Q4 2020 Triumph Bancorp Inc Earnings Call
Good morning, and welcome to the Triumph Bancorp conference call to discuss our fourth quarter and full year 'twenty and 'twenty financial results. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing star.
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I'd now like the turn the conference over to Luke Wyse, Senior Vice President Finance and Investor Relations. Please go ahead.
Good morning, welcome to the Triumph Bancorp conference call to discuss our fourth quarter and full year 'twenty and 'twenty financial results before we get started I'd like to remind you that this presentation may include forward looking statements those.
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.
And you're logged into our webcast. Please refer to the slide presentation available online, including our Safe Harbor statement on slide two for.
And 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 all comments made during today's call are subject to the safe Harbor statement I'm.
I'm joined this morning by Triumph, Vice Chairman and CEO, Aaron graft and Chief Financial Officer, Bright scholar, Todd Ritterbusch, our chief lending officer, and Geoff Brenner, our CEO of triumph business capital. After the presentation, we'll be happy to address any questions you may have interest.
And I'd like to turn the call over to Aaron.
Thank you Luke and good morning from.
And the fourth quarter, we earned net income to common stockholders of $31 3 million or $1.25 per diluted share.
This was a very solid quarter, we made significant progress executing on strategic priorities are transportation and payments business.
Continuing their strong growth, becoming a bigger part of our total revenue and with market tailwind is currently at the back.
The quality of our funding mix and our liquidity position continues to improve and overall profitability on the enterprise was strong.
And our asset quality is very good and in my view of better than the reported metrics.
I am here due to the impact of the acquired T. F S factoring portfolio.
Our third quarter acquisition of the factoring portfolio from transport financial solutions and Covenant logistics for TFS continues to present challenges the impact of this acquired portfolio on our asset quality metrics as well as the financial statement impact of the subsequent modification to the acquisition agreement with <unk>.
He has resulted in several items and our financials that I want to point out.
We have provided quite a bit of detail about this transaction and our earnings release and an effort to be as transparent as we can.
And the third quarter, we reached a settlement with the covenant that provided us protection from loss up to 45 million on $62 million of over advanced receivables that were within the total $108 million portfolio of acquire.
The accounting for this produced the specific loss reserve for a portion of the over advances and.
And it produced and indemnification asset from the estimated amount we would have to collect from covenant for any incurred losses.
The modification also provided for a reduction and the purchase price we paid for the portfolio.
We received a total of $10 $9 million and cash and the fourth quarter from covenant as the reduction from the original purchase price.
And this payment was $8 9 million more than we had recorded as the receivable at the end of the prior quarter and is reflected and non interest income and the fourth quarter. This positive difference is due to the appreciation on our stock that was part of the consideration and the original transaction.
Our plan has been to work with each of the acquired TFS clients to recoup the over advance mounts with an appropriate workout plan, while continuing to factor of our current business and the ordinary course with the postal service. However, we have encountered of new twist and the fourth quarter, we purchased approximately.
$19 $6 million of accounts receivable from the largest acquired trucking clients, which would normally be collected by us from the postal service.
After we advance funds to the trucking client that client instructed the U S postal service to remit payment directly to them.
Inexplicably the U S postal service and direct contravention to the written notice of assignment, we delivered to them complied with the strict cros and ended up paying $19 6 million of what was due to us directly to our clients and.
Client has refused to remit these funds as required as.
As you might imagine we have commenced litigation against both of our client and the USPS and separate actions the.
And the USPS and sided purported deficiencies and our notices as justifying their actions. Despite initially honoring such notices honoring identical notices for other clients without interruption and choosing to subsequently dishonor. These notices without any prior communication to us.
And my view these facts can only suggests that the U S postal service and our client worked in concert to violate our agreement and the applicable law and order to ensure timely mail delivery during the holidays and the election season.
There were other and better ways to have handled this but they did not give us the opportunity to be part of the solution.
The litigation surrounding this matter has the potential to be drawn out and complicated and involves novel issues given the unique nature of the U S. Postal service. However, based on our legal analysis and discussions with our counsel advising us on this matter. We believe it is probable that we will prevail and our action against the U S. P S and that they have the <unk>.
<unk> capacity to pay us what we are owed.
Therefore, we have determined that the specific reserve on this amount is not warranted at the end of the year. Please know it may take some time to work through the legal process.
