Table of Contents
UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017

2021

OR

☐

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to

_______

Commission File Number 001-36722

TRIUMPH BANCORP, INC.

(Exact name of registrant as specified in its charter)

Texas

20-0477066

Texas

20-0477066
(State or other jurisdiction of


incorporation or organization)

(I.R.S. Employer


Identification No.)

12700 Park Central Drive, Suite 1700

Dallas, Texas 75251

(Address of principal executive offices)

(214) 365-6900

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒x    No  ☐

o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒x    No  ☐

o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

☐

x

Accelerated filer

☒

☐

Non-accelerated filer

☐ (Do not check if a smaller reporting company)

Smaller reporting company

☐

Emerging growth company

☒

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act  ☒

o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ☐    No  ☒

x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock — $0.01 par value, 20,820,90025,123,978 shares, as of October 17, 2017

18, 2021.
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading
Symbol(s)		Name of each exchange on which registered
Common stock, par value $0.01 per shareTBKNASDAQ Global Select Market
Depositary Shares Each Representing a 1/40th Interest in a Share of 7.125% Series C Fixed-Rate Non-Cumulative Perpetual Preferred Stock, par value $0.01 per shareTBKCPNASDAQ Global Select Market

Table of Contents
TRIUMPH BANCORP, INC.

FORM 10-Q

September 30, 2017

2021

TABLE OF CONTENTS

Item 1.

Consolidated Balance Sheets

2

Consolidated Statements of Income

3

Consolidated Statements of Comprehensive Income

4

Consolidated Statements of Changes in Stockholders’ Equity

5

Consolidated Statements of Cash Flows

6

7

Condensed Notes to Consolidated Financial Statements

8

9

Item 2.

36

48

Item 3.

75

98

Item 4.

76

99

Item 1.

77

100

Item 1A.

77

100

Item 2.

77

100

Item 3.

77

100

Item 4.

77

100

Item 5.

77

100

Item 6.

77

100

i

Table of ContentsPART
PART I – FINANCIAL INFORMATION

ITEM 1

FINANCIAL STATEMENTS


1

Table of Contents
TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

September 30, 20172021 and December 31, 2016

2020

(Dollar amounts in thousands, except per share amounts)

thousands)

 

September 30,

 

 

December 31,

 

 

2017

 

 

2016

 

September 30,
2021		December 31,
2020

 

(Unaudited)

 

 

 

 

 

(Unaudited)

ASSETS

 

 

 

 

 

 

 

 

ASSETS

Cash and due from banks

 

$

34,120

 

 

$

38,613

 

Cash and due from banks$66,672 $85,525 

Interest bearing deposits with other banks

 

 

46,437

 

 

 

75,901

 

Interest bearing deposits with other banks466,092 228,868 

Total cash and cash equivalents

 

 

80,557

 

 

 

114,514

 

Total cash and cash equivalents532,764 314,393 
Securities - equity investmentsSecurities - equity investments5,623 5,826 

Securities - available for sale

 

 

209,326

 

 

 

275,029

 

Securities - available for sale164,816 224,310 

Securities - held to maturity, fair value of $17,659 and $30,821, respectively

 

 

17,999

 

 

 

29,352

 

Loans, net of allowance for loan and lease losses of $20,367 and $15,405, respectively

 

 

2,405,096

 

 

 

2,012,219

 

Federal Home Loan Bank stock, at cost

 

 

16,076

 

 

 

8,430

 

Securities - held to maturity, net of allowance for credit losses of $1,737 and $2,026, respectively, fair value of $5,534 and $5,850, respectivelySecurities - held to maturity, net of allowance for credit losses of $1,737 and $2,026, respectively, fair value of $5,534 and $5,850, respectively5,488 5,919 
Loans held for saleLoans held for sale26,437 24,546 
Loans, net of allowance for credit losses of $41,017 and $95,739, respectivelyLoans, net of allowance for credit losses of $41,017 and $95,739, respectively4,741,713 4,901,037 
Federal Home Loan Bank and other restricted stock, at costFederal Home Loan Bank and other restricted stock, at cost4,901 6,751 

Premises and equipment, net

 

 

43,678

 

 

 

45,460

 

Premises and equipment, net104,311 103,404 

Other real estate owned, net

 

 

10,753

 

 

 

6,077

 

Other real estate owned, net893 1,432 

Goodwill

 

 

28,810

 

 

 

28,810

 

Goodwill233,727 163,209 

Intangible assets, net

 

 

13,642

 

 

 

17,721

 

Intangible assets, net46,328 26,713 

Bank-owned life insurance

 

 

37,025

 

 

 

36,509

 

Bank-owned life insurance41,540 41,608 

Deferred tax assets, net

 

 

14,130

 

 

 

18,825

 

Deferred tax asset, netDeferred tax asset, net— 6,427 
Indemnification assetIndemnification asset4,786 36,225 

Other assets

 

 

29,069

 

 

 

48,121

 

Other assets111,208 73,991 

Total assets

 

$

2,906,161

 

 

$

2,641,067

 

Total assets$6,024,535 $5,935,791 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities

 

 

 

 

 

 

 

 

Liabilities

Deposits

 

 

 

 

 

 

 

 

Deposits

Noninterest bearing

 

$

403,643

 

 

$

363,351

 

Noninterest bearing$2,020,984 $1,352,785 

Interest bearing

 

 

1,608,902

 

 

 

1,652,434

 

Interest bearing2,801,591 3,363,815 

Total deposits

 

 

2,012,545

 

 

 

2,015,785

 

Total deposits4,822,575 4,716,600 

Customer repurchase agreements

 

 

19,869

 

 

 

10,490

 

Customer repurchase agreements11,990 3,099 

Federal Home Loan Bank advances

 

 

385,000

 

 

 

230,000

 

Federal Home Loan Bank advances30,000 105,000 
Paycheck Protection Program Liquidity FacilityPaycheck Protection Program Liquidity Facility97,554 191,860 

Subordinated notes

 

 

48,804

 

 

 

48,734

 

Subordinated notes106,755 87,509 

Junior subordinated debentures

 

 

33,047

 

 

 

32,740

 

Junior subordinated debentures40,467 40,072 
Deferred tax liability, netDeferred tax liability, net982 — 

Other liabilities

 

 

20,799

 

 

 

13,973

 

Other liabilities93,538 64,870 

Total liabilities

 

 

2,520,064

 

 

 

2,351,722

 

Total liabilities5,203,861 5,209,010 

Commitments and contingencies - See Note 8 and Note 9

 

 

 

 

 

 

 

 

Stockholders' equity - See Note 12

 

 

 

 

 

 

 

 

Preferred Stock

 

 

9,658

 

 

 

9,746

 

Common stock

 

 

209

 

 

 

182

 

Commitments and contingencies - See Note 9 and Note 10Commitments and contingencies - See Note 9 and Note 1000
Stockholders' equity - See Note 13Stockholders' equity - See Note 13
Preferred stockPreferred stock45,000 45,000 
Common stock, 25,123,342 and 24,868,218 shares outstanding, respectivelyCommon stock, 25,123,342 and 24,868,218 shares outstanding, respectively282 280 

Additional paid-in-capital

 

 

264,531

 

 

 

197,157

 

Additional paid-in-capital499,282 489,151 

Treasury stock, at cost

 

 

(1,760

)

 

 

(1,374

)

Treasury stock, at cost(104,600)(103,052)

Retained earnings

 

 

113,245

 

 

 

83,910

 

Retained earnings373,512 289,583 

Accumulated other comprehensive income (loss)

 

 

214

 

 

 

(276

)

Accumulated other comprehensive income (loss)7,198 5,819 

Total stockholders’ equity

 

 

386,097

 

 

 

289,345

 

Total stockholders’ equity820,674 726,781 

Total liabilities and stockholders' equity

 

$

2,906,161

 

 

$

2,641,067

 

Total liabilities and stockholders' equity$6,024,535 $5,935,791 

See accompanying condensed notes to consolidated financial statements.


2

Table of Contents
TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

For the Three and Nine Months Ended September 30, 20172021 and 2016

2020

(Dollar amounts in thousands, except per share amounts)

(Unaudited)

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

Three Months Ended September 30,Nine Months Ended September 30,

 

2017

 

 

2016

 

 

2017

 

 

2016

 

2021202020212020

Interest and dividend income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and dividend income:

Loans, including fees

 

$

30,863

 

 

$

23,123

 

 

$

86,711

 

 

$

57,758

 

Loans, including fees$44,882 $48,774 $139,576 $147,491 

Factored receivables, including fees

 

 

12,198

 

 

 

9,021

 

 

 

32,177

 

 

 

25,482

 

Factored receivables, including fees50,516 31,468 135,639 76,861 

Securities

 

 

1,655

 

 

 

1,218

 

 

 

5,004

 

 

 

2,941

 

Securities1,126 1,927 3,963 6,710 

FHLB stock

 

 

51

 

 

 

16

 

 

 

129

 

 

 

39

 

FHLB and other restricted stockFHLB and other restricted stock28 122 131 474 

Cash deposits

 

 

370

 

 

 

93

 

 

 

986

 

 

 

498

 

Cash deposits183 73 467 640 

Total interest income

 

 

45,137

 

 

 

33,471

 

 

 

125,007

 

 

 

86,718

 

Total interest income96,735 82,364 279,776 232,176 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

Deposits

 

 

3,272

 

 

 

2,408

 

 

 

9,198

 

 

 

6,421

 

Deposits1,948 5,834 7,790 23,095 

Subordinated notes

 

 

837

 

 

 

—

 

 

 

2,508

 

 

 

—

 

Subordinated notes2,449 1,348 5,148 4,016 

Junior subordinated debentures

 

 

495

 

 

 

382

 

 

 

1,435

 

 

 

996

 

Junior subordinated debentures443 462 1,331 1,662 

Other borrowings

 

 

1,021

 

 

 

263

 

 

 

1,978

 

 

 

487

 

Other borrowings124 341 434 2,273 

Total interest expense

 

 

5,625

 

 

 

3,053

 

 

 

15,119

 

 

 

7,904

 

Total interest expense4,964 7,985 14,703 31,046 

Net interest income

 

 

39,512

 

 

 

30,418

 

 

 

109,888

 

 

 

78,814

 

Net interest income91,771 74,379 265,073 201,130 

Provision for loan losses

 

 

572

 

 

 

2,819

 

 

 

9,697

 

 

 

4,247

 

Net interest income after provision for loan losses

 

 

38,940

 

 

 

27,599

 

 

 

100,191

 

 

 

74,567

 

Credit loss expense (benefit)Credit loss expense (benefit)(1,187)(258)(10,838)33,649 
Net interest income after credit loss expense (benefit)Net interest income after credit loss expense (benefit)92,958 74,637 275,911 167,481 

Noninterest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest income:

Service charges on deposits

 

 

1,046

 

 

 

984

 

 

 

3,003

 

 

 

2,338

 

Service charges on deposits2,030 1,470 5,674 3,631 

Card income

 

 

956

 

 

 

767

 

 

 

2,700

 

 

 

1,890

 

Card income2,144 2,091 6,341 5,832 

Net OREO gains (losses) and valuation adjustments

 

 

15

 

 

 

63

 

 

 

(86

)

 

 

(1,152

)

Net OREO gains (losses) and valuation adjustments(9)(41)(376)(399)

Net gains (losses) on sale of securities

 

 

35

 

 

 

(68

)

 

 

35

 

 

 

(63

)

Net gains on sale of loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

16

 

Net gains (losses) on sale or call of securitiesNet gains (losses) on sale or call of securities4 3,109 5 3,210 

Fee income

 

 

625

 

 

 

655

 

 

 

1,845

 

 

 

1,693

 

Fee income5,198 1,402 11,917 4,392 

Asset management fees

 

 

—

 

 

 

1,553

 

 

 

1,717

 

 

 

4,787

 

Gain on sale of subsidiary

 

 

—

 

 

 

—

 

 

 

20,860

 

 

 

—

 

Insurance commissionsInsurance commissions1,231 990 3,989 2,905 
Gain on sale of subsidiary or divisionGain on sale of subsidiary or division— — — 9,758 

Other

 

 

1,494

 

 

 

2,145

 

 

 

6,584

 

 

 

5,239

 

Other1,457 1,472 12,692 8,670 

Total noninterest income

 

 

4,171

 

 

 

6,099

 

 

 

36,658

 

 

 

14,748

 

Total noninterest income12,055 10,493 40,242 37,999 

Noninterest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest expense:

Salaries and employee benefits

 

 

16,717

 

 

 

14,699

 

 

 

54,687

 

 

 

39,180

 

Salaries and employee benefits43,769 31,651 121,407 93,177 

Occupancy, furniture and equipment

 

 

2,398

 

 

 

1,921

 

 

 

7,105

 

 

 

4,937

 

Occupancy, furniture and equipment6,388 5,574 18,279 15,720 

FDIC insurance and other regulatory assessments

 

 

294

 

 

 

143

 

 

 

790

 

 

 

648

 

FDIC insurance and other regulatory assessments353 360 1,830 1,170 

Professional fees

 

 

1,465

 

 

 

1,874

 

 

 

4,671

 

 

 

4,048

 

Professional fees2,362 3,265 9,959 7,023 

Amortization of intangible assets

 

 

870

 

 

 

958

 

 

 

2,892

 

 

 

2,652

 

Amortization of intangible assets3,274 2,141 7,677 6,265 

Advertising and promotion

 

 

804

 

 

 

779

 

 

 

2,653

 

 

 

1,926

 

Advertising and promotion1,403 1,105 3,534 3,548 

Communications and technology

 

 

2,145

 

 

 

1,966

 

 

 

6,552

 

 

 

4,661

 

Communications and technology7,090 5,569 19,018 16,514 

Other

 

 

3,532

 

 

 

3,452

 

 

 

11,033

 

 

 

8,149

 

Other8,174 5,632 22,799 19,359 

Total noninterest expense

 

 

28,225

 

 

 

25,792

 

 

 

90,383

 

 

 

66,201

 

Total noninterest expense72,813 55,297 204,503 162,776 

Net income before income tax

 

 

14,886

 

 

 

7,906

 

 

 

46,466

 

 

 

23,114

 

Net income before income tax expenseNet income before income tax expense32,200 29,833 111,650 42,704 

Income tax expense

 

 

5,104

 

 

 

3,099

 

 

 

16,551

 

 

 

8,675

 

Income tax expense7,771 6,929 25,316 10,810 

Net income

 

 

9,782

 

 

 

4,807

 

 

 

29,915

 

 

 

14,439

 

Net income$24,429 $22,904 $86,334 $31,894 

Dividends on preferred stock

 

 

(195

)

 

 

(301

)

 

 

(580

)

 

 

(690

)

Dividends on preferred stock(802)(899)(2,405)(899)

Net income available to common stockholders

 

$

9,587

 

 

$

4,506

 

 

$

29,335

 

 

$

13,749

 

Net income available to common stockholders$23,627 $22,005 $83,929 $30,995 

Earnings per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share

Basic

 

$

0.48

 

 

$

0.25

 

 

$

1.58

 

 

$

0.77

 

Basic$0.95 $0.89 $3.40 $1.28 

Diluted

 

$

0.47

 

 

$

0.25

 

 

$

1.53

 

 

$

0.76

 

Diluted$0.94 $0.89 $3.33 $1.27 

See accompanying condensed notes to consolidated financial statements.


3

Table of Contents
TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Three and Nine Months Ended September 30, 20172021 and 2016

2020

(Dollar amounts in thousands, except per share amounts)

thousands)

(Unaudited)

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

Three Months Ended September 30,Nine Months Ended September 30,

 

2017

 

 

2016

 

 

2017

 

 

2016

 

2021202020212020

Net income

 

$

9,782

 

 

$

4,807

 

 

$

29,915

 

 

$

14,439

 

Net income$24,429 $22,904 $86,334 $31,894 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income:

Unrealized gains (losses) on securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) on securities:

Unrealized holding gains (losses) arising during the period

 

 

124

 

 

 

(597

)

 

 

815

 

 

 

1,396

 

Unrealized holding gains (losses) arising during the period(378)2,443 (1,303)8,589 

Reclassification of amount realized through sale of securities

 

 

(35

)

 

 

68

 

 

 

(35

)

 

 

63

 

Tax effect

 

 

(33

)

 

 

196

 

 

 

(290

)

 

 

(544

)

Tax effect89 (637)300 (2,144)
Unrealized holding gains (losses) arising during the period, net of taxesUnrealized holding gains (losses) arising during the period, net of taxes(289)1,806 (1,003)6,445 
Reclassification of amount realized through sale or call of securitiesReclassification of amount realized through sale or call of securities(4)(3,109)(5)(3,210)
Tax effectTax effect1 761 1 805 
Reclassification of amount realized through sale or call of securities, net of taxesReclassification of amount realized through sale or call of securities, net of taxes(3)(2,348)(4)(2,405)
Change in unrealized gains (losses) on securities, net of taxChange in unrealized gains (losses) on securities, net of tax(292)(542)(1,007)4,040 
Unrealized gains (losses) on derivative financial instruments:Unrealized gains (losses) on derivative financial instruments:
Unrealized holding gains (losses) arising during the periodUnrealized holding gains (losses) arising during the period(9)357 3,062 32 
Tax effectTax effect2 (88)(729)(9)
Unrealized holding gains (losses) arising during the period, net of taxesUnrealized holding gains (losses) arising during the period, net of taxes(7)269 2,333 23 
Reclassification of amount of gains (losses) recognized into incomeReclassification of amount of gains (losses) recognized into income18 (16)70 (16)
Tax effectTax effect(4)4 (17)4 
Reclassification of amount of gains (losses) recognized into income, net of taxesReclassification of amount of gains (losses) recognized into income, net of taxes14 (12)53 (12)
Change in unrealized gains (losses) on derivative financial instrumentsChange in unrealized gains (losses) on derivative financial instruments7 257 2,386 11 

Total other comprehensive income (loss)

 

 

56

 

 

 

(333

)

 

 

490

 

 

 

915

 

Total other comprehensive income (loss)(285)(285)1,379 4,051 

Comprehensive income

 

$

9,838

 

 

$

4,474

 

 

$

30,405

 

 

$

15,354

 

Comprehensive income$24,144 $22,619 $87,713 $35,945 

See accompanying condensed notes to consolidated financial statements.


4

Table of Contents
TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Three and Nine Months Ended September 30, 20172021 and 2016

2020

(Dollar amounts in thousands, except per share amounts)

thousands)

(Unaudited)

 

Preferred Stock

 

 

Common Stock

 

 

Treasury Stock

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Liquidation

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Preference

 

 

Shares

 

 

Par

 

 

Paid-in-

 

 

Shares

 

 

 

 

 

 

Retained

 

 

Comprehensive

 

 

Total

 

 

 

Amount

 

 

Outstanding

 

 

Amount

 

 

Capital

 

 

Outstanding

 

 

Cost

 

 

Earnings

 

 

Income

 

 

Equity

 

Balance, January 1, 2016

 

$

9,746

 

 

 

18,018,200

 

 

$

181

 

 

$

194,297

 

 

 

34,523

 

 

$

(560

)

 

$

64,097

 

 

$

277

 

 

$

268,038

 

Issuance of restricted stock awards

 

 

—

 

 

 

101,105

 

 

 

1

 

 

 

(1

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Stock based compensation

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,864

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,864

 

Forfeiture of restricted stock awards

 

 

—

 

 

 

(7,274

)

 

 

—

 

 

 

111

 

 

 

7,274

 

 

 

(111

)

 

 

—

 

 

 

—

 

 

 

—

 

Excess tax benefit on restricted stock vested

 

 

—

 

 

 

—

 

 

 

—

 

 

 

35

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

35

 

Purchase of treasury stock

 

 

 

 

 

 

(5,053

)

 

 

—

 

 

 

—

 

 

 

5,053

 

 

 

(80

)

 

 

 

 

 

 

—

 

 

 

(80

)

Series A preferred dividends

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(274

)

 

 

—

 

 

 

(274

)

Series B preferred dividends

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(312

)

 

 

—

 

 

 

(312

)

TARP preferred stock assumed in acquisition

 

 

10,500

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

10,500

 

TARP preferred dividends

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(104

)

 

 

—

 

 

 

(104

)

Redemption of TARP preferred stock

 

 

(10,500

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(10,500

)

Net income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

14,439

 

 

 

—

 

 

 

14,439

 

Other comprehensive income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

915

 

 

 

915

 

Balance, September 30, 2016

 

$

9,746

 

 

 

18,106,978

 

 

$

182

 

 

$

196,306

 

 

 

46,850

 

 

$

(751

)

 

$

77,846

 

 

$

1,192

 

 

$

284,521

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2017

 

$

9,746

 

 

 

18,078,247

 

 

$

182

 

 

$

197,157

 

 

 

76,118

 

 

$

(1,374

)

 

$

83,910

 

 

$

(276

)

 

$

289,345

 

Issuance of common stock, net of expenses

 

 

—

 

 

 

2,530,000

 

 

 

25

 

 

 

65,503

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

65,528

 

Issuance of restricted stock awards

 

 

—

 

 

 

45,732

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Stock based compensation

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,484

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,484

 

Forfeiture of restricted stock awards

 

 

—

 

 

 

(853

)

 

 

—

 

 

 

20

 

 

 

853

 

 

 

(20

)

 

 

—

 

 

 

—

 

 

 

—

 

Stock option exercises, net

 

 

—

 

 

 

22,731

 

 

 

—

 

 

 

281

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

281

 

Warrant exercises, net

 

 

—

 

 

 

153,134

 

 

 

2

 

 

 

(2

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Purchase of treasury stock

 

 

—

 

 

 

(14,197

)

 

 

—

 

 

 

—

 

 

 

14,197

 

 

 

(366

)

 

 

—

 

 

 

—

 

 

 

(366

)

Preferred stock converted to common stock

 

 

(88

)

 

 

6,106

 

 

 

—

 

 

 

88

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Series A preferred dividends

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(273

)

 

 

—

 

 

 

(273

)

Series B preferred dividends

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(307

)

 

 

—

 

 

 

(307

)

Net income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

29,915

 

 

 

—

 

 

 

29,915

 

Other comprehensive income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

490

 

 

 

490

 

Balance, September 30, 2017

 

$

9,658

 

 

 

20,820,900

 

 

$

209

 

 

$

264,531

 

 

 

91,168

 

 

$

(1,760

)

 

$

113,245

 

 

$

214

 

 

$

386,097

 

Preferred StockCommon StockAdditional
Paid-in-
Capital		Treasury StockRetained
Earnings		AccumulatedTotal
Stockholders'
Equity
Liquidation
Preference
Amount		Shares
Outstanding		Par
Amount		Shares
Outstanding		CostOther
Comprehensive
Income (Loss)
Balance, January 1, 2021$45,000 24,868,218 $280 $489,151 3,083,503 $(103,052)$289,583 $5,819 $726,781 
Issuance of restricted stock awards— 4,613 — — — — — — — 
Stock option exercises, net— 10,205 — 191 — — — — 191 
Stock based compensation— — — 1,350 — — — — 1,350 
Forfeiture of restricted stock awards— (107)— 7 107 (7)— — — 
Purchase of treasury stock— — — — — — — — — 
Dividends declared— — — — — — (801)— (801)
Net income (loss)— — — — — — 33,923 — 33,923 
Other comprehensive income (loss)— — — — — — —2,560 2,560 
Balance, March 31, 2021$45,000 24,882,929 $280 $490,699 3,083,610 $(103,059)$322,705 $8,379 764,004 
Issuance of restricted stock awards— 224,287 2 (2)— — — — — 
Stock option exercises, net— 18,934 — (45)— — — — (45)
Stock based compensation— — — 3,386 — — — — 3,386 
Forfeiture of restricted stock awards— (2,278)— 186 2,278 (186)— — — 
Purchase of treasury stock— (14,169)— — 14,169 (1,241)— — (1,241)
Dividends declared— — — — — — (802)— (802)
Net income— — — — — — 27,982 — 27,982 
Other comprehensive income (loss)— — — — — — — (896)(896)
Balance, June 30, 2021$45,000 25,109,703 $282 $494,224 3,100,057 $(104,486)$349,885 $7,483 792,388 
Issuance of restricted stock awards— 3,651 — — — — — — — 
Stock option exercises, net— 2,409 — 50 — — — — 50 
Stock based compensation— — — 4,445 — — — — 4,445 
Forfeiture of restricted stock awards— (1,522)— 114 1,522 (114)— — — 
Issuance of common stock pursuant to the employee stock purchase plan— 9,101 — 449 — — — — 449 
Purchase of treasury stock— — — — — — — — — 
Dividends declared— — — — — — (802)— (802)
Net income— — — — — — 24,429 — 24,429 
Other comprehensive income (loss)— — — — — — — (285)(285)
Balance, September 30, 2021$45,000 25,123,342 $282 $499,282 3,101,579 $(104,600)$373,512 $7,198 $820,674 


5
Table of Contents
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the Three and Nine Months Ended September 30, 2021 and 2020
(Dollar amounts in thousands)
(Unaudited)
Preferred StockCommon StockAdditional
Paid-in-
Capital		Treasury StockRetained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		Total
Stockholders'
Equity
Liquidation
Preference
Amount		Shares
Outstanding		Par
Amount		Shares
Outstanding		Cost
Balance, January 1, 2020$— 24,964,961 $271 $473,251 2,198,681 $(67,068)$229,030 $1,106 $636,590 
Impact of adoption of ASU 2016-13
— — — — — — (1,771)— (1,771)
Issuance of restricted stock awards— 8,079 1 (1)— — — — — 
Stock based compensation— — — 1,168 — — — — 1,168 
Forfeiture of restricted stock awards— (601)— 23 601 (23)— — — 
Purchase of treasury stock— (871,319)— — 871,319 (35,586)— — (35,586)
Net income (loss)— — — — — — (4,450)— (4,450)
Other comprehensive income (loss)— — — — — — —(6,604)(6,604)
Balance, March 31, 2020$— 24,101,120 $272 $474,441 3,070,601 $(102,677)$222,809 $(5,498)$589,347 
Issuance of preferred stock, net of issuance costs45,000 — — (2,636)— — — — 42,364 
Issuance of restricted stock awards— 110,035 1 (1)— — — — — 
Stock based compensation— — — 966 — — — — 966 
Forfeiture of restricted stock awards— (1,033)— 25 1,033 (25)— — — 
Purchase of treasury stock— (7,436)— — 7,436 (186)— — (186)
Net income— — — — — — 13,440 — 13,440 
Other comprehensive income (loss)— — — — — — — 10,940 10,940 
Balance, June 30, 2020$45,000 24,202,686 $273 $472,795 3,079,070 $(102,888)$236,249 $5,442 $656,871 
Issuance of common stock— 630,268 7 13,935 — — — — 13,942 
Issuance of restricted stock awards— 20,303 (1)1 — — — — — 
Stock option exercises, net— 344 — — — — — — — 
Stock based compensation— — — 1,309 — — — — 1,309 
Forfeiture of restricted stock awards— (2,000)— 54 2,000 (54)— — — 
Dividends declared— — — — — — (899)— (899)
Net income— — — — — — 22,904 — 22,904 
Other comprehensive income (loss)— — — — — — — (285)(285)
Balance, September 30, 2020$45,000 24,851,601 $279 $488,094 3,081,070 $(102,942)$258,254 $5,157 $693,842 
See accompanying condensed notes to consolidated financial statements.


6

Table of Contents
TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended September 30, 20172021 and 2016

2020

(Dollar amounts in thousands, except per share amounts)

thousands)

(Unaudited)

 

Nine Months Ended September 30,

 

Nine Months Ended September 30,

 

2017

 

 

2016

 

20212020

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Cash flows from operating activities:

Net income

 

$

29,915

 

 

$

14,439

 

Net income$86,334 $31,894 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation

 

 

2,892

 

 

 

1,905

 

Depreciation8,992 7,378 

Net accretion on loans and deposits

 

 

(5,374

)

 

 

(4,833

)

Net accretion on loansNet accretion on loans(7,615)(8,377)

Amortization of subordinated notes issuance costs

 

 

70

 

 

 

—

 

Amortization of subordinated notes issuance costs1,022 128 

Amortization of junior subordinated debentures

 

 

307

 

 

 

225

 

Amortization of junior subordinated debentures395 378 

Net amortization on securities

 

 

823

 

 

 

1,242

 

Net amortization on securities(465)(104)

Amortization of intangible assets

 

 

2,892

 

 

 

2,652

 

Amortization of intangible assets7,677 6,265 

Deferred taxes

 

 

4,405

 

 

 

(427

)

Deferred taxes5,432 (3,320)

Provision for loan losses

 

 

9,697

 

 

 

4,247

 

Credit Loss Expense (benefit)Credit Loss Expense (benefit)(10,838)33,649 

Stock based compensation

 

 

1,484

 

 

 

1,864

 

Stock based compensation9,181 3,443 
Net (gains) losses on sale or call of debt securitiesNet (gains) losses on sale or call of debt securities(5)(3,210)
Net (gains) losses on equity securitiesNet (gains) losses on equity securities203 (603)
Net OREO (gains) losses and valuation adjustmentsNet OREO (gains) losses and valuation adjustments376 399 
Gain on sale of subsidiary or divisionGain on sale of subsidiary or division— (9,758)

Origination of loans held for sale

 

 

—

 

 

 

(891

)

Origination of loans held for sale(32,645)(45,220)

Proceeds from sale of loans originated for sale

 

 

—

 

 

 

2,248

 

Net (gains) losses on sale of securities

 

 

(35

)

 

 

63

 

Net (gain) loss on loans transferred to loans held for sale

 

 

46

 

 

 

(167

)

Net gains on sale of loans

 

 

—

 

 

 

(16

)

Net OREO (gains) losses and valuation adjustments

 

 

86

 

 

 

1,152

 

Gain on sale of subsidiary

 

 

(20,860

)

 

 

—

 

Income from CLO warehouse investments

 

 

(1,954

)

 

 

(2,415

)

Purchases of loans held for salePurchases of loans held for sale(19,001)(33,811)
Proceeds from sale of loans originated or purchased for saleProceeds from sale of loans originated or purchased for sale50,931 71,782 
Net (gains) losses on sale of loansNet (gains) losses on sale of loans(1,289)(2,323)
Net (gains) losses on transfer of loans to loans held for saleNet (gains) losses on transfer of loans to loans held for sale(1,676)466 
Net change in operating leasesNet change in operating leases468 92 

(Increase) decrease in other assets

 

 

1,857

 

 

 

3,746

 

(Increase) decrease in other assets(19,275)(4,206)

Increase (decrease) in other liabilities

 

 

6,741

 

 

 

(3,458

)

Increase (decrease) in other liabilities11,071 15,387 

Net cash provided by (used in) operating activities

 

 

32,992

 

 

 

21,576

 

Net cash provided by (used in) operating activities89,273 60,329 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Cash flows from investing activities:

Purchases of securities available for sale

 

 

(5,042

)

 

 

(3,414

)

Purchases of securities available for sale(18,250)(128,970)

Proceeds from sales of securities available for sale

 

 

2,936

 

 

 

24,327

 

Proceeds from sales of securities available for sale— 65,184 

Proceeds from maturities, calls, and pay downs of securities available for sale

 

 

66,253

 

 

 

17,330

 

Proceeds from maturities, calls, and pay downs of securities available for sale76,864 78,276 

Purchases of securities held to maturity

 

 

(5,092

)

 

 

(29,117

)

Proceeds from maturities, calls, and pay downs of securities held to maturity

 

 

17,993

 

 

 

—

 

Proceeds from maturities, calls, and pay downs of securities held to maturity762 581 

Purchases of loans (shared national credits)

 

 

—

 

 

 

(995

)

Purchases of loans held for investmentPurchases of loans held for investment(77,571)(277,333)

Proceeds from sale of loans

 

 

1,919

 

 

 

9,057

 

Proceeds from sale of loans63,028 145,513 

Net change in loans

 

 

(394,859

)

 

 

(222,326

)

Net change in loans227,650 (524,820)

Purchases of premises and equipment, net

 

 

(1,390

)

 

 

(3,003

)

Purchases of premises and equipment, net(9,899)(16,283)

Net proceeds from sale of OREO

 

 

1,708

 

 

 

1,709

 

Net proceeds from sale of OREO807 1,918 

Net cash paid for CLO warehouse investments

 

 

—

 

 

 

(15,000

)

Net proceeds from CLO warehouse investments

 

 

20,000

 

 

 

25,500

 

(Purchases) redemptions of FHLB stock, net

 

 

(7,646

)

 

 

(4,029

)

Cash paid for acquisitions, net of cash acquired

 

 

—

 

 

 

(14,479

)

Proceeds from sale of subsidiary, net

 

 

10,269

 

 

 

—

 

(Purchases) redemptions of FHLB and other restricted stock, net(Purchases) redemptions of FHLB and other restricted stock, net1,850 1,396 
Net cash (paid for) received in acquisitionsNet cash (paid for) received in acquisitions(96,926)(108,375)
Proceeds from sale of subsidiary or division, netProceeds from sale of subsidiary or division, net— 93,835 

Net cash provided by (used in) investing activities

 

 

(292,951

)

 

 

(214,440

)

Net cash provided by (used in) investing activities168,315 (669,078)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Cash flows from financing activities:

Net increase in deposits

 

 

(3,240

)

 

 

48,894

 

Net increase (decrease) in depositsNet increase (decrease) in deposits105,975 452,582 

Increase (decrease) in customer repurchase agreements

 

 

9,379

 

 

 

6,012

 

Increase (decrease) in customer repurchase agreements8,891 12,159 

Increase (decrease) in Federal Home Loan Bank advances

 

 

155,000

 

 

 

100,000

 

Increase (decrease) in Federal Home Loan Bank advances(75,000)5,000 

Proceeds from the issuance of other borrowings

 

 

—

 

 

 

48,676

 

Issuance of common stock, net of expenses

 

 

65,528

 

 

 

—

 

Redemption of TARP preferred stock

 

 

—

 

 

 

(10,500

)

Proceeds from Paycheck Protection Program Liquidity Facility borrowingsProceeds from Paycheck Protection Program Liquidity Facility borrowings226,630 231,370 
Repayment of Paycheck Protection Program Liquidity Facility borrowingsRepayment of Paycheck Protection Program Liquidity Facility borrowings(320,936)(7,657)
Proceeds from issuance of subordinated notes, netProceeds from issuance of subordinated notes, net68,224 — 
Repayment of subordinated notesRepayment of subordinated notes(50,000)— 
Issuance of preferred stock, net of issuance costsIssuance of preferred stock, net of issuance costs— 42,364 
Preferred dividendsPreferred dividends(2,405)(899)

Stock option exercises

 

 

281

 

 

 

—

 

Stock option exercises196 — 
Proceeds from employee stock purchase plan common stock issuanceProceeds from employee stock purchase plan common stock issuance449 — 

Purchase of treasury stock

 

 

(366

)

 

 

(80

)

Purchase of treasury stock(1,241)(35,772)

Dividends on preferred stock

 

 

(580

)

 

 

(690

)

Net cash provided by (used in) financing activities

 

 

226,002

 

 

 

192,312

 

Net cash provided by (used in) financing activities(39,217)699,147 

Net increase (decrease) in cash and cash equivalents

 

 

(33,957

)

 

 

(552

)

Net increase (decrease) in cash and cash equivalents218,371 90,398 

Cash and cash equivalents at beginning of period

 

 

114,514

 

 

 

105,277

 

Cash and cash equivalents at beginning of period314,393 197,880 

Cash and cash equivalents at end of period

 

$

80,557

 

 

$

104,725

 

Cash and cash equivalents at end of period532,764 288,278 

See accompanying condensed notes to consolidated financial statements.


