy to address any questions you may have.
Time, I'd like to turn the call over their parents.
Thank you Luke good morning.
Third quarter, we earned net income to common stock holders of 22 million or 89 cents per diluted share.
Excluding expenses related to merger and acquisition related activities diluted earnings per share was 91 cents.
Total loans grew 459.6 million or 10.5%, mostly related to factoring and mortgage warehouse balances Tony.
Total loan growth includes 107.5 million in factored receivables.
Through our TFS acquisition in July we have prepared slides 24, and 25 in our deck to walk through the accounting treatment of this.
Acquisition.
Total credit loss expense was actually a 258000 dollar benefit versus 13 point sixmillion of expense in the prior quarter.
The allowance for credit loss, where Hcl increased 36.4 million to 91 million or 1.88% of total loans.
The over advances acquired and the TFS acquisition are accounted for as purchase credit deteriorated assets, resulting in a $37.4 million increase and the Hcl and purchase accounting without a charge against expenses.
As a result.
Excluding the impact of the TFS acquisition D.C.L. balance decreased by $1 million.
This net decrease of $1 million in Hcl is due to seasonal loss factors remaining relatively in line with Q2 and the continuing shift in portfolio mix to shorter duration long products with lower reserve range, primarily from strong growth in factoring in mortgage warehouse or.
Our economic forecast for C., so were relatively flat quarter over quarter, and we maintain an unemployment forecast of 9% to 10% marginal retail sales growth over the next four quarters.
[music], we experience net charge offs of $700000 or two basis points of average loans and an increase in specific reserves up less than $100000.
Past due loans to total loans increased 90 basis points from Q2 to 2.4% of total loans Approx.
Approximately 79 basis points of this ratio consists of 38.5 million a past due factored receivables related to the acquired TFS over advance portfolio.
[music] nonperforming assets to total assets increased 32 basis points to a 1.52%.
Approximately 17 basis points of this ratio consists of $10 million a b over advanced receivables acquired through the TFS acquisition.
Turning to deposits, which you can see on slide 15, you will note that we continue to improve our funding mix noninterest bearing deposits grew 195 million in the quarter and up to 632 million since we increased our focus on deposit gathering at the end of the second quarter and 20.
The 19th.
Noninterest bearing deposits as a percentage of total deposits are now 31% of total deposits, which is a significant increase from a year ago.
Our loan to deposit ratio moved up slightly to 114% from 108% in the second quarter.
That's it for mortgage warehouse loan balances the ratio was approximately 23 basis points lower this quarter.
Given market conditions and the growth of noninterest bearing accounts, we expect our funding cost to continue to trend lower in the near term.
Now the margin.
Our loan yields this quarter, we're up to 7.05% versus 6.52% in Q2.
That number includes an unexpected $1.7 million and discount accretion on loans paid off during the quarter. However, the majority of this change was it related to a shift in the mix of our loan portfolio as factoring volume and revenue increased materially over Q2 now.
Net interest margin was up 72 basis points to 5.83%.
Both the strength of our transportation businesses and our continued improvement in our cost of funds.
Whether this will continue into Q4 and beyond I would say that we are not in the practice of making forecasts regarding net interest margin or other key metrics well.
What I can tell you is that when our factoring segment leads our loan growth. It is almost a certainty that our net interest margin will expand.
As for Q4, the spot rate market for transportation remains very much in favor of truckers and our new client pipeline is more full than ever before.
I'd like to point out a few specific items this quarter that.
That we noted in the earnings release yesterday first we realized 3.1 million and gains on the sale of Securities. These were available for sale feel loads, we purchased when the markets froze up during the first quarter.
Given the run up in these asset values, we elected to sell a portion of our portfolio and recognize the embedded gain.
We also realized in other income $2 million to account for the estimated increase in cash we expect to receive from the date of our settlement of the TFS dispute due to the run up in our stock price through quarter end.
We also had approximately a $700000 write down on a former branch donated to the city of east Moline to be used as a library.
Lastly, this quarter, we finalized our agreement with covenant on the TFS transaction. The revised deal is dilutive to tangible book value by 21 cents or about 1% we.
We expect EPS contribution of around 10 to 12 cents annually from the conventionally structured portion of the acquired portfolio.