And the fourth quarter, we established an additional $11 5 million of reserves to fully reserve all of the over advances to the largest carrier who is at the center of the converted payments dispute.
This expense was partially offset by a $5 3 million increase and our indemnification asset which was recorded to other noninterest income, resulting in a net $6 $2 million pretax loss on our earnings release provides the summary of the impact the T. F. S acquisition had on our financial statements.
Humans and adverse impact on our reported asset quality metrics.
Now this is a lot of detail around one relationship, but I thought it was important for investors to understand the context on of potential credit issue of this size and what was otherwise a near perfect quarter.
And my opinion this wasn't of credit failure it was of theft.
With that tedious topic out of the way, let's turn to all of the good things that are happening at D became first deposits, which you can see on slide 14, you will note that we continue to improve our funding mix noninterest bearing deposits as a percentage of total deposits are now 29% of total deposits.
It is a significant increase from a year ago, our loan to deposit ratio moved down slightly to 106% at the end of the year from 114% at the end of the third quarter adjusted for mortgage warehouse loan balances. The ratio was approximately 22 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 and the near term.
Now to margin.
Our loan yields this quarter were up to seven 2% versus 7.05% and Q3 NIM is now six 2%, which is the top of our peer group the <unk>.
Primary driver for the expansion of NIM as the growth of our transportation lines of business versus other parts of our business, we hope and expect this trend to continue.
Our total credit loss expense was $4 7 million and the quarter net charge offs were three basis points of loans and the net change and specific loss reserves were $11 6 million $11 5 million of which was from the TFS acquisition.
The good underlying loan credit performance combined with a more optimistic outlook drove an $8 million reduction and credit loss expense.
Aside from the aforementioned items related to the TFS transaction for this quarter. There were a few one time items, we should point out our occupancy furniture and equipment expenses are inflated by approximately $1 4 million related to our decision to consolidate part of our El Paso factory and operations.
Two our TBC headquarters and capital finally, based on year and performance incentive comp adjustments added about $2 million to fourth quarter expenses.
Looking out into the first quarter, and we expect core expenses to be approximately $58 million.
Now I'd like to turn the call over to Todd Ritterbusch, our chief lending officer.
Thanks, Darin I'd like to start by providing an update on our pandemic relief lending efforts on slide you.
You can see that we had 104, six and milk and deferred loan balances at year end.
This represents an 82% decline from the 572 million and deferred loan balances on June 30 of 2020.
While deferred loan balances were flat from prior quarter, there were quite of few deferrals that expired without requiring expansion.
And these were offset by new deferrals for clients that didn't need them initially but request the dam as the pandemic persisted late in the year.
The majority of the current deferred balances are expected to remain on deferral until the economy recovers.
They are well collateralized and we feel that the underlying business dessert viable over the long term.
Moving to PPP forgiveness, we have completed the forgiveness process were 36 million or 15% of PPP loan balances.
Almost 100% of these loans received full forgiveness without requiring a portion to be termed out.
We have another $67 million and completed forgiveness applications that are pending validation and payments from the SBA.
The remaining $125 million pertaining to a round 500 loans with an average size of 82002 clients that haven't submitted their forgiveness applications yet.
Most of these borrowers have been awaiting the simplified forgiveness process that Congress just approved so we expect the forgiveness process will accelerate rapidly and this quarter.
We are also participating and the new round of PPP funding, but we don't expect volumes of balances to be very large given the unused funding and the last round and the restrictions on borrowers seeking second P. P. P loans.
While providing pandemic relief to our clients. We've also been working hard to manage our credit risk.
As discussed on our earnings release the.
Over Formula advance portfolio, and the misdirected U S. P. S payments contributed 163% and 27 basis points to our past due and nonperforming nonperforming asset ratios of $3, two 2% and 1.15% respectively.
Absent. These additions we have made significant progress on this front due largely to the strong partnership and alignment between our credit and lending teams, which have handled the stress and uncertainty of the pandemic very effectively.
As we look forward to 2021.
Our focus on relationship banking across all of our lending units is unchanged, but we intend to accelerating the execution.
We've made a lot of progress and providing treasury and depository services to our lending clients and the mortgage warehouse and community Bank.
But there's still plenty of opportunity to do more and these business.
We are also investing and team members products and services that will allow us to accelerate our efforts to build fuller relationship and provide complete banking solutions for transportation factoring and equipment finance clients.