7

Table of Contents
TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended September 30, 20172021 and 2016

2020

(Dollar amounts in thousands, except per share amounts)

thousands)

(Unaudited)

 

Nine Months Ended September 30,

 

Nine Months Ended September 30,

 

2017

 

 

2016

 

20212020

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Supplemental cash flow information:

Interest paid

 

$

13,609

 

 

$

7,415

 

Interest paid$15,551 $33,868 

Income taxes paid, net

 

$

7,676

 

 

$

7,478

 

Income taxes paid, net$36,353 $4,572 
Cash paid for operating lease liabilitiesCash paid for operating lease liabilities$3,440 $3,183 

Supplemental noncash disclosures:

 

 

 

 

 

 

 

 

Supplemental noncash disclosures:

Loans transferred to OREO

 

$

6,194

 

 

$

425

 

Loans transferred to OREO$644 $1,012 

Premises transferred to OREO

 

$

276

 

 

$

2,215

 

Loans transferred to loans held for sale

 

$

1,919

 

 

$

18,680

 

Consideration received from sale of subsidiary

 

$

12,123

 

 

$

—

 

Loans held for investment transferred to loans held for saleLoans held for investment transferred to loans held for sale$76,976 $172,565 
Assets transferred to assets held for saleAssets transferred to assets held for sale$— $84,077 
Lease liabilities arising from obtaining right-of-use assetsLease liabilities arising from obtaining right-of-use assets$19,404 $1,777 
Securities available for sale purchased, not settledSecurities available for sale purchased, not settled$— $— 
Indemnification recognizedIndemnification recognized$35,633 $— 

7

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Table of Contents
TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Triumph Bancorp, Inc. (collectively with its subsidiaries, “Triumph”, or the “Company” as applicable) is a financial holding company headquartered in Dallas, Texas. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries Triumph CRA Holdings, LLC (“TCRA”), TBK Bank, SSB (“TBK Bank”), TBK Bank’s wholly owned subsidiary Advance Business Capital LLC, which currently operates under the d/b/a of Triumph Business Capital (“TBC”), and TBK Bank’s wholly owned subsidiary Triumph Insurance Group, Inc. (“TIG”).

TriumphPay operates as a division of TBK Bank, also does business under the following names:  (i) Triumph Community Bank (“TCB”) with respect to its community banking business in certain markets; (ii) Triumph Commercial Finance (“TCF”) with respect to its asset based lending, equipment lending and general factoring commercial finance products; (iii) Triumph Healthcare Finance (“THF”) with respect to its healthcare asset based lending business; and (iv) Triumph Premium Finance (“TPF”) with respect to its insurance premium financing business.

On March 31, 2017 the Company sold its membership interests in its wholly owned subsidiary Triumph Capital Advisors, LLC (“TCA”). See Note 2 – Business Combinations and Divestitures for details of the TCA sale and its impact on the Company’s consolidated financial statements.

SSB.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”) for interim financial information and in accordance with guidance provided by the Securities and Exchange Commission (“SEC”). Accordingly, the condensed financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all normal and recurring adjustments considered necessary for a fair presentation. Transactions between the subsidiaries have been eliminated. These condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2020. Operating results for the three and nine months ended September 30, 20172021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.

2021.

Operating Segments
The Company’s reportable segments are comprised of strategic business units primarily based upon industry categories and, to a lesser extent, the core competencies relating to product origination, distribution methods, operations and servicing. Segment determination also considered organizational structure and is consistent with the presentation of financial information to the chief operating decision maker to evaluate segment performance, develop strategy, and allocate resources. The Company's chief operating decision maker is the Chief Executive Officer of Triumph Bancorp, Inc. Management has determined that the Company has four4 reportable segments consisting of Banking, Factoring, Asset Management,Payments, and Corporate.
The Company’s Chief Executive Officer usesBanking segment resultsincludes the operations of TBK Bank. The Banking segment derives its revenue principally from investments in interest-earning assets as well as noninterest income typical for the banking industry.
The Factoring segment includes the operations of TBC with revenue derived from factoring services.
The Payments segment includes the operations of the TBK Bank's TriumphPay division, which is the payments network for trucking; creating frictionless presentment, audit, and payment of invoices. The Payments segment derives its revenue from transaction fees and interest income on factored receivables related to make operatinginvoice payments. These factored receivables consist of both invoices where we offer a carrier a QuickPay opportunity to receive payment at a discount in advance of the standard payment term for such invoice in exchange for the assignment of such invoice to us and strategic decisions. On March 31, 2017from offering freight brokers the ability to settle their invoices with us on an extended term following our payment to their carriers as an additional liquidity option for such freight brokers.
The corporate segment includes holding company financing and investment activities and management and administrative expenses to support the overall operations of the Company.
9
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TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Prior to June 30, 2021, management determined that the Company sold its membership interests in TCA, which comprisedhad 3 reportable segments consisting of Banking, Factoring, and Corporate, and the entiretyBanking segment included the operations of TBK Bank and TriumphPay. On June 1, 2021, TriumphPay acquired HubTran, Inc., a cloud-based provider of automation software for the Asset Management segment’s operations. Seetrucking industry’s back office (see Note 2 – Business Combinations and Divestitures for detailsfurther disclosures regarding the acquisition of HubTran). The acquisition of HubTran allows TriumphPay to create a fully integrated payments network for trucking; servicing brokers and factors. TriumphPay already offered tools and services to increase automation, mitigate fraud, create back-office efficiency and improve the payment experience. Through the acquisition of HubTran, TriumphPay created additional value through the enhancement of its presentment, audit, and payment capabilities for shippers, third party logistics companies (i.e., freight brokers) and their carriers, and factors. The acquisition of HubTran was a meaningful inflection point in the operations of TriumphPay as the TriumphPay strategy has shifted from a capital-intensive on-balance sheet product with a focus on interest income to a payments network for the trucking industry with a focus on fee revenue. In terms of total revenue, operating income (loss), and total assets, TriumphPay is currently, and has historically been, quantitatively immaterial; however, given the shift in strategy brought on by the acquisition of HubTran as well as significant management and chief operating decision maker focus on TriumphPay operations, management believes disclosing TriumphPay's operations through the Payments segment is qualitatively useful for readers of these financial statements. This change also brings the Company's reportable segments in line with its reporting units used for goodwill impairment evaluation. Prior to the acquisition of HubTran, the Payments reporting unit carried no goodwill. Prior period business segment disclosures have been revised as appropriate to reflect the current period change in reportable segments.
Risks and Uncertainties
Significant progress has been made to combat the outbreak of COVID-19; however, the global pandemic has adversely impacted a broad range of industries in which the Company's customers operate and could still impair their ability to fulfill their financial obligations to the Company. The Company’s business is dependent upon the willingness and ability of its employees and customers to conduct banking and other financial transactions.  While it appears that the epidemiological and macroeconomic conditions are trending in a positive direction as of September 30, 2021, if there is a resurgence in the virus, the Company could experience further adverse effects on its business, financial condition, results of operations and cash flows. While it is not possible to know the full universe or extent that the impact of COVID-19, and any potential resulting measures to curtail its spread, will have on the Company's future operations, the Company is disclosing potentially material items of which it is aware.
Financial position and results of operations
The Company’s interest income could be reduced due to COVID-19.  In keeping with guidance from regulators, the Company continues to work with COVID-19 affected borrowers to defer their payments, interest, and fees. While interest and fees continue to accrue to income through normal GAAP accounting, should eventual credit losses on these deferred payments emerge, the related loans would be placed on nonaccrual status and interest income and fees accrued would be reversed.  In such a scenario, interest income in future periods could be negatively impacted.  As of September 30, 2021 the Company carries $121,000 of accrued interest income and fees on outstanding deferrals made to COVID-19 affected borrowers. At this time, the Company is unable to project the materiality of such an impact on future deferrals to COVID-19 affected borrowers, but recognizes the breadth of the TCA saleeconomic impact may affect its borrowers’ ability to repay in future periods.
Capital and liquidity
The Company's reported and regulatory capital ratios could be adversely impacted by further credit loss expense.  The Company relies on cash on hand as well as dividends from its subsidiary bank to service its debt.  If the Company's capital deteriorates such that its subsidiary bank is unable to pay dividends to the Company for an extended period of time, the Company may not be able to service its debt. The Company maintains access to multiple sources of liquidity.  Wholesale funding markets have remained open to the Company, but rates for short-term funding can be volatile.  If funding costs are elevated for an extended period of time, it could have an adverse effect on the Company's net interest margin.  If an extended recession caused large numbers of the Company's deposit customers to withdraw their funds, the Company might become more reliant on volatile or more expensive sources of funding.
Intangible asset valuation
The lingering effects COVID-19 could cause a decline in the Company’s stock price or the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause us to perform a goodwill impairment test and result in an impairment charge being recorded for that period. In the event that the Company concludes that all or a portion of its goodwill is impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on the Company’s consolidated financial statements.  

Adoptiontangible capital or regulatory capital.

10
Table of New Accounting Standards

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”).  The FASB issued this ASU to improve the accounting for share-based payments.  ASU 2016-09 simplifies several aspects of the accounting for share-based payment award transactions, including:  the presentation of income tax consequences, classification of awards as either equity or liabilities, classification on the statement of cash flows, and calculation of diluted earnings per share.  The new standard was effective for the Company on January 1, 2017.  Adoption of ASU 2016-09 did not have a material impact on the Company’s consolidated financial statements.

In March 2017, the FASB issued ASU 2017-08, “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities” (“ASU 2017-08”). These amendments shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. As permitted by the amendment, the Company elected to early adopt the provisions of this ASU as of January 1, 2017. Adoption of ASU 2017-08 did not have a material impact on the Company’s consolidated financial statements.

8

Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Newly Issued, But Not Yet Effective Accounting Standards

It is possible that the lingering effects of COVID-19 could cause the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause us to perform an intangible asset impairment test and result in an impairment charge being recorded for that period. In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), which requires an entity to recognizeevent that the Company concludes that all or a portion of its intangible assets are impaired, a non-cash charge for the amount of revenuesuch impairment would be recorded to which it expectsearnings. Such a charge would have no impact on tangible capital or regulatory capital.
Lending operations and accommodations to be entitled for borrowers
In keeping with regulatory guidance to work with borrowers during this unprecedented situation and as outlined in the transferSection 4013 of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in GAAP when it becomes effective. The new standard is effective forthe Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), the Company is executing a payment deferral program for its commercial lending clients that are adversely affected by the pandemic.  Depending on January 1, 2018.  Adoptionthe demonstrated need of the ASUclient, the Company is not expected to have a significant impact on the Company’s consolidated financial statements and related disclosures.  The Company’s primary sources of revenue are derived from interest and dividends earned on loans, investment securities, and other financial instruments that are not within the scope of ASU 2014-09.   The Company’s revenue recognition pattern for revenue streams within the scope of ASU 2014-09, including but not limited to service charges on deposit accounts and gains/losses on the sale of OREO, is not expected to change significantly from current practice. The standard permits the use ofdeferring either the full retrospectiveloan payment or modified retrospective transition method.  The Company is currently planning to use the modified retrospective transition method which requires application of ASU 2014-09 to uncompleted contracts at the date of adoption.  Periods prior to the date of adoption are not retrospectively revised, but a cumulative effect of adoption is recognized for the impactprincipal component of the ASU on uncompleted contracts at the dateloan payment for a stated period of adoption.

In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments – Overall: Recognition and Measurementtime. As of Financial Assets and Financial Liabilities” (“ASU 2016-01”). The guidance affects the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements of financial instruments. ASU 2016-01 will be effective for the Company on January 1, 2018 and is not expected to have a significant impact on our consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). The FASB issued this ASU to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet by lessees for those leases classified as operating leases under current U.S. GAAP and disclosing key information about leasing arrangements. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Early application of this ASU is permitted for all entities. Adoption of ASU 2016-02 is not expected to have a material impact on the Company’s consolidated financial statements.  The Company leases certain properties and equipment under operating leases that will result in the recognition of lease assets and lease liabilities onSeptember 30, 2021, the Company’s balance sheet reflected 3 of these deferrals on outstanding loan balances of $32,220,000. In accordance with the CARES Act and March 2020 interagency guidance, these deferrals are not considered troubled debt restructurings. It is possible that these deferrals could be extended further under the ASU,CARES Act; however, the volume of these future potential extensions is unknown. It is also possible that in spite of the Company's best efforts to assist its borrowers and achieve full collection of the Company's investment, these deferred loans could result in future charge-offs with additional credit loss expense charged to earnings; however, the amount of any future charge-offs on deferred loans is unknown. At September 30, 2021, 94% of the $32,220,000 COVID deferral balance was made up of one relationship.

With the passage of the Paycheck Protection Program (“PPP”), administered by the Small Business Administration (“SBA”), the Company has participated in assisting its customers with applications for resources through the program. PPP loans have two-year and five-year terms and earn interest at a 1% coupon. The Company believes that the majority of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program.  As of September 30, 2021, the Company carried 815 PPP loans representing a book value of $87,413,000. The Company recognized $1,584,000 and $4,524,000 in fees from the SBA on PPP loans during the three and nine months ended September 30, 2021 and carried $3,580,000 of deferred fees on PPP loans at September 30, 2021. The remaining fees will be amortized and recognized over the remaining lives of the loans. It is the Company’s properties and equipmentunderstanding that loans funded through the PPP program are owned, not leased.  At September 30, 2017,fully guaranteed by the U.S. government. Should those circumstances change, the Company had contractual operating lease commitments of approximately $6,459,000, before considering renewal options that are generally present.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). Among other things, ASU 2016-13 requires the measurement of all expected credit lossescould be required to establish an allowance for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to form their credit loss estimates. Manythrough additional credit loss expense charged to earnings.

Credit
The Company is working with customers directly affected by COVID-19.  The Company is prepared to offer assistance in accordance with regulator guidelines.  As a result of the loss estimation techniques applied today will still be permitted, althoughcurrent economic environment caused by the inputsCOVID-19 virus, the Company is engaging in communication with borrowers to those techniques will changeunderstand their situation and the challenges faced, allowing the Company to reflectrespond proactively as needs and issues arise. Should the full amounteconomy experience a prolonged period of expected credit losses. In addition, ASU 2016-13 amendspoor economic conditions or should economic conditions worsen, the accountingCompany could experience increases in its required allowance for credit losses on debt securities(“ACL”) and purchased financial assets withrecord additional credit deterioration. The amendments in ASU 2016-13loss expense. It is possible that the Company’s asset quality measures could worsen at future measurement periods if the effects of COVID-19 are effective for fiscal years beginning after December 31, 2019, and interim periods within those years for public business entities that are SEC filers.  Early adoption is permitted for fiscal years, and interim periods within those years, beginning after December 15, 2018, however,prolonged.
NOTE 2 – BUSINESS COMBINATIONS AND DIVESTITURES
HubTran Inc.
On June 1, 2021, the Company, does not currently plan to early adopt the ASU. The Company has formedthrough TriumphPay, a cross functional team that is assessing the Company’s data and system needs and evaluating the impact that adoption of this standard will have on the financial condition and results of operationsdivision of the Company.

9

Company's wholly-owned subsidiary TBK Bank, SSB, acquired HubTran, Inc. ("HubTran"), a cloud-based provider of automation software for the trucking industry's back-office.
11

Table of Contents
TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 2 – Business combinations AND DIVESTITURES

Valley Bancorp, Inc.

On July 26, 2017, the Company entered into an agreement to acquire Valley Bancorp, Inc. (“Valley”) and its community banking subsidiary, Valley Bank & Trust, in an all-cash transaction for $39,000,000, subject to certain adjustments based upon Valley’s tangible book value at the closing of the transaction. Valley had total assets of $331,000,000, total loans of $174,000,000, and total deposits of $296,000,000 as of September 30, 2017. Valley Bank & Trust serves individuals and business customers from seven locations across the northern front range including Brighton, Dacono, Denver, Hudson, Westminster and Strasburg, Colorado. The transaction is expected to close during the fourth quarter of 2017 and is subject to certain customary closing conditions, including receipt of regulatory approval.

Independent Bank Colorado Branches

On October 6, 2017, the Company completed its acquisition of nine branch locations in Colorado from Independent Bank Group, Inc.’s banking subsidiary Independent Bank. The Company purchased approximately $99,000,000 in loans and assumed approximately $162,000,000 in deposits associated with the branches for an aggregate deposit premium of approximately $6,800,000 or 4.2%.

Triumph Capital Advisors, LLC

On March 31, 2017, the Company sold its wholly owned asset management subsidiary, Triumph Capital Advisors, LLC, to an unrelated third party. The transaction was completed to enhance shareholder value and provide a platform for TCA to operate without the impact of regulations intended for depository institutions and their holding companies.  

A summary of the consideration received and the gain on sale is as follows:

(Dollars in thousands)

 

 

 

 

Consideration received (fair value):

 

 

 

 

Cash

 

$

10,554

 

Loan receivable

 

 

10,500

 

Revenue share

 

 

1,623

 

Total consideration received

 

 

22,677

 

Carrying value of TCA membership interest

 

 

1,417

 

Gain on sale of subsidiary

 

 

21,260

 

Transaction costs

 

 

400

 

Gain on sale of subsidiary, net of transaction costs

 

$

20,860

 

The Company financed a portion of the consideration received with a $10,500,000 term credit facility.  Terms of the floating rate credit facility provide for quarterly principal and interest payments with an interest rate floor of 5.50%, maturing on March 31, 2023.  The Company received a $25,000 origination fee associated with the term credit facility that was deferred and is being accreted over the contractual life of the loan as a yield adjustment.

In addition, the Company is entitled to receive an annual earn-out payment representing 3% of TCA’s future annual gross revenue, with a total maximum earn-out amount of $2,500,000.  The revenue share earn-out was considered contingent consideration which the Company recorded as an asset at its estimated fair value of $1,623,000 on the date of sale.  

The Company incurred pre-tax expenses related to the transaction, including professional fees and other direct transaction costs, totaling $400,000 which were netted against the gain on sale of subsidiary in the consolidated statements of income.

Southern Transportation Insurance Agency

On September 1, 2016, the Company acquired Southern Transportation Insurance Agency, Ltd. in an all-cash transaction for $2,150,000. The purpose of the acquisition was to expand the Company’s product offerings for clients in the transportation industry. The Company recognized an intangible asset of $1,580,000 and goodwill of $570,000, which were allocated to the Company’s Banking segment. Goodwill resulted from expected enhanced product offerings and is being amortized for tax purposes.

10

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

ColoEast Bankshares, Inc.

On August 1, 2016, the Company acquired 100% of the outstanding common stock of ColoEast Bankshares, Inc. (“ColoEast”) and its community banking subsidiary, Colorado East Bank & Trust, in an all-cash transaction for $70,000,000. The Company also assumed $10,500,000 of ColoEast preferred stock issued in conjunction with the U.S. Government’s Treasury Asset Relief Program (“TARP Preferred Stock”). Colorado East Bank & Trust, which was merged into TBK Bank upon closing, offered personal checking, savings, CD, money market, HSA, IRA, NOW and business accounts, as well as commercial and consumer loans from 18 branches and one loan production office located throughout Colorado and far western Kansas. The acquisition expanded the Company’s market into Colorado and Kansas and further diversified the Company’s loan, customer, and deposit base.

A summary of the fair values of assets acquired, liabilities assumed, consideration transferred, and the resulting goodwill is as follows:

 

Initial Values

 

 

Measurement

 

 

 

 

 

 

 

Recorded at

 

 

Period

 

 

Adjusted

 

(Dollars in thousands)

 

Acquisition Date

 

 

Adjustments

 

 

Values

 

Assets acquired:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

57,671

 

 

$

—

 

 

$

57,671

 

Securities

 

 

161,693

 

 

 

—

 

 

 

161,693

 

Loans

 

 

460,775

 

 

 

—

 

 

 

460,775

 

FHLB and Federal Reserve Bank stock

 

 

550

 

 

 

—

 

 

 

550

 

Premises and equipment

 

 

23,940

 

 

 

—

 

 

 

23,940

 

Other real estate owned

 

 

3,105

 

 

 

(143

)

 

 

2,962

 

Intangible assets

 

 

7,238

 

 

 

—

 

 

 

7,238

 

Bank-owned life insurance

 

 

6,400

 

 

 

—

 

 

 

6,400

 

Deferred income taxes

 

 

4,511

 

 

 

(70

)

 

 

4,441

 

Other assets

 

 

10,022

 

 

 

—

 

 

 

10,022

 

 

 

 

735,905

 

 

 

(213

)

 

 

735,692

 

Liabilities assumed:

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

652,952

 

 

 

—

 

 

 

652,952

 

Junior subordinated debentures

 

 

7,728

 

 

 

—

 

 

 

7,728

 

Other liabilities

 

 

6,784

 

 

 

—

 

 

 

6,784

 

 

 

 

667,464

 

 

 

—

 

 

 

667,464

 

Fair value of net assets acquired

 

 

68,441

 

 

 

(213

)

 

 

68,228

 

Cash paid

 

 

70,000

 

 

 

—

 

 

 

70,000

 

TARP Preferred Stock assumed

 

 

10,500

 

 

 

—

 

 

 

10,500

 

Consideration transferred

 

 

80,500

 

 

 

—

 

 

 

80,500

 

Goodwill

 

$

12,059

 

 

$

213

 

 

$

12,272

 

(Dollars in thousands)Initial ValuesMeasurement Period AdjustmentsAdjusted Values
Assets acquired:
Cash$170 $— $170 
Intangible assets - capitalized software16,932 — 16,932 
Intangible assets - customer relationship10,360 — 10,360 
Other assets1,546 24 1,570 
29,008 24 29,032 
Liabilities assumed:
Deferred income taxes4,703 (3,230)1,473 
Other liabilities906 16 922 
5,609 (3,214)2,395 
Fair value of net assets acquired$23,399 $3,238 $26,637 
Consideration:
Cash paid$97,096 $— $97,096 
Goodwill$73,697 $(3,238)$70,459 

The consideration transferred was comprised of a combination of cash and the assumption of ColoEast’s TARP Preferred Stock.

The Company has recognized goodwill of $12,272,000,$70,459,000, which included measurement period adjustments related to the final valuation of other real estate owned acquired in the transactioncustomary settlement adjustments and the finalization of income taxes associated with the transaction.HubTran stub period tax return and its impact on the acquired deferred tax liability. Goodwill was calculated as the excess of both the fair value of consideration exchanged and liabilities assumed as compared to the fair value of identifiable net assets acquired and was allocated to the Company’s BankingPayments segment. The goodwill in this acquisition resulted from expected synergies and progress in the development of a fully integrated open loop payments network for the transportation industry. The goodwill will not be deducted for tax purposes. The initial accounting for the acquisition has not been completed because the fair values of the assets acquired and liabilities assumed have not yet been finalized.
The intangible assets recognized include a capitalized software intangible asset with an acquisition date fair value of $16,932,000 which will be amortized on a straight-line basis over its four year estimated useful life and a customer relationship intangible asset with an acquisition date fair value of $10,360,000 which will be amortized utilizing an accelerated method over its eleven year estimated useful life.
Revenue and earnings of HubTran since the acquisition date have not been disclosed as the acquired company was merged into the Company and separate financial information is not readily available.
Expenses related to the acquisition, including professional fees and other transaction costs, totaling $2,992,000 were recorded in noninterest expense in the consolidated statements of income during the three months ended June 30, 2021.
Transportation Financial Solutions
On July 8, 2020, the Company, through its wholly-owned subsidiary Advance Business Capital LLC (“ABC”), acquired the transportation factoring assets (the “TFS Acquisition”) of Transport Financial Solutions (“TFS”), a wholly owned subsidiary of Covenant Logistics Group, Inc. ("CVLG"), in exchange for cash consideration of $108,375,000, 630,268 shares of the Company’s common stock valued at approximately $13,942,000, and contingent consideration of up to approximately $9,900,000 to be paid in cash following the twelve-month period ending July 31, 2021.
Subsequent to the closing of the TFS Acquisition, the Company identified that approximately $62,200,000 of the assets acquired at closing were advances against future payments to be made to 3 large clients (and their affiliated entities) of TFS pursuant to long-term contractual arrangements between the obligor on such contracts and such clients (and their affiliated entities) for services that had not yet been performed.
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TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On September 23, 2020, the Company and ABC entered into an Account Management Agreement, Amendment to Purchase Agreement and Mutual Release (the “Agreement”) with CVLG and Covenant Transport Solutions, LLC, a wholly owned subsidiary of CVLG (“CTS” and, together with CVLG, "Covenant"). Pursuant to the Agreement, the parties agreed to certain amendments to that certain Accounts Receivable Purchase Agreement (the “ARPA”), dated as of July 8, 2020, by and among ABC, as buyer, CTS, as seller, and the Company, as buyer indirect parent. Such amendments include:
•Return of the portion of the purchase price paid under the ARPA consisting of 630,268 shares of Company common stock, which will be accomplished through the sale of such shares by Covenant pursuant to the terms of the Agreement and the surrender of the cash proceeds of such sale (net of brokerage or underwriting fees and commissions) to the Company;
•Elimination of the earn-out consideration potentially payable to CTS under the ARPA; and
•Modification of the indemnity provisions under the ARPA to eliminate the existing indemnifications for breaches of representations and warranties and to replace such with a newly established indemnification by Covenant in the event ABC incurs losses related to the $62,200,000 in over-formula advances made to specified clients identified in the Agreement (the “Over-Formula Advance Portfolio”). Under the terms of the new indemnification arrangement, Covenant will be responsible for and will indemnify ABC for 100% of the first $30,000,000 of any losses incurred by ABC related to the Over-Formula Advance Portfolio, and for 50% of the next $30,000,000 of any losses incurred by ABC, for total indemnification by Covenant of $45,000,000.

Covenant’s indemnification obligations under the Agreement were secured by a pledge of equipment collateral by Covenant with an estimated net orderly liquidation value of $60,000,000 (the “Equipment Collateral”). The Company’s wholly-owned bank subsidiary, TBK Bank, SSB, has provided Covenant with a $45,000,000 line of credit, also secured by the Equipment Collateral, the proceeds of which may be drawn to satisfy Covenant’s indemnification obligations under the Agreement.
Pursuant to the Agreement, Triumph and Covenant have agreed to certain terms related to the management of the Over-Formula Advance Portfolio, and the terms by which Covenant may provide assistance to maximize recovery on the Over-Formula Advance Portfolio.
Pursuant to the Agreement, the Company and Covenant have provided mutual releases to each other related to any and all claims related to the transactions contemplated by the ARPA or the Over-Formula Advance Portfolio.
The measurement period for this transaction remained open at the time the Agreement was executed, and the Company determined that there is a clear and direct link between the Agreement and the ARPA. Therefore, the terms of the Agreement were incorporated into the Company's purchase accounting which resulted in the elimination of the contingent consideration component of the ARPA, the recognition of cash due from Covenant as part of the consideration for the transaction, and an indemnification asset to reflect the modification of Covenant's indemnification obligations.
13
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TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A summary of the estimated fair values of assets acquired, liabilities assumed, consideration transferred, and the resulting goodwill is as follows:
(Dollars in thousands)Initial Values Recorded at Acquisition DateMeasurement Period AdjustmentsAdjusted Values
Assets acquired:
Factored receivables$107,524$—$107,524
Allowance for credit losses(37,415)—(37,415)
Factored receivables, net of ACL70,109—70,109
Intangible assets3,500—3,500
Indemnification asset30,959—30,959
Deferred income taxes1,448(59)1,389
106,016(59)105,957
Liabilities assumed:
Deposits5,361—5,361
5,361—5,361
Fair value of net assets acquired$100,655$(59)$100,596
Consideration:
Cash paid$108,375—$108,375
Stock consideration13,942—13,942
Cash due from seller subsequent to liquidation of stock consideration(17,196)—(17,196)
Total consideration$105,121$—$105,121
Goodwill$4,466$59$4,525
The Company recognized goodwill of $4,525,000, which included measurement period adjustments related to the finalization of the tax basis of Covenant’s customer intangibles and its impact on the deferred tax liability associated with these intangibles. Goodwill was calculated as the excess of the fair value of consideration exchanged as compared to the fair value of identifiable net assets acquired and was allocated to the Company’s Factoring segment. The goodwill in this acquisition resulted from expected synergies and expansion intoin the Colorado and Kansas markets.factoring market. The goodwill iswill not being amortizedbe deducted for tax purposes.

Consideration included cash due from Covenant subsequent to liquidation of the stock consideration with an acquisition date fair value of $17,196,000. The TARP Preferred Stock assumed infair value of cash due from Covenant was based on the acquisitionCompany's stock price on the date of the Agreement, less an estimate of broker commissions and discounts. During the year ended December 31, 2020, the entirety of the acquired stock was redeemedsold by Covenant, Covenant delivered net proceeds of $28,064,000, and the Company at par on Augustrecognized $10,868,000 of other noninterest income measured as the difference between the initial purchase accounting measurement and the amount of net proceeds delivered to the Company upon liquidation. Of the total $10,868,000 of noninterest income recognized, $2,007,000 was recognized during the three months ended September 30, 2020, and the remainder was recognized during the three months ended December 31, 2016.

11

2020.
The intangible assets recognized include a customer relationship intangible asset with an acquisition date fair value of $3,500,000 which will be amortized utilizing an accelerated method over its eight year estimated useful life.
14

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TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In connection

The indemnification asset was measured separately from the related covered portfolio. It is not contractually embedded in the covered portfolio nor is it transferable with the ColoEast acquisition,covered portfolio should the Company acquired loans bothchoose to dispose of the portfolio or a portion of the portfolio. The indemnification asset was initially recorded in other assets in the Consolidated Balance Sheets at the time of the TFS Acquisition at a fair value of $30,959,000, measured as the present value of the estimated cash payments expected to be received from Covenant for probable losses on the covered Over-Formula Advance Portfolio. These cash flows were discounted at a rate to reflect the uncertainty of the timing and receipt of the payments from Covenant. The amount ultimately collected for this asset will be dependent upon the performance of the underlying covered portfolio, the passage of time, and Covenant's willingness and ability to make necessary payments. The terms of the Agreement are such that indemnification has no expiration date and the Company will continue to carry the indemnification asset until ultimate resolution of the covered portfolio. The indemnification asset is reviewed quarterly and changes to the asset are recorded as adjustments to other noninterest income, as appropriate, within the Consolidated Statements of Income. The value of the indemnification asset was $4,786,000 and $36,225,000 at September 30, 2021 and December 31, 2020, respectively.
During the three months ended March 31, 2021, new adverse developments with the largest of the three Over-Formula Advance clients caused the Company to charge-off the entire Over-Formula Advance amount due from that client. This resulted in a net charge-off of $41,265,000; however, this net charge-off had no impact on credit loss expense for the three months ended March 31, 2021 as the entire amount had been reserved in a prior period. In accordance with the Agreement reached with Covenant, Covenant reimbursed the Company for $35,633,000 of this charge-off by drawing on its secured line of credit, which was reflected on the Company's March 31, 2021 Consolidated Balance Sheet as a current and withoutperforming equipment loan held for investment. Given separate developments with the other two Over-Formula Advance clients, the Company reserved an additional $2,844,000 reflected in credit loss expense for the three months ended March 31, 2021. The $2,844,000 increase in required ACL as well as accretion of most of the fair value discount on the indemnification asset held at December 31, 2020 resulted in a $4,654,000 gain on the indemnification asset which was recorded through non-interest income. Since March 31, 2021, Covenant has paid down its secured line of credit with TBK in its entirety and carries no outstanding balance at September 30, 2021. At September 30, 2021, Covenant had remaining availability of $9,361,000 on its TBK line of credit available to cover our indemnification balance of up to $5,038,000.
During the three months ended September 30, 2021, there were no material changes in the underlying credit quality of the remaining two Over-Formula Advance clients. As such, there were no charge-offs related to these balances and no material adjustments were made to the corresponding ACL balances or the indemnification asset during that period.
The contractually required payments and the fair value at acquisition of factored receivables purchased for which there was not, at acquisition, evidence of more than insignificant deterioration of credit quality since origination (non-PCD loans) totaled $45,228,000 and $44,962,000, respectively.
Management determined that the $62,200,000 in Over-Formula Advances obtained through the TFS Acquisition had experienced more than insignificant credit deterioration since origination. The acquired loans were initially recorded at fair value with no carryover of any allowance for loan losses. Acquired loans were segregated betweenorigination and thus, deemed those consideredOver-Formula Advances to be purchased credit impaired (“PCI”deteriorated ("PCD") loans and those without credit impairment at acquisition.. Other, less significant factored receivables were also considered to be PCD. The following table presents details on acquired loansinformation at the acquisition date:

 

Loans, Excluding

 

 

PCI

 

 

Total

 

(Dollars in thousands)

 

PCI Loans

 

 

Loans

 

 

Loans

 

Commercial real estate

 

$

86,569

 

 

$

10,907

 

 

$

97,476

 

Construction, land development, land

 

 

58,718

 

 

 

2,933

 

 

 

61,651

 

1-4 family residential properties

 

 

36,412

 

 

 

91

 

 

 

36,503

 

Farmland

 

 

100,977

 

 

 

233

 

 

 

101,210

 

Commercial

 

 

151,605

 

 

 

5,129

 

 

 

156,734

 

Factored receivables

 

 

694

 

 

 

—

 

 

 

694

 

Consumer

 

 

6,507

 

 

 

—

 

 

 

6,507

 

 

 

$

441,482

 

 

$

19,293

 

 

$

460,775

 

The operationsdate for factored receivables purchased for which there was, at acquisition, evidence of ColoEast are includedmore than insignificant deterioration of credit quality since origination:

(Dollars in thousands)
Purchase price of loans at acquisition$25,147
Allowance for credit losses at acquisition37,415
Non-credit discount/(premium) at acquisition941
Par value of acquired loans at acquisition$63,503
Revenue and earnings of TFS since the Company’s operating results beginning August 1, 2016.

acquisition date have not been disclosed as the acquired company was merged into the Company and separate financial information is not readily available.

Expenses related to the acquisition, including professional fees and integrationother transaction costs, totaling $1,618,000$827,000 were recorded in noninterest expense in the consolidated statements of income during the three months ended September 30, 2016.

2020.

