Triumph Bancorp to buy up to $100 million of shares. What's next?

Triumph Bancorp in Dallas had left a bit of a mystery after its earnings report a few weeks ago: How would it spend its excess capital?

That lingering question was partly resolved Monday when the company commenced a tender offer to buy up to $100 million of its common stock, or as much as 8% of its outstanding shares.

The $5.6 billion-asset company said in a press release that the offer would be for not less than $51 per share and not more than $58. Its stock closed Friday — the last session before the announcement — at $49.35 per share. The range spans a 3%-18% premium to Friday's closing price. The offer is scheduled to expire on Dec. 6.

The so-called "modified Dutch auction" allows stockholders to choose how many shares and at what price within the range they wish to sell. Based on the number of shares tendered and the prices specified, the company will then determine the lowest per-share price that will enable it to acquire up to $100 million of common stock.

Mihai Andritoiu/mandritoiu - Fotolia

President and CEO Aaron Graft said ahead of a third-quarter earnings call in October that the company had about $200 million of capital above its internal targets, demonstrating earnings power not reflected in its stock price. As a result, he said during the call, the company was seriously considering both a substantial buyback plan — noting the company's stock and market capitalization were down on the year — and potential acquisitions to complement its existing payments network called TriumphPay.

"There are really two options, and they're not mutually exclusive. Perhaps we will do them side by side," Graft said on the call. "I can't tell you the exact timing of when and how and what, but you will see activity for us between now and the end of the year on one or possibly both of those fronts because we firmly believe that the enterprise value of TriumphPay alone" at a 2024 target "is greater than our entire market cap right now. And not to mention we have a very profitable community bank that has really good deposit quality."

Bank stocks broadly have struggled to generate and maintain momentum this year despite industrywide loan growth and increasing interest income following several Federal Reserve rate hikes. Investors have worried about a slowing U.S. economy leading to cracks in credit quality.

Buying back stock reduces overall share counts and by extension bolsters earnings per share. This can also demonstrate management's confidence in a company's financial strength.

Share repurchases are important to investors because they make up about 70% of the industry's capital payouts to shareholders in a typical year, according to the Federal Reserve.

Given Graft's recent comments, the move to buy back shares was expected and an acquisition announcement could follow, said Stephens Inc. analyst Matt Olney. "We don't think the tender offer would prevent the company from announcing an M&A transaction in the near term," he said.