As we do so we expect deposits and fee income to grow faster than loan balances and our loan mix will continue to shift away from transactional credit toward loans that align with our transportation focus and.
The clients that seek full long term banking relationships with us on.
I'll now turn the discussion back over to Aaron for transportation of uptake.
Thank you Todd for the fourth quarter, our transportation payments businesses paid approximately $2 9 million invoices totaling approximately 4.03 billion.
Which equals and annualized run rate of just over 16 billion and that is a 38% growth over the prior quarter you can see a breakdown of this on slide eight.
Turning to slide nine total Q4, 2020 triumph business capital factoring revenue was $36 $8 million. The dollar volume of invoices purchased was $2 5 billion during Q4, 'twenty and 'twenty, a 24% increase compared to the third quarter and of six.
The 5% increase over Q4 of 2019, we purchased $1 2 million invoices during Q4, a 16% increase compared to the prior quarter and a 33% increase over Q4 of 2019.
Average transportation invoice sizes were $1943 for the quarter up 9% compared to the third quarter.
Now to try and pay.
Turning to slide 10 during the fourth quarter to try and pay processed 1.8 million invoices paying 68153 distinct carriers.
As of December 31st we have paid 119098 carriers since inception and payments.
Payments processed totaled approximately $1 8 billion, a 56% increase over the prior quarter and a 282% increase from Q4 of 2019.
Using December numbers, only try and pays annual run rate payment volume was approximately $8 5 billion. So we continue to grow.
In fact, we added another tier one broker arrive logistics and the fourth quarter.
Last quarter, we told you about private pay select carrier program, which allows carriers to choose to have their invoices automatically quick paid by any broker they haul for on the try and pay network. We opened the program in June on and invite only basis to test it and subsequently opened it to all.
Carriers and August as of the end of Q3, we had 1945 select carriers.
As of 12, 31 that number has grown by 325% to 8272 <unk>.
Select carrier clients now exceed the total client base for triumph business capital and this happened over a period of six months versus 16 years at triumph business capital and.
Investors should pay attention to this number and its rate of growth.
Much of our team continues to work from home, while we wish we could all be back together safely and our offices, we will not do so until it is clear our employees' health and safety is protected per the guidelines established and our pandemic business continuity plan. Despite these difficulties, we turned and one of the finest quarters and our history IMAX.
<unk> proud of our team and their work with that we will turn the call over for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad if.
If you are using a speakerphone please pick up your handset before pressing the keys.
If at any time your question has been addressed and you'd like to withdraw. Your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Brad Millsaps of Piper Sandler. Please go ahead.
Okay.
Hey, good morning.
Good morning, Brad.
And thanks for thanks for all of the color.
Maybe you can just wanted to start with the try and stay obviously, you've got a lot of momentum there just kind of curious what.
And I know, we can ebb and flow of based on who you're bringing on <unk>.
Implementing and and who's more up and running but.
And just kind of curious what the.
The quick pay usage is right now based on the volume that you have and is there a way to think about like what that based on the volume you have today, what that actually translating into in terms of average balances on.
On the balance sheet debt debt euro generating income off of at this point.
Yeah.
It's difficult Brad and let me explain why and.
Every time, we onboard a new.
Broker, especially of tier one broker the quick pay numbers start to look terrible Bryan for that broker because you start at zero and the thing I can continue on a point you to is debt per people who've been on the system for approaching a year youre getting towards that mid teens and higher quick pay penetration that's number one number two.
To the select carrier program is going to carry quick pay further with it and you have to pay attention to how fast that's growing I think and.
On the call I just told you. The December 31 numbers of select carriers was around 8003 hundred and as we sit here. This morning, It's 9000 and 469 and it is growing close to exponentially and so that won't happen forever, but as that happens each of those.
Carriers, therefore elects to take a quick pay for of T pay broker and so as you start to get you could argue the 10000 and select carrier is looking like something like 5% of the entire active carrier universe.
So that's kind of start pulling that number higher so it's not that I'm trying to evade avoid the question. It's just if you look at the data when you add these new brokers you immediately knocked the number of back down and in Q1, we expect to add two more tier one brokers and of course they'll start at zero, but for the select carriers and then we will.
And you to market.
The their carrier force and you didn't ask this specifically, but I'll use this as a chance to answer it I think some time in the year 2021, when we think the data is meaningful.