15
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TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Triumph Premium Finance
On April 20, 2020, the Company entered into an agreement to sell the assets (the “Disposal Group”) of Triumph Premium Finance (“TPF”) and exit its premium finance line of business. The decision to sell TPF was made during the three months ended March 31, 2020, and at March 31, 2020, the carrying amount of the Disposal Group was transferred to assets held for sale. The sale closed on June 30, 2020.
A summary of the carrying amount of the assets in the Disposal Group and the gain on sale is as follows:
(Dollars in thousands)
Carrying amount of assets in the disposal group:
Loans$84,504 
Premises and equipment, net45 
Other assets11 
84,560 
Carrying amount of liabilities in the disposal group:
Other liabilities479 
Total carrying amount$84,081 
Total consideration received94,531 
Gain on sale of division10,450 
Transaction costs692 
Gain on sale of division, net of transaction costs$9,758 
The Disposal Group was included in the Banking segment, and the loans in the Disposal Group were previously included in the commercial loan portfolio.
NOTE 3 - SECURITIES

Equity Securities with Readily Determinable Fair Values
The Company held equity securities with fair values of $5,623,000 and $5,826,000 at September 30, 2021 and December 31, 2020, respectively. The gross realized and unrealized losses recognized on equity securities with readily determinable fair values in noninterest income in the Company’s consolidated statements of income were as follows:
Three Months Ended September 30,Nine Months Ended September 30,
(Dollars in thousands)2021202020212020
Unrealized gains (losses) on equity securities held at the reporting date$(231)$(371)$(203)$603 
Realized gains (losses) on equity securities sold during the period— — — — 
$(231)$(371)$(203)$603 
16
Table of Contents
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Debt Securities
Debt securities have been classified in the financial statements as available for sale or held to maturity. The following table summarizes the amortized cost, fair value, and allowance for credit losses of debt securities and their approximate fair values at September 30, 2017the corresponding amounts of gross unrealized gains and December 31, 2016 are as follows:

losses of available for sale securities recognized in accumulated other comprehensive income (loss) and gross unrecognized gains and losses of held to maturity securities:

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

(Dollars in thousands)

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Fair

 

(Dollars in thousands)Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Allowance
for Credit
Losses		Fair
Value

September 30, 2017

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

September 30, 2021September 30, 2021Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Allowance
for Credit
Losses		Fair
Value

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for sale securities:

U.S. Government agency obligations

 

$

125,347

 

 

$

449

 

 

$

(422

)

 

$

125,374

 

U.S. Government agency obligations$4,999 $2 $— $— $5,001 

U.S. Treasury notes

 

 

1,936

 

 

 

15

 

 

 

—

 

 

 

1,951

 

Mortgage-backed securities, residential

 

 

21,150

 

 

 

390

 

 

 

(101

)

 

 

21,439

 

Mortgage-backed securities, residential17,308 860 (1)— 18,167 

Asset backed securities

 

 

12,492

 

 

 

60

 

 

 

(71

)

 

 

12,481

 

Asset-backed securitiesAsset-backed securities6,860 5 (1)— 6,864 

State and municipal

 

 

25,169

 

 

 

21

 

 

 

(133

)

 

 

25,057

 

State and municipal28,513 662 — — 29,175 
CLO securitiesCLO securities96,928 3,806 (15)— 100,719 

Corporate bonds

 

 

20,752

 

 

 

110

 

 

 

(4

)

 

 

20,858

 

Corporate bonds1,990 71 — — 2,061 

SBA pooled securities

 

 

139

 

 

 

2

 

 

 

—

 

 

 

141

 

SBA pooled securities2,735 94 — — 2,829 

Mutual fund

 

 

2,000

 

 

 

25

 

 

 

—

 

 

 

2,025

 

Total available for sale securities

 

$

208,985

 

 

$

1,072

 

 

$

(731

)

 

$

209,326

 

Total available for sale securities$159,333 $5,500 $(17)$— $164,816 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

Amortized

 

 

Unrecognized

 

 

Unrecognized

 

 

Fair

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

Held to maturity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CLO securities

 

$

17,999

 

 

$

548

 

 

$

(888

)

 

$

17,659

 

12

(Dollars in thousands)Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrecognized
Losses		Fair
Value
September 30, 2021
Held to maturity securities:
CLO securities$7,225 $— $(1,691)$5,534 
Allowance for credit losses(1,737)
Total held to maturity securities, net of ACL$5,488 
(Dollars in thousands)Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Allowance for Credit LossesFair
Value
December 31, 2020
Available for sale securities:
U.S. Government agency obligations$14,942 $146 $— $— $15,088 
Mortgage-backed securities, residential26,547 1,139 (2)— 27,684 
Asset-backed securities7,091 — (52)— 7,039 
State and municipal36,238 1,157 — — 37,395 
CLO Securities118,128 4,335 (259)— 122,204 
Corporate bonds11,373 205 (5)— 11,573 
SBA pooled securities3,200 133 (6)— 3,327 
Total available for sale securities$217,519 $7,115 $(324)$— $224,310 
(Dollars in thousands)Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrecognized
Losses		Fair
Value
December 31, 2020
Held to maturity securities:
CLO securities$7,945 $— $(2,095)$5,850 
Allowance for credit losses(2,026)
Total held to maturity securities, net of ACL$5,919 
17

Table of Contents
TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

(Dollars in thousands)

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Fair

 

December 31, 2016

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government agency obligations

 

$

180,945

 

 

$

640

 

 

$

(643

)

 

$

180,942

 

Mortgage-backed securities, residential

 

 

24,710

 

 

 

453

 

 

 

(173

)

 

 

24,990

 

Asset backed securities

 

 

13,031

 

 

 

30

 

 

 

(159

)

 

 

12,902

 

State and municipal

 

 

27,339

 

 

 

6

 

 

 

(708

)

 

 

26,637

 

Corporate bonds

 

 

27,287

 

 

 

106

 

 

 

(3

)

 

 

27,390

 

SBA pooled securities

 

 

156

 

 

 

1

 

 

 

—

 

 

 

157

 

Mutual fund

 

 

2,000

 

 

 

11

 

 

 

—

 

 

 

2,011

 

Total available for sale securities

 

$

275,468

 

 

$

1,247

 

 

$

(1,686

)

 

$

275,029

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

Amortized

 

 

Unrecognized

 

 

Unrecognized

 

 

Fair

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

Held to maturity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CLO securities

 

$

29,352

 

 

$

1,527

 

 

$

(58

)

 

$

30,821

 

The amortized cost and estimated fair value of securities at September 30, 2017,2021, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

Available for Sale Securities

 

 

Held to Maturity Securities

 

 

Amortized

 

 

Fair

 

 

Amortized

 

 

Fair

 

Available for Sale SecuritiesHeld to Maturity Securities

(Dollars in thousands)

 

Cost

 

 

Value

 

 

Cost

 

 

Value

 

(Dollars in thousands)Amortized
Cost		Fair
Value		Amortized
Cost		Fair
Value

Due in one year or less

 

$

46,995

 

 

$

46,965

 

 

$

—

 

 

$

—

 

Due in one year or less$14,984 $15,046 $— $— 

Due from one year to five years

 

 

104,197

 

 

 

104,315

 

 

 

—

 

 

 

—

 

Due from one year to five years3,697 3,770 — — 

Due from five years to ten years

 

 

7,570

 

 

 

7,520

 

 

 

9,470

 

 

 

10,017

 

Due from five years to ten years72,591 75,497 7,225 5,534 

Due after ten years

 

 

14,442

 

 

 

14,440

 

 

 

8,529

 

 

 

7,642

 

Due after ten years41,158 42,643 — — 

 

 

173,204

 

 

 

173,240

 

 

 

17,999

 

 

 

17,659

 

132,430 136,956 7,225 5,534 

Mortgage-backed securities, residential

 

 

21,150

 

 

 

21,439

 

 

 

—

 

 

 

—

 

Mortgage-backed securities, residential17,308 18,167 — — 

Asset backed securities

 

 

12,492

 

 

 

12,481

 

 

 

—

 

 

 

—

 

Asset-backed securitiesAsset-backed securities6,860 6,864 — — 

SBA pooled securities

 

 

139

 

 

 

141

 

 

 

—

 

 

 

—

 

SBA pooled securities2,735 2,829 — — 

Mutual fund

 

 

2,000

 

 

 

2,025

 

 

 

—

 

 

 

—

 

 

$

208,985

 

 

$

209,326

 

 

$

17,999

 

 

$

17,659

 

$159,333 $164,816 $7,225 $5,534 

Proceeds from sales of debt securities and the associated gross gains and losses for the threeas well as net gains and nine months ended September 30, 2017 and 2016losses from calls of debt securities are as follows:

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

Three Months Ended September 30,Nine Months Ended September 30,

(Dollars in thousands)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

(Dollars in thousands)2021202020212020

Proceeds

 

$

2,936

 

 

$

19,982

 

 

$

2,936

 

 

$

24,327

 

Proceeds$— $65,184 $— $65,184 

Gross gains

 

 

35

 

 

 

5

 

 

 

35

 

 

 

10

 

Gross gains— 3,217 — 3,217 

Gross losses

 

 

—

 

 

 

73

 

 

 

—

 

 

 

73

 

Gross losses— (140)— (140)
Net gains and losses from calls of securitiesNet gains and losses from calls of securities4 32 5 133 

Securities

Debt securities with a carrying amount of approximately $123,616,000$88,968,000 and $194,571,000$73,056,000 at September 30, 20172021 and December 31, 2016,2020, respectively, were pledged to secure public deposits, customer repurchase agreements, and for other purposes required or permitted by law.

13

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Information pertaining to

Accrued interest on available for sale securities with gross unrealizedtotaled $776,000 and unrecognized losses$1,233,000 at September 30, 20172021 and December 31, 2016,2020, respectively, and was included in other assets in the consolidated balance sheets. There was no accrued interest related to debt securities reversed against interest income for the three and nine months ended September 30, 2021 and 2020.
The following table summarizes available for sale debt securities in an unrealized loss position for which an allowance for credit losses has not been recorded, aggregated by investment category and length of time that individual securities have been in a continuous loss position, are summarized as follows:

position:

 

Less than 12 Months

 

 

12 Months or More

 

 

Total

 

(Dollars in thousands)

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

September 30, 2017

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

Available for sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government agency obligations

 

$

10,139

 

 

$

(20

)

 

$

44,942

 

 

$

(402

)

 

$

55,081

 

 

$

(422

)

U.S. Treasury notes

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Mortgage-backed securities, residential

 

 

4,308

 

 

 

(34

)

 

 

2,039

 

 

 

(67

)

 

 

6,347

 

 

 

(101

)

Asset backed securities

 

 

4,900

 

 

 

(71

)

 

 

—

 

 

 

—

 

 

 

4,900

 

 

 

(71

)

State and municipal

 

 

6,448

 

 

 

(31

)

 

 

13,840

 

 

 

(102

)

 

 

20,288

 

 

 

(133

)

Corporate bonds

 

 

371

 

 

 

(4

)

 

 

—

 

 

 

—

 

 

 

371

 

 

 

(4

)

SBA pooled securities

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Mutual fund

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

$

26,166

 

 

$

(160

)

 

$

60,821

 

 

$

(571

)

 

$

86,987

 

 

$

(731

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less than 12 Months

 

 

12 Months or More

 

 

Total

 

Less than 12 Months12 Months or MoreTotal

(Dollars in thousands)

 

Fair

 

 

Unrecognized

 

 

Fair

 

 

Unrecognized

 

 

Fair

 

 

Unrecognized

 

(Dollars in thousands)Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses

September 30, 2017

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

Held to maturity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CLO securities

 

$

1,863

 

 

$

(26

)

 

$

5,779

 

 

$

(862

)

 

$

7,642

 

 

$

(888

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less than 12 Months

 

 

12 Months or More

 

 

Total

 

(Dollars in thousands)

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

December 31, 2016

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

September 30, 2021September 30, 2021Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses
Available for sale securities:Available for sale securities:

U.S. Government agency obligations

 

$

95,362

 

 

$

(643

)

 

$

—

 

 

$

—

 

 

$

95,362

 

 

$

(643

)

U.S. Government agency obligations$— $— $— $— $— $— 

Mortgage-backed securities, residential

 

 

6,594

 

 

 

(173

)

 

 

—

 

 

 

—

 

 

 

6,594

 

 

 

(173

)

Mortgage-backed securities, residential— — 18 (1)18 (1)

Asset backed securities

 

 

—

 

 

 

—

 

 

 

7,946

 

 

 

(159

)

 

 

7,946

 

 

 

(159

)

Asset-backed securitiesAsset-backed securities— — 5,060 (1)5,060 (1)

State and municipal

 

 

25,771

 

 

 

(708

)

 

 

—

 

 

 

—

 

 

 

25,771

 

 

 

(708

)

State and municipal— — — — — — 
CLO securitiesCLO securities9,972 (9)2,766 (6)12,738 (15)

Corporate bonds

 

 

372

 

 

 

(3

)

 

 

—

 

 

 

—

 

 

 

372

 

 

 

(3

)

Corporate bonds— — — — — — 

SBA pooled securities

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

SBA pooled securities— — — — — — 

Mutual fund

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

$

128,099

 

 

$

(1,527

)

 

$

7,946

 

 

$

(159

)

 

$

136,045

 

 

$

(1,686

)

$9,972 $(9)$7,844 $(8)$17,816 $(17)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less than 12 Months

 

 

12 Months or More

 

 

Total

 

(Dollars in thousands)

 

Fair

 

 

Unrecognized

 

 

Fair

 

 

Unrecognized

 

 

Fair

 

 

Unrecognized

 

December 31, 2016

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

Held to maturity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CLO securities

 

$

3,323

 

 

$

(58

)

 

$

—

 

 

$

—

 

 

$

3,323

 

 

$

(58

)

18
Table of Contents
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Less than 12 Months12 Months or MoreTotal
(Dollars in thousands)Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses
December 31, 2020
Available for sale securities:
U.S. Government agency obligations$— $— $— $— $— $— 
Mortgage-backed securities, residential100 (1)215 (1)315 (2)
Asset-backed securities129 — 6,911 (52)7,040 (52)
State and municipal— — — — — — 
CLO Securities12,083 (93)29,785 (166)41,868 (259)
Corporate bonds498 (5)150 — 648 (5)
SBA pooled securities889 (6)29 — 918 (6)
$13,699 $(105)$37,090 $(219)$50,789 $(324)
Management evaluates available for sale debt securities for other than temporaryin unrealized loss positions to determine whether the impairment at least on a quarterly basis, and more frequently when economicis due to credit-related factors or market concerns warrant such evaluation.noncredit-related factors. Consideration is given to (1) the length of time and the extent to which the fair value has beenis less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value.

14

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

At September 30, 2017,2021, the Company had 7112 available for sale debt securities in an unrealized loss position.position without an allowance for credit losses. Management does not have the intent to sell any of these securities and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline. Management does not believe that any of the securities are impaired due to reasons of credit quality. Accordingly, as of September 30, 2017,2021, management believes that the unrealized losses detailed in the previous table are temporarydue to noncredit-related factors, including changes in interest rates and other market conditions, and therefore no other than temporary impairment loss haslosses have been recognized in the Company’s consolidated statements of income.

The following table presents the activity in the allowance for credit losses for held to maturity debt securities:
(Dollars in thousands)Three Months Ended September 30,Nine Months Ended September 30,
Held to Maturity CLO Securities2021202020212020
Allowance for credit losses:
Beginning balance$1,727 $1,855 $2,026 $— 
Impact of adopting ASC 326— — — 126 
Credit loss expense10 106 (289)1,835 
Allowance for credit losses ending balance$1,737 $1,961 $1,737 $1,961 
The Company’s held to maturity securities are investments in the unrated subordinated notes of collateralized loan obligation funds. These securities are the junior-most in securitization capital structures, and are subject to suspension of distributions if the credit of the underlying loan portfolios deteriorates materially.  The ACL on held to maturity securities is estimated at each measurement date on a collective basis by major security type. At September 30, 2021 and December 31, 2020, the Company’s held to maturity securities consisted of 3 investments in the subordinated notes of collateralized loan obligation (“CLO”) funds. Expected credit losses for these securities are estimated using a discounted cash flow methodology which considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Ultimately, the realized cash flows on CLO securities such as these will be driven by a variety of factors, including credit performance of the underlying loan portfolio, adjustments to the portfolio by the asset manager, and the timing of a potential call. As of September 30, 2021, $5,810,000 of the Company’s held to maturity securities were classified as nonaccrual.
19
Table of Contents
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN AND LEASECREDIT LOSSES

Loans Held for Sale
The following table presents loans held for sale:
(Dollars in thousands)September 30, 2021December 31, 2020
Commercial real estate$19,519 $— 
1-4 family residential1,554 6,319 
Commercial5,364 18,227 
Total loans held for sale$26,437 $24,546 
Loans Held for Investment
Loans
The following table presents the recorded investmentamortized cost and unpaid principal balance of loans held for loans at September 30, 2017 and December 31, 2016:

investment:

 

September 30, 2017

 

 

December 31, 2016

 

 

Recorded

 

 

Unpaid

 

 

 

 

 

 

Recorded

 

 

Unpaid

 

 

 

 

 

September 30, 2021December 31, 2020

(Dollars in thousands)

 

Investment

 

 

Principal

 

 

Difference

 

 

Investment

 

 

Principal

 

 

Difference

 

(Dollars in thousands)Amortized
Cost		Unpaid
Principal		DifferenceAmortized
Cost		Unpaid
Principal		Difference

Commercial real estate

 

$

574,530

 

 

$

579,896

 

 

$

(5,366

)

 

$

442,237

 

 

$

447,926

 

 

$

(5,689

)

Commercial real estate$630,106 $632,182 $(2,076)$779,158 $782,614 $(3,456)

Construction, land development, land

 

 

141,368

 

 

 

143,200

 

 

 

(1,832

)

 

 

109,812

 

 

 

113,211

 

 

 

(3,399

)

Construction, land development, land171,814 171,998 (184)219,647 220,021 (374)

1-4 family residential properties

 

 

96,032

 

 

 

97,469

 

 

 

(1,437

)

 

 

104,974

 

 

 

106,852

 

 

 

(1,878

)

1-4 family residential1-4 family residential127,073 127,446 (373)157,147 157,731 (584)

Farmland

 

 

130,471

 

 

 

131,528

 

 

 

(1,057

)

 

 

141,615

 

 

 

142,673

 

 

 

(1,058

)

Farmland82,990 83,549 (559)103,685 104,522 (837)

Commercial

 

 

890,372

 

 

 

893,268

 

 

 

(2,896

)

 

 

778,643

 

 

 

783,349

 

 

 

(4,706

)

Commercial1,398,497 1,410,739 (12,242)1,562,957 1,579,841 (16,884)

Factored receivables

 

 

341,880

 

 

 

343,684

 

 

 

(1,804

)

 

 

238,198

 

 

 

239,432

 

 

 

(1,234

)

Factored receivables1,607,028 1,611,525 (4,497)1,120,770 1,122,008 (1,238)

Consumer

 

 

30,093

 

 

 

30,110

 

 

 

(17

)

 

 

29,764

 

 

 

29,782

 

 

 

(18

)

Consumer12,677 12,689 (12)15,838 15,863 (25)

Mortgage warehouse

 

 

220,717

 

 

 

220,717

 

 

 

—

 

 

 

182,381

 

 

 

182,381

 

 

 

—

 

Mortgage warehouse752,545 752,545 — 1,037,574 1,037,574 — 

Total

 

 

2,425,463

 

 

$

2,439,872

 

 

$

(14,409

)

 

 

2,027,624

 

 

$

2,045,606

 

 

$

(17,982

)

Allowance for loan and lease losses

 

 

(20,367

)

 

 

 

 

 

 

 

 

 

 

(15,405

)

 

 

 

 

 

 

 

 

Total loans held for investmentTotal loans held for investment4,782,730 $4,802,673 $(19,943)4,996,776 $5,020,174 $(23,398)
Allowance for credit lossesAllowance for credit losses(41,017)(95,739)

 

$

2,405,096

 

 

 

 

 

 

 

 

 

 

$

2,012,219

 

 

 

 

 

 

 

 

 

$4,741,713 $4,901,037 

The difference between the recorded investmentamortized cost and the unpaid principal balance is primarily associated with (1) premiums and discounts associated with acquisition date fair value adjustments on acquired loans (both PCItotaling $12,119,000 and non-PCI) totaling $10,807,000 and $15,210,000$18,511,000 at September 30, 20172021 and December 31, 2016,2020, respectively, and (2) net deferred origination and factoring fees totaling $3,602,000$7,824,000 and $2,772,000$4,887,000 at September 30, 20172021 and December 31, 2016,2020, respectively.

Accrued interest on loans, which is excluded from the amortized cost of loans held for investment, totaled $15,235,000 and $18,198,000 at September 30, 2021 and December 31, 2020, respectively, and was included in other assets in the consolidated balance sheets.
At September 30, 20172021 and December 31, 2016,2020, the Company had $31,833,000$189,565,000 and $23,597,000,$145,892,000, respectively, of customer reserves associated with factored receivables. These amounts represent customer reserves held to settle any payment disputes or collection shortfalls, may be used to pay customers’ obligations to various third parties as directed by the customer, are periodically released to or withdrawn by customers, and are reported as deposits in the consolidated balance sheets.

At September 30, 2021 and December 31, 2020 the balance of the Over-Formula Advance Portfolio included in factored receivables was $10,077,000 and $62,100,000, respectively.
20
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TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of September 30, 2021 the Company carried a separate $19,361,000 receivable (the “Misdirected Payments”) payable by the United States Postal Service (“USPS”) arising from accounts factored to the largest Over-Formula Advance Portfolio carrier. This amount is separate from the acquired Over-Formula Advances. The amounts represented by this receivable were paid by the USPS directly to such customer in contravention of notices of assignment delivered to, and previously honored by, the USPS, which amount was then not remitted back to us by such customer as required. The USPS disputes their obligation to make such payment, citing purported deficiencies in the notices delivered to them. In addition to commencing litigation against such customer, we have commenced litigation against the USPS seeking a ruling that the USPS was obligated to make the payments represented by this receivable directly to us. During the third quarter of 2021 we, together with the USPS, entered into a stipulation of dismissal without prejudice for our initial action with respect to this matter in United States Federal District Court and filed a new action seeking recourse from the USPS in the United States Court of Federal Claims.Based on our legal analysis and discussions with our counsel advising us on this matter, we continue to believe it is probable that we will prevail in such action and that the USPS will have the capacity to make payment on such receivable. Consequently, the Company has not reserved for such balance as of September 30, 2021.
Loans with carrying amounts of $505,516,000$1,652,900,000 and $497,573,000$2,255,441,000 at September 30, 20172021 and December 31, 2016,2020, respectively, were pledged to secure Federal Home Loan Bank borrowing capacity, Paycheck Protection Program Liquidity Facility borrowings and Federal Reserve Bank discount window borrowing capacity.

During the three and nine months ended September 30, 2017,2021, loans with a carrying amountamounts of $1,965,000$12,373,000 and $76,976,000, respectively, were transferred from loans held for investment to loans held for sale as the Company made theat fair value concurrently with management’s change in intent and decision to sell the loans. TheseDuring the three and nine months ended September 30, 2021, loans transferred to held for sale were subsequently sold resulting in proceeds of $1,919,000$17,446,000 and losses$63,028,000, respectively. The Company recorded net gains on saletransfers and sales of loans of $46,000,$210,000 and $1,676,000, respectively, for the three and nine months ended September 30, 2021, which wereare recorded as other noninterest income in the consolidated statements of income for the nine months ended September 30, 2017. No loans were transferred to loans held for sale during the three months ended September 30, 2017. income.
During the three and nine months ended September 30, 2016,2020, loans with a carrying amount of $14,394,000$56,934,000 and $18,513,000,$172,565,000, respectively, were transferred from loans held for investment to loans held for sale. Thesesale at fair value concurrently with management’s change in intent and decision to sell the loans. During the three and nine months ended September 30, 2020, loans transferred to held for sale were subsequently sold resulting in proceeds of $14,642,000$58,313,000 and $18,680,000, respectively,$145,513,000, respectively. The Company recorded net losses on transfers and gains on salesales of loans of $248,000$515,000 and $167,000, respectively.  

15

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

$466,000 for the three and nine months ended September 30, 2020.

Allowance for Loan and LeaseCredit Losses

The Company’s estimate of the ACL reflects losses expected over the remaining contractual life of the assets. The contractual term does not consider extensions, renewals or modifications unless the Company has identified an expected troubled debt restructuring. The activity in the allowance for loan and leasecredit losses (“ALLL”ACL”) related to loans held for investment is as follows:
(Dollars in thousands)Beginning
Balance		Credit Loss
Expense		Charge-offsRecoveriesEnding
Balance
Three months ended September 30, 2021
Commercial real estate$4,404 $(453)$(17)$2 $3,936 
Construction, land development, land1,490 (434)— 1 1,057 
1-4 family residential545 (64)(1)5 485 
Farmland669 (59)— — 610 
Commercial15,674 (1,187)(211)— 14,276 
Factored receivables21,823 1,186 (3,597)239 19,651 
Consumer236 153 (139)— 250 
Mortgage warehouse853 (101)— — 752 
$45,694 $(959)$(3,965)$247 $41,017 

21
Table of Contents
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)Beginning
Balance		Initial ACL on Loans Purchased with Credit DeteriorationCredit Loss
Expense		Charge-offsRecoveriesEnding
Balance
Three months ended September 30, 2020
Commercial real estate$15,539 $— $(2,440)$— $53 $13,152 
Construction, land development, land5,917 — (319)— 2 5,600 
1-4 family residential2,027 — (56)(6)7 1,972 
Farmland958 — (95)— — 863 
Commercial23,283 — (657)(528)615 22,713 
Factored receivables5,244 37,415 3,059 (773)40 44,985 
Consumer768 — 29 (118)31 710 
Mortgage warehouse877 — 123 — — 1,000 
$54,613 $37,415 $(356)$(1,425)$748 $90,995 
(Dollars in thousands)Beginning
Balance		Credit Loss
Expense		Charge-offsRecoveriesEnding
Balance
Nine Months Ended September 30, 2021
Commercial real estate$10,182 $(6,239)$(17)$10 $3,936 
Construction, land development, land3,418 (2,352)(12)3 1,057 
1-4 family residential1,225 (804)(26)90 485 
Farmland832 (222)— — 610 
Commercial22,040 (7,936)(426)598 14,276 
Factored receivables56,463 8,547 (45,683)324 19,651 
Consumer542 (99)(285)92 250 
Mortgage warehouse1,037 (285)— — 752 
$95,739 $(9,390)$(46,449)$1,117 $41,017 

(Dollars in thousands)Beginning
Balance		Impact of
Adopting
ASC 326		Initial ACL on Loans Purchased with Credit DeteriorationCredit Loss
Expense		Charge-offsRecoveriesReclassification
to Held
For Sale		Ending
Balance
Nine months ended September 30, 2020
Commercial real estate$5,353 $1,372 $— $6,366 $— $61 $— $13,152 
Construction, land development, land1,382 (187)— 4,400 — 5 — 5,600 
1-4 family residential308 513 — 1,138 (27)40 — 1,972 
Farmland670 437 — (324)— 80 — 863 
Commercial12,566 (184)— 11,004 (1,173)949 (449)22,713 
Factored receivables7,657 (1,630)37,415 4,475 (3,027)95 — 44,985 
Consumer488 (52)— 583 (410)101 — 710 
Mortgage warehouse668 — — 332 — — — 1,000 
$29,092 $269 $37,415 $27,974 $(4,637)$1,331 $(449)$90,995 
The ACL was estimated using the current expected credit loss model. The primary reasons for the decrease in required ACL during the nine months ended September 30, 2021 are net charge-offs on PCD Over-Formula Advances (classified as factored receivables) and improvement of the loss drivers that the Company forecasts to calculate expected losses during the period.
The primary reason for the decrease in required ACL during the three months ended September 30, 2021 is a decrease in specific reserves commensurate with a decrease in nonperforming loans.
22
Table of Contents
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Management determined that the $62,200,000 in Over-Formula Advances obtained through the TFS Acquisition during 2020 had experienced more than insignificant credit deterioration since origination and thus deemed those Over-Formula Advances to be purchased credit deteriorated ("PCD"). The total remaining ACL on all acquired PCD Over-Formula Advances was approximately $10,077,000 at September 30, 2021 compared to $48,485,000 at December 31, 2020. The primary driver of the decrease in required ACL during the nine months ended September 30, 2021 was a net charge-off of $41,265,000 due from the largest acquired Over-Formula Advance client. This was partially offset by an additional $2,844,000 million of reserve required across the two remaining Over-Formula Advance clients. As of September 30, 2021, the entire remaining acquired PCD Over-Formula Advance balance was fully reserved. See Note 2 – Business Combinations and Divestitures for further discussion of Over-Formula Advance activity.
The Company uses the discounted cash flow (DCF) method to estimate ACL for the commercial real estate, construction, land development, land, 1-4 family residential, commercial (excluding liquid credit), and consumer loan pools. For all loan pools utilizing the DCF method, the Company utilizes and forecasts national unemployment as a loss driver. The Company also utilizes and forecasts either one-year percentage change in national retail sales (commercial real estate – non multifamily, commercial general, commercial agriculture, commercial asset-based lending, commercial equipment finance, consumer), one-year percentage change in the national home price index (1-4 family residential and construction, land development, land), or one-year percentage change in national gross domestic product (commercial real estate – multifamily) as a second loss driver depending on the nature of the underlying loan pool and how well that loss driver correlates to expected future losses. Consistent forecasts of the loss drivers are used across the loan segments.
For all DCF models at September 30, 2021, the Company has determined that four quarters represents a reasonable and supportable forecast period and reverts back to a historical loss rate over eight quarters on a straight-line basis. The Company leverages economic projections from a reputable and independent third party to inform its loss driver forecasts over the four-quarter forecast period. Other internal and external indicators of economic forecasts are also considered by the Company when developing the forecast metrics. At September 30, 2021, as compared to December 31, 2020, the Company forecasted a significant decrease in national unemployment, an increase in one-year percentage change in national retail sales, an increase in one-year percentage change in the national home price index, and an increase in one-year percentage change in national gross domestic product. At September 30, 2021, for percentage changes in national retail sales, national home price index and national gross domestic product, the Company projected significant growth in the first projected quarter followed by percentage change growth for the last three projected quarters resembling something closer to pre-COVID-19 levels albeit slightly more modest. Projected unemployment rates used by the Company are relatively stable over the four projected quarters at levels somewhat higher than pre-COVID-19 conditions.
The Company uses a loss-rate method to estimate expected credit losses for the farmland, liquid credit, factored receivable, and mortgage warehouse loan pools. For each of these loan segments, the Company applies an expected loss ratio based on internal and peer historical losses adjusted as appropriate for qualitative factors. Qualitative loss factors are based on the Company's judgment of company, market, industry or business specific data, changes in underlying loan composition of specific portfolios, trends relating to credit quality, delinquency, non-performing and adversely rated loans, and reasonable and supportable forecasts of economic conditions. Loss factors used to calculate the required ACL on pools that use the loss-rate method reflect the forecasted economic conditions described above.
For the nine months ended September 30, 2021, in addition to the impact of changes to the ACL on acquired PCD Over-Formula Advances previously discussed, changes in projected loss drivers and assumptions over the reasonable and supportable forecast period decreased the required ACL by $10,319,000. Further, the Company experienced a net reserve release of specific reserves on non-PCD loans. Changes in loan volume and mix during the nine months ended September 30, 2021 also decreased the ACL during the period. Non-PCD-related net charge-offs reduced the ACL by $4,067,000 during the nine months ended September 30, 2021.
For the three months ended September 30, 2021, changes in projected loss drivers and assumptions over the reasonable and supportable forecast period decreased the required ACL by $177,000. Further, the Company experienced a net reserve release of specific reserves on non-PCD loans. Changes in loan volume and mix during the three months ended September 30, 2021 did not have a significant impact the ACL during the period. Non-PCD-related net charge-offs reduced the ACL by $3,718,000 during the three months ended September 30, 2021.
23
Table of Contents
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses, and the related ACL allocated to these loans:
(Dollars in thousands)Real EstateAccounts
Receivable		EquipmentOtherTotalACL
Allocation
September 30, 2021
Commercial real estate$3,544 $— $— $142 $3,686 $267 
Construction, land development, land1,008 — — — 1,008 — 
1-4 family residential1,260 — — 168 1,428 10 
Farmland1,916 — 130 — 2,046 — 
Commercial569 — 4,266 3,062 7,897 2,187 
Factored receivables— 45,524 — — 45,524 11,650 
Consumer— — — 251 251 — 
Mortgage warehouse— — — — — — 
Total$8,297 $45,524 $4,396 $3,623 $61,840 $14,114 
At September 30, 2021 the balance of the Over-Formula Advance Portfolio included in factored receivables $10,077,000 and was fully reserved. At September 30, 2021 the balance of Misdirected Payments included in factored receivables was $19,361,000 and carried no ACL allocation.
(Dollars in thousands)Real EstateAccounts
Receivable		EquipmentOtherTotalACL
Allocation
December 31, 2020
Commercial real estate$12,454 $— $— $162 $12,616 $1,334 
Construction, land development, land2,317 — — — 2,317 271 
1-4 family residential1,948 — — 248 2,196 34 
Farmland2,189 — 143 198 2,530 — 
Commercial1,813 — 5,842 9,352 17,007 5,163 
Factored receivables— 92,437 — — 92,437 51,371 
Consumer— — — 253 253 37 
Mortgage warehouse— — — — — — 
Total$20,721 $92,437 $5,985 $10,213 $129,356 $58,210 
At December 31, 2020 the balance of the Over-Formula Advance Portfolio included in factored receivables was $62,100,000 and carried an ACL allocation of $48,485,000. At December 31, 2020 the balance of Misdirected Payments included in factored receivables was $19,600,000 and carried no ACL allocation.
Past Due and Nonaccrual Loans
The following tables present an aging of contractually past due loans:
(Dollars in thousands)Past Due
30-59 Days		Past Due
60-90 Days		Past Due 90
Days or More		Total
Past Due		CurrentTotalPast Due 90
Days or More
and Accruing
September 30, 2021
Commercial real estate$376 $— $16 $392 $629,714 $630,106 $— 
Construction, land development, land— — 977 977 170,837 171,814 — 
1-4 family residential680 437 720 1,837 125,236 127,073 — 
Farmland— — 550 550 82,440 82,990 — 
Commercial1,541 141 3,843 5,525 1,392,972 1,398,497 84 
Factored receivables49,084 14,643 36,936 100,663 1,506,365 1,607,028 36,936 
Consumer300 41 85 426 12,251 12,677 — 
Mortgage warehouse— — — — 752,545 752,545 — 
Total$51,981 $15,262 $43,127 $110,370 $4,672,360 $4,782,730 $37,020 
24
Table of Contents
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)Past Due
30-59 Days		Past Due
60-90 Days		Past Due 90
Days or More		Total
Past Due		CurrentTotalPast Due 90
Days or More
and Accruing
December 31, 2020
Commercial real estate$1,512 $147 $7,623 $9,282 $769,876 $779,158 $— 
Construction, land development, land185 1,001 323 1,509 218,138 219,647 22 
1-4 family residential1,978 448 952 3,378 153,769 157,147 — 
Farmland407 1,000 300 1,707 101,978 103,685 — 
Commercial2,084 1,765 5,770 9,619 1,553,338 1,562,957 35 
Factored receivables33,377 28,506 72,717 134,600 986,170 1,120,770 72,717 
Consumer385 116 81 582 15,256 15,838 — 
Mortgage warehouse— — — — 1,037,574 1,037,574 — 
Total$39,928 $32,983 $87,766 $160,677 $4,836,099 $4,996,776 $72,774 
At September 30, 2021 and December 31, 2020, total past due Over-Formula Advances recorded in factored receivables was $10,077,000 and $62,100,000, respectively, all of which was considered past due 90 days or more. Aging of the Over-Formula Advances is based upon the service month on which the advances were made by TFS prior to acquisition. At September 30, 2021 and December 31, 2020, the Misdirected Payments totaled $19,361,000 and $19,600,000, respectively. At September 30, 2021, the entire $19,361,000 balance of the Misdirected Payments was considered past due 90 days or more, and at December 31, 2020 approximately $6,000,000 was considered past due 90 days or more. Given the nature of factored receivables, these assets are disclosed as past due 90 days or more still accruing; however, the Company is not recognizing income on the assets at September 30, 2021. Historically, any income recognized on factored receivables that are past due 90 days or more has not been material.
The following table presents the amortized cost basis of loans on nonaccrual status and the amortized cost basis of loans on nonaccrual status for which there was no related allowance for credit losses:
September 30, 2021December 31, 2020
(Dollars in thousands)NonaccrualNonaccrual
With No ACL		NonaccrualNonaccrual
With No ACL
Commercial real estate$2,113 $1,438 $9,945 $3,461 
Construction, land development, land986 986 2,294 1,199 
1-4 family residential1,310 1,262 1,848 1,651 
Farmland2,046 2,046 2,531 2,531 
Commercial7,828 4,262 17,202 4,891 
Factored receivables— — — — 
Consumer251 251 253 188 
Mortgage warehouse— — — — 
$14,534 $10,245 $34,073 $13,921 
The following table presents accrued interest on nonaccrual loans reversed through interest income:
Three Months Ended September 30,Nine Months Ended September 30,
(Dollars in thousands)2021202020212020
Commercial real estate$— $371 $8 $435 
Construction, land development, land— 1 — 1 
1-4 family residential— 21 1 31 
Farmland— 36 6 36 
Commercial— 37 23 76 
Factored receivables— — — — 
Consumer3 — 3 2 
Mortgage warehouse— — — — 
$3 $466 $41 $581 
25
Table of Contents
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
There was no interest earned on nonaccrual loans during the three and nine months ended September 30, 20172021 and 2016 is as follows:

2020.