However, our resolution efforts on the over advance portion of the portfolio supported by the indemnification from covenant could create some additional upside or downside in the near to medium term as pre.
As previously noted we prepared slides 24, and 25 in our deck to summarize the final accounting and the range of outcomes around the transaction the structure of the.
The structure of the settlement and accounting caps, our pretax loss exposure on the over advanced portfolio to $10 million, while preserving some potential upside.
Looking out into the fourth quarter, we look for expenses to remain contained with quarterly core expenses relatively flat with the 55 point threemillion printed in Q3.
Now I'd like to turn the call over to Todd Ritterbusch, Our chief lending officer to talk about our community bank lending and our continued efforts to support our communities and customers. During this pandemic.
Thanks, Aaron I'd like to start by providing an update on our progress regarding pandemic related deferrals and PPP loan forgiveness, you can file.
You can find this information on slide 14 of our Investor presentation.
Loan balances on short term partial or full payment deferral declined from 572 million on June 32, 103 million or 2.1% of loan balances on September 30.
We also have a pipeline of 17 million in first time deferral requests for clients did not request referrals deferrals previously but need them now.
Consequently, the total current and requested deferral balance totaled 120 million.
Over the next several weeks most of the remaining the Pearl extensions will expire as this occurs we expect roughly 45 million to require no further assistance and resumed normal payments.
The remaining 75 million will require either longer term modifications were exits approx.
Approximately 40 million of this remaining balance is related to hospitality facilities in our community Bank.
These facilities have a weighted average LTV loan to value of 58% along with personal guarantees in most cases, but they remain our greatest source of concern about the less.
For those that we offer longer term support we're generally providing payment flexibility for up to 18 months and modified covenants in return for additional equity injections or use excess cash flow recapture provisions.
Moving to PPP forgiveness, we have received loan forgiveness applications for 30% of our 223 million and PPP loan balances.
Yes be it began improving applications the week of October and we were.
And we received our first forgiveness approval on October nine.
The complexity and documentation associated with the forgiveness application requires extensive effort and back and forth interaction between the borrower the bank and the SPM, which is likely to extend the forgiveness timeline into the fourth quarter of this year and the first quarter of next year for many borrowers.
However, we remain optimistic that a very large majority of our PPP loan balances will be forgiven based on our efforts to verify both forgiveness eligibility and amount with our clients.
There are two final credit quality points that are worth highlighting first past due loan balances were flat excluding the effect of the PFS acquisition MTBC.
Second the increase in NPL balances, excluding the TFS acquisition can be attributed to a single held for sale asset.
We expect the situation to resolve itself in the short term I believe it is well collateralized.
As we look to the future of our lending businesses, our pipelines are growing across the board, which.
Which allows us to be selective in extending new credit.
We remain focused on building full depository relationships with our lending clients and extend the new credit only when it fits with our transportation strategy indoor contributes to attractive relationship returns cost.
Classical consequently, we expect to see lending balance growth concentrated in equipment finance asset based lending and targeted growth markets in which we have recently made investments. However.
However, this loan growth will be partially offset by reductions in PPP loan balances CRT only relationships and eventually or more mortgage warehouse line of business.
On the topic of the mortgage warehouse I want to specifically commend our mortgage warehouse team.
Well they have taken advantage of the opportunity the mortgage market has given them and also for the great deposit relationships. They have helped us build with these clients.
I'll now turn the discussion back over to Erin for transportation update Thank you Todd.
As investors know, we consider transportation to be the brightest part of TB case future.
Specifically, we believe the digital experience, we provide to our customers and the market as a whole via triumph business capital and try and pay will eventually transformed this area of finance.
We expect our share of transportation invoices purchased and paid to continue its near parabolic growth for the foreseeable future.
Combining our transportation payments businesses, we paid approximately 2.3 million invoices totaling approximately 2.92 billion in the third quarter, which results in an annualized run rate of just under 12 billion you can see a breakdown of this on slide nine.
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Turning to slide 10, total Q3, 2020 triumph business capital factoring revenue was 33.2 million. The dollar volume of invoices purchased was 1.98 billion. During Q3 2020, 60% increase compared to two.
Q 2020, and a 37% increase over the third quarter of 2019.