Disclosing revenue and quick pay penetration is something we need to think about as the business starts to mature.
And it is still a growth investment business. It was of 2 million dollar drag on us and Q4, and we don't think about short term profitability. We're building for long term value creation and so.
We continue to invest and the business continued to see of grow and front of the clients who've been on the program for a while youre seeing mid teens penetration and I think that will trend higher as the select carrier program continues to grow.
Yes.
No that's helpful, but just and I think you've kind of answered this.
But of the of the 1 billion eight and average commercial finance loans you have outstanding.
It's pretty easy to say that and I was saying is the bad thing, but the triumph pay is not having a huge impact on that number yet.
Because the the the quick pay usage is not you know where you think it can be so a lot of that is still sort of on the comments if that makes sense.
And is absolutely on the come.
You know what.
And what the board is charged us to do the way I think about things as we're trying to build something that's going to be amazing five years from now we want to be the best in the world at billing and payments and trucking and I think we are well on our way to doing that but it's not meaningful right now what's meaningful is the amount of market adoption, that's coming and we.
And we'll eventually monetize that but right now and we're just carrying it.
And I don't even view it as an expense drag I view it as the most valuable investment we are making as a company.
Got it and then I know you don't have a crystal ball on average invoice size and I.
I know, sometimes once you can can be seasonally weak, but just.
Just kind of curious kind of how youre thinking about average invoice size as you move into 'twenty and 'twenty one.
Yeah, So if we.
The average invoice size for transportation for the first 20 days of January of 19 $234.
So it continues to stay strong and this is not like 2019, you remember we came through 2018 and 2019 quickly fell off a cliff I don't know what will happen, but their supply chains are still sold backed up freight is still so tight and it suggests that this tailwind that we.
We have currently is continuing and the first quarter and will continue going forward now I think utilization will be a little lower in Q1 and always is so I'm not saying net income will look the same and TBC.
The average invoice sizes and the spot market, that's telling you that freight is still tight.
Which is great news for us.
Okay, and then final question from me.
Do you up and have the impact of sort of average warehouse loans and the national lending line. This quarter and do you guys think you've kind of take and sufficient market share there to kind of keep keep the warehouse you know relatively high as you move on to <unk>.
The move through this year.
Okay.
Well I'm not sure exactly what you're asking for with respect to the impact, but obviously the mortgage warehouse continued to grow and be very active in the fourth quarter and continues right into January so.
I would expect that for the very near future you're going to continue to see the similar levels of activity to what you saw on.
On the fourth quarter.
We're seeing refinance activity continued to.
And the very robust robust and I think theres, a real rush to try to get on all of the refinancings done before interest rates start to rise.
Dramatically for borrowers so.
Nothing really changing there we haven't changed the strategy, we're not looking to add new clients to that list and we're looking to continue to expand the existing relationships to be the primary buying from them.
Okay, great. Thank you.
The next question comes from Michael Rose of Raymond James. Please go ahead.
Hey, good morning, and thanks for taking my questions.
And I know you guys on boarded and other tier one.
Client this past quarter I think you had another couple and the pipeline and just wanted to see if we could get an update there and then.
On the on the Tpa side, you know I think you said December was kind of and eight 5 million.
Run rate.
Billion run rate I think you guys had kind of guided to depend by mid year and any sort of updates there and how would those potential new clients factor to that the previous outlook.
Yeah.
So Michael I expect we will onboard to more tier one and brokers at least in Q1 now that can always slide, but there and the pipeline for for Q1.
We will go well beyond $10 billion this coming year I think in the past we've.
Given different projections, let me go ahead and throw the one out debt you can use for us for the end of year 'twenty 'twenty, one and the target would be 14 billion.
So if were December run rates, eight 6 billion and you think about the rate of growth week.
$14 billion would be our our goal exit rate for the end of 2021, and perhaps we can surpass that but as of now we have five tier one brokers of roughly 25% are exactly I guess, 25%.
Of that universe, and we have 21 tier two brokers of which we think theres about 260. So we just continue to Adam every quarter and.
And as we do that and then grow select carriers and I'll throw this out there are.
Our target for select carriers for the end of the year is 20000.
We'd like to have 20000 registered select carriers by the end of 2021.
So I think we will be well beyond 10 billion during the year 2021, and we think we will continue to grow.