(Dollars in thousands)

 

Beginning

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending

 

Three months ended September 30, 2017

 

Balance

 

 

Provision

 

 

Charge-offs

 

 

Recoveries

 

 

Balance

 

Commercial real estate

 

$

2,506

 

 

$

58

 

 

$

—

 

 

$

—

 

 

$

2,564

 

Construction, land development, land

 

 

915

 

 

 

210

 

 

 

—

 

 

 

—

 

 

 

1,125

 

1-4 family residential properties

 

 

149

 

 

 

111

 

 

 

(1

)

 

 

23

 

 

 

282

 

Farmland

 

 

261

 

 

 

(22

)

 

 

—

 

 

 

—

 

 

 

239

 

Commercial

 

 

10,603

 

 

 

(629

)

 

 

(755

)

 

 

929

 

 

 

10,148

 

Factored receivables

 

 

4,507

 

 

 

645

 

 

 

(136

)

 

 

30

 

 

 

5,046

 

Consumer

 

 

627

 

 

 

208

 

 

 

(270

)

 

 

178

 

 

 

743

 

Mortgage warehouse

 

 

229

 

 

 

(9

)

 

 

—

 

 

 

—

 

 

 

220

 

 

 

$

19,797

 

 

$

572

 

 

$

(1,162

)

 

$

1,160

 

 

$

20,367

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Beginning

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending

 

Three months ended September 30, 2016

 

Balance

 

 

Provision

 

 

Charge-offs

 

 

Recoveries

 

 

Balance

 

Commercial real estate

 

$

1,792

 

 

$

123

 

 

$

(4

)

 

$

1

 

 

$

1,912

 

Construction, land development, land

 

 

181

 

 

 

44

 

 

 

—

 

 

 

7

 

 

 

232

 

1-4 family residential properties

 

 

259

 

 

 

(10

)

 

 

—

 

 

 

6

 

 

 

255

 

Farmland

 

 

143

 

 

 

(22

)

 

 

—

 

 

 

—

 

 

 

121

 

Commercial

 

 

6,697

 

 

 

2,521

 

 

 

(1,615

)

 

 

217

 

 

 

7,820

 

Factored receivables

 

 

4,204

 

 

 

(7

)

 

 

(285

)

 

 

33

 

 

 

3,945

 

Consumer

 

 

293

 

 

 

114

 

 

 

(68

)

 

 

29

 

 

 

368

 

Mortgage warehouse

 

 

203

 

 

 

56

 

 

 

—

 

 

 

—

 

 

 

259

 

 

 

$

13,772

 

 

$

2,819

 

 

$

(1,972

)

 

$

293

 

 

$

14,912

 

16

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands)

 

Beginning

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending

 

Nine months ended September 30, 2017

 

Balance

 

 

Provision

 

 

Charge-offs

 

 

Recoveries

 

 

Balance

 

Commercial real estate

 

$

1,813

 

 

$

888

 

 

$

(137

)

 

$

—

 

 

$

2,564

 

Construction, land development, land

 

 

465

 

 

 

1,235

 

 

 

(582

)

 

 

7

 

 

 

1,125

 

1-4 family residential properties

 

 

253

 

 

 

16

 

 

 

(29

)

 

 

42

 

 

 

282

 

Farmland

 

 

170

 

 

 

69

 

 

 

—

 

 

 

—

 

 

 

239

 

Commercial

 

 

8,014

 

 

 

4,660

 

 

 

(3,833

)

 

 

1,307

 

 

 

10,148

 

Factored receivables

 

 

4,088

 

 

 

1,978

 

 

 

(1,102

)

 

 

82

 

 

 

5,046

 

Consumer

 

 

420

 

 

 

813

 

 

 

(877

)

 

 

387

 

 

 

743

 

Mortgage warehouse

 

 

182

 

 

 

38

 

 

 

—

 

 

 

—

 

 

 

220

 

 

 

$

15,405

 

 

$

9,697

 

 

$

(6,560

)

 

$

1,825

 

 

$

20,367

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Beginning

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending

 

Nine months ended September 30, 2016

 

Balance

 

 

Provision

 

 

Charge-offs

 

 

Recoveries

 

 

Balance

 

Commercial real estate

 

$

1,489

 

 

$

413

 

 

$

(5

)

 

$

15

 

 

$

1,912

 

Construction, land development, land

 

 

367

 

 

 

(142

)

 

 

—

 

 

 

7

 

 

 

232

 

1-4 family residential properties

 

 

274

 

 

 

(38

)

 

 

(63

)

 

 

82

 

 

 

255

 

Farmland

 

 

134

 

 

 

(13

)

 

 

—

 

 

 

—

 

 

 

121

 

Commercial

 

 

5,276

 

 

 

3,680

 

 

 

(1,784

)

 

 

648

 

 

 

7,820

 

Factored receivables

 

 

4,509

 

 

 

77

 

 

 

(743

)

 

 

102

 

 

 

3,945

 

Consumer

 

 

216

 

 

 

313

 

 

 

(223

)

 

 

62

 

 

 

368

 

Mortgage warehouse

 

 

302

 

 

 

(43

)

 

 

—

 

 

 

—

 

 

 

259

 

 

 

$

12,567

 

 

$

4,247

 

 

$

(2,818

)

 

$

916

 

 

$

14,912

 

The following table presents loans individually and collectively evaluated for impairment, as well as purchased credit impaired (“PCI”) loans, and their respective ALLL allocations:

(Dollars in thousands)

 

Loan Evaluation

 

 

ALLL Allocations

 

September 30, 2017

 

Individually

 

 

Collectively

 

 

PCI

 

 

Total loans

 

 

Individually

 

 

Collectively

 

 

PCI

 

 

Total ALLL

 

Commercial real estate

 

$

843

 

 

$

563,655

 

 

$

10,032

 

 

$

574,530

 

 

$

125

 

 

$

2,439

 

 

$

—

 

 

$

2,564

 

Construction, land development, land

 

 

136

 

 

 

138,379

 

 

 

2,853

 

 

 

141,368

 

 

 

—

 

 

 

1,125

 

 

 

—

 

 

 

1,125

 

1-4 family residential properties

 

 

1,923

 

 

 

92,991

 

 

 

1,118

 

 

 

96,032

 

 

 

152

 

 

 

130

 

 

 

—

 

 

 

282

 

Farmland

 

 

3,241

 

 

 

127,116

 

 

 

114

 

 

 

130,471

 

 

 

—

 

 

 

239

 

 

 

—

 

 

 

239

 

Commercial

 

 

21,120

 

 

 

868,414

 

 

 

838

 

 

 

890,372

 

 

 

2,152

 

 

 

7,996

 

 

 

—

 

 

 

10,148

 

Factored receivables

 

 

4,519

 

 

 

337,361

 

 

 

—

 

 

 

341,880

 

 

 

1,517

 

 

 

3,529

 

 

 

—

 

 

 

5,046

 

Consumer

 

 

162

 

 

 

29,931

 

 

 

—

 

 

 

30,093

 

 

 

—

 

 

 

743

 

 

 

—

 

 

 

743

 

Mortgage warehouse

 

 

—

 

 

 

220,717

 

 

 

—

 

 

 

220,717

 

 

 

—

 

 

 

220

 

 

 

—

 

 

 

220

 

 

 

$

31,944

 

 

$

2,378,564

 

 

$

14,955

 

 

$

2,425,463

 

 

$

3,946

 

 

$

16,421

 

 

$

—

 

 

$

20,367

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Loan Evaluation

 

 

ALLL Allocations

 

December 31, 2016

 

Individually

 

 

Collectively

 

 

PCI

 

 

Total loans

 

 

Individually

 

 

Collectively

 

 

PCI

 

 

Total ALLL

 

Commercial real estate

 

$

1,456

 

 

$

427,918

 

 

$

12,863

 

 

$

442,237

 

 

$

100

 

 

$

1,358

 

 

$

355

 

 

$

1,813

 

Construction, land development, land

 

 

362

 

 

 

105,493

 

 

 

3,957

 

 

 

109,812

 

 

 

25

 

 

 

440

 

 

 

—

 

 

 

465

 

1-4 family residential properties

 

 

1,095

 

 

 

101,551

 

 

 

2,328

 

 

 

104,974

 

 

 

1

 

 

 

252

 

 

 

—

 

 

 

253

 

Farmland

 

 

1,333

 

 

 

140,045

 

 

 

237

 

 

 

141,615

 

 

 

—

 

 

 

170

 

 

 

—

 

 

 

170

 

Commercial

 

 

33,033

 

 

 

738,088

 

 

 

7,522

 

 

 

778,643

 

 

 

2,101

 

 

 

5,913

 

 

 

—

 

 

 

8,014

 

Factored receivables

 

 

3,176

 

 

 

235,022

 

 

 

—

 

 

 

238,198

 

 

 

1,546

 

 

 

2,542

 

 

 

—

 

 

 

4,088

 

Consumer

 

 

73

 

 

 

29,691

 

 

 

—

 

 

 

29,764

 

 

 

—

 

 

 

420

 

 

 

—

 

 

 

420

 

Mortgage warehouse

 

 

—

 

 

 

182,381

 

 

 

—

 

 

 

182,381

 

 

 

—

 

 

 

182

 

 

 

—

 

 

 

182

 

 

 

$

40,528

 

 

$

1,960,189

 

 

$

26,907

 

 

$

2,027,624

 

 

$

3,773

 

 

$

11,277

 

 

$

355

 

 

$

15,405

 

17

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following is a summary of information pertaining to impaired loans. PCI loans that have not deteriorated subsequent to acquisition are not considered impaired and therefore do not require an allowance and are excluded from these tables.

  

 

Impaired Loans and Purchased Credit

 

 

Impaired Loans

 

 

 

Impaired Loans With a Valuation Allowance

 

 

Without a Valuation Allowance

 

(Dollars in thousands)

 

Recorded

 

 

Unpaid

 

 

Related

 

 

Recorded

 

 

Unpaid

 

September 30, 2017

 

Investment

 

 

Principal

 

 

Allowance

 

 

Investment

 

 

Principal

 

Commercial real estate

 

$

168

 

 

$

168

 

 

$

125

 

 

$

675

 

 

$

709

 

Construction, land development, land

 

 

—

 

 

 

—

 

 

 

—

 

 

 

136

 

 

 

136

 

1-4 family residential properties

 

 

235

 

 

 

235

 

 

 

152

 

 

 

1,688

 

 

 

1,793

 

Farmland

 

 

—

 

 

 

—

 

 

 

—

 

 

 

3,241

 

 

 

3,332

 

Commercial

 

 

12,479

 

 

 

12,574

 

 

 

2,152

 

 

 

8,641

 

 

 

8,700

 

Factored receivables

 

 

4,519

 

 

 

4,519

 

 

 

1,517

 

 

 

—

 

 

 

—

 

Consumer

 

 

—

 

 

 

—

 

 

 

—

 

 

 

162

 

 

 

160

 

Mortgage warehouse

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

PCI

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

$

17,401

 

 

$

17,496

 

 

$

3,946

 

 

$

14,543

 

 

$

14,830

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired Loans and Purchased Credit

 

 

Impaired Loans

 

 

 

Impaired Loans With a Valuation Allowance

 

 

Without a Valuation Allowance

 

(Dollars in thousands)

 

Recorded

 

 

Unpaid

 

 

Related

 

 

Recorded

 

 

Unpaid

 

December 31, 2016

 

Investment

 

 

Principal

 

 

Allowance

 

 

Investment

 

 

Principal

 

Commercial real estate

 

$

517

 

 

$

517

 

 

$

100

 

 

$

939

 

 

$

1,011

 

Construction, land development, land

 

 

277

 

 

 

275

 

 

 

25

 

 

 

85

 

 

 

86

 

1-4 family residential properties

 

 

8

 

 

 

14

 

 

 

1

 

 

 

1,087

 

 

 

1,215

 

Farmland

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,333

 

 

 

1,364

 

Commercial

 

 

15,022

 

 

 

15,018

 

 

��

2,101

 

 

 

18,011

 

 

 

18,096

 

Factored receivables

 

 

3,176

 

 

 

3,176

 

 

 

1,546

 

 

 

—

 

 

 

—

 

Consumer

 

 

—

 

 

 

—

 

 

 

—

 

 

 

73

 

 

 

73

 

Mortgage warehouse

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

PCI

 

 

525

 

 

 

525

 

 

 

355

 

 

 

—

 

 

 

—

 

 

 

$

19,525

 

 

$

19,525

 

 

$

4,128

 

 

$

21,528

 

 

$

21,845

 

18

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents average impaired loans and interest recognized on impaired loans for the three and nine months ended September 30, 2017 and 2016:

  

 

Three Months Ended

 

 

Three Months Ended

 

 

 

September 30, 2017

 

 

September 30, 2016

 

 

 

Average

 

 

Interest

 

 

Average

 

 

Interest

 

(Dollars in thousands)

 

Impaired Loans

 

 

Recognized

 

 

Impaired Loans

 

 

Recognized

 

Commercial real estate

 

$

853

 

 

$

—

 

 

$

682

 

 

$

—

 

Construction, land development, land

 

 

135

 

 

 

—

 

 

 

276

 

 

 

—

 

1-4 family residential properties

 

 

1,817

 

 

 

16

 

 

 

1,030

 

 

 

1

 

Farmland

 

 

3,361

 

 

 

14

 

 

 

—

 

 

 

—

 

Commercial

 

 

22,003

 

 

 

167

 

 

 

21,648

 

 

 

163

 

Factored receivables

 

 

3,907

 

 

 

—

 

 

 

3,509

 

 

 

—

 

Consumer

 

 

136

 

 

 

4

 

 

 

43

 

 

 

—

 

Mortgage warehouse

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

PCI

 

 

143

 

 

 

—

 

 

 

1,442

 

 

 

—

 

 

 

$

32,355

 

 

$

201

 

 

$

28,630

 

 

$

164

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2017

 

 

September 30, 2016

 

 

 

Average

 

 

Interest

 

 

Average

 

 

Interest

 

(Dollars in thousands)

 

Impaired Loans

 

 

Recognized

 

 

Impaired Loans

 

 

Recognized

 

Commercial real estate

 

$

1,150

 

 

$

1

 

 

$

700

 

 

$

—

 

Construction, land development, land

 

 

249

 

 

 

—

 

 

 

138

 

 

 

2

 

1-4 family residential properties

 

 

1,509

 

 

 

23

 

 

 

879

 

 

 

9

 

Farmland

 

 

2,287

 

 

 

32

 

 

 

—

 

 

 

—

 

Commercial

 

 

27,077

 

 

 

398

 

 

 

18,987

 

 

 

677

 

Factored receivables

 

 

3,847

 

 

 

—

 

 

 

3,617

 

 

 

—

 

Consumer

 

 

117

 

 

 

4

 

 

 

26

 

 

 

2

 

Mortgage warehouse

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

PCI

 

 

262

 

 

 

—

 

 

 

983

 

 

 

—

 

 

 

$

36,498

 

 

$

458

 

 

$

25,330

 

 

$

690

 

19

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Past Due and Nonaccrual Loans

The following is a summary of contractually past due and nonaccrual loans at September 30, 2017 and December 31, 2016:

 

Past Due

 

 

Past Due 90

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

30-89 Days

 

 

Days or More

 

 

 

 

 

 

 

 

 

September 30, 2017

 

Still Accruing

 

 

Still Accruing

 

 

Nonaccrual

 

 

Total

 

Commercial real estate

 

$

971

 

 

$

—

 

 

$

843

 

 

$

1,814

 

Construction, land development, land

 

 

10

 

 

 

—

 

 

 

136

 

 

 

146

 

1-4 family residential properties

 

 

1,710

 

 

 

—

 

 

 

1,905

 

 

 

3,615

 

Farmland

 

 

604

 

 

 

141

 

 

 

2,449

 

 

 

3,194

 

Commercial

 

 

7,036

 

 

 

58

 

 

 

16,223

 

 

 

23,317

 

Factored receivables

 

 

17,815

 

 

 

1,594

 

 

 

—

 

 

 

19,409

 

Consumer

 

 

717

 

 

 

—

 

 

 

162

 

 

 

879

 

Mortgage warehouse

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

PCI

 

 

—

 

 

 

—

 

 

 

1,540

 

 

 

1,540

 

 

 

$

28,863

 

 

$

1,793

 

 

$

23,258

 

 

$

53,914

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Past Due

 

 

Past Due 90

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

30-89 Days

 

 

Days or More

 

 

 

 

 

 

 

 

 

December 31, 2016

 

Still Accruing

 

 

Still Accruing

 

 

Nonaccrual

 

 

Total

 

Commercial real estate

 

$

699

 

 

$

144

 

 

$

1,163

 

 

$

2,006

 

Construction, land development, land

 

 

619

 

 

 

—

 

 

 

362

 

 

 

981

 

1-4 family residential properties

 

 

956

 

 

 

—

 

 

 

1,039

 

 

 

1,995

 

Farmland

 

 

3,583

 

 

 

141

 

 

 

541

 

 

 

4,265

 

Commercial

 

 

11,060

 

 

 

1,077

 

 

 

26,619

 

 

 

38,756

 

Factored receivables

 

 

11,921

 

 

 

2,153

 

 

 

—

 

 

 

14,074

 

Consumer

 

 

667

 

 

 

2

 

 

 

73

 

 

 

742

 

Mortgage warehouse

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

PCI

 

 

2,020

 

 

 

104

 

 

 

8,233

 

 

 

10,357

 

 

 

$

31,525

 

 

$

3,621

 

 

$

38,030

 

 

$

73,176

 

The following table presents information regarding nonperforming loansloans:

(Dollars in thousands)September 30, 2021December 31, 2020
Nonaccrual loans(1)
$14,534 $34,073 
Factored receivables greater than 90 days past due26,859 13,927 
Other nonperforming factored receivables(2)
1,428 10,029 
Troubled debt restructurings accruing interest17 3 
$42,838 $58,032 
(1)Includes troubled debt restructurings of $5,048,000 and $13,321,000 at September 30, 2021 and December 31, 2020, respectively.
(2)Other nonperforming factored receivables represent the dates indicated:

(Dollars in thousands)

 

September 30, 2017

 

 

December 31, 2016

 

Nonaccrual loans(1)

 

$

23,258

 

 

$

38,030

 

Factored receivables greater than 90 days past due

 

 

1,594

 

 

 

2,153

 

Troubled debt restructurings accruing interest

 

 

5,396

 

 

 

5,123

 

 

 

$

30,248

 

 

$

45,306

 

portion of the Over-Formula Advance Portfolio that is not covered by Covenant's indemnification. This amount is also considered Classified from a risk rating perspective.

(1)

Includes troubled debt restructurings of $8,097,000 and $13,263,000 at September 30, 2017 and December 31, 2016, respectively.

Credit Quality Information

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, including: current collateral and financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes every loan and is performedrisk on a regular basis. Large groups of smaller balance homogeneous loans, such as consumer loans, are analyzed primarily based on payment status. The Company uses the following definitions for risk ratings:

Pass:

Loans classified as pass are

Pass – Pass rated loans withhave low to average risk and are not otherwise classified as substandard or doubtful.

20

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Substandard:

Loans classified as substandardclassified.

Classified – Classified loans are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the repayment of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful:

Loans Certain classified as doubtfulloans have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

PCI:

At acquisition, PCI loans had


26
Table of Contents
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Management considers the characteristicsguidance in ASC 310-20 when determining whether a modification, extension, or renewal of substandard loansloan constitutes a current period origination. Generally, current period renewals of credit are re-underwritten at the point of renewal and it was probable, at acquisition, that all contractually required principal and interest payments would not be collected. The Company evaluates these loans on a projected cash flow basis with this evaluation performed quarterly.

considered current period originations for purposes of the table below. As of September 30, 20172021 and December 31, 2016,2020, based on the most recent analysis performed, the risk category of loans is as follows:

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2017

 

Pass

 

 

Substandard

 

 

Doubtful

 

 

PCI

 

 

Total

 

Commercial real estate

 

$

562,699

 

 

$

1,799

 

 

$

—

 

 

$

10,032

 

 

$

574,530

 

Construction, land development, land

 

 

138,379

 

 

 

136

 

 

 

—

 

 

 

2,853

 

 

 

141,368

 

1-4 family residential

 

 

92,973

 

 

 

1,941

 

 

 

—

 

 

 

1,118

 

 

 

96,032

 

Farmland

 

 

124,818

 

 

 

5,539

 

 

 

—

 

 

 

114

 

 

 

130,471

 

Commercial

 

 

853,119

 

 

 

36,415

 

 

 

—

 

 

 

838

 

 

 

890,372

 

Factored receivables

 

 

338,247

 

 

 

2,153

 

 

 

1,480

 

 

 

—

 

 

 

341,880

 

Consumer

 

 

29,930

 

 

 

163

 

 

 

—

 

 

 

—

 

 

 

30,093

 

Mortgage warehouse

 

 

220,717

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

220,717

 

 

$

2,360,882

 

 

$

48,146

 

 

$

1,480

 

 

$

14,955

 

 

$

2,425,463

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revolving
Loans		Revolving
Loans
Converted
To Term
Loans		Total

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)Year of Origination

December 31, 2016

 

Pass

 

 

Substandard

 

 

Doubtful

 

 

PCI

 

 

Total

 

September 30, 2021September 30, 202120212020201920182017PriorRevolving
Loans		Revolving
Loans
Converted
To Term
Loans		Total

Commercial real estate

 

$

422,423

 

 

$

6,951

 

 

$

—

 

 

$

12,863

 

 

$

442,237

 

Commercial real estate
PassPass$161,022 $254,852 $48,186 $33,865 $56,081 $46,685 
ClassifiedClassified690 3,425 41 — 16 — — — 4,172 
Total commercial real estateTotal commercial real estate$161,712 $258,277 $48,227 $33,865 $56,097 $46,685 $25,243 $— $630,106 

Construction, land development, land

 

 

105,493

 

 

 

362

 

 

 

—

 

 

 

3,957

 

 

 

109,812

 

Construction, land development, land
PassPass$76,239 $57,943 $12,580 $21,680 $1,214 $1,159 $9 $— $170,824 
ClassifiedClassified— 845 — — — 145 — — 990 
Total construction, land development, landTotal construction, land development, land$76,239 $58,788 $12,580 $21,680 $1,214 $1,304 $9 $— $171,814 

1-4 family residential

 

 

101,339

 

 

 

1,307

 

 

 

—

 

 

 

2,328

 

 

 

104,974

 

1-4 family residential
PassPass$21,915 $18,191 $9,961 $7,170 $10,068 $25,998 $32,018 $327 $125,648 
ClassifiedClassified219 240 53 7 8 816 82 — 1,425 
Total 1-4 family residentialTotal 1-4 family residential$22,134 $18,431 $10,014 $7,177 $10,076 $26,814 $32,100 $327 $127,073 

Farmland

 

 

136,474

 

 

 

4,904

 

 

 

—

 

 

 

237

 

 

 

141,615

 

Farmland
PassPass$11,922 $14,111 $11,021 $8,749 $10,212 $22,761 $1,283 $130 $80,189 
ClassifiedClassified699 524 650 336 128 307 157 — 2,801 
Total farmlandTotal farmland$12,621 $14,635 $11,671 $9,085 $10,340 $23,068 $1,440 $130 $82,990 

Commercial

 

 

729,634

 

 

 

41,487

 

 

 

—

 

 

 

7,522

 

 

 

778,643

 

Commercial
PassPass$419,788 $401,324 $92,389 $25,544 $17,534 $7,485 $413,973 $436 $1,378,473 
ClassifiedClassified1,422 7,995 5,493 571 66 464 4,013 — 20,024 
Total commercialTotal commercial$421,210 $409,319 $97,882 $26,115 $17,600 $7,949 $417,986 $436 $1,398,497 

Factored receivables

 

 

236,084

 

 

 

1,029

 

 

 

1,085

 

 

 

—

 

 

 

238,198

 

Factored receivables
PassPass$1,575,756 $— $— $— $— $— $— $— $1,575,756 
ClassifiedClassified10,594 20,678 — — — — — — 31,272 
Total factored receivablesTotal factored receivables$1,586,350 $20,678 $— $— $— $— $— $— $1,607,028 

Consumer

 

 

29,688

 

 

 

76

 

 

 

—

 

 

 

—

 

 

 

29,764

 

Consumer
PassPass$2,173 $2,072 $805 $689 $2,739 $3,881 $68 $— $12,427 
ClassifiedClassified5 — — 1 123 121 — — 250 
Total consumerTotal consumer$2,178 $2,072 $805 $690 $2,862 $4,002 $68 $— $12,677 

Mortgage warehouse

 

 

182,381

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

182,381

 

Mortgage warehouse
PassPass$752,545 $— $— $— $— $— $— $— $752,545 
ClassifiedClassified— — — — — — — — — 
Total mortgage warehouseTotal mortgage warehouse$752,545 $— $— $— $— $— $— $— $752,545 

 

$

1,943,516

 

 

$

56,116

 

 

$

1,085

 

 

$

26,907

 

 

$

2,027,624

 

Total loansTotal loans
PassPass$3,021,360 $748,493 $174,942 $97,697 $97,848 $107,969 $472,594 $893 $4,721,796 
ClassifiedClassified13,629 33,707 6,237 915 341 1,853 4,252 — 60,934 
Total loansTotal loans$3,034,989 $782,200 $181,179 $98,612 $98,189 $109,822 $476,846 $893 $4,782,730 


27
Table of Contents
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Revolving
Loans		Revolving
Loans
Converted
To Term
Loans		Total
(Dollars in thousands)Year of Origination
December 31, 202020202019201820172016Prior
Commercial real estate
Pass$271,406 $94,085 $62,075 $49,115 $27,921 $230,731 $27,666 $908 $763,907 
Classified10,298 2,239 133 1,367 664 550 — — 15,251 
Total commercial real estate$281,704 $96,324 $62,208 $50,482 $28,585 $231,281 $27,666 $908 $779,158 
Construction, land development, land
Pass$72,149 $12,490 $11,829 $5,820 $8,946 $105,584 $12 $500 $217,330 
Classified2,031 34 — — — 252 — — 2,317 
Total construction, land development, land$74,180 $12,524 $11,829 $5,820 $8,946 $105,836 $12 $500 $219,647 
1-4 family residential
Pass$58,300 $11,280 $11,425 $8,982 $4,400 $20,167 $35,326 $5,320 $155,200 
Classified1,473 149 137 23 11 49 105 — 1,947 
Total 1-4 family residential$59,773 $11,429 $11,562 $9,005 $4,411 $20,216 $35,431 $5,320 $157,147 
Farmland
Pass$37,212 $10,095 $7,388 $15,262 $7,908 $20,572 $1,421 $486 $100,344 
Classified994 407 403 — 22 590 925 — 3,341 
Total farmland$38,206 $10,502 $7,791 $15,262 $7,930 $21,162 $2,346 $486 $103,685 
Commercial
Pass$470,477 $162,203 $127,569 $94,154 $70,405 $181,312 $416,197 $11,396 $1,533,713 
Classified8,128 2,390 983 190 4,470 2,787 10,296 — 29,244 
Total commercial$478,605 $164,593 $128,552 $94,344 $74,875 $184,099 $426,493 $11,396 $1,562,957 
Factored receivables
Pass$1,081,316 $— $— $— $— $— $— $— $1,081,316 
Classified39,454 — — — — — — — 39,454 
Total factored receivables$1,120,770 $— $— $— $— $— $— $— $1,120,770 
Consumer
Pass$8,382 $2,251 $1,336 $1,258 $688 $1,594 $74 $— $15,583 
Classified146 28 18 36 11 16 — — 255 
Total consumer$8,528 $2,279 $1,354 $1,294 $699 $1,610 $74 $— $15,838 
Mortgage warehouse
Pass$1,037,574 $— $— $— $— $— $— $— $1,037,574 
Classified— — — — — — — — — 
Total mortgage warehouse$1,037,574 $— $— $— $— $— $— $— $1,037,574 
Total loans
Pass$3,036,816 $292,404 $221,622 $174,591 $120,268 $559,960 $480,696 $18,610 $4,904,967 
Classified62,524 5,247 1,674 1,616 5,178 4,244 11,326 — 91,809 
Total loans$3,099,340 $297,651 $223,296 $176,207 $125,446 $564,204 $492,022 $18,610 $4,996,776 
Troubled Debt Restructurings

and Loan Modifications

The Company had a recorded investment in troubled debt restructurings with an amortized cost of $13,493,000$5,065,000 and $18,386,000$13,324,000 as of September 30, 20172021 and December 31, 2016,2020, respectively. The Company had allocated specific allowances$1,292,000 and $2,469,000 of allowance for thesethose loans of $435,000 and $1,911,000 at September 30, 20172021 and December 31, 2016,2020, respectively, and had not committed to lend additional amounts. Troubled
28
Table of Contents
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents the pre- and post-modification recorded investment of loans modified as troubled debt restructurings areduring the result of extending amortization periods, reducing contractual interest rates, or a combination thereof.three and nine months ended September 30, 2021 and 2020. The Company did not grant principal reductions on any restructured loans.

21

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents

(Dollars in thousands)Extended
Amortization
Period		Payment
Deferrals		Protective AdvancesTotal
Modifications		Number of
Loans
Nine months ended September 30, 2021
Commercial real estate$— $— $741 $741 1 
Three months ended September 30, 2020
Commercial123 3,503 — 3,626 14 
Nine months ended September 30, 2020
Commercial real estate$— $246 $— $246 2 
Construction, land development, land$8 $— $— $8 1 
Farmland3,486 — — 3,486 1 
Commercial4,714 9,296 — 14,010 19 
$8,208 $9,542 $— $17,750 23 
There were no loans modified as troubled debt restructurings that occurred during the ninethree months ended September 30, 2017 and 2016:

2021.

  

 

 

 

 

 

Pre-Modification

 

 

Post-Modification

 

 

 

 

 

 

 

Outstanding

 

 

Outstanding

 

(Dollars in thousands)

 

Number of

 

 

Recorded

 

 

Recorded

 

September 30, 2017

 

Loans

 

 

Investment

 

 

Investment

 

Commercial

 

 

5

 

 

$

2,184

 

 

$

2,184

 

  

 

 

 

 

 

Pre-Modification

 

 

Post-Modification

 

 

 

 

 

 

 

Outstanding

 

 

Outstanding

 

(Dollars in thousands)

 

Number of

 

 

Recorded

 

 

Recorded

 

September 30, 2016

 

Loans

 

 

Investment

 

 

Investment

 

Commercial

 

 

24

 

 

$

15,663

 

 

$

15,663

 

During the nine months ended September 30, 2017,2021, the Company had four3 loans modified as troubled debt restructurings with a recorded investment of $2,999,000$1,681,000 for which there were payment defaults within twelve months following the modification. The full recorded investment in one of these loans of $2,702,000 was charged off during the period. During the nine months ended September 30, 2016, there were no defaults on any2020, the Company had 2 loans that were modified as troubled debt restructurings duringwith a recorded investment of $18,000 for which there were payment defaults within twelve months following the preceding twelve months.modification. Default is determined at 90 or more days past due.  

Purchased Credit Impaired Loans

due, upon charge-off, or upon foreclosure.

The Company hasfollowing table summarizes the balance of loans that were acquired,modified for which there was, at acquisition, evidenceborrowers impacted by the COVID-19 pandemic.
Three Months Ended September 30,Nine Months Ended September 30,
(Dollars in thousands)2021202020212020
Total modifications— 12,62510,459617,976
These modifications primarily consisted of deteriorationpayment deferrals to assist customers. As these modifications related to the COVID-19 pandemic and qualify under the provisions of credit quality since origination and for which it was probable, at acquisition, that all contractually requiredeither Section 4013 of the CARES act or Interagency Guidance, they are not considered troubled debt restructurings. The following table summarized the amortized cost of loans with payments would not be collected. The outstanding contractually required principal and interestcurrently in deferral and the carrying amount of theseaccrued interest related to the loans includedwith payments in the balance sheet amounts of loansdeferral at September 30, 20172021 and December 31, 2016, are as follows:

2020:

  

 

September 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Contractually required principal and interest:

 

 

 

 

 

 

 

 

Real estate loans

 

$

17,447

 

 

$

25,013

 

Commercial loans

 

 

1,590

 

 

 

9,703

 

Outstanding contractually required principal and interest

 

$

19,037

 

 

$

34,716

 

Gross carrying amount included in loans receivable

 

$

14,955

 

 

$

26,907

 

(Dollars in thousands)Total
Loans		Balance of
Loans Currently
in Deferral		Percentage
of Portfolio		Accrued
Interest
Receivable
September 30, 2021
Commercial real estate$630,106 $30,389 4.8 %$105 
Construction, land development, land171,814 1,340 0.8 %5 
1-4 family residential127,073 491 0.4 %11 
Farmland82,990 — — %— 
Commercial1,398,497 — — %— 
Factored receivables1,607,028 — — %— 
Consumer12,677 — — %— 
Mortgage warehouse752,545 — — %— 
Total$4,782,730 $32,220 0.7 %$121 

The changes in accretable yield during the three and nine months ended

29
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TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(Dollars in thousands)Total
Loans		Balance of
Loans Currently
in Deferral		Percentage
of Portfolio		Accrued
Interest
Receivable
December 31, 2020
Commercial real estate$779,158 $69,980 9.0 %$357 
Construction, land development, land219,647 18,821 8.6 %183 
1-4 family residential157,147 1,129 0.7 %15 
Farmland103,685 — — %— 
Commercial1,562,957 14,561 0.9 %166 
Factored receivables1,120,770 — — %— 
Consumer15,838 106 0.7 %5 
Mortgage warehouse1,037,574 — — %— 
Total$4,996,776 $104,597 2.1 %$726 
Residential Real Estate Loans In Process of Foreclosure
At September 30, 20172021 and 2016December 31, 2020, the Company had $375,000 and $251,000, respectively, in regard to1-4 family residential real estate loans transferred at acquisition for which it was probable that all contractually required payments would not be collected are as follows:

formal foreclosure proceedings were in process.

  

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Accretable yield, beginning balance

 

$

3,126

 

 

$

1,192

 

 

$

4,261

 

 

$

2,593

 

Additions

 

 

—

 

 

 

4,124

 

 

 

—

 

 

 

4,124

 

Accretion

 

 

(411

)

 

 

(417

)

 

 

(3,117

)

 

 

(2,451

)

Reclassification from nonaccretable to accretable yield

 

 

56

 

 

 

—

 

 

 

2,067

 

 

 

646

 

Disposals

 

 

(2

)

 

 

—

 

 

 

(442

)

 

 

(13

)

Accretable yield, ending balance

 

$

2,769

 

 

$

4,899

 

 

$

2,769

 

 

$

4,899

 

NOTE 5 - GOODWILL AND INTANGIBLE ASSETS

Goodwill and intangible assets consist of the following:

(Dollars in thousands)

 

September 30, 2017

 

 

December 31, 2016

 

(Dollars in thousands)September 30, 2021December 31, 2020

Goodwill

 

$

28,810

 

 

$

28,810

 

Goodwill$233,727 $163,209 

22

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

September 30, 2017

 

 

December 31, 2016

 

 

Gross Carrying

 

 

Accumulated

 

 

Net Carrying

 

 

Gross Carrying

 

 

Accumulated

 

 

Net Carrying

 

September 30, 2021December 31, 2020

(Dollars in thousands)

 

Amount

 

 

Amortization

 

 

Amount

 

 

Amount

 

 

Amortization

 

 

Amount

 

(Dollars in thousands)Gross Carrying
Amount		Accumulated
Amortization		Net Carrying
Amount		Gross Carrying
Amount		Accumulated
Amortization		Net Carrying
Amount

Core deposit intangibles

 

$

21,825

 

 

$

(10,780

)

 

$

11,045

 

 

$

21,825

 

 

$

(8,423

)

 

$

13,402

 

Core deposit intangibles$43,578 $(30,784)$12,794 $43,578 $(27,436)$16,142 
Software intangible assetsSoftware intangible assets16,932 (1,411)15,521 — — — 

Other intangible assets

 

 

3,793

 

 

 

(1,196

)

 

 

2,597

 

 

 

6,006

 

 

 

(1,687

)

 

 

4,319

 

Other intangible assets29,560 (11,547)18,013 19,200 (8,629)10,571 

 

$

25,618

 

 

$

(11,976

)

 

$

13,642

 

 

$

27,831

 

 

$

(10,110

)

 

$

17,721

 

$90,070 $(43,742)$46,328 $62,778 $(36,065)$26,713 

The changes in goodwill and intangible assets during the three and nine months ended September 30, 20172021 and 20162020 are as follows:

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

Three Months Ended September 30,Nine Months Ended September 30,

(Dollars in thousands)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

(Dollars in thousands)2021202020212020

Beginning balance

 

$

43,322

 

 

$

26,160

 

 

$

46,531

 

 

$

27,854

 

Beginning balance$286,567 $186,162 $189,922 $190,286 

Acquired intangibles

 

 

—

 

 

 

9,618

 

 

 

152

 

 

 

9,618

 

Acquired goodwill

 

 

—

 

 

 

12,629

 

 

 

—

 

 

 

12,629

 

Acquired goodwill— 4,520 73,697 4,520 

Divestiture

 

 

—

 

 

 

—

 

 

 

(1,339

)

 

 

—

 

Acquired intangible assetsAcquired intangible assets— 3,500 27,292 3,500 
Acquired goodwill - measurement period adjustmentAcquired goodwill - measurement period adjustment(3,238)— (3,179)— 

Amortization of intangibles

 

 

(870

)

 

 

(958

)

 

 

(2,892

)

 

 

(2,652

)

Amortization of intangibles(3,274)(2,141)(7,677)(6,265)

Ending balance

 

$

42,452

 

 

$

47,449

 

 

$

42,452

 

 

$

47,449

 

Ending balance$280,055 $192,041 $280,055 $192,041 

30
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TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 – VariableDERIVATIVE FINANCIAL INSTRUMENTS
The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s interest bearing deposits.
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest Entities

rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Beginning in June 2020, such derivatives were used to hedge the variable cash flows associated with interest bearing deposits.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in Accumulated Other Comprehensive Income and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate interest bearing deposits. During 2021, the Company estimates that an additional $58,000 will be reclassified as an increase in interest expense.
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Balance Sheet:
Derivative Assets
As of September 30, 2021As of December 31, 2020
(Dollars in thousands)Notional
Amount		Balance
Sheet Location		Fair Value
Total		Notional
Amount		Balance
Sheet Location		Fair Value
Total
Derivatives designated as hedging instruments:
Interest rate swaps$200,000 Other Assets$3,948 $200,000 Other Assets$816 
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TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The table below presents the effect of fair value and cash flow hedge accounting on Accumulated Other Comprehensive Income, net of tax:
Amount of
Gain or (Loss)
Recognized
in OCI on
Derivative		Amount of
Gain or (Loss)
Recognized in
OCI Included
Component		Location of
Gain or (Loss)
Recognized from
AOCI into
Income		Amount of
Gain or (Loss)
Reclassified
from AOCI
into Income		Amount of
Gain or (Loss)
Reclassified
from AOCI
into Income
Included
Component
(Dollars in thousands)
Three Months Ended September 30, 2021
Derivatives in cash flow hedging relationships:
Interest rate swaps$7 $7 Interest Expense$18 $18 
Three Months Ended September 30, 2020
Derivatives in cash flow hedging relationships:
Interest rate swaps$257 $257 Interest Expense$(16)$(16)
Nine Months Ended September 30, 2021
Derivatives in cash flow hedging relationships:
Interest rate swaps$2,386 $2,386 Interest Expense$70 $70 
Nine Months Ended September 30, 2020
Derivatives in cash flow hedging relationships:
Interest rate swaps$11 $11 Interest Expense$(16)$(16)
The Company has agreements with each of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, then the Company could also be declared in default on its derivative obligations.
The Company has agreements with certain of its derivative counterparties that contain a provision where if the company fails to maintain its status as a well capitalized institution, then the Company could be required to post additional collateral.
As of September 30, 2021, the fair value of derivatives in a net liability position, which includes accrued interest, related to these agreements was $0. As of September 30, 2021, the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions at September 30, 2021, it could have been required to settle its obligations under the agreements at their termination value of $3,940,000.
NOTE 7 – VARIABLE INTEREST ENTITIES
Collateralized Loan Obligation Funds – Closed

The Company, through its subsidiary TCA, acted as the asset manager or provided certain middle and back office staffing and services to the asset manager of various CLO funds. TCA earned asset management fees in accordance with the terms of its asset management or staffing and services agreements associated with the CLO funds. TCA earned asset management fees totaling $0 and $1,717,000 for the three and nine months ended September 30, 2017, respectively, and $1,553,000 and $4,787,000 for the three and nine months ended September 30, 2016, respectively. On March 31, 2017, the Company sold its membership interests in TCA as discussed in Note 2 – Business Combinations and Divestitures. As a result of the TCA sale, as of March 31, 2017 the Company no longer acts as asset manager or staffing and services provider for any CLO funds.