We purchased 1 million invoices during Q3, 2020, a 26% increase compared to the prior quarter and a 15% increase over the third quarter of 2019.
Average transportation Invoiced sizes were 1700 and $87 for the quarter.
30% compared to the second quarter two.
To give you some sense of how invoice prices in general we're trending throughout the quarter. The previous high point for total average invoice size was 1800 $20 in July of 2018.
We surpassed that in August of this year at 1900, and $68 and again in September at $2127 per average invoice you.
You may have noticed that revenues at TBC increased even faster than invoice prices. The reason for this is that while invoice prices have increased 30% as mentioned above our purchases per client a measure of client capacity utilization increased 44% from the prior quarter.
During our second quarter call, we also alluded to shifting trends and a steady pickup in volumes related to activity and transportation.
As those watching transportation might have noticed the lack of capacity in the market caused by driver shortages elevated unemployment benefits and covance related limitations caused continued upward pressure on spot rates throughout the quarter volumes picked up substantially as consumers flush with liquidity and unable to spend that unexpectedly into.
Outings like concerts sporting events spent their money on goods that must be moved by trucks go.
Going forward into Q4, we look for those trends to largely continue with October historically been triumph business capital is best month and higher than average freight volumes expected throughout the Christmas holiday season.
Last quarter, we also alluded to the fact that if the recovery was sustained in July and beyond it could suggest a freight recovery curve that looks more like a v. rather than an extended you and that is exactly what we saw in addition to benefiting from the aforementioned industry Tailwinds triumph business capital is new KLH.
Growth pipeline is more robust than ever with each month in the third quarter successively setting records for new client applications in the third quarter Triumph business capital received more than 1800, new client applications, which represents clients new to factoring as well as factoring veterans choosing not to overcome.
Bitters that has a 63.7% increase over the third quarter of 2019.
We recognized this quarter with the an intersection of a perfect storm of liquidity surge low capacity unique consumer behavior inventory restocking and seasonal holiday bills.
And so while these spot rates may not be sustainable in the long run the fundamentals of our factoring operations are strong and continue to grow in both scale and efficiency and our technology advantage over our competition.
Now turning to triumph pain on slide 11.
During the third quarter triumph pay processed 1.4 million invoices paying 57953 distinct carriers.
As of September Thirtyth, we have paid 105629 carriers since inception.
Payments process totaled approximately 1.2 billion, a 74% increase over the prior quarter and a 510% increase from the second quarter of 2019 try.
Triumph pays annual run rate payments as of September was 4.8 billion.
Last quarter I alluded to the fact that we have a very strong momentum and try and pay I told you that we had three of the top 20 freight brokers active on the platform and five and integration and contracting.
Since then I'm proud to say that we've added red wooden logistics just following the quarter end as our four tier one broker, which we define as the 20 largest freight brokers by volume. We now have four more of the top 20 in various stages of integration and another two and contract negotiation we.
We expect the four and integration to be live by the end of the first quarter of 2021 and those that are in contracting to be alive. Approximately six months. Following signature showed everything proceed as planned.
That will fulfill our initial goal of serving 50% of the top 20 brokers and will move us much closer to becoming the nexus of billing and payment for the trucking industry.
Our targets. This year are unchanged, we hope to exit 2020, with a run rate payment volume of 7 billion or more and we expect try a pay to reach profitability in the back half of 2021.
Also interesting this quarter in regard to triumph pain is that we've rolled out our select carrier program. This allows carriers to choose to have their invoices automatically quick paid by any broker they drive for who is on the trial pay network.
We opened this program in June on an invite only basis to test. It and then subsequently opened it to all carriers in August. The response has been very positive and we are nearing our 3000th customer.
Our goal is to have 8000 carriers in the select carrier program by year end and we believe we have line of sight to that goal given the pace of adoption and due to the brokers expected to go live on trial pay in the near term.
For context triumph business capital, which was founded in 2004 had a total of 7092 clients at quarter end.
Triumphed pay is on pace to achieve that level of carrier adoption in six months versus 16 years.
While client contribution differs and try and pay versus triumph business capital. This rate of growth should give investors an appreciation for the long reach that we have in the transportation market and the scalability of our platform, which will only become more pronounced as more participants joining the network.