Okay.
And that's great color and then just just looking at the spot market.
You know here over the past couple of weeks it looks like spot rates are down a little bit, but it still seems like the kind of the trajectory is upward given the factors that you that you mentioned earlier you have just of kind of a broad outlook for how you think.
On the sector plays out you know maybe more broadly over the next.
A couple of years.
It seems like the the the market will persist and.
On a pretty tight manner for.
And at least the next couple of quarters, but perhaps for the next couple of years, just any broader thoughts you might have on the on the sector as a whole thanks, Jeff.
Jeff why don't you take that one.
Yes, Michael I don't know anybody who's willing to speculate looking out that are in terms of the years I think aaron's comments around Q1, and Q2 are probably as accurate as we can be.
But going any further than that feels like almost.
Beyond speculation.
And we do know is the there is still difficulty finding qualified drivers that is a massive problem and we also know that.
Class a truck orders and trailers are backed up by people who've ordered that product are trying to get in line the order that product or several months out.
What we know from the past is this is a low barrier to entry business.
And so it won't persist like this for forever.
People see that others are making profitability and they'll find a way to enter the space.
But it certainly looks like Q1, and Q2 are good they're still of lot of of.
Shipments of that we're still catching up from shutting down the economy and.
And if stimulus turns into consumer spending.
And as we've said before if you bought it of truck brought it.
Trucks, and that's how goods get to people and so.
And if that's what happens then we're going to continue to see strength and transportation.
Which obviously, we celebrate them and cause because this has happened even with diesel prices remaining relatively flat.
So it's just been a very strong season.
Fair enough and maybe just one final one another kind of longer term strategic question and I know you guys of collecting.
Lot of data points, you've talked about fuel card initiatives things like that can you just give us and update on maybe where it stands I assume it's still kind of early days and some of those efforts, but just any updated thoughts on the other.
Stuff that you guys are working on inside of <unk> would be great. Thanks.
Jeff Why don't you just talk about the the data we're collecting and then I can follow up sure. So as we've mentioned before we're collecting at least of $1 million.
On data elements every single day from from the invoices and through try and pay.
You know we've looked at a number of different ways to build out different indexes with the data. There is certainly a lot of options that are on the table. The one thats presented itself as the most of unique the one that we're currently pursuing.
And is creating a capacity index.
That's our current void and the market and that's something that our data could potentially address we'll have an internal white paper on the progress of that within the next week, so were making headway and on that probably the larger use the more immediate use of all of this data, which is creating opportunities to be more efficient internally.
As an enterprise that lends to truckers the factors truckers, the quick pace truckers provides insurance to truckers.
And collecting and utilizing that data just to become smarter about our clients and how we offer of products more efficiently.
As a big strategic advantage. So we're on the process of harnessing that as well.
I would add Michael so as we spend on artificial intelligence and machine learning, which we are doing.
And we're making significant investments and that that both benefit tpa and try and business capital.
The touches on the internal operating efficiencies that Jeff talked about I mean, if you look at the efficiency ratio for triumph business capital and this quarter. It's the first time I ever remember it being below 50% now part of that is just the revenue that we're generating but we think we can continue using this technology.
To automate a lot of these processes.
But let me tell you what we won't do because I think it's important for everyone to notice.
When you become the trusted partner for a third party logistics company and you handle payments on their behalf you have access to all of their data and that we require of that data in order to be able to effectively pay truckers well we are of bank.
Oh of fiduciary responsibility to our current pay customers to protect their data to not use their data and a way that.
Could hurt their businesses and I think Thats a reason many fin techs.
Ever penetrate the space because I don't think freight brokers can trust them the same way they can trust of.
Bank to be a good steward of this data and so theres ways to anonymize and structure of the data and provide value to the marketplace and monetize that value for our investors, but we have a sacred duty to our freight broker clients to protect their proprietary data and we will do that.
We take that very seriously and I think thats why we built a lot of trust with that segment of the transportation World.
Hey, guys I appreciate all of the color. Thank you.
The next question comes from Matt Olney of Stephens. Please go ahead.
Good morning, and thanks for taking my question I wanted the circle back on something and and thinking about the seasonal nature of your end markets.
In the past you've cautioned us that the the net interest income typically experience of the sequential decline from the fourth quarter into the first quarter, but these are obviously unusual time. So as we sit today do you think these headwinds and theyre going to produce lower NII and the first quarter as compared to the fourth quarter.