The Company holds investments in the subordinated notes of the following closed CLOCollateralized Loan Obligation (“CLO”) funds:

Offering

 

Offering

 

(Dollars in thousands)

Date

 

Amount

 

Trinitas CLO IV, LTD (Trinitas IV)

June 2, 2016

 

$

406,650

 

Trinitas CLO V, LTD (Trinitas V)

September 22, 2016

 

$

409,000

 

Trinitas CLO VI, LTD (Trinitas VI)

June 20, 2017

 

$

717,100

 

(Dollars in thousands)Offering
Date		Offering
Amount
Trinitas CLO IV, LTD (Trinitas IV)June 2, 2016$406,650 
Trinitas CLO V, LTD (Trinitas V)September 22, 2016$409,000 
Trinitas CLO VI, LTD (Trinitas VI)June 20, 2017$717,100 

32
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TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The net carrying amounts of the Company’s investments in the subordinated notes of the CLO funds, which represent the Company’s maximum exposure to loss as a result of its involvement with the CLO funds, totaled $8,529,000$5,488,000 and $3,380,000$5,919,000 at September 30, 20172021 and December 31, 2016,2020, respectively, and are classified as held to maturity securities within the Company’s consolidated balance sheets.

The Company performed a consolidation analysis to confirm whether the Company was required to consolidate the assets, liabilities, equity or operations of the aboveclosed CLO funds in its financial statements. The Company concluded that the closed CLO funds arewere variable interest entities and that the Company holds variable interests in the entities in the form of its investments in the subordinated notes of entities. However, the Company also concluded that the Company does not have the power to direct the activities that most significantly impact the entities’ economic performance. As a result, the Company is not the primary beneficiary and therefore is not required to consolidate the assets, liabilities, equity, or operations of the CLO funds in the Company’s financial statements.

23

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Collateralized Loan Obligation Fund – Warehouse Phase

On June 17, 2016, Trinitas CLO VI, Ltd. (“Trinitas VI”) was formed to be the issuer of a CLO offering. At December 31, 2016, the Company held an investment of $21,217,000 in the subordinated debt of the CLO fund during its warehouse phase, which was classified as other assets within the Company’s consolidated balance sheet. The CLO fund’s warehouse phase was closed and the final CLO issued on June 20, 2017, at which time the Company’s investment was repaid. The Company did not hold an investment in any CLO warehouse entities at September 30, 2017.

Income from the Company’s investment in CLO warehouse entities totaled $0 and $1,954,000 during the three and nine months ended September 30, 2017, respectively, and $657,000 and $2,415,000 during the three and nine months ended September 30, 2016, respectively, and is included in other noninterest income within the Company’s consolidated statements of income.

The Company performed a consolidation analysis of Trinitas VI during the warehouse phase and concluded that Trinitas VI was a variable interest entity and that the Company held a variable interest in the entity that could potentially be significant to the entity in the form of its investment in the subordinated notes of the entity. However, the Company also concluded that the Company did not have the power to direct the activities that most significantly impacted the entity’s economic performance. As a result, the Company was not the primary beneficiary and therefore was not required to consolidate the assets, liabilities, equity, or operations of the entityclosed CLO funds in the Company’s financial statements.

statements.

NOTE 78 - Deposits

DepositsBORROWINGS

Subordinated Notes
On September 30, 2016, the Company issued $50,000,000 of Fixed-to-Floating Rate Subordinated Notes due 2026 (the “2016 Notes”). The 2016 Notes initially bear interest at 6.50% per annum, payable semi-annually in arrears, to, but excluding, September 30, 2021, and, thereafter and to, but excluding, the maturity date or earlier redemption, interest shall be payable quarterly in arrears, at an annual floating rate equal to three-month LIBOR as determined for the applicable quarterly period, plus 5.345%. The Company redeemed the 2016 Notes in whole on September 30, 2021 at which time $755,000 in remaining deferred costs were recognized through interest expense.
On November 27, 2019, the Company issued $39,500,000 of Fixed-to-Floating Rate Subordinated Notes due 2029 (the “2019 Notes”). The 2019 Notes initially bear interest at 4.875% per annum, payable semi-annually in arrears, to, but excluding, November 27, 2024, and, thereafter and to, but excluding, the maturity date or earlier redemption, interest shall be payable quarterly in arrears, at an annual floating rate equal to a benchmark rate, initially three-month LIBOR, as determined for the applicable quarterly period, plus 3.330%. The Company may, at its option, beginning on November 27, 2024 and on any scheduled interest payment date thereafter, redeem the 2019 Notes, in whole or in part, at a redemption price equal to the outstanding principal amount of the 2019 Notes to be redeemed plus accrued and unpaid interest to, but excluding, the date of redemption.
The 2019 Notes are included on the consolidated balance sheets as liabilities at their carrying values of $38,479,000 and $38,356,000 at September 30, 20172021 and December 31, 20162020, respectively; however, for regulatory purposes, the carrying value of these obligations were eligible for inclusion in Tier 2 regulatory capital. Issuance costs related to the 2019 Notes totaled $1,218,000, including an underwriting discount of $593,000, and have been netted against the subordinated notes liability on the balance sheet. The underwriting discount and other debt issuance costs are summarizedbeing amortized using the effective interest method through the earliest redemption date and recognized as follows:

a component of interest expense.

(Dollars in thousands)

 

September 30, 2017

 

 

December 31, 2016

 

Noninterest bearing demand

 

$

403,643

 

 

$

363,351

 

Interest bearing demand

 

 

284,282

 

 

 

340,362

 

Individual retirement accounts

 

 

97,186

 

 

 

103,022

 

Money market

 

 

189,177

 

 

 

213,253

 

Savings

 

 

158,464

 

 

 

171,354

 

Certificates of deposit

 

 

770,599

 

 

 

756,351

 

Brokered deposits

 

 

109,194

 

 

 

68,092

 

Total Deposits

 

$

2,012,545

 

 

$

2,015,785

 

AtOn August 26, 2021, the Company issued $70,000,000 of Fixed-to-Floating Rate Subordinated Notes due 2031 (the “2021 Notes”). The 2021 Notes initially bear interest at 3.500% per annum, payable semi-annually in arrears, to, but excluding, September 30, 2017,1, 2026, and, thereafter and to, but excluding, the maturity date or earlier redemption, interest shall be payable quarterly in arrears, at an annual floating rate equal to a benchmark rate, initially the three-month term secured overnight financing rate ("SOFR"), as determined for the applicable quarterly period, plus 2.860%. The Company may, at its option, beginning on September 1, 2026 and on any scheduled maturitiesinterest payment date thereafter, redeem the 2021 Notes, in whole or in part, at a redemption price equal to the outstanding principal amount of certificatesthe 2021 Notes to be redeemed plus accrued and unpaid interest to, but excluding, the date of deposits, individual retirement accounts and brokered depositsredemption.

The 2021 Notes are included on the consolidated balance sheets as follows:

(Dollars in thousands)

 

September 30, 2017

 

Within one year

 

$

675,380

 

After one but within two years

 

 

197,842

 

After two but within three years

 

 

45,952

 

After three but within four years

 

 

25,461

 

After four but within five years

 

 

32,344

 

Total

 

$

976,979

 

Time deposits, including individual retirement accounts, certificatesliabilities at their carrying values of deposit, and brokered deposits, with individual balances of $250,000 and greater totaled $154,170,000 and $149,258,000$68,276,000 at September 30, 20172021; however, for regulatory purposes, the carrying value of these obligations were eligible for inclusion in Tier 2 regulatory capital. Issuance costs related to the 2021 Notes totaled $1,776,000, including a placement fee of $1,225,000, and December 31, 2016, respectively.

have been netted against the subordinated notes liability on the balance sheet. The underwriting discount and other debt issuance costs are being amortized using the effective interest method through the earliest redemption date and recognized as a component of interest expense.

The subordinated notes are subordinated in right of payment to the Company’s existing and future senior indebtedness and are structurally subordinated to the Company’s subsidiaries’ existing and future indebtedness and other obligations.
There have been no other material changes to the Company's borrowings disclosed in Note 12 of the Company’s 2020 Form 10-K.
33
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TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 89 - Legal Contingencies

LEGAL CONTINGENCIES

Various legal claims have arisen from time to time in the normal course of business which, in the opinion of management, will have no material effect on the Company’s consolidated financial statements.

24

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 910 - OFF-BALANCE SHEET LOAN COMMITMENTS

From time to time, the Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments.

The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet financial instruments.

The contractual amounts of financial instruments with off-balance sheet risk were as follows:

 

September 30, 2017

 

 

December 31, 2016

 

September 30, 2021December 31, 2020

(Dollars in thousands)

 

Fixed Rate

 

 

Variable Rate

 

 

Fixed Rate

 

 

Variable Rate

 

(Dollars in thousands)Fixed RateVariable RateTotalFixed RateVariable RateTotal

Commitments to make loans

 

$

5,065

 

 

$

1,963

 

 

$

7,345

 

 

$

7,580

 

Unused lines of credit

 

 

129,268

 

 

 

192,636

 

 

 

109,611

 

 

 

145,475

 

Unused lines of credit$25,574 $381,584 $407,158 $43,406 $547,430 $590,836 

Standby letters of credit

 

 

1,554

 

 

 

7,246

 

 

 

2,547

 

 

 

4,706

 

Standby letters of credit$7,819 $5,782 $13,601 $5,464 $8,429 $13,893 
Commitments to purchase loansCommitments to purchase loans$— $88,620 $88,620 $— $66,373 $66,373 
Mortgage warehouse commitmentsMortgage warehouse commitments$— $844,903 $844,903 $— $417,722 $417,722 

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being fully drawn upon, the total commitment amounts disclosed above do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if considered necessary by the Company, upon extension of credit, is based on management’s credit evaluation of the customer.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. In the event of nonperformance by the customer, the Company has rights to the underlying collateral, which can include commercial real estate, physical plant and property, inventory, receivables, cash and marketable securities. The credit risk to the Company in issuing letters of credit is essentially the same as that involved in extending loan facilities to its customers.

Commitments to purchase loans represent loans purchased by the Company that have not yet settled.
Mortgage warehouse commitments are unconditionally cancellable and represent the unused capacity on mortgage warehouse facilities the Company has approved. The Company reserves the right to refuse to buy any mortgage loans offered for sale by a customer, for any reason, at the Company’s sole and absolute discretion.
The Company records an allowance for credit losses on off-balance sheet credit exposures through a charge to credit loss expense on the Company’s consolidated statements of income. At September 30, 2021 and December 31, 2020, the allowance for credit losses on off-balance sheet credit exposures totaled $3,846,000 and $5,005,000, respectively, and was included in other liabilities on the Company’s consolidated balance sheets. The following table presents credit loss expense for off balance sheet credit exposures:
Three Months Ended September 30,Nine Months Ended September 30,
(Dollars in thousands)2021202020212020
Credit loss expense (benefit)$(238)$(8)$(1,159)$3,840 
34
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TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1011 - Fair Value Disclosures

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The methods of determining the fair value of assets and liabilities presented in this note are consistent with ourthe methodologies disclosed in Note 1517 of the Company’s 20162020 Form 10-K.

25

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Assets and liabilities measured at fair value on a recurring basis are summarized in the table below. There were no liabilities measured at fair value on a recurring basis at September 30, 2017 and December 31, 2016.

(Dollars in thousands)

 

Fair Value Measurements Using

 

 

Total

 

September 30, 2017

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value

 

Securities available for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government agency obligations

 

$

—

 

 

$

125,374

 

 

$

—

 

 

$

125,374

 

U.S. Treasury notes

 

 

—

 

 

 

1,951

 

 

 

—

 

 

 

1,951

 

Mortgage-backed securities, residential

 

 

—

 

 

 

21,439

 

 

 

—

 

 

 

21,439

 

Asset backed securities

 

 

—

 

 

 

12,481

 

 

 

—

 

 

 

12,481

 

State and municipal

 

 

—

 

 

 

25,057

 

 

 

—

 

 

 

25,057

 

Corporate bonds

 

 

—

 

 

 

20,858

 

 

 

—

 

 

 

20,858

 

SBA pooled securities

 

 

—

 

 

 

141

 

 

 

—

 

 

 

141

 

Mutual fund

 

 

2,025

 

 

 

—

 

 

 

—

 

 

 

2,025

 

 

$

2,025

 

 

$

207,301

 

 

$

—

 

 

$

209,326

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Fair Value Measurements Using

 

 

Total

 

(Dollars in thousands)Fair Value Measurements UsingTotal
Fair Value

December 31, 2016

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value

 

September 30, 2021September 30, 2021Level 1Level 2Level 3Total
Fair Value
Assets measured at fair value on a recurring basisAssets measured at fair value on a recurring basis

Securities available for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale

U.S. Government agency obligations

 

$

—

 

 

$

180,942

 

 

$

—

 

 

$

180,942

 

U.S. Government agency obligations$— $5,001 $— $5,001 

Mortgage-backed securities, residential

 

 

—

 

 

 

24,990

 

 

 

—

 

 

 

24,990

 

Mortgage-backed securities, residential— 18,167 — 18,167 

Asset backed securities

 

 

—

 

 

 

12,902

 

 

 

—

 

 

 

12,902

 

Asset-backed securitiesAsset-backed securities— 6,864 — 6,864 

State and municipal

 

 

—

 

 

 

26,637

 

 

 

—

 

 

 

26,637

 

State and municipal— 29,175 — 29,175 
CLO securitiesCLO securities— 100,719 — 100,719 

Corporate bonds

 

 

—

 

 

 

27,390

 

 

 

—

 

 

 

27,390

 

Corporate bonds— 2,061 — 2,061 

SBA pooled securities

 

 

—

 

 

 

157

 

 

 

—

 

 

 

157

 

SBA pooled securities— 2,829 — 2,829 
$— $164,816 $— $164,816 
Equity securitiesEquity securities

Mutual fund

 

 

2,011

 

 

 

—

 

 

 

—

 

 

 

2,011

 

Mutual fund$5,623 $— $— $5,623 

 

$

2,011

 

 

$

273,018

 

 

$

—

 

 

$

275,029

 

Loans held for saleLoans held for sale$— $26,437 $— $26,437 
Derivative financial instruments (cash flow hedges)Derivative financial instruments (cash flow hedges)
Interest rate swapInterest rate swap$— $3,948 $— $3,948 
Indemnification assetIndemnification asset$— $— $4,786 $4,786 

35
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TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)Fair Value Measurements UsingTotal
Fair Value
December 31, 2020Level 1Level 2Level 3
Assets measured at fair value on a recurring basis
Securities available for sale
U.S. Government agency obligations$— $15,088 $— $15,088 
Mortgage-backed securities, residential— 27,684 — 27,684 
Asset-backed securities— 7,039 — 7,039 
State and municipal— 37,395 — 37,395 
CLO Securities— 122,204 — 122,204 
Corporate bonds— 11,573 — 11,573 
SBA pooled securities— 3,327 — 3,327 
$— $224,310 $— $224,310 
Equity securities
Mutual fund$5,826 $— $— $5,826 
Loans held for sale$— $24,546 $— $24,546 
Derivative financial instruments (cash flow hedges)
Interest rate swap$— $816 $— $816 
Indemnification asset$— $— $36,225 $36,225 
There were no transfers between levels during 20172021 or 2016.  

26

2020.
The fair value of the indemnification asset is calculated as the present value of the estimated cash payments expected to be received from Covenant for probable losses on the covered Over-Formula Advance Portfolio. The cash flows are discounted at a rate to reflect the uncertainty of the timing and receipt of the payments from Covenant. The indemnification asset is reviewed quarterly and changes to the asset are recorded as adjustments to other noninterest income or expense, as appropriate, within the Consolidated Statements of Income. The indemnification asset fair value is considered a Level 3 classification. At September 30, 2021 and December 31, 2020, the estimated cash payments expected to be received from Covenant for probable losses on the covered Over-Formula Advance Portfolio were approximately $5,038,000 and $39,200,000, respectively, and a discount rate of 5.0% and 8.8%, respectively, was applied to calculate the present value of the indemnification asset. A reconciliation of the opening balance to the closing balance of the fair value of the indemnification asset is as follows:
Three Months Ended September 30,Nine Months Ended September 30,
(Dollars in thousands)2021202020212020
Beginning balance$5,246 $— $36,225 $— 
Indemnification asset recognized in business combination— 30,959 — 30,959 
Change in fair value of indemnification asset recognized in earnings(460)— 4,194 — 
Indemnification recognized— — (35,633)— 
Ending balance$4,786 $30,959 $4,786 $30,959 
36

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TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Assets measured at fair value on a non-recurring basis are summarized in the table below. There were no liabilities measured at fair value on a non-recurring basis at September 30, 20172021 and December 31, 2016.

2020.

(Dollars in thousands)

 

Fair Value Measurements Using

 

 

Total

 

(Dollars in thousands)Fair Value Measurements UsingTotal
Fair Value

September 30, 2017

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value

 

Impaired loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2021September 30, 2021Level 1Level 2Level 3Total
Fair Value
Collateral dependent loansCollateral dependent loans

Commercial real estate

 

$

—

 

 

$

—

 

 

$

43

 

 

$

43

 

Commercial real estate$— $— $408 $408 

1-4 family residential properties

 

 

—

 

 

 

—

 

 

 

83

 

 

 

83

 

Construction, land development, landConstruction, land development, land— — — — 
1-4 family residential1-4 family residential— — 38 38 

Commercial

 

 

—

 

 

 

—

 

 

 

10,327

 

 

 

10,327

 

Commercial— — 1,379 1,379 

Factored receivables

 

 

—

 

 

 

—

 

 

 

3,002

 

 

 

3,002

 

Factored receivables— — 33,874 33,874 
ConsumerConsumer— — — — 

Other real estate owned (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other real estate owned (1)

Commercial

 

 

—

 

 

 

—

 

 

 

92

 

 

 

92

 

Construction, land development, land

 

 

—

 

 

 

—

 

 

 

2,000

 

 

 

2,000

 

1-4 family residential properties

 

 

—

 

 

 

—

 

 

 

83

 

 

 

83

 

Commercial real estateCommercial real estate— — 18 18 
1-4 family residential1-4 family residential— — 65 65 
ConstructionConstruction— — 167 167 

 

$

—

 

 

$

—

 

 

$

15,630

 

 

$

15,630

 

$— $— $35,949 $35,949 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Fair Value Measurements Using

 

 

Total

 

December 31, 2016

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value

 

Impaired loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

$

—

 

 

$

—

 

 

$

417

 

 

$

417

 

Construction, land development, land

 

 

—

 

 

 

—

 

 

 

252

 

 

 

252

 

1-4 family residential properties

 

 

—

 

 

 

—

 

 

 

7

 

 

 

7

 

Commercial

 

 

—

 

 

 

—

 

 

 

12,921

 

 

 

12,921

 

Factored receivables

 

 

—

 

 

 

—

 

 

 

1,630

 

 

 

1,630

 

PCI

 

 

—

 

 

 

—

 

 

 

170

 

 

 

170

 

Other real estate owned (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

—

 

 

 

—

 

 

 

698

 

 

 

698

 

1-4 family residential properties

 

 

—

 

 

 

—

 

 

 

485

 

 

 

485

 

Construction, land development, land

 

 

—

 

 

 

—

 

 

 

467

 

 

 

467

 

 

$

—

 

 

$

—

 

 

$

17,047

 

 

$

17,047

 

(Dollars in thousands)Fair Value Measurements UsingTotal
Fair Value
December 31, 2020Level 1Level 2Level 3
Collateral dependent loans
Commercial real estate$— $— $5,107 $5,107 
Construction, land development, land— — 824 824 
1-4 family residential— — — — 
Commercial— — 2,355 2,355 
Factored receivables— — 41,065 41,065 
Consumer— — 3 3 
PCI0000
Other real estate owned (1)
Commercial real estate— — 273 273 
1-4 family residential— — 114 114 
Farmland— — 209 209 
$— $— $49,950 $49,950 
(1)Represents the fair value of OREO that was adjusted during the year to date period and subsequent to its initial classification as OREO.

Impaired

Collateral Dependent Loans with Specific Allocation of ALLLACL:    A loan is considered impairedto be a collateral dependent loan when, based on current information and events, it is probablethe Company expects repayment of the financial assets to be provided substantially through the operation or sale of the collateral and the Company has determined that the Company will be unable to collect all amounts due pursuant to the contractual termsborrower is experiencing financial difficulty as of the loan agreement. Impairmentmeasurement date. The ACL is measured by estimating the fair value of the loan based on the present value of expected cash flows, the market price of the loan, or the underlying fair value of the loan’s collateral. For real estate loans, fair value of the impaired loan’s collateral is determined by third party appraisals, which are then adjusted for the estimated selling and closing costs related to liquidation of the collateral. For this asset class, the actual valuation methods (income, sales comparable, or cost) vary based on the status of the project or property. For example, land is generally based on the sales comparable method while construction is based on the income and/or sales comparable methods. The unobservable inputs may vary depending on the individual assets with no one of the three methods being the predominant approach. The Company reviews the third party appraisal for appropriateness and adjusts the value downward to consider selling and closing costs, which typically range from 5% to 8% of the appraised value. For non-real estate loans, fair value of the impaired loan’s collateral may be determined using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business.

27

37

Table of Contents
TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

OREO:    OREO is primarily comprised of real estate acquired in partial or full satisfaction of loans. OREO is recorded at its estimated fair value less estimated selling and closing costs at the date of transfer, with any excess of the related loan balance over the fair value less expected selling costs charged to the ALLL.ACL. Subsequent changes in fair value are reported as adjustments to the carrying amount and are recorded against earnings. The Company outsources the valuation of OREO with material balances to third party appraisers. For this asset class, the actual valuation methods (income, sales comparable, or cost) vary based on the status of the project or property. For example, land is generally based on the sales comparable method while construction is based on the income and/or sales comparable methods. The unobservable inputs may vary depending on the individual assets with no one of the three methods being the predominant approach. The Company reviews the third party appraisal for appropriateness and adjusts the value downward to consider selling and closing costs, which typically range from 5% to 8% of the appraised value.

The estimated fair values of the Company’s financial instruments not measured at fair value on a recurring or non-recurring basis at September 30, 20172021 and December 31, 20162020 were as follows:

(Dollars in thousands)

 

Carrying

 

 

Fair Value Measurements Using

 

 

Total

 

(Dollars in thousands)Carrying
Amount		Fair Value Measurements UsingTotal
Fair Value

September 30, 2017

 

Amount

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value

 

September 30, 2021September 30, 2021Carrying
Amount		Level 1Level 2Level 3Total
Fair Value

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets:

Cash and cash equivalents

 

$

80,557

 

 

$

80,557

 

 

$

—

 

 

$

—

 

 

$

80,557

 

Cash and cash equivalents$532,764 $532,764 $— $— $532,764 

Securities - held to maturity

 

 

17,999

 

 

 

—

 

 

 

10,017

 

 

 

7,642

 

 

 

17,659

 

Securities - held to maturity5,488 — — 5,534 5,534 

Loans not previously presented, net

 

 

2,391,641

 

 

 

—

 

 

 

—

 

 

 

2,415,769

 

 

 

2,415,769

 

FHLB stock

 

 

16,076

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

Loans not previously presented, grossLoans not previously presented, gross4,747,031 142,996 — 4,611,706 4,754,702 
FHLB and other restricted stockFHLB and other restricted stock4,901  N/A N/A N/AN/A

Accrued interest receivable

 

 

13,461

 

 

 

—

 

 

 

13,461

 

 

 

—

 

 

 

13,461

 

Accrued interest receivable16,031 16,031 — — 16,031 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

Deposits

 

 

2,012,545

 

 

 

—

 

 

 

2,011,202

 

 

 

—

 

 

 

2,011,202

 

Deposits4,822,575 — 4,823,597 — 4,823,597 

Customer repurchase agreements

 

 

19,869

 

 

 

—

 

 

 

19,869

 

 

 

—

 

 

 

19,869

 

Customer repurchase agreements11,990 — 11,990 — 11,990 

Federal Home Loan Bank advances

 

 

385,000

 

 

 

—

 

 

 

384,948

 

 

 

—

 

 

 

384,948

 

Federal Home Loan Bank advances30,000 — 30,000 — 30,000 
Paycheck Protection Program Liquidity FacilityPaycheck Protection Program Liquidity Facility97,554 — 97,554 — 97,554 

Subordinated notes

 

 

48,804

 

 

 

—

 

 

 

51,245

 

 

 

—

 

 

 

51,245

 

Subordinated notes106,755 — 107,536 — 107,536 

Junior subordinated debentures

 

 

33,047

 

 

 

—

 

 

 

33,164

 

 

 

—

 

 

 

33,164

 

Junior subordinated debentures40,467 — 41,085 — 41,085 

Accrued interest payable

 

 

3,815

 

 

 

—

 

 

 

3,815

 

 

 

—

 

 

 

3,815

 

Accrued interest payable1,976 1,976 — — 1,976 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Carrying

 

 

Fair Value Measurements Using

 

 

Total

 

December 31, 2016

 

Amount

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

114,514

 

 

$

114,514

 

 

$

—

 

 

$

—

 

 

$

114,514

 

Securities - held to maturity

 

 

29,352

 

 

 

—

 

 

 

27,498

 

 

 

3,323

 

 

 

30,821

 

Loans not previously presented, net

 

 

1,996,822

 

 

 

—

 

 

 

—

 

 

 

2,002,487

 

 

 

2,002,487

 

FHLB stock

 

 

8,430

 

 

N/A

 

 

N/A

 

 

N/A

 

 

N/A

 

Accrued interest receivable

 

 

12,663

 

 

 

—

 

 

 

12,663

 

 

 

—

 

 

 

12,663

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

2,015,785

 

 

 

—

 

 

 

2,014,922

 

 

 

—

 

 

 

2,014,922

 

Customer repurchase agreements

 

 

10,490

 

 

 

—

 

 

 

10,490

 

 

 

—

 

 

 

10,490

 

Federal Home Loan Bank advances

 

 

230,000

 

 

 

—

 

 

 

230,000

 

 

 

—

 

 

 

230,000

 

Subordinated notes

 

 

48,734

 

 

 

—

 

 

 

50,920

 

 

 

—

 

 

 

50,920

 

Junior subordinated debentures

 

 

32,740

 

 

 

—

 

 

 

32,905

 

 

 

—

 

 

 

32,905

 

Accrued interest payable

 

 

2,682

 

 

 

—

 

 

 

2,682

 

 

 

—

 

 

 

2,682

 

28

(Dollars in thousands)Carrying
Amount		Fair Value Measurements UsingTotal
Fair Value
December 31, 2020Level 1Level 2Level 3
Financial assets:
Cash and cash equivalents$314,393 $314,393 $— $— $314,393 
Securities - held to maturity5,919 — — 5,850 5,850 
Loans not previously presented, gross4,953,399 195,739 — 4,783,143 4,978,882 
FHLB and other restricted stock6,751 N/AN/AN/AN/A
Accrued interest receivable19,435 19,435 — — 19,435 
Financial liabilities:
Deposits4,716,600 — 4,719,625 — 4,719,625 
Customer repurchase agreements3,099 — 3,099 — 3,099 
Federal Home Loan Bank advances105,000 — 105,000 — 105,000 
Paycheck Protection Program Liquidity Facility191,860 — 191,860 — 191,860 
Subordinated notes87,509 — 89,413 — 89,413 
Junior subordinated debentures40,072 — 40,379 — 40,379 
Accrued interest payable4,270 4,270 — — 4,270 
38

Table of Contents
TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1112 - Regulatory Matters

REGULATORY MATTERS

The Company (on a consolidated basis) and TBK Bank are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s or TBK Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and TBK Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

The Company is subject to the Basel III regulatory capital framework. Beginning in January 2016, the implementation of the capital conservation buffer was effective for the Company starting at the 0.625% level and increasing 0.625% each year thereafter, until it reaches 2.5% on January 1, 2019. The capital conservation buffer was 1.25% and 0.625% at September 30, 2017 and December 31, 2016, respectively. The capital conservation buffer is designed to absorb losses during periods of economic stress and requires increased capital levels for the purpose of capital distributions and other payments. Failure to meet the full amount of the buffer will result in restrictions on the Company’s ability to make capital distributions, including dividend payments and stock repurchases, and to pay discretionary bonuses to executive officers.

Quantitative measures established by regulation to ensure capital adequacy require the Company and TBK Bank to maintain minimum amounts and ratios (set forth in the table below) of total, common equity Tier 1, and Tier 1 capital to risk weighted assets, and of Tier 1 capital to average assets. Management believes, as of September 30, 20172021 and December 31, 2016,2020, the Company and TBK Bank meet all capital adequacy requirements to which they are subject, including the capital conservation buffer requirement.

subject.

As of September 30, 20172021 and December 31, 2016,2020, TBK Bank’s capital ratios exceeded those levels necessary to be categorized as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized,” TBK Bank must maintain minimum total risk based, common equity Tier 1 risk based, Tier 1 risk based, and Tier 1 leverage ratios as set forth in the table below. There are no conditions or events since September 30, 20172021 that management believes have changed TBK Bank’s category.

29

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TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The actual capital amounts and ratios for the Company and TBK Bank are presented in the following tabletable.
(Dollars in thousands)ActualMinimum for Capital
Adequacy Purposes		To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
September 30, 2021AmountRatioAmountRatioAmountRatio
Total capital (to risk weighted assets)
Triumph Bancorp, Inc.$727,171 13.7%$424,625 8.0% N/AN/A
TBK Bank, SSB$655,551 12.5%$419,553 8.0%$524,441 10.0%
Tier 1 capital (to risk weighted assets)
Triumph Bancorp, Inc.$587,326 11.1%$317,474 6.0% N/AN/A
TBK Bank, SSB$623,674 11.9%$314,457 6.0%$419,277 8.0%
Common equity Tier 1 capital (to risk weighted assets)
Triumph Bancorp, Inc.$501,859 9.4%$240,252 4.5% N/AN/A
TBK Bank, SSB$623,674 11.9%$235,843 4.5%$340,662 6.5%
Tier 1 capital (to average assets)
Triumph Bancorp, Inc.$587,326 10.4%$225,895 4.0% N/AN/A
TBK Bank, SSB$623,674 11.1%$224,747 4.0%$280,934 5.0%
As of December 31, 2020
Total capital (to risk weighted assets)
Triumph Bancorp, Inc.$715,142 13.0%$440,087 8.0% N/AN/A
TBK Bank, SSB$653,359 12.1%$431,973 8.0%$539,966 10.0%
Tier 1 capital (to risk weighted assets)
Triumph Bancorp, Inc.$581,580 10.6%$329,196 6.0% N/AN/A
TBK Bank, SSB$608,737 11.3%$323,223 6.0%$430,964 8.0%
Common equity Tier 1 capital (to risk weighted assets)
Triumph Bancorp, Inc.$496,508 9.0%$248,254 4.5% N/AN/A
TBK Bank, SSB$608,737 11.3%$242,417 4.5%$350,158 6.5%
Tier 1 capital (to average assets)
Triumph Bancorp, Inc.$581,580 10.8%$215,400 4.0% N/AN/A
TBK Bank, SSB$608,737 11.3%$215,482 4.0%$269,353 5.0%
As permitted by the interim final rule issued on March 27, 2020 by the federal banking regulatory agencies, the Company has elected the option to delay the estimated impact on regulatory capital of ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which was effective January 1, 2020. The initial impact of adoption of ASU 2016-13 as well as 25% of September 30, 2017the quarterly increases in the allowance for credit losses subsequent to adoption of ASU 2016-13 (collectively the “transition adjustments”) will be delayed for two years. After two years, the cumulative amount of the transition adjustments will become fixed and December 31, 2016. Thewill be phased out of the regulatory capital adequacy amountscalculations evenly over a three year period, with 75% recognized in year three, 50% recognized in year four, and ratios below do not include25% recognized in year five. After five years, the temporary regulatory capital conservation buffer in effect at each respective date.  

benefits will be fully reversed.

  

 

 

 

 

 

 

 

To Be Well

 

 

 

 

 

 

 

 

 

Capitalized Under

 

 

 

 

 

 

Minimum for Capital

 

 

Prompt Corrective

 

(Dollars in thousands)

 

Actual

 

 

Adequacy Purposes

 

 

Action Provisions

 

As of September 30, 2017

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

Total capital (to risk weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Triumph Bancorp, Inc.

 

$

448,847

 

 

 

15.9%

 

 

$

225,685

 

 

 

8.0%

 

 

N/A

 

 

N/A

 

TBK Bank, SSB

 

$

331,031

 

 

 

12.4%

 

 

$

214,319

 

 

 

8.0%

 

 

$

267,898

 

 

 

10.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 capital (to risk weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Triumph Bancorp, Inc.

 

$

379,315

 

 

 

13.4%

 

 

$

169,264

 

 

 

6.0%

 

 

N/A

 

 

N/A

 

TBK Bank, SSB

 

$

310,387

 

 

 

11.6%

 

 

$

160,739

 

 

 

6.0%

 

 

$

214,319

 

 

 

8.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common equity Tier 1 capital (to risk weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Triumph Bancorp, Inc.

 

$

337,194

 

 

 

12.0%

 

 

$

126,948

 

 

 

4.5%

 

 

N/A

 

 

N/A

 

TBK Bank, SSB

 

$

310,387

 

 

 

11.6%

 

 

$

120,554

 

 

 

4.5%

 

 

$

174,134

 

 

 

6.5%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 capital (to average assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Triumph Bancorp, Inc.

 

$

379,315

 

 

 

13.5%

 

 

$

112,360

 

 

 

4.0%

 

 

N/A

 

 

N/A

 

TBK Bank, SSB

 

$

310,387

 

 

 

11.2%

 

 

$

110,892

 

 

 

4.0%

 

 

$

138,615

 

 

 

5.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total capital (to risk weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Triumph Bancorp, Inc.