Finally over 90% of our team continues to work from home, while we wish we could all be back together safely in our offices, we will not do so until it is clear our employees health and safety is protected for the guidelines established in our pandemic business continuity plan.
Despite these difficulties we turned in one of the finest quarters in our history I'm exceptionally proud of our team and their work with that we will turn the call over for questions.
Ladies and gentlemen at this time, we will begin the question and answer session. That's a good question you May Press Star and then one on it thats kind of telephone.
Using a speaker phone, we do ask that you. Please pick up the handset before pressing the keys.
So with your all your questions you May press star and two once again.
Once again that is star and then one to join the question queue.
And our first question today comes from Michael Rose from Raymond James. Please go ahead with your question.
Hey, good morning, guys how are you.
Good.
Hey, I'm, just and I appreciate the update on on on T. pay.
Especially the getting to profitability as we get to the second half of the year can you just remind us some of your intermediate term goals I know you're targeting kind of 7 billion annualized sales by the end of the year any update.
Based on a decline on board and what you have in the pipeline in terms your intermediate.
For me thanks.
Yeah, well as as we mentioned.
The goal is 7 billion by the end of the year. If you were to annualize just the month of September.
We were running at about 5.7 billion, if you annualize the quarter. It was 4.8 billion.
So as far as adoption on the broker side, we will surpass that 7 billion dollar number.
When once the.
The prime brokers that are in the pipeline come onto the system, whether they come on in Q4, if any slide in Q1.
So that the one side of the equation, which is just goals around driving market penetration.
Second part, which we just discussed on this call would be increasing carrier adoption because that's ultimately how you monetize volume inside of traffic and so as we just mentioned between June and the end of the year.
We think we'll get to 8000 carriers, who are choosing to automatically take a quick pay from any broker. They all four that's on the trial pay network and its sort of the virtuous cycle. The more carriers that do that and the more brokers that come on the system. The more automatic quick pays that that become part of your daily process would you.
Drives profitability so.
Those are the two metrics were focused on and.
By focusing on those but continuing to invest in the product and the speed of execution to the market.
Even while doing that we would expect that the back half of next year and this becomes profitable and we think it's pretty scalable after that.
Okay. That's helpful and then looking at slide eight it looks like gross revenue trends pace.
Station is about 40% of the overall revenue.
We obviously know the four banks that had.
There any reason to think that that that growth.
The percentage of revenue.
Without any.
I'm in the foreseeable future or should we expect that the kind of exceed 50% and kind of grow from there.
I think given the trends and given where we're seeing growth.
I could see us achieving 50% or beyond.
At some point, perhaps next year, perhaps the year out so we're.
We have made clear we are a transportation first organization.
Defensible.
Profitable line of business community.
The community Bank.
If the opportunities calm, but just looking at our pipeline looking at stays the transportation market.
I would expect that that.
Transportation as a percentage of revenue will continue to grow.
Okay, and maybe just last one for me you have any.
Roger deposit maturities.
Over the next couple of quarters, it still seems like that would be a potential lever beside.
Besides the mix shift in revenue.
The margin expansion. Thanks.
Sure. This price I'll take that one so really not any abnormal amounts of maturities. We do have some higher cost Cds that are repricing of great deal those have reprices reflected in our numbers, but there is a little bit more of that coming but there's nothing like substantial but just given the current rate environment.
The success, we've had on raising quality that bothers me cost of deposits should continue down another 10 basis points or so I can say this next quarter.
Okay. Thanks for taking my question.
Our next question comes from Brady Gailey.
KBW. Please go ahead with your question.
Hey, Thanks, good morning, guys.
Good morning.
If you look at T. pay you already have.
10 of the top 20.
What's the timeline for the other Tim and Jim.
You can get.
All top 20 on the platform overtime.
Yeah, well it's.
So the dominant.
Some of the top 20.
Weve certainly touched base with all of the top 20 as you might expect some of them.
Are not interested in the product right now and so I think the way you win them over as you demonstrate the adoption by carriers and other brokers and demonstrate how this is a cost savings for them and frankly are revenue enhancement for them. So it's impossible for me to predict when the top 20, you get there.