I think so Matt I don't think Youll see the same fall off you've seen historically, but even on a strong freight market seasonality is still a real phenomenon.
So I.
I would expect we will we won't exceed Q4 net interest income and Q1 I would be shocked if that happens.
And Aaron and what about the net interest margin I guess, the similar dynamics, there, but obviously a few more and different things do you expect the margin to also sequentially flatten out and the first quarter of their enough tier ones to move that higher.
Yeah, as you know for us margin highly tracks mix asset mix.
So if you presume that factored receivables purchased in Q1 will not be and.
And both factored receivables purchased and.
And the and the quick pay generated from T pay on invoices paid if you think on a total volume basis that will be slightly below where we were in Q4, then that's going to have an effect of pushing down margins. Some I don't think it will be dramatic because we continue to add new clients.
We add.
Adding these new customers to try and pay.
So I think thats something to bear in mind, the other thing Matt.
Investors should understand.
This TFS transaction has touched on our balance sheet and a lot of ways and look we're fully reserved now for what happened in the past and we're going to fight the good fight to make the government do what it's supposed to do and follow the law of like everyone else does.
But the factor and yield of 13.81% you see in there that's a GAAP yield number obviously.
Includes reserves.
The 1.37% lower than it would be once you backed out some revenue we reversed related to this largest carrier.
And when you take into account the non accrual balances that are historical.
So as you think about NIM and you think about compression.
I think on a GAAP number.
And you look at this ex this largest carrier work out that we're going to get done.
Factored grow and GAAP factoring yields of between 15 and 16%.
And there is still going to be pressure at the top end of the market there but.
We continue to hold the line as well as we can so.
That's a long winded way of saying.
And it would surprise me and I don't think NIM will expand and and very well could decrease slightly in Q1, but if it does it'll be slight.
Got it Okay. That's helpful and then switching over to credit and provision expense, if I understand that correctly I think the provision expense in the fourth quarter would have been negative if it weren't for some of the TFS the noise, even though loan growth was the very strong and the fourth quarter I think.
The ACL ratio is now around 2%.
What's the outlook for provision expenses and what are the changes and we could see provision expense be zero or even negative over the next few quarters.
I think it's very likely.
I mean, unless theres something changes.
<unk> as a discipline and try and pay as a discipline our highest growth businesses. The historical loss ratios are de Minimis. I mean this one thing we've been talking about is not with TFS is not replicable in other parts of our business, it's a different animal and so when you look at everything else we're doing.
And we're not calling for a bunch of loan growth and the year 2021, what we're focused on and as Todd and the team lead the retail bank is deposit growth, there and safe consistent loan growth.
And so I still think transportation is going to be our largest area of growth and of course as you know that turns so quickly it doesn't really buildup giant balances on your balance sheet and.
And historically, it's been so predictable from a credit loss perspective.
And just don't see the need for price anything you want to add to that and I agree I mean, obviously, we have the the.
Variable of just the changes and the economic outlook from seasonal and.
Underlying credit trends and and our forecast on growth should be consistent quarter and outline there. So.
So that could have.
Releases of reserves on small amounts.
Got it okay and the.
And just lastly from me I think are both Todd and Aaron you mentioned that deposit growth could outstrip the loan growth this year and any thoughts on that loan to deposit ratio.
That would that could end up I think we're at a one.
Hundred and 6% right now and the fourth quarter.
Well the other.
As you know the biggest variable and that and 22 basis points is I think how much. It was affected this quarter as mortgage warehouse and so all of us have given up the business of predicting what mortgage warehouse is going to do it.
It's just the.
And when you think all of America has refined their houses.
From rates go lower once again and I do it all again so.
But I think I think anyone who looks at US you need to set that aside right. We choose to fund that with federal home loan Bank advances. It's the secondary line of business for US the team does a fantastic job it's profitable.
But if you pull that out we are below a 100% loan to deposit ratio.
So when I talk about deposit growth, Matt I don't think about loan to deposit ratio. So much as I do the growth of noninterest bearing deposits relative to the remainder of the portfolio. When we called our shot of year and a half ago that we wanted to shift directions. We knew that 19 at that time, 19% of all of our deposit.
