Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Long Ideas

Triumph Bank Bancorp do Regional Banks Make Money?

Many of the regional banks have been on a roll lately, reporting growing revenues and expanding even as some of the monster banks like Bank of America (NYSE: BAC) been forced to close branches.

An example of such a regional financial institution is Triumph Bancorp (NASDAQ: TBK) which operates as TBK Bank. Triumph has been growing lately; it just bought out Colorado East Bank, where my parents banked.

I was curious about TBK because my parents banked at Colorado East. Why are such regional banks able to expand in an age of intense competition from online banks and credit unions?

Does Triumph Bancorp Make Money?

A glance at TBK’s financial numbers was a little helpful here. I noticed that TBK reported a profit margin of 13.16% on September 30, 2016. It also reported a net income of $18.95 million on revenues of $122.18 million on the same day, which is pretty good considering the fact the company operates around 36 branches.


Yet it does not have that much money, TBK only reported assets of $2.575 billion and cash short-term investments of $104.72 million on September 30, 2016. To make matters worse it only reported $25.90 million in cash from operations. Despite that Triumph Bancorp is making a lot of money it reported generating $303.48 million in cash from financing.

So yes TBK is making money, and it is growing. Its assets increased by $792 million during the third quarter of 2016, rising from $1.783 billion in June to $2.575 billion in September. This proves that the company’s strategy of growth through acquisition is working.

It also shows us that a period of consolidation in banking is beginning. Smaller banks like Triumph will need to grow to compete with credit unions, online banks and the big monster banks.

This shows that small banks can be profitable, but they’re not necessarily cash cows. TBK reported a free cash flow of just $6.266 million. Most of its money comes from various financing operations such as business loans.

The Problem Facing Triumph Bancorp

Smaller banks like Triumph do face a major problem they cater largely to older customers who are used to using the local brick and mortar bank. That includes senior citizens that don’t bank online and small town people.


Recently when I was in the liquor store in my town, I mentioned that the bank was changing its name to two young ladies neither of them cared. Both of them lived in town, but admitted they did not use the local bank; neither for the record, do I.

I maintain savings, investment and checking accounts at Capital One (NYSE: COP). In fact I’ve banked at Capital One online for 10 years and I’ve never visited one of its branches. I don’t think they have a branch in Colorado where I live.

Brick and Mortar Banking is Dying

This is the big dilemma that brick and mortar institutions whether they be giant monster banks or small local operations face. There are generations of people out there that almost never use brick and mortar banks; including Generation Xers (like me) and Millennials.

Around 35% of new credit card originations at JPMorgan Chase (NYSE: JPM) now occur online according to the company’s Chief Financial Officer Marianne Lake. Around 17% of Chase’s customers also use the company’s banking App.


When we want a loan or other product we go online. When we want cash we go to the ATM or get it from the register at the supermarket. We pay our bills electronically and check the balance online. Unless we operate a cash business we rarely make a deposit because our funds get deposited by ETF.

What happens to all those brick and mortar banks when the older generations that still use them die off? My guess is that a lot of them will close – a process that has already begun. Chase, Bank of America and Citigroup (NYSE: C) closed 389 branches during the first quarter of 2016, according to a Business Insider report.

This does not bode well for institutions like Triumph, I imagine they will either die off or become specialized financial services companies. A strong possibility is that many of them will slowly get absorbed by larger regional institutions, much as Triumph just absorbed Colorado East.

Triumph Bancorp is not a Good Investment

Some of banks will remain good investments for at least a while, but TBK will not be among them. Since it does not pay a dividend, Triumph Bancorp is not a good investment. Investors should stay away from it, because there is little income here.

Although Triumph is very cheap, it was trading at $18.60 a share on November 3, 2016. There are better bank stock deals out there right now including Bank of America (NYSE: BAC) which was trading at $16.52 a share on the same day. Unlike TBK, BAC is scheduled to pay a dividend of 7.5¢ on November 30, and offered a dividend yield of 1.36% on November 3, 2016.

My advice is to only buy shares in regional banks if they pay a nice dividend. Their future is cloudy and prospects for growth other than through acquisition are limited.

Disclosure: the Blogger and writer owns shares of Bank of America.