All of them as we said, we if you think about the top 20 freight brokers control roughly $40 billion of span tier two which is the next 250 freight brokers controlled 31 billion a spend so its very well and then you get lower than that and it gets gets much smaller.
Much more fragmented.
So our belief is that if we control the majority of the top end of the market you create a virtuous cycle in the network.
Carriers like what they're getting other freight brokers see that and therefore adopted so I would hesitate to make any predictions when we can get all of them.
If we could ever get all of them, but I can tell you that certainly were having dialogue with all of them.
Okay and.
That's very clear.
Basically a zero provision this quarter, how do we think about that.
Of provisioning going forward if there is any.
Well.
I mean, as you know or as we called out when factoring and mortgage warehouse lead our growth.
That theres, just not a lot of provision tied to those because of how quickly they turn.
If the economy doesn't get worse.
Or if we get stimulus.
It does I can't see a catalyst for needing.
Additional material provision I mean, we've scrubbed our portfolio was I think every bank then comes.
Coming out of March April when we were in the depth.
The cobot pandemic or at least the unknown certainty around that so.
I don't foresee a need for material increases in provision asset.
Absent some catalyst that we don't know about.
All right.
And then Eric.
If you look over the last month, we basically from when we did our virtual and Youre with KBW in stocks up you know over 50% and that's how it's huge amounts here, it's now trade notes.
35 times tangible which is great to see happening.
Having a currency that treats like that does that make you rethink.
The possibilities within M&A, I know, you've kind of been downplayed M&A, but.
You have a fairly attractive currency, especially relative to peers. So that does the stock to change the way that you're thinking about M&A.
It really does that Brady.
Course, you don't want to foreclose anything.
My own view and I know none of US know what what you know all the drivers, but my own view is the reason our stock has performed the way. It has it's because people are beginning to understand the transportation Fintech opportunity, which for me is all of triumph business capital in all of track pay.
And the growth there, we're running $12 billion in annualized payments process I think that that's probably brought in.
A different investor base, who sees and understands the long term value and the network effect of what we're doing I mean, everything we're doing Brady is because we think it's the right thing to do but is I think enhancing or should be towards the enhancement of tangible book value, which would be growing non interest bearing deposit.
It's Keith.
Keeping credit quality clean.
Focusing on fee income, which I think our transportation Fintech opportunity will continue to drive as well as spread income and then lastly Haven defensible.
Line of business, which is what I think we do in transportation. So.
So as we think.
As we think about any acquisitions would have to fall within one of those four disciplines going forward and so you know we look in the transportation space and trying to figure out if there is any things we need but on a community bank side it.
I would take a unique deal.
And we're not just going to because the currency that we've created through this hard work in the organic model. We built we're not going to run out and use it to buy something that's not concurrent with those four things I told you about.
We are.
Doing a great job keep it up thanks for the color guys. Thank you.
Thank you.
Our next question comes from Matt Olney from Stephens. Please go ahead with your question.
Hey, Thanks, Good morning, I wanted to go back to the carrier adoption that you highlighted a few minutes ago. It sounds really interesting and in the path I think the baseline assumptions that you've discussed is that quick pay adoption is around that 20% level within triumph Bay I'm trying to.
I'm trying to understand if its recent success that you that you are seeing implies that the quick pay adoption could be higher than that 20%.
Well in the long run in my math so much.
So, let's just take quick pay adoption as a whole were below 10% on that and that's just because every time, we add one of these new large freight brokers, we started zero, except the zero is not one zero used to be because now when you onboard a tier one or even tier two broker some of those carriers that are in.
And their system are already.
Our already select carriers repairs, we paid otherwise when we can generate quick pay revenue from carriers that aren't select carriers, a carrier can certainly select to do that but when they become a select carrier they are almost treating trial pay.
As their source of financing as long as they're hauling for triumph pay broker.
So one of the interesting things and is when you look at that carrier base is a lot of them have no factoring relationship some of them do.
It's interesting we're penetrating a part of the market that has previously been on touched by ourselves or other competitors in the factoring space. So thats exciting to us because that's that's new territory. That's on that's a new segment.
The space.
Over the long run.
We still think 20% quite pay adoption stabilization because again every time you add a new when you go down a little bit as you start you market your product again to their carriers.