For noninterest bearing today, it's 29% I want to see that number continue to grow we all talk about transportation and the Fintech and what we're building and it is super exciting.
We're going to build the network that is going to transform the way people get paid in the trucking business, but along the way as long as we're in community banking.
When I talk about deposit growth I'm talking about transactional relational customer deposit growth. So I think that number is going to keep going up because that's what we're paying our people to do that's what we built the technology to help them do and that's what we talk about around here. So.
On the deposit ratio of probably still run above 100% as long as mortgage warehouses active but I'm a lot more focused on growing noninterest bearing deposits as a percentage of total deposits.
Got it.
Okay. That's helpful. Thank you guys.
The next question comes from Gary Tenner of D. A Davidson. Please go ahead.
Thanks, Good morning, guys.
And my trucking questions generally been answered I was going to ask about the decline and yield that you'd mentioned Aaron to $13 eight 1%.
And I just want to clarify the numbers of Herb was that 137% below what it would have been ex the revenue and commercial banks.
That is correct.
And that really.
Okay. Go ahead, one of three 7% of the decline was tied to this largest carrier that was part of the converted funds probe problem we.
We are fully reserved on the historical relationship now with that carrier of course, the indemnification asset is highly correlated to that reserve if theres a charge offs, obviously because of the covenant indemnity.
And then we've moved some of the and coming receivables into the into a non accrual balance while we work through this and so the point is if you exclude that one customer who we no longer factor and will not.
Beyond this workout.
Be doing business with it would've been one and three 7% higher.
Okay.
And that'll be isolated obviously, the fourth quarter, so that would get you back over 15% more in line with the couple of prior quarters of the year per.
Correct.
And then.
You mentioned a few times obviously the focus.
On obviously, the commercial finance part of the business and mortgage warehouse.
And not the community banks on what you're talking about for a while average community bank loans were down about $200 million.
Quarter over quarter or excuse me year over year in the fourth quarter.
I imagine at some point, there's kind of a bottom.
Floor to where those balances could go just given.
Your presence in those markets can you talk about where and.
How much further of that number may get pushed out or do you think it's getting close to kind of stabilize.
And so we don't have a specific number Gary.
We have of specific mindset here.
And historically, we were willing to do credit only deals and those markets. Today, we are not willing to do credit only deals and those markets. If we're not sure relationship bank and where.
We're not going to lend tier we just we don't need the loan growth. So it's not like Todd and I sit around and say this number has to go down we say look we're not going to give you. The left hand side of our balance sheet unless you contribute to the right hand side of ours, it's just that.
And that we're not and the business of selling money anymore, because we generate enough revenue, we don't worry about paying overhead like we did when we were at $250 million Bank. So I don't know if it will continue to fall of that will depend upon the relationship bankers and their ability to get full relationships. We are in the business still of making community bank loans. So long.
As we have of full relationship so long as its creditworthy and we'll look at it.
So I think what you are seeing the stuff that's been rolling off and stuff, where the people were just using us as the transactional lender.
And we're just not going to do that anymore.
All right appreciate the color.
And.
The next question comes from Brady Gailey of <unk>. Please go ahead.
Yeah. Thanks, good morning, guys.
Good morning.
So I know the.
She.
Still hasn't panned out as you guys. Initially thought but do you feel like you have a good handle on where things are right now with debt deal or could there continue to be some potentially negative surprises.
Yes, that's a very fair question Brady, because I never dreamed that.
The post office would divert funds over written notice.
In order to keep our carrier running and I get it there was an election of highly contested election of the male needed to run, but you would expect someone to pick up the phone and call you.
So look here's where we said that the post office uses five large carriers and we and essentially financed two of them one of them, we will no longer be financing and we're in the workout mode. As we described.
Growing our exposure to the post office is so low on my priority list I can't even see it. So I don't look for that to happen and the future. They don't act like a commercial entity the thousands of them that we deal with and factoring.
We're not going to do that other people can step in and finance that.
So we fully reserve for the largest carrier we think we fully understand where the second carrier is and I would not expect any more surprises now you can never predict theft, I mean, frankly, we deal with misdirection of funds on a regular basis at and our factoring business the.
Current there is we're talking about it's $50000 not 19 million and that's the beauty frankly of the way our business is built as you have a very fragmented customer base. So no one customer and hurts you that's something we underestimated and this acquisition is the concentration exposure to a single trucker and two.