 

$

342,059

 

 

 

14.6%

 

 

$

187,449

 

 

 

8.0%

 

 

N/A

 

 

N/A

 

TBK Bank, SSB

 

$

293,313

 

 

 

12.9%

 

 

$

181,640

 

 

 

8.0%

 

 

$

227,050

 

 

 

10.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 capital (to risk weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Triumph Bancorp, Inc.

 

$

277,605

 

 

 

11.8%

 

 

$

140,587

 

 

 

6.0%

 

 

N/A

 

 

N/A

 

TBK Bank, SSB

 

$

277,593

 

 

 

12.2%

 

 

$

136,230

 

 

 

6.0%

 

 

$

181,640

 

 

 

8.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common equity Tier 1 capital (to risk weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Triumph Bancorp, Inc.

 

$

238,439

 

 

 

10.2%

 

 

$

105,440

 

 

 

4.5%

 

 

N/A

 

 

N/A

 

TBK Bank, SSB

 

$

277,593

 

 

 

12.2%

 

 

$

102,173

 

 

 

4.5%

 

 

$

147,583

 

 

 

6.5%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 capital (to average assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Triumph Bancorp, Inc.

 

$

277,605

 

 

 

10.9%

 

 

$

102,303

 

 

 

4.0%

 

 

N/A

 

 

N/A

 

TBK Bank, SSB

 

$

277,593

 

 

 

11.0%

 

 

$

100,802

 

 

 

4.0%

 

 

$

126,002

 

 

 

5.0%

 

Dividends paid by TBK Bank are limited to, without prior regulatory approval, current year earnings and earnings less dividends paid during the preceding two years.

30

40

Table of Contents
TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The capital conservation buffer set forth by the Basel III regulatory capital framework was 2.5% at September 30, 2021 and December 31, 2020. The capital conservation buffer is designed to absorb losses during periods of economic stress and requires increased capital levels for the purpose of capital distributions and other payments. Failure to meet the full amount of the buffer will result in restrictions on the Company’s ability to make capital distributions, including dividend payments and stock repurchases, and to pay discretionary bonuses to executive officers. At September 30, 2021 and December 31, 2020, the Company’s and TBK Bank’s risk based capital exceeded the required capital conservation buffer.
NOTE 1213 – STOCKHOLDERS’ EQUITY

The following summarizes the capital structure of Triumph Bancorp, Inc.

Preferred Stock Series C
(Dollars in thousands, except per share amounts)September 30, 2021December 31, 2020
Shares authorized51,750 51,750 
Shares issued45,000 45,000 
Shares outstanding45,000 45,000 
Par value per share$0.01 $0.01 
Liquidation preference per share$1,000 $1,000 
Liquidation preference amount$45,000 $45,000 
Dividend rate7.125 %7.125 %
Dividend payment dates QuarterlyQuarterly
Common Stock

 

September 30, 2017

 

 

December 31, 2016

 

September 30, 2021December 31, 2020

Shares authorized

 

 

50,000,000

 

 

 

50,000,000

 

Shares authorized50,000,000 50,000,000 

Shares issued

 

 

20,912,068

 

 

 

18,154,365

 

Shares issued28,224,921 27,951,721 

Treasury shares

 

 

(91,168

)

 

 

(76,118

)

Treasury shares(3,101,579)(3,083,503)

Shares outstanding

 

 

20,820,900

 

 

 

18,078,247

 

Shares outstanding25,123,342 24,868,218 

Par value per share

 

$

0.01

 

 

$

0.01

 

Par value per share$0.01 $0.01 

Preferred Stock

Offering

 

Series A

 

 

Series B

 

(Dollars in thousands, except per share amounts)

 

September 30, 2017

 

 

December 31, 2016

 

 

September 30, 2017

 

 

December 31, 2016

 

Shares authorized

 

 

50,000

 

 

 

50,000

 

 

 

115,000

 

 

 

115,000

 

Shares issued

 

 

45,500

 

 

 

45,500

 

 

 

51,076

 

 

 

51,956

 

Shares outstanding

 

 

45,500

 

 

 

45,500

 

 

 

51,076

 

 

 

51,956

 

Par value per share

 

$

0.01

 

 

$

0.01

 

 

$

0.01

 

 

$

0.01

 

Liquidation preference per share

 

$

100

 

 

$

100

 

 

$

100

 

 

$

100

 

Liquidation preference amount

 

$

4,550

 

 

$

4,550

 

 

$

5,108

 

 

$

5,196

 

Dividend rate

 

Prime + 2%

 

 

Prime + 2%

 

 

 

8.00

%

 

 

8.00

%

Dividend rate - floor

 

 

8.00

%

 

 

8.00

%

 

N/A

 

 

N/A

 

Subsequent dividend payment dates

 

Quarterly

 

 

Quarterly

 

 

Quarterly

 

 

Quarterly

 

Convertible to common stock

 

Yes

 

 

Yes

 

 

Yes

 

 

Yes

 

Conversion period

 

Anytime

 

 

Anytime

 

 

Anytime

 

 

Anytime

 

Conversion ratio - preferred to common

 

6.94008

 

 

6.94008

 

 

6.94008

 

 

6.94008

 

Common Stock Offering

On August 1, 2017,June 19, 2020, the Company completedissued 45,000 shares of 7.125% Series C Fixed-Rate Non-Cumulative Perpetual Preferred Stock, par value $0.01 per share, with a liquidation preference of $1,000 per share through an underwritten commonpublic offering of 1,800,000 depositary shares, each representing a 1/40th ownership interest in a share of the Series C Preferred Stock. Total gross proceeds from the preferred stock offering issuing 2,530,000 shares of the Company’s common stock, including 330,000 shares sold pursuant to the underwriters' full exercise of their option to purchase additional shares, at $27.50 per share for total gross proceeds of $69,575,000.were $45,000,000. Net proceeds after underwriting discounts and offering expenses were $65,528,000.

Warrants

During 2012,$42,364,000. The net proceeds will be used for general corporate purposes.

Series C Preferred Stock holders are entitled to quarterly cash dividends accruing at the Company issued a warrantrate per annum of 7.125% beginning September 30, 2020, applied to Triumph Consolidated Cos., LLC (“TCC”)the liquidation preference value of the stock. Any dividends not paid shall not accumulate but will be waived and not payable by the Company. Payments of dividends are subject to purchase 259,067 sharesdeclaration by the board of the Company. The Series C Preferred Stock is not redeemable by the holder and is senior to the Company’s common stock. The warrant had an exercise price of $11.58 per share, was immediately exercisable, and had an expiration date of December 12, 2022. TCC exercised the warrantSeries C Preferred stock may be redeemed in full on August 2, 2017 and was issued 153,134 shares of common stock, net of shares withheldwhole or in part by the Company at liquidation value (i) on any dividend payment date on or after June 30, 2025 or (ii) within 90 days following a regulatory capital treatment event (as defined in the Statement of Designation), subject to coverregulatory approval.
Stock Repurchase Programs
During the exercise price. Thethree months ended March 31, 2020, the Company repurchased 871,319 shares into treasury stock under the Company’s stock repurchase program at an average price of common$40.81, for a total of $35,600,000, effectively completing the $50,000,000 stock repurchase program authorized by the Company’s board of directors on October 16, 2019. No shares were issued in reliance on Section 4(a)(2)repurchased during the nine months ended September 30, 2021 under a stock repurchase program.
41
Table of the Securities Act of 1933, as amended.

Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1314 – STOCK BASED COMPENSATION

Stock based compensation expense that has been charged against income was $459,000$4,445,000 and $1,484,000$1,309,000 for the three months ended September 30, 2021 and 2020, respectively, and $9,181,000 and $3,443,000 for the nine months ended September 30, 2017, respectively,2021 and $585,000 and $1,864,000 for the three and nine months ended September 30, 2016,2020, respectively.

2014 Omnibus Incentive Plan

The Company’s 2014 Omnibus Incentive Plan (“Omnibus Incentive Plan”) provides for the grant of nonqualified and incentive stock options, stock appreciation rights, restricted stock awards, restricted stock units, and other awards that may be settled in, or based upon the value of, the Company’s common stock. The aggregatemaximum number of shares of common stock available for issuance under the Omnibus Incentive Plan is 1,200,0002,450,000 shares.

31

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Restricted Stock Awards

A summary of changes in the Company’s nonvested Restricted Stock Awards (“RSAs”) under the Omnibus Incentive Plan for the nine months ended September 30, 20172021 were as follows:

 

 

 

 

 

Weighted-Average

 

 

 

 

 

 

Grant-Date

 

Nonvested RSAs

 

Shares

 

 

Fair Value

 

Nonvested RSAsSharesWeighted-Average
Grant-Date
Fair Value

Nonvested at January 1, 2017

 

 

126,644

 

 

$

14.92

 

Nonvested at January 1, 2021Nonvested at January 1, 2021205,536 29.17 

Granted

 

 

45,732

 

 

 

25.80

 

Granted232,551 87.60 

Vested

 

 

(67,964

)

 

 

16.50

 

Vested(78,017)34.08 

Forfeited

 

 

(853

)

 

 

15.04

 

Forfeited(3,907)50.51 

Nonvested at September 30, 2017

 

 

103,559

 

 

$

18.68

 

Nonvested at September 30, 2021Nonvested at September 30, 2021356,163 66.01 

RSAs granted to employees under the Omnibus Incentive Plan typically vest over three to four years. Compensation expense for RSAs granted under the Omnibus Incentive ProgramRSAs will be recognized over the vesting period of the awards based on the fair value of the stock at the issue date. As of September 30, 2017,2021, there was $1,018,000$15,794,000 of unrecognized compensation cost related to the nonvested RSAs granted under the Omnibus Incentive Plan.RSAs. The cost is expected to be recognized over a remaining period of 3.003.42 years.

Restricted Stock Units
A summary of changes in the Company’s nonvested Restricted Stock Units (“RSUs”) under the Omnibus Incentive Plan for the nine months ended September 30, 2021 were as follows:
Nonvested RSUsSharesWeighted-Average
Grant-Date
Fair Value
Nonvested at January 1, 202189,713 33.34 
Granted17,757 84.47 
Vested— — 
Forfeited— — 
Nonvested at September 30, 2021107,470 41.79 
RSUs granted to employees under the Omnibus Incentive Plan typically vest after four to five years. Compensation expense for the RSUs will be recognized over the vesting period of the awards based on the fair value of the stock at the issue date. As of September 30, 2021, there was $2,519,000 of unrecognized compensation cost related to the nonvested RSUs. The cost is expected to be recognized over a remaining period of 2.67 years.
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TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Market Based Performance Stock Units
A summary of changes in the Company’s nonvested Market Based Performance Stock Units (“Market Based PSUs”) under the Omnibus Incentive Plan for the nine months ended September 30, 2021 were as follows:
Nonvested Market Based PSUsSharesWeighted-Average
Grant-Date
Fair Value
Nonvested at Nonvested at January 1, 202185,611 $35.65 
Granted13,520 98.03 
Vested— — 
Forfeited(4,147)55.02 
Nonvested at September 30, 202194,984 $43.68 
Market Based PSUs granted to employees under the Omnibus Incentive Plan vest after three to five years. The number of shares issued upon vesting will range from 0% to 175% of the Market Based PSUs granted based on the Company’s relative total shareholder return (“TSR”) as compared to the TSR of a specified group of peer banks. Compensation expense for the Market Based PSUs will be recognized over the vesting period of the awards based on the fair value of the award at the grant date. The fair value of Market Based PSUs granted is estimated using a Monte Carlo simulation. Expected volatilities were determined based on the historical volatilities of the Company and the specified peer group. The risk-free interest rate for the performance period was derived from the Treasury constant maturities yield curve on the valuation dates.
The fair value of the Market Based PSUs granted was determined using the following weighted-average assumptions:
Nine Months Ended September 30,
20212020
Grant dateMay 1, 2021May 1, 2020
Performance period3.00 years3.00 years
Stock price$88.63 $26.25 
Triumph stock price volatility51.71 %43.02 %
Risk-free rate0.35 %0.25 %
As of September 30, 2021, there was $1,962,000 of unrecognized compensation cost related to the nonvested Market Based PSUs. The cost is expected to be recognized over a remaining period of 2.06 years.
Performance Based Performance Stock Units
A summary of changes in the Company’s nonvested Performance Based Performance Stock Units (“Performance Based PSUs”) under the Omnibus Incentive Plan for the nine months ended September 30, 2021 were as follows:
Nonvested Performance Based PSUsSharesWeighted Average
Grant Date
Fair Value
Nonvested at January 1, 2021256,625 $37.56 
Granted9,000 88.63 
Vested— — 
Forfeited(6,242)38.02 
Nonvested at September 30, 2021259,383 $39.32 
Performance Based PSUs granted to employees under the Omnibus Incentive Plan vest after three years. The number of shares issued upon vesting will range from 0% to 200% of the shares granted based on the Company’s cumulative diluted earnings per share over the performance period. Compensation expense for the Performance Based PSUs will be estimated each period based on the fair value of the stock at the grant date and the most probable outcome of the performance condition, adjusted for the passage of time within the vesting period of the awards. As of September 30, 2021, the maximum unrecognized compensation cost related to the nonvested Performance Based PSUs was $20,396,000, and the remaining performance period over which the cost could be recognized was 1.25 years. No compensation cost was recorded during the three and nine months ended September 30, 2021 and 2020.
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TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Stock Options

A summary of the changes in the Company’s stock options under the Omnibus Incentive Plan for the nine months ended September 30, 20172021 were as follows:

 

 

 

 

 

 

 

 

 

Weighted-Average

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Remaining

 

 

Aggregate

 

 

 

 

 

 

Weighted-Average

 

 

Contractual Term

 

 

Intrinsic Value

 

Stock Options

 

Shares

 

 

Exercise Price

 

 

(In Years)

 

 

(In Thousands)

 

Stock OptionsSharesWeighted-Average
Exercise Price		Weighted-Average
Remaining
Contractual Term
(In Years)		Aggregate
Intrinsic Value
(In Thousands)

Outstanding at January 1, 2017

 

 

163,661

 

 

$

15.87

 

 

 

 

 

 

 

 

 

Outstanding at January 1, 2021Outstanding at January 1, 2021227,986 $25.16 

Granted

 

 

58,729

 

 

 

25.80

 

 

 

 

 

 

 

 

 

Granted16,939 88.63 

Exercised

 

 

(34,433

)

 

 

15.87

 

 

 

 

 

 

 

 

 

Exercised(48,541)24.30 

Forfeited or expired

 

 

(287

)

 

 

25.80

 

 

 

 

 

 

 

 

 

Forfeited or expired— — 

Outstanding at September 30, 2017

 

 

187,670

 

 

$

18.96

 

 

 

8.82

 

 

$

2,494

 

Outstanding at September 30, 2021Outstanding at September 30, 2021196,384 $31.11 6.41$13,554 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fully vested shares and shares expected to vest at September 30, 2017

 

 

187,670

 

 

$

18.96

 

 

 

8.82

 

 

$

2,494

 

Fully vested shares and shares expected to vest at September 30, 2021Fully vested shares and shares expected to vest at September 30, 2021196,384 $31.11 6.41$13,554 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares exercisable at September 30, 2017

 

 

32,286

 

 

$

15.87

 

 

 

8.51

 

 

$

529

 

Shares exercisable at September 30, 2021Shares exercisable at September 30, 2021136,032 $24.02 5.51$10,163 

Information related to the stock options for the nine months ended September 30, 20172021 and 20162020 was as follows:

 

Nine Months Ended September 30,

 

Nine Months Ended September 30,

(Dollars in thousands, except per share amounts)

 

2017

 

 

2016

 

(Dollars in thousands, except per share amounts)20212020

Aggregate intrinsic value of options exercised

 

$

243

 

 

$

—

 

Aggregate intrinsic value of options exercised$2,407 $10 

Cash received from option exercises

 

 

281

 

 

 

—

 

Cash received from option exercises196 — 

Tax benefit realized from options exercises

 

 

85

 

 

 

—

 

Weighted average fair value of options granted

 

$

8.71

 

 

$

5.85

 

Tax benefit realized from option exercisesTax benefit realized from option exercises506 2 
Weighted average fair value per share of options grantedWeighted average fair value per share of options granted$35.37 $8.85 

Stock options awarded to employees under the Omnibus Incentive Plan are generally granted with an exercise price equal to the market price of the Company’s common stock at the date of grant, vest over four years, and have ten year contractual terms. The fair value of stock options granted is estimated at the date of grant using the Black-Scholes option-pricing model. Expected volatilities were determined based on a blend of the Company’s historical volatility and historical volatilities of a peer group of companies with a similar size, industry, stage of life cycle, and capital structure. The expected term of the options granted was determined based on the SEC simplified method, which calculates the expected term as the mid-point between the weighted average time to vesting and the contractual term. The risk-free interest rate for the expected term of the options was derived from the Treasury constant maturity yield curve on the valuation date.

32

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The fair value of the stock options granted was determined using the following weighted-average assumptions:

 

Nine Months Ended September 30,

 

Nine Months Ended September 30,

 

2017

 

 

2016

 

20212020

Risk-free interest rate

 

 

2.11

%

 

 

1.49

%

Risk-free interest rate1.16 %0.46 %

Expected term

 

6.25 Years

 

 

6.25 Years

 

Expected term6.25 years6.25 years

Expected stock price volatility

 

 

29.70

%

 

 

34.96

%

Expected stock price volatility39.26 %33.83 %

Dividend yield

 

 

—

 

 

 

—

 

Dividend yield— — 

As of September 30, 2017,2021, there was $635,000$512,000 of unrecognized compensation cost related to nonvested stock options granted under the Omnibus Incentive Plan. The cost is expected to be recognized over a remaining period of 3.102.94 years.

44
Table of Contents
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Employee Stock Purchase Plan
On April 1, 2019, the Company’s Board of Directors adopted the Triumph Bancorp, Inc. Employee Stock Purchase Plan (“ESPP”) and reserved 2,500,000 shares of common stock for issuance.  The ESPP was approved by the Company’s stockholders on May 16, 2019. The ESPP enables eligible employees to purchase the Company’s common stock at a price per share equal to 85% of the lower of the fair market value of the common stock at the beginning or end of each six month offering period. The first offering period commenced on February 1, 2021 and during the three and nine months ended September 30, 2021, 9,101 shares were issued under the plan.
NOTE 1415 – EARNINGS PER SHARE

The factors used in the earnings per share computation follow:

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

Three Months Ended September 30,Nine Months Ended September 30,

(Dollars in thousands)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

(Dollars in thousands)2021202020212020

Basic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

Net income to common stockholders

 

$

9,587

 

 

$

4,506

 

 

$

29,335

 

 

$

13,749

 

Net income to common stockholders$23,627 $22,005 $83,929 $30,995 

Weighted average common shares outstanding

 

 

19,811,577

 

 

 

17,859,604

 

 

 

18,600,009

 

 

 

17,845,431

 

Weighted average common shares outstanding24,759,419 24,592,092 24,719,861 24,298,897 

Basic earnings per common share

 

$

0.48

 

 

$

0.25

 

 

$

1.58

 

 

$

0.77

 

Basic earnings per common share$0.95 $0.89 $3.40 $1.28 

Diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted

Net income to common stockholders

 

$

9,587

 

 

$

4,506

 

 

$

29,335

 

 

$

13,749

 

Net income to common stockholders$23,627 $22,005 $83,929 $30,995 

Dilutive effect of preferred stock

 

 

195

 

 

 

—

 

 

 

580

 

 

 

—

 

Net income to common stockholders - diluted

 

$

9,782

 

 

$

4,506

 

 

$

29,915

 

 

$

13,749

 

Weighted average common shares outstanding

 

 

19,811,577

 

 

 

17,859,604

 

 

 

18,600,009

 

 

 

17,845,431

 

Weighted average common shares outstanding24,759,419 24,592,092 24,719,861 24,298,897 

Add: Dilutive effects of restricted stock

 

 

63,384

 

 

 

148,977

 

 

 

65,999

 

 

 

125,215

 

Add: Dilutive effects of assumed exercises of stock options

 

 

45,788

 

 

 

—

 

 

 

42,084

 

 

 

—

 

Add: Dilutive effects of assumed exercises of stock warrants

 

 

54,476

 

 

 

93,095

 

 

 

110,089

 

 

 

71,251

 

Add: Dilutive effects of assumed conversion of Preferred A

 

 

315,773

 

 

 

—

 

 

 

315,773

 

 

 

—

 

Add: Dilutive effects of assumed conversion of Preferred B

 

 

354,471

 

 

 

—

 

 

 

354,471

 

 

 

—

 

Dilutive effects of:Dilutive effects of:
Assumed exercises of stock optionsAssumed exercises of stock options121,110 48,102 129,149 53,232 
Restricted stock awardsRestricted stock awards141,204 67,907 146,172 65,893 
Restricted stock unitsRestricted stock units74,268 18,192 71,620 15,198 
Performance stock units - market basedPerformance stock units - market based131,346 76,095 131,275 30,995 
Performance stock units - performance basedPerformance stock units - performance based— — — — 
Employee stock purchase programEmployee stock purchase program616 — 1,914 — 

Average shares and dilutive potential common shares

 

 

20,645,469

 

 

 

18,101,676

 

 

 

19,488,425

 

 

 

18,041,897

 

Average shares and dilutive potential common shares25,227,963 24,802,388 25,199,991 24,464,215 

Diluted earnings per common share

 

$

0.47

 

 

$

0.25

 

 

$

1.53

 

 

$

0.76

 

Diluted earnings per common share$0.94 $0.89 $3.33 $1.27 

Shares that were not considered in computing diluted earnings per common share because they were antidilutive are as follows:

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Three Months Ended September 30,Nine Months Ended September 30,

Shares assumed to be converted from Preferred Stock Series A

 

 

—

 

 

 

315,773

 

 

 

—

 

 

 

315,773

 

Shares assumed to be converted from Preferred Stock Series B

 

 

—

 

 

 

360,578

 

 

 

—

 

 

 

360,578

 

2021202020212020
Stock optionsStock options16,939 98,513 16,939 98,513 

Restricted stock awards

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Restricted stock awards— — 195,640 — 

Stock options

 

 

58,442

 

 

 

164,175

 

 

 

58,442

 

 

 

164,175

 

Restricted stock unitsRestricted stock units— — 17,757 — 
Performance stock units - market basedPerformance stock units - market based12,020 — 12,020 — 
Performance stock units - performance basedPerformance stock units - performance based259,383 261,125 259,383 261,125 
Employee stock purchase programEmployee stock purchase program— — — — 

33

45

Table of Contents
TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1516 – BUSINESS SEGMENT INFORMATION

The following table presents the Company’s operating segments. The accounting policies of thepolicy for reportable segments are substantially similar to those described in the “Summary of Significant Accounting Policies”is previously disclosed in Note 1 of the Company’s 2016 Form 10-K.1. Transactions between segments consist primarily of borrowed funds. Intersegment interest expense is allocated to the Factoring segmentand Payments segments based on the Company’s prime rate. The provision for loanFederal Home Loan Bank advance rates.  Credit loss expense is allocated based on the segment’s allowance for loan losscredit losses determination. Noninterest income and expense directly attributable to a segment are assigned to it. Taxes are paid on a consolidated basis butand are not allocated for segment purposes. The Factoring segment includes only factoring originated by TBC. General factoring services not originated through TBC are included in the Banking segment. On March 31, 2017, we sold our 100% membership interest in TCA. As a result, the Asset Management segment had no operations subsequent to March 31, 2017.

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

Asset

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Three Months Ended September 30, 2017

 

Banking

 

 

Factoring

 

 

Management

 

 

Corporate

 

 

Consolidated

 

Three months ended September 30, 2021Three months ended September 30, 2021BankingFactoringPaymentsCorporateConsolidated

Total interest income

 

$

32,973

 

 

$

11,736

 

 

$

—

 

 

$

428

 

 

$

45,137

 

Total interest income$46,175 $47,222 $3,295 $43 $96,735 

Intersegment interest allocations

 

 

2,193

 

 

 

(2,193

)

 

 

—

 

 

 

—

 

 

 

—

 

Intersegment interest allocations2,452 (2,341)(111)— — 

Total interest expense

 

 

4,294

 

 

 

—

 

 

 

—

 

 

 

1,331

 

 

 

5,625

 

Total interest expense2,073 — — 2,891 4,964 

Net interest income (expense)

 

 

30,872

 

 

 

9,543

 

 

 

—

 

 

 

(903

)

 

 

39,512

 

Net interest income (expense)46,554 44,881 3,184 (2,848)91,771 

Provision for loan losses

 

 

(69

)

 

 

649

 

 

 

—

 

 

 

(8

)

 

 

572

 

Net interest income after provision

 

 

30,941

 

 

 

8,894

 

 

 

—

 

 

 

(895

)

 

 

38,940

 

Credit loss expense (benefit)Credit loss expense (benefit)(2,399)1,164 38 10 (1,187)
Net interest income after credit loss expenseNet interest income after credit loss expense48,953 43,717 3,146 (2,858)92,958 

Noninterest income

 

 

3,498

 

 

 

774

 

 

 

—

 

 

 

(101

)

 

 

4,171

 

Noninterest income7,371 1,557 3,086 41 12,055 

Noninterest expense

 

 

21,984

 

 

 

5,600

 

 

 

—

 

 

 

641

 

 

 

28,225

 

Noninterest expense41,183 19,106 11,416 1,108 72,813 

Operating income (loss)

 

$

12,455

 

 

$

4,068

 

 

$

—

 

 

$

(1,637

)

 

$

14,886

 

Operating income (loss)$15,141 $26,168 $(5,184)$(3,925)$32,200 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

Asset

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Three Months Ended September 30, 2016

 

Banking

 

 

Factoring

 

 

Management

 

 

Corporate

 

 

Consolidated

 

Three months ended September 30, 2020Three months ended September 30, 2020BankingFactoringPaymentsCorporateConsolidated

Total interest income

 

$

24,863

 

 

$

8,465

 

 

$

61

 

 

$

82

 

 

$

33,471

 

Total interest income$50,927 $30,068 $1,361 $8 $82,364 

Intersegment interest allocations

 

 

1,251

 

 

 

(1,251

)

 

 

—

 

 

 

—

 

 

 

—

 

Intersegment interest allocations3,459 (3,312)(147)— — 

Total interest expense

 

 

2,671

 

 

 

—

 

 

 

—

 

 

 

382

 

 

 

3,053

 

Total interest expense6,176 — — 1,809 7,985 

Net interest income (expense)

 

 

23,443

 

 

 

7,214

 

 

 

61

 

 

 

(300

)

 

 

30,418

 

Net interest income (expense)48,210 26,756 1,214 (1,801)74,379 

Provision for loan losses

 

 

2,861

 

 

 

33

 

 

 

—

 

 

 

(75

)

 

 

2,819

 

Net interest income after provision

 

 

20,582

 

 

 

7,181

 

 

 

61

 

 

 

(225

)

 

 

27,599

 

Credit loss expense (benefit)Credit loss expense (benefit)(3,419)3,053 2 106 (258)
Net interest income after credit loss expenseNet interest income after credit loss expense51,629 23,703 1,212 (1,907)74,637 

Noninterest income

 

 

3,147

 

 

 

680

 

 

 

1,534

 

 

 

738

 

 

 

6,099

 

Noninterest income7,443 3,157 47 (154)10,493 

Noninterest expense

 

 

19,000

 

 

 

4,984

 

 

 

1,259

 

 

 

549

 

 

 

25,792

 

Noninterest expense37,389 13,665 3,195 1,048 55,297 

Operating income (loss)

 

$

4,729

 

 

$

2,877

 

 

$

336

 

 

$

(36

)

 

$

7,906

 

Operating income (loss)$21,683 $13,195 $(1,936)$(3,109)$29,833 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

Asset

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2017

 

Banking

 

 

Factoring

 

 

Management

 

 

Corporate

 

 

Consolidated

 

Total interest income

 

$

93,204

 

 

$

30,828

 

 

$

3

 

 

$

972

 

 

$

125,007

 

Intersegment interest allocations

 

 

5,211

 

 

 

(5,211

)

 

 

—

 

 

 

—

 

 

 

—

 

Total interest expense

 

 

11,177

 

 

 

—

 

 

 

—

 

 

 

3,942

 

 

 

15,119

 

Net interest income (expense)

 

 

87,238

 

 

 

25,617

 

 

 

3

 

 

 

(2,970

)

 

 

109,888

 

Provision for loan losses

 

 

7,571

 

 

 

2,042

 

 

 

—

 

 

 

84

 

 

 

9,697

 

Net interest income after provision

 

 

79,667

 

 

 

23,575

 

 

 

3

 

 

 

(3,054

)

 

 

100,191

 

Gain on sale of subsidiary

 

 

—

 

 

 

—

 

 

 

—

 

 

 

20,860

 

 

 

20,860

 

Other noninterest income

 

 

10,604

 

 

 

2,203

 

 

 

1,717

 

 

 

1,274

 

 

 

15,798

 

Noninterest expense

 

 

65,171

 

 

 

16,677

 

 

 

1,456

 

 

 

7,079

 

 

 

90,383

 

Operating income (loss)

 

$

25,100

 

 

$

9,101

 

 

$

264

 

 

$

12,001

 

 

$

46,466

 


(Dollars in thousands)
Nine months ended September 30, 2021BankingFactoringPaymentsCorporateConsolidated
Total interest income$144,087 $127,699 $7,939 $51 $279,776 
Intersegment interest allocations8,117 (7,700)(417)— — 
Total interest expense8,225 — — 6,478 14,703 
Net interest income (expense)143,979 119,999 7,522 (6,427)265,073 
Credit loss expense (benefit)(19,187)8,091 548 (290)(10,838)
Net interest income after credit loss expense163,166 111,908 6,974 (6,137)275,911 
Noninterest income25,139 10,710 4,242 151 40,242 
Noninterest expense122,497 52,433 26,393 3,180 204,503 
Operating income (loss)$65,808 $70,185 $(15,177)$(9,166)$111,650 

34

46

Table of Contents
TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

Asset

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

Nine Months Ended September 30, 2016

 

Banking

 

 

Factoring

 

 

Management

 

 

Corporate

 

 

Consolidated

 

Nine months ended September 30, 2020Nine months ended September 30, 2020BankingFactoringPaymentsCorporateConsolidated

Total interest income

 

$

62,399

 

 

$

23,589

 

 

$

125

 

 

$

605

 

 

$

86,718

 

Total interest income$155,517 $73,952 $2,440 $267 $232,176 

Intersegment interest allocations

 

 

3,351

 

 

 

(3,351

)

 

 

—

 

 

 

—

 

 

 

—

 

Intersegment interest allocations9,139 (8,873)(266)— — 

Total interest expense

 

 

6,908

 

 

 

—

 

 

 

—

 

 

 

996

 

 

 

7,904

 

Total interest expense25,368 — — 5,678 31,046 

Net interest income (expense)

 

 

58,842

 

 

 

20,238

 

 

 

125

 

 

 

(391

)

 

 

78,814

 

Net interest income (expense)139,288 65,079 2,174 (5,411)201,130 

Provision for loan losses

 

 

4,128

 

 

 

118

 

 

 

—

 

 

 

1

 

 

 

4,247

 

Net interest income after provision

 

 

54,714

 

 

 

20,120

 

 

 

125

 

 

 

(392

)

 

 

74,567

 

Noninterest income

 

 

5,984

 

 

 

1,622

 

 

 

4,819

 

 

 

2,323

 

 

 

14,748

 

Credit loss expense (benefit)Credit loss expense (benefit)27,211 4,437 167 1,834 33,649 
Net interest income after credit loss expenseNet interest income after credit loss expense112,077 60,642 2,007 (7,245)167,481 
Gain on sale of subsidiary or divisionGain on sale of subsidiary or division9,758 — — — 9,758 
Other noninterest incomeOther noninterest income22,512 5,524 74 131 28,241 

Noninterest expense

 

 

45,987

 

 

 

14,519

 

 

 

3,818

 

 

 

1,877

 

 

 

66,201

 

Noninterest expense113,047 37,695 8,954 3,080 162,776 

Operating income (loss)

 

$

14,711

 

 

$

7,223

 

 

$

1,126

 

 

$

54

 

 

$

23,114

 

Operating income (loss)$31,300 $28,471 $(6,873)$(10,194)$42,704 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

Asset

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2017

 

Banking

 

 

Factoring

 

 

Management

 

 

Corporate

 

 

Eliminations

 

 

Consolidated

 

Total assets

 

$

2,852,651

 

 

$

327,194

 

 

$

—

 

 

$

493,335

 

 

$

(767,019

)

 

$

2,906,161

 

Gross loans

 

$

2,331,514

 

 

$

315,742

 

 

$

—

 

 

$

12,737

 

 

$

(234,530

)

 

$

2,425,463

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

Asset

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

Banking

 

 

Factoring

 

 

Management

 

 

Corporate

 

 

Eliminations

 

 

Consolidated

 

Total assets

 

$

2,588,509

 

 

$

223,994

 

 

$

4,879

 

 

$

391,745

 

 

$

(568,060

)

 

$

2,641,067

 

Gross loans

 

$

1,961,552

 

 

$

212,784

 

 

$

—

 

 

$

1,866

 

 

$

(148,578

)

 

$

2,027,624

 

Total assets and gross loans below include intersegment loans, which eliminate in consolidation.


(Dollars in thousands)
September 30, 2021BankingFactoringPaymentsCorporateEliminationsConsolidated
Total assets$5,686,761 $1,559,378 $242,446 $975,939 $(2,439,989)$6,024,535 
Gross loans$4,390,659 $1,479,989 $127,039 $700 $(1,215,657)$4,782,730 

(Dollars in thousands)
December 31, 2020BankingFactoringPaymentsCorporateEliminationsConsolidated
Total assets$5,791,537 $1,121,704 $115,836 $861,967 $(1,955,253)$5,935,791 
Gross loans$4,788,093 $1,036,548 $84,222 $800 $(912,887)$4,996,776 
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item 2

Table of ContentsManagement’s Discussion and Analysis of

Financial Condition and Results of Operations

ITEM 2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section presents management’s perspective on our financial condition and results of operations. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Company’s interim consolidated financial statements and the accompanying notes included elsewhere in this Quarterly Report on Form 10-Q and with the consolidated financial statements and accompanying notes and other detailed information appearing in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2020. To the extent that this discussion describes prior performance, the descriptions relate only to the periods listed, which may not be indicative of our future financial outcomes. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause results to differ materially from management’s expectations. See the “Forward-Looking Statements” section of this discussion for further information on forward-looking statements.

Overview

We are a financial holding company headquartered in Dallas, Texas and registered under the Bank Holding Company Act. As of September 30, 2021, we had consolidated total assets of $6.025 billion, total loans held for investment of $4.783  billion, total deposits of $4.823 billion and total stockholders’ equity of $820.7 million.
Through our wholly owned bank subsidiary, TBK Bank, we offer traditional banking services, as well as commercial finance product lines focused on businesses that require specialized financial solutions. Oursolutions and national lending product lines that further diversify our lending operations. Traditional banking operationsofferings include a full suite of lending and deposit products and servicesservices. These activities are focused on our local market areas. These activitiesareas and some products are offered on a nationwide basis. They generate a stable source of core deposits and a diverse asset base to support our overall operations. Our commercial finance product lines generate attractive returns and include factoring, asset basedasset-based lending and equipment lending healthcare lending, and premium finance products offered on a nationwide basis. These product offerings supplement theAdditionally, we offer mortgage warehouse and liquid credit lending products on a nationwide basis to provide further asset generation capacity inbase diversification and stable deposits.
Year to date, our communityaggregate outstanding balances for these banking markets and enhance the overall yield of our loan portfolio, enabling usproducts has decreased $700.3 million, or 18.1%, to earn attractive risk-adjusted net interest margins. We believe our integrated business model distinguishes us from other banks and non-bank financial services companies in the markets in which we operate. As$3.176 billion as of September 30, 2017, we had consolidated total assets of $2.906 billion, total loans held for investment of $2.425 billion, total deposits of $2.013 billion and total stockholders’ equity of $386.1 million.