At stabilization, 20% is a very conservative assumption.
And so I hope, what we're showing with our select carrier penetration will allow us over a longer period of time to go well beyond that but we're going to stick to that 20% as our conservative view of where we achieved where we're going to be and we'll continue to report back to you about adoption of the selected.
Your program, which should give you and all of US an indication of if that number might go beyond 20%.
Okay. That's helpful and I appreciate that it's 10% today because the start over each time, you add a larger customer, but whats the adoption rate for some of your longer term clients that came on the platform maybe last year, there was a 20% yet.
Yes, So let me be clear is below two were not giving specific numbers for competitive reasons, but on a global scale below 10% customers who've been on the platform the longest we're getting to the mid to high teens.
On adoption.
Okay.
And then just taking a step back and a lot of us are going to be rolling out our 2022 forecasts. This week if not already can you just remind us about some of your 2022 goal that you have and as it stands today can you indicate if either either.
Goals, our goals that you have pretty good line of sight on.
Yeah. The I mean, our what we've talked about a lot with you and investors is where we want to exit 2022, and we've said on a profitability basis ROI perspective, we want to be a 2% ROI I would say that is a stretch we think it's achievable, but things are going to have to go.
Well and we're going to have to maintain discipline, while growing revenue expense discipline, while growing revenue to achieve that.
The second thing we've talked about at the end of 2022 would be for triumph pay to be achieving a $25 billion run rate again that is an achievable goal. If you look at our rate of growth but.
Theres a lot of work between here and there.
The other thing those are the two things we've talked about obviously try business capital.
That growth has been exceptional we've not really laid out any goals shred. It of course is our most profitable line of business and we need that to continue growth and.
And so we see that happening, but we haven't given you a specific goal on that and obviously deposits need to continue to grow noninterest bearing deposits to anchor our cost of funds. So the two things that come to mind for me, Matt that we've talked about that are the levers that we think.
Drives profitable online profitability and also maintains.
Hi, multiple on tangible book would be that 2% ROI and 25 billion dollar run rate.
You bet.
If you were to say, it's probably better in my view to not just talk about what triumph pays exit run rate is in 2022, but I wouldn't look at Holistically of what is the total amount of invoice is process between trial pay in triumph business capital.
And that number should be at that time between 35 and 40 billion.
That would be where would that we would expect things to be that would give you an idea of what try business capital's growth would need to be to help pull us towards those goals. So that's probably how you're going to hear us start talking about it in the future instead of just trying to pay but holistically, what do we want to see that whole transportation platform volume to be.
And.
We're going to work very hard to get to both of those.
Okay. That's helpful. Congrats on the quarter.
And our next question comes from Gary Tenner from da Davidson. Please go ahead with your question.
Thanks morning, guys.
Wanted to ask about the.
For brokers.
Brokers or.
Yes, that's right.
For brokers or you have 30 stages or various stages of integration.
Assuming all four of those are lot by ended the first quarter, what does that push the end of first quarter annual run rate we've been going.
Gary I don't we don't have that number in a position to disclose it but it.
But it would you know it.
It would be well north of a bill.
1.5 billion of incremental.
Volume from those four but we don't we're not we can't disclose a specific number.
Okay I'll just try to clarify if the goal of exiting 2020 with Runrate payment volume of 7 billion is that.
Does that include all of those or is that not inclusive of all it includes some of them.
And that includes some other we talk a lot about tier one brokers, because we think thats. The bellwether that you should focus on but theres other.
There are a lot of other brokers coming onto the platform that we do.
We don't talk so much about but some of those four in the Q would be included in that $7 billion targeted run rate.
Okay. That's helpful.
I just want to clarify you talked about trying business capital of 7900 carriers on the program. After 13 years is that related to a similar.
Any sort of similar sluggish carrier program, there or is that just your total just errors that are currently.
Hey, guys. This is Jeff.
The segmentation of the clients a makeup try business capital a little different than what you see a trial pay so we obviously have the owner operators in the smaller carriers, but there's also a significant number of very large fleets medium size fleets and those will probably be the least likely to move towards a try and pay technology solution.
So I think the numbers are correct I think the makeup and the number of carriers of how you got there just did took more time because many of those were.
Significantly larger carrier clients does that make sense.