The single better that has really shaped our thinking for how we move forward. So I would be very surprised by any of you see the show up again as any new losses I'd be stunned frankly.
And I believe we will get the $19 6 million worked out and I think youll see those balances shrink over time, and we will not be pursuing this business anymore will be more and brokered freight and commercial ship of freight and less about government or quasi government contracting.
Alright, and then Aaron and I know in the past and recently you kind of downplayed.
The M&A, especially bank M&A, the that's still the right way to think about it.
All of the stuff you'll have gone on organically on the growth side.
Totally the <unk>.
As we if we do M&A it will almost certainly be.
Related to the transportation space, it'll either be technology acquisitions that enhance the triumph pay ecosystem or things and that area around factoring in the area of that we fully understand where we are committed to moving beyond that it is highly unlikely that there is.
The other M&A.
And the pipeline for us.
Alright, and then finally premier and.
Yeah, I know right now it's not as much about profitability, it's more about growth and getting market share and this is all built out.
And interesting business the in the past you've talked about.
And to a two plus all the way and sometimes you've attempted to throw out the timeline of any update or idea as far as when the.
Could see profitability enhancement and given.
The excitement of what Youre growing the here.
Well.
First off Brady I would say.
Thank all of you all are going to land on different core numbers for this year or for this quarter that is because there was a lot of noise.
I think any way you look at the business, it's probably running not too far off of of 2% ROA MIT definitely above a one 5% ROA of <unk>. So the first thing on I would say is relative to our peer group I think were really profitable on a core basis and were really profitable even while were making.
The investments I told you the tpa as of $2 million drag on Q4 and.
That's a great investment that's going to pay off and the future.
I would point you to is look at triumph business capital.
On a pre tax ROA basis. It was just under 7% and this quarter and I wont always be there, but it's going to run around 6%.
We've told you that try and pay at scale.
Is roughly as near as we can tell and of course, we can't tell exactly because nobody's ever built a fintech payments network and trucking before so we will tell you as we figure it out as we go along but using the math, we understand and the things we see we think thats probably.
The 3% three and 5% pretax ROA business and then really once you get way further out on scale, we think it becomes more profitable so.
And there arent a whole lot of Fintech companies out there that make any money and maybe maybe we should maybe that's how they get these ridiculous valuations, but we're trying to manage all of this at once and invest and all of the things higher all of the people. We have a lot of developers on staff and people investing and building something that's incredibly you.
Use of friendly for the market. So will we get two of 2% ROA.
Yes, I mean, Matt and just beat the math tells you we will if triumph business capital of 6% ROA business and growing if try and pay is currently of drag but will become profitable and 2021, and we believe and ultimately will get to we think of 3% or better on ROA and if the community Bank continues to do what it's doing and we will get there.
It's just right now we're early in the building cycle and I'm pretty proud of the profitability, we're generating on a core basis right now and I think that will continue in 'twenty and 'twenty one.
But eventually if you allow those to transportation businesses to grow faster than everything else. It will naturally pull you above that 2% ROA number I'm not going to give you. The specific time on when that will happen, but I think you will see progress towards that and the year 2021.
Got it that's good color you guys keep doing what you're doing thanks, Dan.
Got it.
Once again, if you of a question. Please press Star then one on a touchtone phone.
The next question comes from Steve Moss of B Riley FBR. Please go ahead.
Hi, good morning, guys.
Good morning, Steve.
What I asked on.
Expenses here I know Aaron you gave expense guidance for the first quarter of it just kind of curious how you have obviously investments ongoing how does just think about the expense growth for the full year relative to 2020.
Yeah. So anything that May move that Steve is if we do any M&A and the year around adding at the <unk>.
Technology or other assets, so setting that aside.
Because that's unpredictable but I.
I think.
We don't expect expense growth over Q1 to be material throughout the year. I mean, we gave you of 58 million for Q1.
Don't think it will move materially between Q1 and Q4.
Okay.
Thank you very much of that was my one last from me and question good quarter.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to Aaron graft for any closing remarks.
Thank you all for joining US today 2020 was the year. Unlike any of that I remember, we're all hopeful for 'twenty and 'twenty one for the health of our nation, the physical health and the mental health and just.
And the overall unity as a nation and so we.
We pray for that for all of US. Thank you for being on this call and we look forward to seeing you soon.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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Okay.
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