Most of2021. The following table sets forth our banking loans:

(Dollars in thousands)September 30,
2021		December 31,
2020
Banking
Commercial real estate$630,106 $779,158 
Construction, land development, land171,814 219,647 
1-4 family residential127,073 157,147 
Farmland82,990 103,685 
Commercial - General289,242 340,850 
Commercial - Paycheck Protection Program87,413 189,857 
Commercial - Agriculture77,263 94,572 
Commercial - Equipment588,105 573,163 
Commercial - Asset-based lending213,927 180,488 
Commercial - Liquid Credit142,547 184,027 
Consumer12,677 15,838 
Mortgage Warehouse752,545 1,037,574 
Total banking loans$3,175,702 $3,876,006 
Our Banking products and services share basic processes and have similar economic characteristics. However, ourOur factoring subsidiary, Triumph Business Capital, operates in a highly specialized niche and earns substantially higher yields on its factored accounts receivable portfolio than our other lending products. This business also has a legacy and structure as a standalone company. In addition, through our Triumph Capital Advisors asset management subsidiary, we previously provided fee-based asset management services distinct from our traditional banking offeringsOur payments business, TriumphPay, is a division of TBK Bank and operations.  Asalso operates in a result, wehighly specialized niche with unique processes and key performance indicators.
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We have determined our reportable segments are Banking, Factoring, Asset Management,Payments and Corporate. For the nine months ended September 30, 2017,2021, our Banking segment generated 65%53% of our total revenue (comprised of interest and noninterest income), our Factoring segment generated 20%43% of our total revenue, our Asset ManagementPayments segment generated 1%4% of our total revenue, and our Corporate segment generated 14%less than 1% of our total revenue. As discussed below, on March 31, 2017 we sold our 100% membership interest in Triumph Capital Advisors, LLC and no longer provide fee based asset management services.  Asset Management segment results reflect activity through the date of the Triumph Capital Advisors, LLC sale. The $20.9 million pre-tax gain on the sale of Triumph Capital Advisors, LLC is included in the Corporate segment’s revenue for the nine months ended September 30, 2017.

Third Quarter 20172021 Overview

Net income available to common stockholders for the three months ended September 30, 20172021 was $9.6$23.6 million, or $0.47$0.94 per diluted share, compared to net income available to common stockholders for the three months ended September 30, 20162020 of $4.5$22.0 million, or $0.25$0.89 per diluted share. Excluding material gains and expenses related to merger and acquisition related activities, including divestitures, adjusted net income to common stockholders was $5.9$22.6 million, or $0.32$0.91 per diluted share, for the three months ended September 30, 2016.2020. For the three months ended September 30, 2017,2021, our return on average common equity was 10.79%12.13% and our return on average assets was 1.36%1.61%.

Net income available to common stockholders for the nine months ended September 30, 20172021 was $29.3$83.9 million, or $1.53$3.33 per diluted share, compared to net income available to common stockholders for the nine months ended September 30, 20162020 of $13.7$31.0 million, or $0.76$1.27 per diluted share. Excluding material gains and expenses related to merger and acquisition related activities, including divestitures, adjusted net income to common stockholders was $19.4$86.2 million, or $1.02$3.42 per diluted share, for the nine months ended September 30, 2017, compared to adjusted net income to common stockholders2021 and $24.3 million, or $0.99 per diluted share, for the nine months ended September 30, 2016 of $15.1 million, or $0.84 per diluted share.2020. For the nine months ended September 30, 2017,2021, our return on average common equity was 12.58%15.18% and our return on average assets was 1.46%1.91%.


At September 30, 2017,2021, we had total assets of $2.906$6.025 billion, including gross loans of $2.425$4.783 billion, compared to $2.641$5.936 billion of total assets and $2.028$4.997 billion of gross loans at December 31, 2016. Organic loan growth totaled $3972020. Total loans decreased $214.0 million during the nine months ended September 30, 2017.2021. Our commercial finance product lines increased from $693.7 million in aggregate as of December 31, 2016 to $886.9 million as of September 30, 2017, an increase of 28%, andBanking loans, which constitute 37%66% of our total loan portfolio at September 30, 2017.

2021, decreased from $3.876 billion in aggregate as of December 31, 2020 to $3.176 billion as of September 30, 2021, a decrease of 18.1%. Our Factoring factored receivables, which constitute 31% of our total loan portfolio at September 30, 2021, increased from $1.037 billion in aggregate as of December 31, 2020 to $1.480 billion as of September 30, 2021, an increase of 42.8%. Our Payments factored receivables, which constitute 3.0% of our total loan portfolio at September 30, 2021, increased from $84.2 million in aggregate as of December 31, 2020 to $127.0 million as of September 30, 2021, an increase of 50.8%.

At September 30, 2017,2021, we had total liabilities of $2.520$5.204 billion, including total deposits of $2.013$4.823 billion, compared to $2.352$5.209 billion of total liabilities and $2.016$4.717 billion of total deposits at December 31, 2016.2020. Deposits declined $3increased $106.0 million during the nine months ended September 30, 2017.

2021.

At September 30, 2017,2021, we had total stockholders' equity of $386.1$820.7 million. During the nine months ended September 30, 2017,2021, total stockholders’ equity increased $96.8$93.9 million, primarily due to $65.5 million of net proceeds from the August 1, 2017 common stock offering discussed below and our net income forduring the period. Capital ratios remained strong with Tier 1 capital and total capital to risk weighted assets ratios of 13.45%11.06% and 15.91%13.69%, respectively, at September 30, 2017.

Common Stock Offering

2021.

2021 Items of Note
HubTran, Inc.
On AugustJune 1, 2017,2021, we, through TriumphPay, a division of our wholly-owned subsidiary TBK Bank, SSB, entered into a definitive agreement to acquire HubTran, Inc., a cloud-based provider of automation software for the Company completed an underwritten common stock offering issuing 2.53trucking industry's back-office, for $97 million in cash subject to customary purchase price adjustments.
The acquisition of HubTran enables us to create a payments network that will allow freight brokers and factors to lower costs, remove inefficiencies, reduce fraud and add value for their stakeholders. TriumphPay already offered tools and services to increase automation, mitigate fraud, create back-office efficiency and improve the payment experience. Through the acquisition of HubTran, TriumphPay created additional value through the enhancement of its presentment, audit, and payment capabilities for shippers, third party logistics companies (i.e., freight brokers) and their carriers, and factors. The acquisition of HubTran was a meaningful inflection point in the operations of TriumphPay as the TriumphPay strategy has shifted from a capital-intensive on-balance sheet product with a focus on interest income to a payments network for the trucking industry with a focus on fee revenue. At the time of acquisition, HubTran brought integrations and in-process integrations with over 220 freight brokers and more than 50 factors.
For further information on the above transaction, see Note 2 – Business Combinations and Divestitures in the accompanying condensed notes to the consolidated financial statements included elsewhere in this report.
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Misdirected Payments
As of September 30, 2021 we carry a separate $19.4 million receivable (the “Misdirected Payments”) payable by the United States Postal Service (“USPS”) arising from accounts factored to the largest over-formula advance carrier. This amount is separate from the acquired Over-Formula Advances. The amounts represented by this receivable were paid by the USPS directly to such customer in contravention of notices of assignment delivered to, and previously honored by, the USPS, which amount was then not remitted back to us by such customer as required. The USPS disputes their obligation to make such payment, citing purported deficiencies in the notices delivered to them. In addition to commencing litigation against such customer, we have commenced litigation against the USPS seeking a ruling that the USPS was obligated to make the payments represented by this receivable directly to us. During the third quarter of 2021 we, together with the USPS, entered into a stipulation of dismissal without prejudice for our initial action with respect to this matter in United States Federal District Court and filed a new action seeking recourse from the USPS in the United States Court of Federal Claims.Based on our legal analysis and discussions with our counsel advising us on this matter, we continue to believe it is probable that we will prevail in such action and that the USPS will have the capacity to make payment on such receivable. Consequently, we have not reserved for such balance as of September 30, 2021. The full amount of such receivable is reflected in non-performing and past due factored receivables as of September 30, 2021 in accordance with our policy. As of September 30, 2021, the entire $19.4 million Misdirected Payments amount was greater than 90 days past due.
2020 Items of Note
Transport Financial Solutions
On July 8, 2020, we, through our wholly-owned subsidiary Advance Business Capital LLC (“ABC”), acquired the transportation factoring assets (the “TFS Acquisition”) of Transport Financial Solutions (“TFS”), a wholly owned subsidiary of Covenant Logistics Group, Inc. ("CVLG"), in exchange for cash consideration of $108.4 million, 630,268 shares of the Company’s common stock including 0.33valued at approximately $13.9 million, and contingent consideration of up to approximately $9.9 million to be paid in cash following the twelve-month period ending July 31, 2021.
Subsequent to the closing of the TFS Acquisition, the Company identified that approximately $62.2 million of the assets acquired at closing were advances against future payments to be made to three large clients (and their affiliated entities) of TFS pursuant to long-term contractual arrangements between the obligor on such contracts and such clients (and their affiliated entities) for services that had not yet been performed.
On September 23, 2020, the Company and ABC entered into an Account Management Agreement, Amendment to Purchase Agreement and Mutual Release (the “Agreement”) with CVLG and Covenant Transport Solutions, LLC a wholly owned subsidiary of CVLG (“CTS” and, together with CVLG, "Covenant"). Pursuant to the Agreement, the parties agreed to certain amendments to that certain Accounts Receivable Purchase Agreement (the “ARPA”), dated as of July 8, 2020, by and among ABC, as buyer, CTS, as seller, and the Company, as buyer indirect parent. Such amendments include:
•Return of the portion of the purchase price paid under the ARPA consisting of 630,268 shares soldof Company common stock, which will be accomplished through the sale of such shares by CVLG pursuant to the underwriters' full exerciseterms of their optionthe Agreement and the surrender of the cash proceeds of such sale (net of brokerage or underwriting fees and commissions) to purchase additionalthe Company;
•Elimination of the earn-out consideration potentially payable to CTS under the ARPA; and
•Modification of the indemnity provisions under the ARPA to eliminate the existing indemnifications for breaches of representations and warranties and to replace such with a newly established indemnification by Covenant in the event ABC incurs losses related to the $62.2 million in over-formula advances made to specified clients identified in the Agreement (the “Over-Formula Advance Portfolio”). Under the terms of the new indemnification arrangement, Covenant will be responsible for and will indemnify ABC for 100% of the first $30 million of any losses incurred by ABC related to the Over-Formula Advance Portfolio, and for 50% of the next $30 million of any losses incurred by ABC, for total indemnification by Covenant of $45 million.

Covenant’s indemnification obligations under the Agreement were secured by a pledge of equipment collateral by Covenant with an estimated net orderly liquidation value of $60 million (the “Equipment Collateral”). The Company’s wholly-owned bank subsidiary, TBK Bank, SSB, provided Covenant with a $45 million line of credit, also secured by the Equipment Collateral, the proceeds of which may be drawn to satisfy Covenant’s indemnification obligations under the Agreement. During the first quarter of 2021, Covenant drew on the line of credit to fund its only $35.6 million indemnification payment thus far, but has since paid down that amount in its entirety. At September 30, 2021, Covenant had remaining availability of $9.4 million left on its TBK line of credit available to cover our indemnification balance up to of $5.0 million.
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Pursuant to the Agreement, Triumph and Covenant have agreed to certain terms related to the management of the Over-Formula Advance Portfolio, and the terms by which Covenant may provide assistance to maximize recovery on the Over-Formula Advance Portfolio.
Pursuant to the Agreement, the Company and Covenant have provided mutual releases to each other related to any and all claims related to the transactions contemplated by the ARPA or the Over-Formula Advance Portfolio. Also in connection the Agreement, Covenant agreed to dismiss, with prejudice, the declaratory judgment action filed in the 95th Judicial District Court of Dallas County, Texas (removed to the United States District Court, Northern District of Texas), related to the ARPA and the transactions contemplated.
Further discussion regarding activity related to the TFS Acquisition can be found below.
Triumph Premium Finance
On April 20, 2020, we entered into an agreement to sell the assets (the “Disposal Group”) of Triumph Premium Finance (“TPF”) and exit our premium finance line of business. The decision to sell TPF was made during the three months ended March 31, 2020, and at March 31, 2020, the carrying amount of the Disposal Group was transferred to assets held for sale. The transaction closed on June 30, 2020, and the assets of the Disposal Group, consisting primarily of $84.5 million of premium finance loans, was sold for a gain on sale of $9.8 million.
For further information on the above transactions, see Note 2 – Business Combinations and Divestitures in the accompanying condensed notes to the consolidated financial statements included elsewhere in this report.
Preferred Stock Offering
On June 19, 2020, we issued 45,000 shares at $27.50of 7.125% Series C Fixed-Rate Non-Cumulative Perpetual Preferred Stock, par value $0.01 per share, for totalwith a liquidation preference of $1,000 per share through an underwritten public offering of 1,800,000 depositary shares, each representing a 1/40th ownership interest in a share of the Series C Preferred Stock. Total gross proceeds of $69.6from the preferred stock offering were $45.0 million. Net proceeds after underwriting discounts and offering expenses were $65.5$42.4 million. The Company intends to use a portion of the net proceeds of the offering to fund a portion of the consideration payable in the pending acquisition of Valley Bancorp, Inc. discussed below, andwill be used for general corporate purposes.

Valley Bancorp, Inc.

On July 26, 2017,

Stock Repurchase Program
During the Company enteredthree months ended March 31, 2020, we repurchased 871,319 shares into treasury stock under our stock repurchase program at an agreementaverage price of $40.81, for a total of $35.6 million, effectively completing the $50.0 million stock repurchase program authorized by our board of directors on October 16, 2019. There were no shares repurchased during the remainder of fiscal year 2020.
Recent Developments: COVID-19 and the Legislative Action
Significant progress has been made to acquire Valley Bancorp, Inc.combat the outbreak of COVID-19; however, the global pandemic has adversely impacted a broad range of industries in which the Company’s customers operate and could still impair their ability to fulfill their financial obligations to the Company. While employee availability has had no material impact on operations to date, a resurgence of COVID-19 has the potential to create widespread business continuity issues for the Company.
Congress, the President, and the Federal Reserve have taken several actions designed to cushion the economic fallout. The Coronavirus Aid, Relief and Economic Security (“Valley”CARES”) Act was signed into law at the end of March 2020 as a $2 trillion legislative package. The goal of the CARES Act was to curb the economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors through programs like the Paycheck Protection Program ("PPP") and its community banking subsidiary, Valley Bank & Trust, in an all-cash transaction for $39 million, subject to certain adjustments based upon Valley’s tangible book value at the closingMain Street Lending Program (“MSLP”). During December 2020, many provisions of the transaction. ValleyCARES Act were extended through the end of 2021. In addition to the general impact of COVID-19, certain provisions of the CARES Act as well as other recent legislative and regulatory relief efforts have had total assetsa material impact on the Company’s 2020 and 2021 operations and could continue to impact operations going forward.
The Company’s business is dependent upon the willingness and ability of $331 million, total loans of $174 million,its employees and total deposits of $296 millioncustomers to conduct banking and other financial transactions.  While it appears that epidemiological and macroeconomic conditions are trending in a positive direction as of September 30, 2017. Valley Bank & Trust serves individuals and business customers from seven locations across2021, if there is a resurgence in the northern front range including Brighton, Dacono, Denver, Hudson, Westminster and Strasburg, Colorado. The transaction is expected to close during the fourth quarter of 2017 and is subject to certain closing conditions, including receipt of regulatory approval.

Independent Bank Colorado Branches

On June 23, 2017, TBK Bank entered into an agreement to acquire nine branch locations in Colorado from Independent Bank Group, Inc.’s banking subsidiary Independent Bank. The acquisition closed on October 6, 2017.  TBK Bank purchased approximately $99 million in loans and assumed approximately $162 million in deposits associated with the branches for an aggregate deposit premium of approximately $6.8 million, or 4.2%.

Triumph Capital Advisors

On March 31, 2017,virus, the Company soldcould experience further adverse effects on its 100% membership interest in Triumph Capital Advisors, LLC (“TCA”).  As partbusiness, financial condition, results of operations and cash flows. While it is not possible to know the TCA salefull universe or extent that the impact of COVID-19, and any potential resulting measures to curtail its spread, will have on March 31, 2017,the Company’s future operations, the Company recordedis disclosing potentially material items of which it is aware.

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Financial position and results of operations
Pertaining to our September 30, 2021 financial condition and year to date results of operations, improving conditions around COVID-19 had a pre-tax gainmaterial impact on sale of $20.9 million, net of $0.4 million of direct transaction costs.  In addition, the Company incurred other indirect transactionour allowance for credit losses (“ACL”). We have not yet experienced material charge-offs related costs of $0.3 millionto COVID-19. Our ACL calculation, and recorded $4.8 millionresulting provision for credit losses, are significantly impacted by changes in incremental bonus expense for the amount paid to team members to recognize their contribution to the transaction and building the value realized in the sale of the business.  The TCA sale resulted in a net pre-tax contribution to earnings forforecasted economic conditions. Given that forecasted economic scenarios have brightened significantly since December 31, 2020, our required ACL decreased during the nine months ended September 30, 20172021. Refer to our discussion of $15.7the ACL in Note 1 and Note 4 of our unaudited financial statements as well as further discussion later on in MD&A. Should economic conditions worsen as a result of a resurgence in the virus and resulting measures to curtail its spread, we could experience increases in our required ACL and record additional credit loss expense. The execution of the payment deferral program discussed in the following commentary assisted our ratio of past due loans to total loans as well other asset quality ratios at September 30, 2021. It is possible that our asset quality measures could worsen at future measurement periods if the effects of COVID-19 are prolonged.
The Company’s interest income could be reduced due to COVID-19. In keeping with guidance from regulators, the Company continues to work with COVID-19 affected borrowers to defer their payments, interest, and fees. While interest and fees continue to accrue to income, through normal GAAP accounting, should eventual credit losses on these deferred payments emerge, the related loans would be placed on nonaccrual status and interest income and fees accrued would be reversed. In such a scenario, interest income in future periods could be negatively impacted. As of September 30, 2021, the Company carried $0.1 million of accrued interest income and fees on outstanding deferrals made to COVID-19 affected borrowers. This is down from $0.7 million of accrued interest income and fees on outstanding deferrals at December 31, 2020. At this time, the Company is unable to project the materiality of such an impact on future deferrals to COVID-19 affected borrowers, but recognizes the breadth of the economic impact may affect its borrowers’ ability to repay in future periods.
Capital and liquidity
As of September 30, 2021, all of our capital ratios, and our subsidiary bank’s capital ratios, were in excess of all regulatory requirements. While we believe that we have sufficient capital to withstand a double-dip economic recession brought about by a resurgence in COVID-19, our reported and regulatory capital ratios could be adversely impacted by further credit loss expense. We rely on cash on hand as well as dividends from our subsidiary bank to service our debt. If our capital deteriorates such that our subsidiary bank is unable to pay dividends to us for an extended period of time, we may not be able to service our debt.
We maintain access to multiple sources of liquidity. Wholesale funding markets have remained open to us, but rates for short term funding can be volatile. If an extended recession caused large numbers of our deposit customers to withdraw their funds, we might become more reliant on volatile or approximately $10.0 million netmore expensive sources of tax.  Consideration receivedfunding.
Asset valuation
COVID-19 has not affected our ability to account timely for the assets on our balance sheet; however, this could change in future periods. While certain valuation assumptions and judgments have changed to account for pandemic-related circumstances such as widening credit spreads, we do not anticipate significant changes in methodology used to determine the fair value of assets measured in accordance with GAAP. As of September 30, 2021, our goodwill was not impaired and we did not have any impairment with respect to our intangible assets, premises and equipment or other long-lived assets.
Our processes, controls and business continuity plan
The Company’s preparedness efforts, coupled with quick and decisive plan implementation, has resulted in minimal impacts to operations as a result of COVID-19. At September 30, 2021, many of our employees continue to work remotely with no disruption to our operations. We have not incurred additional material cost related to our remote working strategy to date, nor do we anticipate incurring material cost in future periods.
As of September 30, 2021, we don’t anticipate significant challenges to our ability to maintain our systems and controls in light of the measures we have taken to prevent the spread of COVID-19. The Company does not currently face any material resource constraint through the implementation of our business continuity plans.
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Lending operations and accommodations to borrowers
In keeping with regulatory guidance to work with borrowers during this unprecedented situation and as outlined in the CARES Act, the Company is executing a payment deferral program for its clients that are adversely affected by the pandemic. Depending on the demonstrated need of the client, the Company includedis deferring either the full loan payment or the principal component of the loan payment for a seller financedstated period of time. The loans carried under this payment deferral program have decreased substantially since December 31, 2020, and as of September 30, 2021, the Company’s balance sheet reflected 3 of these deferrals on outstanding loan receivablebalances of $32.2 million. In accordance with the CARES Act and March 2020 interagency guidance, these short term deferrals are not considered troubled debt restructurings. It is possible that these deferrals could be extended further under the CARES Act; however, the volume of these future potential extensions is unknown. It is also possible that in spite of our best efforts to assist our borrowers and achieve full collection of our investment, these deferred loans could result in future charge-offs with additional credit loss expense charged to earnings; however, the amount of $10.5 million.

ColoEast Bankshares, Inc.

On August 1, 2016,any future charge-offs on deferred loans is unknown. At September 30, 2021, 94% of the $32.2 million COVID deferral balance was made up of one relationship.

With the passage of the PPP, administered by the Small Business Administration (“SBA”), the Company acquired ColoEast Bankshares, Inc. (“ColoEast”)has actively participated in assisting its customers with applications for resources through the program. PPP loans generally have a two-year or five-year term and its community banking subsidiary, Colorado East Bank & Trust, which was merged into TBK Bank upon closing.  As partearn interest at 1%. The Company believes that these loans will ultimately be forgiven by the SBA in accordance with the terms of the ColoEast acquisition,program. As of September 30, 2021, the Company acquiredcarried 815 PPP loans withrepresenting a fairbook value of $461 million, acquired investment securities with a fair value of $162$87.4 million. The Company recognized $1.6 million and assumed $653$4.5 million of customer deposits.  When compared toin fees from the SBA on PPP loans during the three and nine months ended September 30, 2017,2021, respectively, and carries $3.6 million of deferred fees on PPP loans at quarter end. The remaining fees will be amortized and recognized over the life of the associated loans or as the associated loans are forgiven. It is the Company’s understanding that loans funded through the PPP program are fully guaranteed by the U.S. government. Should those circumstances change, the Company could be required to establish an allowance for credit loss through additional credit loss expense charged to earnings.
Credit
While all industries have and will continue to experience adverse impacts as a result of COVID-19 virus, we had exposures (on balance sheet loans and commitments to lend) in the following loan categories considered to be “at-risk” of significant impact as of September 30, 2021. The exposures reported below exclude fully guaranteed PPP loans.
Retail Lending:
The Company’s exposure to retail at September 30, 2021 equated to approximately $188.6 million, or 3.9% of total loans, summarized as follows:

•36% retail real estate
•28% new and used vehicle lending; mostly dealer floorplan
•17% grocery stores, pet stores, pharmacies, gas stations and convenience stores
•7% factoring
•12% other types of retail lending
At September 30, 2021 there were no retail loans in deferral through our CARES Act deferral program.
Office Lending:
The Company’s exposure to office lending at September 30, 2021 equated to approximately $180.4 million, or 3.8% of total loans, summarized as follows:
•85% non-owner occupied facilities.
•15% owner occupied facilities
•less than 1% construction development lending
At September 30, 2021 there were no office lending loans in deferral through our CARES Act deferral program.
Hospitality Lending:
The Company’s exposure to hospitality at September 30, 2021 equated to approximately $121.9 million, or 2.5% of total loans. These were mostly smaller loans purchased through our bank acquisitions and secured by hotels. At September 30, 2021 there were no hospitality loans in deferral through our CARES Act deferral program.
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Restaurants:
The Company’s exposure to restaurants at September 30, 2021 equated to approximately $31.3 million, or less than 1% of total loans. At September 30, 2021 there were no restaurant loans in deferral through our CARES Act deferral program.
Health Care and Senior Care Lending:
The Company’s exposure to health care and senior care at September 30, 2021 equated to $42.7 million, or less than 1% of total loans. At September 30, 2021 there were no health care and senior care loans in deferral through our CARES Act deferral program.
We continue to work with customers directly affected by COVID-19. We are prepared to offer assistance in accordance with regulator guidelines. As a result of the current economic environment caused by the COVID-19 virus, we continue to engage in communication with borrowers to better understand their situation and the challenges faced, allowing us to respond proactively as needs and issues arise.
Trucking transportation
The third quarter of 2021 featured a continuation of high spot market rates in all transportation modes; dry van, reefer and flat bed. The well-publicized difficulties in supply chain movements from port to warehouse have kept trucks utilized and demand at record levels. Ocean carriers and air freight also experienced record demand and at record price levels. Through August 2021, a record number of new motor carriers had received carrier authority. These are generally not new drivers to the market but previously employed company drivers who have begun operating resultson their own to take advantage of high rates. In addition there are owner operators that had been working under a lease arrangement with larger carriers, but became fully independent either voluntarily or after being terminated in part due to labor law regulation.


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Financial Highlights
Three Months Ended September 30,Nine Months Ended September 30,
(Dollars in thousands, except per share amounts)2021202020212020
Income Statement Data:
Interest income$96,735 $82,364 $279,776 $232,176 
Interest expense4,964 7,985 14,703 31,046 
Net interest income91,771 74,379 265,073 201,130 
Credit loss expense (benefit)(1,187)(258)(10,838)33,649 
Net interest income after credit loss expense (benefit)92,958 74,637 275,911 167,481 
Gain on sale of subsidiary or division— — — 9,758 
Other noninterest income12,055 10,493 40,242 28,241 
Noninterest income12,055 10,493 40,242 37,999 
Noninterest expense72,813 55,297 204,503 162,776 
Net income (loss) before income taxes32,200 29,833 111,650 42,704 
Income tax expense (benefit)7,771 6,929 25,316 10,810 
Net income (loss)$24,429 $22,904 $86,334 $31,894 
Dividends on preferred stock(802)(899)(2,405)(899)
Net income available (loss) to common stockholders$23,627 $22,005 $83,929 $30,995 
Per Share Data:
Basic earnings (loss) per common share$0.95 $0.89 $3.40 $1.28 
Diluted earnings (loss) per common share$0.94 $0.89 $3.33 $1.27 
Weighted average shares outstanding - basic24,759,419 24,592,092 24,719,861 24,298,897 
Weighted average shares outstanding - diluted25,227,963 24,802,388 25,199,991 24,464,215 
Adjusted Per Share Data(1):
Adjusted diluted earnings per common share$0.94 $0.91 $3.42 $0.99 
Adjusted weighted average shares outstanding - diluted25,227,963 24,802,388 25,199,991 24,464,215 
Performance ratios - Annualized:
Return on average assets1.61 %1.65 %1.91 %0.80 %
Return on average total equity11.85 %13.24 %14.72 %6.63 %
Return on average common equity12.13 %13.61 %15.18 %6.62 %
Return on average tangible common equity (1)
19.21 %19.43 %22.12 %9.51 %
Yield on loans(2)
7.92 %7.05 %7.65 %6.92 %
Cost of interest bearing deposits0.27 %0.79 %0.33 %1.07 %
Cost of total deposits0.16 %0.56 %0.21 %0.79 %
Cost of total funds0.38 %0.67 %0.38 %0.90 %
Net interest margin(2)
6.69 %5.83 %6.41 %5.52 %
Efficiency ratio70.13 %65.15 %66.98 %68.07 %
Adjusted efficiency ratio (1)
70.13 %64.18 %66.00 %70.61 %
Net noninterest expense to average assets4.00 %3.23 %3.63 %3.14 %
Adjusted net noninterest expense to average assets (1)
4.00 %3.17 %3.57 %3.37 %
55
Table of Contents
(Dollars in thousands, except per share amounts)September 30,
2021		December 31,
2020
Balance Sheet Data:
Total assets$6,024,535 $5,935,791 
Cash and cash equivalents532,764 314,393 
Investment securities175,927 236,055 
Loans held for investment, net4,741,713 4,901,037 
Total liabilities5,203,861 5,209,010 
Noninterest bearing deposits2,020,984 1,352,785 
Interest bearing deposits2,801,591 3,363,815 
FHLB advances30,000 105,000 
Paycheck Protection Program Liquidity Facility97,554 191,860 
Subordinated notes106,755 87,509 
Junior subordinated debentures40,467 40,072 
Total stockholders’ equity820,674 726,781 
Preferred stockholders' equity45,000 45,000 
Common stockholders' equity775,674 681,781 
Per Share Data:
Book value per share$30.87 $27.42 
Tangible book value per share (1)
$19.73 $19.78 
Shares outstanding end of period25,123,342 24,868,218 
Asset Quality ratios(3):
Past due to total loans2.31 %3.22 %
Nonperforming loans to total loans0.90 %1.16 %
Nonperforming assets to total assets0.86 %1.15 %
ACL to nonperforming loans95.75 %164.98 %
ACL to total loans0.86 %1.92 %
Net charge-offs to average loans(4)
0.94 %0.10 %
Capital ratios:
Tier 1 capital to average assets10.43 %10.80 %
Tier 1 capital to risk-weighted assets11.06 %10.60 %
Common equity Tier 1 capital to risk-weighted assets9.45 %9.05 %
Total capital to risk-weighted assets13.69 %13.03 %
Total stockholders' equity to total assets13.62 %12.24 %
Tangible common stockholders' equity ratio (1)
8.63 %8.56 %
(1)The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance. The non-GAAP measures used by the Company include the following:
•“Adjusted diluted earnings per common share” is defined as adjusted net income available to common stockholders divided by adjusted weighted average diluted common shares outstanding. Excluded from net income available to common stockholders are material gains and expenses related to merger and acquisition-related activities, including divestitures, net of tax. In our judgment, the adjustments made to net income available to common stockholders allow management and investors to better assess our performance in relation to our core net income by removing the volatility associated with certain acquisition-related items and other discrete items that are unrelated to our core business. Weighted average diluted common shares outstanding are adjusted as a result of changes in their dilutive properties given the gain and expense adjustments described herein.
56
Table of Contents
•“Adjusted efficiency ratio” is defined as noninterest expenses divided by our operating revenue, which is equal to net interest income plus noninterest income. Also excluded are material gains and expenses related to merger and acquisition-related activities, including divestitures. In our judgment, the adjustments made to operating revenue allow management and investors to better assess our performance in relation to our core operating revenue by removing the volatility associated with certain acquisition-related items and other discrete items that are unrelated to our core business.
•“Adjusted net noninterest expense to average total assets” is defined as noninterest expenses net of noninterest income divided by total average assets. Excluded are material gains and expenses related to merger and acquisition-related activities, including divestitures. This metric is used by our management to better assess our operating efficiency.
•"Tangible common stockholders' equity" is defined as common stockholders' equity less goodwill and other intangible assets.
•“Total tangible assets” is defined as total assets less goodwill and other intangible assets.
•“Tangible book value per share” is defined as tangible common stockholders’ equity divided by total common shares outstanding. This measure is important to investors interested in changes from period-to-period in book value per share exclusive of changes in intangible assets.
•“Tangible common stockholders’ equity ratio” is defined as the ratio of tangible common stockholders’ equity divided by total tangible assets. We believe that this measure is important to many investors in the marketplace who are interested in relative changes from period-to period in common equity and total assets, each exclusive of changes in intangible assets.
•“Return on average tangible common equity” is defined as net income available to common stockholders divided by average tangible common stockholders’ equity.
(2)Performance ratios include discount accretion on purchased loans for the three andperiods presented as follows:
Three Months Ended September 30,Nine Months Ended September 30,
(Dollars in thousands, except per share amounts)2021202020212020
Loan discount accretion$1,953 $4,104 $7,615 $8,377 
(3)Asset quality ratios exclude loans held for sale, except for non-performing assets to total assets.
(4)Net charge-offs to average loans ratios are for the nine months ended September 30, 2017 are reflective of2021 and the significantly larger assets, liabilities, personnel, and infrastructure resulting from the ColoEast acquisition, which affects comparability period over period.


Commercial Finance Product Lines

A key element of our strategy is to supplement the asset generation capacity in our community banking markets with commercial finance product lines which are offered on a nationwide basis and which serve to enhance the overall yield of our portfolio.  These products include our factoring services, provided principally in the transportation sector (though increasingly in other industries as well), our asset based lending and equipment finance products marketed under our Triumph Commercial Finance brand, the healthcare asset based lending products offered under our Triumph Healthcare Finance brand, and premium finance products marketed under our Triumph Premium Finance brand.  Our aggregate outstanding balances for these products increased from $693.7 million as ofyear ended December 31, 2016 to $886.9 million as2020.