Yes, yes, I think so okay.
Okay. That's good.
I think the rest of my questions were answered so thank you.
Our next question comes from the month from B. Riley Securities. Please go ahead with your question.
Good morning.
Morning.
On the Uh huh.
I hear you on the fourth quarter being strong for bacterin and obviously the situation. We're in just kind of curious as you look a little further out do we think about the invoice size.
Maybe normalizing down towards the 1600 7000 dollar level in 2021, just kind of how you're thinking about that.
The environment, a little further out it would seem that current pricing.
Would drive more track truckers back into the market over time here.
Yes, it would seem so Steve and there's been a lot written about this and a lot of people I feel like triumph knows transportation, perhaps better than any bank in the United States, but there are people who live transportation every day.
Who are in it who are probably more informed than us, but I will tell you that.
There are some.
Reasons that it will be difficult to receipt drivers I mean, our this there there there's clearing house that drivers have to they have to pass.
Like I think there are 30000 drivers applicants for example, who failed.
Clearing house, whether it's related to drugs convictions otherwise those people are going to be out of the market. They can't come back and re apply for three years. So as that has gotten tighter.
It's just that you have less qualified people to put in these trucks and there's.
There is just that the freight market if anything we've seen.
In coming out of the crisis, if thats the right word for it but the slowdown in Q2, the frozen market. When we were at where nobody knew which direction. We were going is that the freight market struggles to respond to the volatility of where things are going and how quickly the market turn.
And around the freight market is just not that responsive and how long does it take I mean Im sure. Eventually economics tells you that invoice prices stay where they are right now you're going to pull new entrance into the market and I think in the third quarter. For example, there were 31000 ish new power units.
Ordered will take towards or that was the rate. There's 20000 of those would just be replacements. So if that number continues to go up and that tells you people are finding drivers and.
Ultimately, we don't expect invoice size is to stay where they are right now I mean, they might well do it for Q4.
Eventually, yes, they will come down, but you got to remember all these contracts are being renegotiated right now between shippers and brokers and so there is an upward pressure as everything's being renegotiated and it sets up nicely for next year I mean, obviously, we can't predict the future, but the last thing I'd leave you.
With his even in a sideways or downward trending freight market, what we do and transportation is far more profitable than whats been anything else. We do in the bank. So we're we're always going to look to grow those smart and safe in our transportation lines of business and when times are great like they are now that's fantastic.
I think but even when times are tougher, it's still very very profitable for us and that's why we're focused there.
Okay. That's helpful.
And then maybe just turning to credit for a second you guys mentioned that there were $70 million in new deferral requests just kind of wondering.
Where that what type of loans were requesting deferrals.
Yes, that's specific situation was a brand new hotel that was under construction. So it wasn't an deferral previously when it came online they.
They requested a.
Deferral and we provided that.
Weve approved and what.
Got it and what's the is it.
Is it like a six month deferral and kind of what.
What is or what the expected loan to value.
So I don't want to address the specific credit terms there on this call, but I will say that in general we are trying to provide our clients with enough flexibility in the hospitality space to get through sort of a prolonged recovery.
We're providing options to them that go out as long as 18 months.
We're providing them with.
Different repayment options during that period of time with different fee structures. So they may choose to resume a portion of their payment like the interest only and pay a lower fee to us for the modification them if they choose a full payment deferral.
And so we're we're providing flexibility in that way at the same time, if they recover faster than we're also able to capture some of the excess cash flow. So we're trying to make sure that given that we can't predict exactly how long it's going to take them to recover we're giving them plenty of time, we're giving them. Some options and then if things go better than expected we have.
The way to begin collecting sooner.
Okay, Alright, thank you very much I appreciate that.
And our next question comes from enjoy from Huckabee Capital. Please go ahead with your question.
Morning, guys. Thanks for taking my question were investors in the stock and just looking to model next quarter's earnings.
I was hoping you could provide a little color.
So this quarter, you booked 10 million more than last quarter and interest on factored receivables can you give us a breakdown of what was acquisition driven what was core growth and how the increase in past due receivables impact this number.
I think we can give you some high level information on that.
The and I think in this you in the in the earlier part of the call we differentiated between growth in.
Organic growth versus the TFS acquisition and as we said in the call. I mean, there is a portion of the TFS acquisition that will continue to be.
Continue to be profitable I mean, I don't we can't be super specific year.
I will just say the run rate right now for Q4, if you look at a real time analysis of where we sit today on October 20, EPS is above where we finished Q3 now it can change and october's historically, our best month, but right now set aside the <unk>.
Acquisition, just looking at total invoices purchased in fees generated.
We are trending above where we were in Q3.
So I don't know if that's helpful for you but that.
As much as we can probably say.
It's less than 10%.
The impact of TFS, it's not fits.
It.
It's not as great as you might think.
Okay. That's helpful. I appreciate it guys.
Sure.
And our next question is a follow up from Gary Tenner from D.A. Davidson. Please go ahead with your follow up.
Thanks, guys. So.
So I want to just ask about how you're thinking about the balance sheet overall as I recall several quarters ago when you.
Got it made a bit of a strategic shift to deemphasize the bank and really focus even more on.
The factoring business I think you talked about going to optimizing the balance sheet size at around $6 billion.
We said last couple of quarters has been a lot of deposit growth.
You know I wouldn't take the 6 billion as a hard line in the sand necessarily but as you're thinking about the growth opportunity on the factoring side. How are you thinking about that asset size that you talked about.
Sure so the broad.
The brackets that I think about is the $6 billion to $8 billion range is that 2020 to exit.
And so you asked a great question, Gary and it ties to what I alluded to earlier, which is one of the four principles. We think in the long run of how do we continue to enhance our multiple and that would be a growth of fee income.
A day will come and it may get here sooner than many of us expect where the volume of transportation that we handle and triumph business capital and in triumph pay is more than we are willing to hold on our balance sheet and we think there are ways at that time when.
And other capital markets participants would love to have exposure to these receivables the short term high yielding receivables that our network is generating.
And so.
A day will come when I think that we will be able to.
He sell off a portion of that growth to the extent that outgrows, our balance sheet and recognize fee income from doing that at the present time I have no interest in going over 10 billion or growing for growth sake. We are much more focused on ROI way and ultimately return on equity for our investors.
And we think we can do that exceptionally well.
In that $6 billion to $8 billion.
Sort of fairway.
Thank you very much.
And we have an additional follow up from Matt Olney from Stephens. Please go ahead with your question.
Yeah. Thanks for taking the follow up the PFS receivable that was the over advance.
Now that you've had the asset.
Few more weeks.
How's that performing.
Do you think about button for losses.
I think you mentioned prepaid remarks EPS accretion from this deal still unknown can you put some goalpost for us that we can appreciate just the range of what it could look like.
Yes, Matt. This is this is Jeff it's still in terms of a performance basis unknown I mean.
Obviously as you've read in the disclosures there were parts of the portfolio that.
That were unknown to us in the certainly you know makes it difficult to predict how it's going to perform.
Generally speaking the portfolio as a whole has had a positive impact on the overall factoring numbers, but as I mentioned earlier, it's not been.
No no.
Noteworthy with just one way or the other.
On the over advance segment, we're working through that.
To make that part of the portfolio work, but I really can't speculate or predict how thats going to allow.
The other piece, Matt to understand them why we can't give what we think long term EPS guidance will be is it may happen as a result of working through these over advances that some of the clients who comprise the bulk of the portfolio will no longer be customers of trial that may just be an outcome and if that is an outcome than that obviously.
Has a material difference on what the EPS accretion would be from the portfolio. So we're not trying to be cagey about it or not share with the answer is we just don't know we're trying to get these things collected out back into a performing basis, and hopefully with no loss whatsoever, and perhaps a small gain.
We will focus on the additional growth in that portfolio down the road, but frankly, given the rest of the organic growth. We're experiencing it's not going to be a consequential number compared to the rest of our pipeline.
Got it okay. Thank you.
Sure.
So once again as a final reminder, if you would like to ask a question. Please press star one.
From the question can you May press star in two.
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And ladies and gentlemen at this time and they feel question I'd like to kind of the comments call back over to management for any closing remarks.
Thank you all for joining US we hope you have a great day.
And with that.
This concludes today's conference call. We do thank you for joining you may now disconnect your lines.