57
Table of September 30, 2017. These increases were driven by organic growth.

The following table sets forth our commercial finance product lines as of September 30, 2017 and December 31, 2016:

 

September 30,

 

 

December 31,

 

(Dollars in thousands)

 

2017

 

 

2016

 

Commercial finance

 

 

 

 

 

 

 

 

Equipment

 

$

226,120

 

 

$

190,393

 

Asset based lending (general)

 

 

193,884

 

 

 

161,454

 

Asset based lending (healthcare)

 

 

67,889

 

 

 

79,668

 

Premium finance

 

 

57,083

 

 

 

23,971

 

Factored receivables

 

 

341,880

 

 

 

238,198

 

Total commercial finance loans

 

$

886,856

 

 

$

693,684

 

Contents


Financial Highlights

The Company’s key financial highlights as of and for the three and nine months ended September 30, 2017, as compared to the prior period, are shown below:

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in thousands, except per share amounts)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Income Statement Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

45,137

 

 

$

33,471

 

 

$

125,007

 

 

$

86,718

 

Interest expense

 

 

5,625

 

 

 

3,053

 

 

 

15,119

 

 

 

7,904

 

Net interest income

 

 

39,512

 

 

 

30,418

 

 

 

109,888

 

 

 

78,814

 

Provision for loan losses

 

 

572

 

 

 

2,819

 

 

 

9,697

 

 

 

4,247

 

Net interest income after provision

 

 

38,940

 

 

 

27,599

 

 

 

100,191

 

 

 

74,567

 

Gain on sale of subsidiary

 

 

—

 

 

 

—

 

 

 

20,860

 

 

 

—

 

Other noninterest income

 

 

4,171

 

 

 

6,099

 

 

 

15,798

 

 

 

14,748

 

Noninterest income

 

 

4,171

 

 

 

6,099

 

 

 

36,658

 

 

 

14,748

 

Noninterest expense

 

 

28,225

 

 

 

25,792

 

 

 

90,383

 

 

 

66,201

 

Net income before income taxes

 

 

14,886

 

 

 

7,906

 

 

 

46,466

 

 

 

23,114

 

Income tax expense

 

 

5,104

 

 

 

3,099

 

 

 

16,551

 

 

 

8,675

 

Net income

 

 

9,782

 

 

 

4,807

 

 

 

29,915

 

 

 

14,439

 

Dividends on preferred stock

 

 

(195

)

 

 

(301

)

 

 

(580

)

 

 

(690

)

Net income available to common stockholders

 

$

9,587

 

 

$

4,506

 

 

$

29,335

 

 

$

13,749

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per Share Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

 

$

0.48

 

 

$

0.25

 

 

$

1.58

 

 

$

0.77

 

Diluted earnings per common share

 

$

0.47

 

 

$

0.25

 

 

$

1.53

 

 

$

0.76

 

Weighted average shares outstanding - basic

 

 

19,811,577

 

 

 

17,859,604

 

 

 

18,600,009

 

 

 

17,845,431

 

Weighted average shares outstanding - diluted

 

 

20,645,469

 

 

 

18,101,676

 

 

 

19,488,425

 

 

 

18,041,897

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Per Share Data(1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted diluted earnings per common share

 

$

0.47

 

 

$

0.32

 

 

$

1.02

 

 

$

0.84

 

Adjusted weighted average shares outstanding - diluted

 

 

20,645,469

 

 

 

18,778,027

 

 

 

19,488,425

 

 

 

18,041,897

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performance ratios - Annualized(2):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on average assets

 

 

1.36

%

 

 

0.84

%

 

 

1.46

%

 

 

1.01

%

Return on average total equity

 

 

10.71

%

 

 

6.63

%

 

 

12.44

%

 

 

6.89

%

Return on average common equity

 

 

10.79

%

 

 

6.51

%

 

 

12.58

%

 

 

6.83

%

Return on average tangible common equity (1)

 

 

12.28

%

 

 

7.60

%

 

 

14.65

%

 

 

7.73

%

Yield on loans

 

 

7.44

%

 

 

7.42

%

 

 

7.47

%

 

 

7.87

%

Adjusted yield on loans (1)

 

 

7.20

%

 

 

7.10

%

 

 

7.14

%

 

 

7.42

%

Cost of interest bearing deposits

 

 

0.80

%

 

 

0.68

%

 

 

0.75

%

 

 

0.71

%

Cost of total deposits

 

 

0.64

%

 

 

0.57

%

 

 

0.61

%

 

 

0.61

%

Cost of total funds

 

 

0.90

%

 

 

0.61

%

 

 

0.84

%

 

 

0.65

%

Net interest margin

 

 

5.90

%

 

 

5.79

%

 

 

5.82

%

 

 

6.05

%

Adjusted net interest margin (1)

 

 

5.69

%

 

 

5.53

%

 

 

5.54

%

 

 

5.69

%

Efficiency ratio

 

 

64.61

%

 

 

70.63

%

 

 

61.68

%

 

 

70.76

%

Adjusted efficiency ratio (1)

 

 

64.61

%

 

 

66.20

%

 

 

67.82

%

 

 

69.03

%

Net noninterest expense to average assets

 

 

3.35

%

 

 

3.43

%

 

 

2.63

%

 

 

3.61

%

Adjusted net noninterest expense to average assets (1)

 

 

3.35

%

 

 

3.15

%

 

 

3.40

%

 

 

3.50

%


 

September 30,

 

 

December 31,

 

(Dollars in thousands, except per share amounts)

 

2017

 

 

2016

 

Balance Sheet Data:

 

 

 

 

 

 

 

 

Total assets

 

$

2,906,161

 

 

$

2,641,067

 

Cash and cash equivalents

 

 

80,557

 

 

 

114,514

 

Investment securities

 

 

227,325

 

 

 

304,381

 

Loans held for investment, net

 

 

2,405,096

 

 

 

2,012,219

 

Total liabilities

 

 

2,520,064

 

 

 

2,351,722

 

Noninterest bearing deposits

 

 

403,643

 

 

 

363,351

 

Interest bearing deposits

 

 

1,608,902

 

 

 

1,652,434

 

FHLB advances

 

 

385,000

 

 

 

230,000

 

Subordinated notes

 

 

48,804

 

 

 

48,734

 

Junior subordinated debentures

 

 

33,047

 

 

 

32,740

 

Total stockholders’ equity

 

 

386,097

 

 

 

289,345

 

Preferred stockholders' equity

 

 

9,658

 

 

 

9,746

 

Common stockholders' equity

 

 

376,439

 

 

 

279,599

 

 

 

 

 

 

 

 

 

 

Per Share Data:

 

 

 

 

 

 

 

 

Book value per share

 

$

18.08

 

 

$

15.47

 

Tangible book value per share (1)

 

$

16.04

 

 

$

12.89

 

Shares outstanding end of period

 

 

20,820,900

 

 

 

18,078,247

 

 

 

 

 

 

 

 

 

 

Asset Quality ratios(3):

 

 

 

 

 

 

 

 

Past due to total loans

 

 

2.22

%

 

 

3.61

%

Nonperforming loans  to total loans

 

 

1.25

%

 

 

2.23

%

Nonperforming assets to total assets

 

 

1.42

%

 

 

1.98

%

ALLL to nonperforming loans

 

 

67.33

%

 

 

34.00

%

ALLL to total loans

 

 

0.84

%

 

 

0.76

%

Net charge-offs to average loans(4)

 

 

0.22

%

 

 

0.25

%

 

 

 

 

 

 

 

 

 

Capital ratios:

 

 

 

 

 

 

 

 

Tier 1 capital to average assets

 

 

13.50

%

 

 

10.85

%

Tier 1 capital to risk-weighted assets

 

 

13.45

%

 

 

11.85

%

Common equity Tier 1 capital to risk-weighted assets

 

 

11.95

%

 

 

10.18

%

Total capital to risk-weighted assets

 

 

15.91

%

 

 

14.60

%

Total stockholders' equity to total assets

 

 

13.29

%

 

 

10.96

%

Tangible common stockholders' equity ratio (1)

 

 

11.66

%

 

 

8.98

%

(1)

The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance.  The non-GAAP measures used by the Company include the following:

•

“Adjusted diluted earnings per common share” is defined as adjusted net income available to common stockholders divided by adjusted weighted average diluted common shares outstanding.  Excluded from net income available to common stockholders are material gains and expenses related to merger and acquisition-related activities, including divestitures, net of tax. In our judgment, the adjustments made to net income available to common stockholders allow management and investors to better assess our performance in relation to our core net income by removing the volatility associated with certain acquisition-related items and other discrete items that are unrelated to our core business.  Weighted average diluted common shares outstanding are adjusted as a result of changes in their dilutive properties given the gain and expense adjustments described herein.  

•

“Tangible common stockholders’ equity” is common stockholders’ equity less goodwill and other intangible assets.

•

“Total tangible assets” is defined as total assets less goodwill and other intangible assets.


•

“Tangible book value per share” is defined as tangible common stockholders’ equity divided by total common shares outstanding. This measure is important to investors interested in changes from period-to-period in book value per share exclusive of changes in intangible assets.

•

“Tangible common stockholders’ equity ratio” is defined as the ratio of tangible common stockholders’ equity divided by total tangible assets. We believe that this measure is important to many investors in the marketplace who are interested in relative changes from period-to period in common equity and total assets, each exclusive of changes in intangible assets.

•

“Return on average tangible common equity” is defined as net income available to common stockholders divided by average tangible common stockholders’ equity.

•

“Adjusted efficiency ratio” is defined as noninterest expenses divided by our operating revenue, which is equal to net interest income plus noninterest income. Also excluded are material gains and expenses related to merger and acquisition-related activities, including divestitures. In our judgment, the adjustments made to operating revenue allow management and investors to better assess our performance in relation to our core operating revenue by removing the volatility associated with certain acquisition-related items and other discrete items that are unrelated to our core business.

•

“Adjusted net noninterest expense to average total assets” is defined as noninterest expenses net of noninterest income divided by total average assets. Excluded are material gains and expenses related to merger and acquisition-related activities, including divestitures.  This metric is used by our management to better assess our operating efficiency.  

•

“Adjusted yield on loans” is our yield on loans after excluding loan accretion from our acquired loan portfolio.  Our management uses this metric to better assess the impact of purchase accounting on our yield on loans, as the effect of loan discount accretion is expected to decrease as the acquired loans roll off of our balance sheet, absent the impact, if any, of future acquisitions.

•

“Adjusted net interest margin” is net interest margin after excluding loan accretion from the acquired loan portfolio.  Our management uses this metric to better assess the impact of purchase accounting on net interest margin, as the effect of loan discount accretion is expected to decrease as the acquired loans mature or roll off of our balance sheet, absent the impact, if any, of future acquisitions.

(2)

Amounts have been annualized.

(3)

Asset quality ratios exclude loans held for sale.

(4)

Net charge-offs to average loans ratios are for the nine months ended September 30, 2017 and the year ended December 31, 2016.


GAAP Reconciliation of Non-GAAP Financial Measures

We believe the non-GAAP financial measures included above provide useful information to management and investors that is supplementary to our financial condition, results of operations and cash flows computed in accordance with GAAP; however, we acknowledge that our non-GAAP financial measures have a number of limitations. The following reconciliation table provides a more detailed analysis of the non-GAAP financial measures:

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in thousands, except per share amounts)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net income available to common stockholders

 

$

9,587

 

 

$

4,506

 

 

$

29,335

 

 

$

13,749

 

Gain on sale of subsidiary

 

 

—

 

 

 

—

 

 

 

(20,860

)

 

 

—

 

Incremental bonus related to transaction

 

 

—

 

 

 

—

 

 

 

4,814

 

 

 

—

 

Indirect transaction costs

 

 

—

 

 

 

1,618

 

 

 

325

 

 

 

1,618

 

Tax effect of adjustments

 

 

—

 

 

 

(251

)

 

 

5,754

 

 

 

(251

)

Adjusted net income available to common stockholders

 

$

9,587

 

 

$

5,873

 

 

$

19,368

 

 

$

15,116

 

Dilutive effect of convertible preferred stock

 

 

195

 

 

 

197

 

 

 

580

 

 

 

—

 

Adjusted net income available to common stockholders - diluted

 

$

9,782

 

 

$

6,070

 

 

$

19,948

 

 

$

15,116

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - diluted

 

 

20,645,469

 

 

 

18,101,676

 

 

 

19,488,425

 

 

 

18,041,897

 

Adjusted effects of assumed preferred stock conversion

 

 

—

 

 

 

676,351

 

 

 

—

 

 

 

—

 

Adjusted weighted average shares outstanding - diluted

 

 

20,645,469

 

 

 

18,778,027

 

 

 

19,488,425

 

 

 

18,041,897

 

Adjusted diluted earnings per common share

 

$

0.47

 

 

$

0.32

 

 

$

1.02

 

 

$

0.84

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income available to common stockholders

 

$

9,587

 

 

$

4,506

 

 

$

29,335

 

 

$

13,749

 

Average tangible common equity

 

 

309,624

 

 

 

235,938

 

 

 

267,633

 

 

 

237,647

 

Return on average tangible common equity

 

 

12.28

%

 

 

7.60

%

 

 

14.65

%

 

 

7.73

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted efficiency ratio:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

$

39,512

 

 

$

30,418

 

 

$

109,888

 

 

$

78,814

 

Noninterest income

 

 

4,171

 

 

 

6,099

 

 

 

36,658

 

 

 

14,748

 

Operating revenue

 

 

43,683

 

 

 

36,517

 

 

 

146,546

 

 

 

93,562

 

Gain on sale of subsidiary

 

 

—

 

 

 

—

 

 

 

(20,860

)

 

 

—

 

Adjusted operating revenue

 

$

43,683

 

 

$

36,517

 

 

$

125,686

 

 

$

93,562

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total noninterest expense

 

$

28,225

 

 

$

25,792

 

 

$

90,383

 

 

$

66,201

 

Incremental bonus related to transaction

 

 

—

 

 

 

—

 

 

 

(4,814

)

 

 

—

 

Indirect transaction costs

 

 

—

 

 

 

(1,618

)

 

 

(325

)

 

 

(1,618

)

Adjusted noninterest expense

 

$

28,225

 

 

$

24,174

 

 

$

85,244

 

 

$

64,583

 

Adjusted efficiency ratio

 

 

64.61

%

 

 

66.20

%

 

 

67.82

%

 

 

69.03

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted net noninterest expense to average assets ratio:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total noninterest expense

 

$

28,225

 

 

$

25,792

 

 

$

90,383

 

 

$

66,201

 

Incremental bonus related to transaction

 

 

—

 

 

 

—

 

 

 

(4,814

)

 

 

—

 

Indirect transaction costs

 

 

—

 

 

 

(1,618

)

 

 

(325

)

 

 

(1,618

)

Adjusted noninterest expense

 

$

28,225

 

 

$

24,174

 

 

$

85,244

 

 

$

64,583

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total noninterest income

 

$

4,171

 

 

$

6,099

 

 

$

36,658

 

 

$

14,748

 

Gain on sale of subsidiary

 

 

—

 

 

 

—

 

 

 

(20,860

)

 

 

—

 

Adjusted noninterest income

 

 

4,171

 

 

 

6,099

 

 

 

15,798

 

 

 

14,748

 

Adjusted net noninterest expenses

 

$

24,054

 

 

$

18,075

 

 

$

69,446

 

 

$

49,835

 

Average total assets

 

 

2,849,170

 

 

 

2,282,279

 

 

 

2,731,426

 

 

 

1,904,001

 

Adjusted net noninterest expense to average assets ratio

 

 

3.35

%

 

 

3.15

%

 

 

3.40

%

 

 

3.50

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reported yield on loans

 

 

7.44

%

 

 

7.42

%

 

 

7.47

%

 

 

7.87

%

Effect of accretion income on acquired loans

 

 

(0.24

%)

 

 

(0.32

%)

 

 

(0.33

%)

 

 

(0.45

%)

Adjusted yield on loans

 

 

7.20

%

 

 

7.10

%

 

 

7.14

%

 

 

7.42

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reported net interest margin

 

 

5.90

%

 

 

5.79

%

 

 

5.82

%

 

 

6.05

%

Effect of accretion income on acquired loans

 

 

(0.21

%)

 

 

(0.26

%)

 

 

(0.28

%)

 

 

(0.36

%)

Adjusted net interest margin

 

 

5.69

%

 

 

5.53

%

 

 

5.54

%

 

 

5.69

%


  

 

September 30,

 

 

December 31,

 

(Dollars in thousands, except per share amounts)

 

2017

 

 

2016

 

Total stockholders' equity

 

$

386,097

 

 

$

289,345

 

Preferred stock liquidation preference

 

 

(9,658

)

 

 

(9,746

)

Total common stockholders' equity

 

 

376,439

 

 

 

279,599

 

Goodwill and other intangibles

 

 

(42,452

)

 

 

(46,531

)

Tangible common stockholders' equity

 

$

333,987

 

 

$

233,068

 

Common shares outstanding

 

 

20,820,900

 

 

 

18,078,247

 

Tangible book value per share

 

$

16.04

 

 

$

12.89

 

 

 

 

 

 

 

 

 

 

Total assets at end of period

 

$

2,906,161

 

 

$

2,641,067

 

Goodwill and other intangibles

 

 

(42,452

)

 

 

(46,531

)

Tangible assets at period end

 

$

2,863,709

 

 

$

2,594,536

 

Tangible common stockholders' equity ratio

 

 

11.66

%

 

 

8.98

%

Three Months Ended September 30,Nine Months Ended September 30,
(Dollars in thousands, except per share amounts)2021202020212020
Net income available to common stockholders$23,627 $22,005 $83,929 $30,995 
Transaction costs— 827 2,992 827 
Gain on sale of subsidiary or division— — — (9,758)
Tax effect of adjustments— (197)(715)2,254 
Adjusted net income available to common stockholders$23,627 $22,635 $86,206 $24,318 
Weighted average shares outstanding - diluted25,227,963 24,802,388 25,199,991 24,464,215 
Adjusted diluted earnings per common share$0.94 $0.91 $3.42 $0.99 
Average total stockholders' equity$818,022 $688,327 $784,019 $642,151 
Average preferred stock liquidation preference(45,000)(45,000)(45,000)(17,080)
Average total common stockholders' equity773,022 643,327 739,019 625,071 
Average goodwill and other intangibles(284,970)(192,682)(231,751)(189,776)
Average tangible common equity$488,052 $450,645 $507,268 $435,295 
Net income available to common stockholders$23,627 $22,005 $83,929 $30,995 
Average tangible common equity488,052 450,645 507,268 435,295 
Return on average tangible common equity19.21 %19.43 %22.12 %9.51 %
Adjusted efficiency ratio:
Net interest income$91,771 $74,379 $265,073 $201,130 
Noninterest income12,055 10,493 40,242 37,999 
Operating revenue103,826 84,872 305,315 239,129 
Gain on sale of subsidiary or division— — — (9,758)
Adjusted operating revenue$103,826 $84,872 $305,315 $229,371 
Total noninterest expense$72,813 $55,297 $204,503 $162,776 
Transaction costs— (827)(2,992)(827)
Adjusted noninterest expense$72,813 $54,470 $201,511 $161,949 
Adjusted efficiency ratio70.13 %64.18 %66.00 %70.61 %
Adjusted net noninterest expense to average assets ratio:
Total noninterest expense$72,813 $55,297 $204,503 $162,776 
Transaction costs— (827)(2,992)(827)
Adjusted noninterest expense72,813 54,470 201,511 161,949 
Total noninterest income12,055 10,493 40,242 37,999 
Gain on sale of subsidiary or division— — — (9,758)
Adjusted noninterest income12,055 10,493 40,242 28,241 
Adjusted net noninterest expenses$60,758 $43,977 $161,269 $133,708 
Average total assets6,020,631 5,518,708 6,042,677 5,304,903 
Adjusted net noninterest expense to average assets ratio4.00 %3.17 %3.57 %3.37 %

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Table of Contents
(Dollars in thousands, except per share amounts)September 30,
2021		December 31,
2020
Total stockholders' equity$820,674 $726,781 
Preferred stock(45,000)(45,000)
Total common stockholders' equity775,674 681,781 
Goodwill and other intangibles(280,055)(189,922)
Tangible common stockholders' equity$495,619 $491,859 
Common shares outstanding25,123,342 24,868,218 
Tangible book value per share$19.73 $19.78 
Total assets at end of period$6,024,535 $5,935,791 
Goodwill and other intangibles(280,055)(189,922)
Tangible assets at period end$5,744,480 $5,745,869 
Tangible common stockholders' equity ratio8.63 %8.56 %
Results of Operations

Net Income

Three months ended September 30, 20172021 compared with three months ended September 30, 2016. 2020.
Net Income
We earned net income of $9.8$24.4 million for the three months ended September 30, 20172021 compared to $4.8net income of $22.9 million for the three months ended September 30, 2016,2020, an increase of $5.0$1.5 million.

The results for the three months ended September 30, 2016 include the results of operations of ColoEast since the August 1, 2016 acquisition date and2020 were impacted by $1.6$0.8 million of transaction and restructuring costs associated with our acquisition of ColoEast andrelated to the TFS Acquisition reported as noninterest expense.

Excluding the tax-effected impact of the 2016 ColoEast transaction costs, net of taxes, we earned adjusted net income to common stock holders of $9.8$22.6 million for the three months ended September 30, 2017 compared to an adjusted $6.1 million for2020. There were no merger and acquisition related activities during the three months ended September 30, 2016,2021 and net income to common stockholders for that period was $23.6 million representing an increase in adjusted net income to common stockholders of $3.7 million.$1.0 million year over year. The adjusted increase was primarily the result of a $9.1$17.4 million increase in net interest income, and a $2.2 million reduction in the provision for loan losses, offset in part by a $1.9$0.9 million decrease in noninterest income, a $4.0 million increase in noninterestcredit loss expense, and a $1.7 million increase in income tax expense.

Nine months ended September 30, 2017 compared with nine months ended September 30, 2016. We earned net income of $29.9 million for the nine months ended September 30, 2017 compared to $14.4 million for the nine months ended September 30, 2016, an increase of $15.5 million.

The results for the nine months ended September 30, 2017 were impacted by our sale of TCA.  The TCA sale resulted in a gain on sale in the amount of $20.9 million included in noninterest income for the nine months ended September 30, 2017, offset by an additional $4.8 million bonus accrual and approximately $0.3 million of other indirect transaction related costs recorded in connection with the TCA sale and reported as noninterest expense.

The results for the nine months ended September 30, 2016 include the results of operations of ColoEast since the August 1, 2016 acquisition date and were impacted by $1.6 million of transaction and restructuring costs associated with our acquisition of ColoEast and reported as noninterest expense.

Excluding the tax-effected impact of the TCA sale transaction and the ColoEast transaction costs, we earned adjusted net income of $19.9 million for the nine months ended September 30, 2017 compared to $15.8 million for the nine months ended September 30, 2016, an increase of $4.1 million.  The adjusted increase was primarily the result of a $31.1 million increase in net interest income and a $1.1 million increase in noninterest income offset in part by a $5.5an $18.3 million increase in the provision for loan losses,adjusted noninterest expense, a $20.7$0.5 million increase in noninterestadjusted income tax expense, and a $1.9$0.1 million increasedecrease in income tax expense.

dividends on preferred stock.

Details of the changes in the various components of net income are further discussed below.


Net Interest Income

Our operating results depend primarily on our net interest income, which is the difference between interest income on interest earning assets, including loans and securities, and interest expense incurred on interest bearing liabilities, including deposits and other borrowed funds. Interest rate fluctuations, as well as changes in the amount and type of interest earning assets and interest bearing liabilities, combine to affect net interest income. Our net interest income is affected by changes in the amount and mix of interest earning assets and interest bearing liabilities, referred to as a “volume change.” It is also affected by changes in yields earned on interest earning assets and rates paid on interest bearing liabilities, referred to as a “rate change.”

Three months ended September 30, 2017 compared with three months ended September 30, 2016.

59
Table of Contents
The following table presents the distribution of average assets, liabilities and equity, as well as interest income and fees earned on average interest earning assets and interest expense paid on average interest bearing liabilities forliabilities:
Three Months Ended September 30,
20212020
(Dollars in thousands)Average
Balance		Interest
Average
Rate(4)
Average
Balance		Interest
Average
Rate(4)
Interest earning assets:
Cash and cash equivalents474,122 183 0.15 %224,958 73 0.13 %
Taxable securities154,017 948 2.44 %259,470 1,674 2.57 %
Tax-exempt securities27,839 178 2.54 %39,847 253 2.53 %
FHLB and other restricted stock7,956 28 1.40 %22,121 122 2.19 %
Loans (1)
4,777,409 95,398 7.92 %4,526,063 80,242 7.05 %
Total interest earning assets5,441,343 96,735 7.05 %5,072,459 82,364 6.46 %
Noninterest earning assets:
Cash and cash equivalents75,374 56,871 
Other noninterest earning assets503,914 389,378 
Total assets6,020,631 5,518,708 
Interest bearing liabilities:
Deposits:
Interest bearing demand779,625 435 0.22 %635,287 207 0.13 %
Individual retirement accounts86,571 126 0.58 %95,962 300 1.24 %
Money market417,435 225 0.21 %385,620 263 0.27 %
Savings479,915 185 0.15 %400,102 152 0.15 %
Certificates of deposit595,001 725 0.48 %905,075 3,782 1.66 %
Brokered time deposits99,116 29 0.12 %247,928 941 1.51 %
Other brokered deposits441,446 223 0.20 %251,701 189 0.30 %
Total interest bearing deposits2,899,109 1,948 0.27 %2,921,675 5,834 0.79 %
Federal Home Loan Bank advances36,522 22 0.24 %255,163 143 0.22 %
Subordinated notes114,071 2,449 8.52 %87,425 1,348 6.13 %
Junior subordinated debentures40,390 443 4.35 %39,874 462 4.61 %
Other borrowings127,946 102 0.32 %236,297 198 0.33 %
Total interest bearing liabilities3,218,038 4,964 0.61 %3,540,434 7,985 0.90 %
Noninterest bearing liabilities and equity:
Noninterest bearing demand deposits1,912,398 1,213,494 
Other liabilities72,173 76,453 
Total equity818,022 688,327 
Total liabilities and equity6,020,631 5,518,708 
Net interest income91,771 74,379 
Interest spread (2)
6.44 %5.56 %
Net interest margin (3)
6.69 %5.83 %
(1)Balance totals include respective nonaccrual assets.
(2)Net interest spread is the three months ended September 30, 2017 and 2016:

 

Three Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

 

Average

 

 

 

 

 

 

Average

 

 

Average

 

 

 

 

 

 

Average

 

(Dollars in thousands)

 

Balance

 

 

Interest

 

 

Rate(4)

 

 

Balance

 

 

Interest

 

 

Rate(4)

 

Interest earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

111,364

 

 

$

370

 

 

 

1.32

%

 

$

73,022

 

 

$

93

 

 

 

0.51

%

Taxable securities

 

 

211,354

 

 

 

1,570

 

 

 

2.95

%

 

 

253,690

 

 

 

1,138

 

 

 

1.78

%

Tax-exempt securities

 

 

25,174

 

 

 

85

 

 

 

1.34

%

 

 

28,239

 

 

 

80

 

 

 

1.13

%

FHLB and FRB stock

 

 

14,885

 

 

 

51

 

 

 

1.36

%

 

 

9,627

 

 

 

16

 

 

 

0.66

%

Loans (1)

 

 

2,295,356

 

 

 

43,061

 

 

 

7.44

%

 

 

1,723,896

 

 

 

32,144

 

 

 

7.42

%

Total interest earning assets

 

 

2,658,133

 

 

 

45,137

 

 

 

6.74

%

 

 

2,088,474

 

 

 

33,471

 

 

 

6.38

%

Noninterest earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

36,128

 

 

 

 

 

 

 

 

 

 

 

29,108

 

 

 

 

 

 

 

 

 

Other noninterest earning assets

 

 

154,909

 

 

 

 

 

 

 

 

 

 

 

164,697

 

 

 

 

 

 

 

 

 

Total assets

 

$

2,849,170

 

 

 

 

 

 

 

 

 

 

$

2,282,279

 

 

 

 

 

 

 

 

 

Interest bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing demand

 

$

312,009

 

 

$

137

 

 

 

0.17

%

 

$

280,689

 

 

$

71

 

 

 

0.10

%

Individual retirement accounts

 

 

98,713

 

 

 

309

 

 

 

1.24

%

 

 

87,723

 

 

 

253

 

 

 

1.15

%

Money market

 

 

201,462

 

 

 

118

 

 

 

0.23

%

 

 

182,124

 

 

 

96

 

 

 

0.21

%

Savings

 

 

167,908

 

 

 

20

 

 

 

0.05

%

 

 

140,338

 

 

 

23

 

 

 

0.07

%

Certificates of deposit

 

 

773,075

 

 

 

2,381

 

 

 

1.22

%

 

 

670,372

 

 

 

1,839

 

 

 

1.09

%

Brokered deposits

 

 

72,094

 

 

 

307

 

 

 

1.69

%

 

 

49,964

 

 

 

126

 

 

 

1.00

%

Total deposits

 

 

1,625,261

 

 

 

3,272

 

 

 

0.80

%

 

 

1,411,210

 

 

 

2,408

 

 

 

0.68

%

Subordinated notes

 

 

48,791

 

 

 

837

 

 

 

6.81

%

 

 

—

 

 

 

—

 

 

 

0.00

%

Junior subordinated debentures

 

 

32,983

 

 

 

495

 

 

 

5.95

%

 

 

29,977

 

 

 

382

 

 

 

5.07

%

Other borrowings

 

 

365,464

 

 

 

1,021

 

 

 

1.11

%

 

 

257,358

 

 

 

263

 

 

 

0.41

%

Total interest bearing liabilities

 

 

2,072,499

 

 

 

5,625

 

 

 

1.08

%

 

 

1,698,545

 

 

 

3,053

 

 

 

0.72

%

Noninterest bearing liabilities and equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest bearing demand deposits

 

 

398,774

 

 

 

 

 

 

 

 

 

 

 

283,128

 

 

 

 

 

 

 

 

 

Other liabilities

 

 

15,698

 

 

 

 

 

 

 

 

 

 

 

11,986

 

 

 

 

 

 

 

 

 

Total equity

 

 

362,199

 

 

 

 

 

 

 

 

 

 

 

288,620

 

 

 

 

 

 

 

 

 

Total liabilities and equity

 

$

2,849,170

 

 

 

 

 

 

 

 

 

 

$

2,282,279

 

 

 

 

 

 

 

 

 

Net interest income

 

 

 

 

 

$

39,512

 

 

 

 

 

 

 

 

 

 

$

30,418

 

 

 

 

 

Interest spread (2)

 

 

 

 

 

 

 

 

 

 

5.66

%

 

 

 

 

 

 

 

 

 

 

5.66

%

Net interest margin (3)

 

 

 

 

 

 

 

 

 

 

5.90

%

 

 

 

 

 

 

 

 

 

 

5.79

%

(1)

Balance totals include respective nonaccrual assets.

yield on average interest earning assets less the rate on interest bearing liabilities.

(2)

Net interest spread is the yield on average interest earning assets less the rate on interest bearing liabilities.

(3)Net interest margin is the ratio of net interest income to average interest earning assets.

(3)

Net interest margin is the ratio of net interest income to average interest earning assets.

(4)Ratios have been annualized.

(4)

Ratios have been annualized.

60

Table of Contents
The following table presents loan yields earned on our loan portfolios:
Three Months Ended September 30,
(Dollars in thousands)20212020
Average Banking loans$3,299,152 $3,707,293 
Average Factoring receivables1,362,856 768,087 
Average Payments receivables115,401 50,683 
Average total loans$4,777,409 $4,526,063 
Banking yield5.40 %5.23 %
Factoring yield13.75 %15.59 %
Payments Yield11.33 %10.68 %
Total loan yield7.92 %7.05 %
We earned net interest income of $39.5$91.8 million for the three months ended September 30, 20172021 compared to $30.4$74.4 million for the three months ended September 30, 2016,2020, an increase of $9.1$17.4 million, or 29.9%.


This increase in net interest income was23.4%, primarily driven by the changefollowing factors.

Interest income increased $14.4 million, or 17.4%, reflecting an increase in average interest earning assets whichof $368.9 million, or 7.3%, and an increase in average total loans of $251.3 million, or 5.6%. The average balance of our higher yielding Factoring factored receivables increased to $2.658 billion$594.8 million, or 77.4%, driving the majority of the increase in interest income along with a slight increase in average Payments factored receivables. This was partially offset by a decrease in average Banking loans of $408.1 million, or 11.0%. Interest income from our Banking loans is impacted by our lower yielding mortgage warehouse lending product. The average mortgage warehouse lending balance was $772.3 million for the three months ended September 30, 2017 from $2.088 billion2021 compared to $786.3 million for the three months ended September 30, 2016, an increase2020. Further, included in our Banking loans were PPP loans with a carrying amounts of $570$87.4 million and $223.2 million at September 30, 2021 and September 30, 2020, respectively. A component of interest income consists of discount accretion on acquired loan portfolios and acquired liquid credit. We recognized discount accretion on purchased loans of $2.0 million and $4.1 million for the three months ended September 30, 2021 and 2020, respectively.
Interest expense decreased $3.0 million, or 27.3%37.8%, consistent with a decrease in average interest-bearing liabilities. More specifically, average total interest bearing deposits decreased $22.6 million, or 0.8%. This increaseAverage noninterest bearing demand deposits grew $698.9 million. The decrease in interest expense was partly attributable to $461the result of lower average rates discussed below. The decrease in interest expense was partially offset by $0.8 million of loansremaining discount and $162 million of investment securities acquired in the ColoEast acquisition, whichdeferred fees that were outstanding for only two monthsrecognized during the three months ended September 30, 2016.  Additional interest income also resulted from organic growth in our loan portfolio.  Our commercial finance product lines, including our factored receivables, asset based loans, equipment finance loans, and premium finance loans all increased on a period over period basis2021 as a result of paying off our 2016 Subordinated Notes as discussed in Note 8 of the continued execution of our growth strategy for such products.  Our commercial finance balances increased $249.0 million, or 39%, from $637.9 million at September 30, 2016Condensed Notes to $886.9 million at September 30, 2017.  We also experienced organic growth in our mortgage warehouse facilities and community banking lending products period over period, including commercial real estate and general commercial and industrial loans.

The increase in our netthe Consolidated Financial Statements.

Net interest income resulting from changes in the interest income generated by our loan portfolio discussed above were offset in part by an increase in our interest expense associated with the growth in customer deposits and other borrowings.  Average total interest bearing depositsmargin increased to $1.625 billion6.69% for the three months ended September 30, 20172021 from $1.411 billion5.83% for the three months ended September 30, 2016,2020, an increase of $214 million,86 basis points or 15.2%14.8%.  This
The increase was primarily due to $653 million of customer deposits assumed in the ColoEast acquisition, of which $492 million were interest bearing, and were outstanding for only two months during the three months ended September 30, 2016.  Excluding the ColoEast customer deposits, we also experienced growth in our certificates of deposit as these were used to fund our loan growth period over period.  In addition, our use of othernet interest bearing borrowings, consisting primarily of FHLB advances,margin was increased to fund our loan growth.  Our mortgage warehouse facilities are includedimpacted by an increase in our borrowing base with the FHLB.  Finally, we issued $50.0 millionyield on interest earning assets of subordinated notes on September 30, 2016 that contributed59 basis points to the increase in interest expense period over period.  As the subordinated notes were issued at the end of the period, no interest was recorded on the subordinated notes in the three months ended September 30, 2016.

Net interest margin increased to 5.90%7.05% for the three months ended September 30, 2017 from 5.79%2021. This increase was primarily driven by higher yields on loans which increased 87 basis points to 7.92% for the three months endedsame period. While Factoring yield decreased period over period, its average factored receivables as a percentage of the total loan portfolio increased significantly having a meaningful upward impact on total loan yield. Our transportation factoring balances, which generally generate a higher yield than our non-transportation factoring balances, increased as a percentage of the overall factoring portfolio to 91% at September 30, 2016, an increase of 11 basis points.

2021 compared to 88% at September 30, 2020. Banking and Payments yields were relatively flat period over period and non-loan yields had little impact on our yield on interest earning assets.

The increase in our net interest margin resultedwas also impacted by a decrease in part from an increase in yields on our interest earning assets.  Our average yield on interest earning assets increased to 6.74% for the three months ended September 30, 2017 from 6.38% for the three months ended September 30, 2016, an increase of 36 basis points. The increase is primarily attributable to a change in the mix within our loan portfolio period over period.  Our higher yielding commercial finance products as a percentage of the total portfolio have increased from 33% at September 30, 2016 to 37% at September 30, 2017.    In addition, our Prime- and LIBOR-indexed floating rate loans have been adjusting higher as short term rates have risen during 2017. Offsetting these increases in part, we experienced a diminishing impact of discount accretion on the loan portfolio yield period over period.

A component of the yield on our loan portfolio consists of discount accretion on the portfolios acquired in connection with our acquisitions.  The aggregate increased yield on our loan portfolio attributable to the accretion of purchase discounts associated with our acquisitions was 24 basis points for the three months ended September 30, 2017 and 32 basis points for the three months ended September 30, 2016. Excluding the impact of this discount accretion, the adjusted yield on our loan portfolio was 7.20% and 7.10% for the three months ended September 30, 2017 and 2016, respectively.  Subject to future acquisitions, we anticipate that the contribution of this discount accretion to our interest income will continue to decline over time, but we expect that any resulting decreases in aggregate yield on our loan portfolio will be offset in part by continued growth in our higher yielding specialized commercial finance product lines which include our factored receivables, asset based loans, equipment finance loans, and premium finance loans.  As of September 30, 2017, there was approximately $10.8 million of purchase discount remaining, of which $9.4 million is expected to be accreted over the remaining lives of the acquired loan portfolios.

Our adjusted net interest margin, which excludes the impact of the acquired loan discount accretion described above, was 5.69% and 5.53% for the three months ended September 30, 2017 and 2016, respectively.

Partially offsetting the increase in yields on our interest earning assets was an increase in our average cost of funds. Our average cost of interest bearing liabilities increased to 1.08% for the three months ended September 30, 2017 from 0.72% for the three months ended September 30, 2016, an increase of 3629 basis points. This increasedecrease in average cost was caused by an increased use of higher rate certificates of deposit to fundgenerally lower interest rates paid on our growth period over period, higher rates on short term and floating rate FHLB advances as a result of higherinterest-bearing liabilities driven by changes in interest rates in the economy, and our issuancemacro economy.


61
Table of $50.0 million of subordinated notes at an initial fixed rate of 6.50%.

Contents

The following table shows the effects that changes in average balances (volume) and average interest rates (rate) had on the interest earned inon our interest earning assets and the interest incurred on our interest bearing liabilities for the three months ended September 30, 2017 and 2016:

 

Three Months Ended

 

 

 

September 30, 2017 vs. 2016

 

 

 

Increase (Decrease) Due to:

 

 

 

 

 

(Dollars in thousands)

 

Rate

 

 

Volume

 

 

Net Increase

 

Interest earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

150

 

 

$

127

 

 

$

277

 

Taxable securities

 

 

746

 

 

 

(314

)

 

 

432

 

Tax-exempt securities

 

 

15

 

 

 

(10

)

 

 

5

 

FHLB and FRB stock

 

 

17

 

 

 

18

 

 

 

35

 

Loans

 

 

196

 

 

 

10,721

 

 

 

10,917

 

Total interest income

 

 

1,124

 

 

 

10,542

 

 

 

11,666

 

Interest bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing demand

 

 

52

 

 

 

14

 

 

 

66

 

Individual retirement accounts

 

 

22

 

 

 

34

 

 

 

56

 

Money market

 

 

11

 

 

 

11

 

 

 

22

 

Savings

 

 

(6

)

 

 

3

 

 

 

(3

)

Certificates of deposit

 

 

226

 

 

 

316

 

 

 

542

 

Brokered deposits

 

 

87

 

 

 

94

 

 

 

181

 

Total deposits

 

 

392

 

 

 

472

 

 

 

864

 

Subordinated notes

 

 

—

 

 

 

837

 

 

 

837

 

Junior subordinated debentures

 

 

68

 

 

 

45

 

 

 

113

 

Other borrowings

 

 

456

 

 

 

302

 

 

 

758

 

Total interest expense

 

 

916

 

 

 

1,656

 

 

 

2,572

 

Change in net interest income

 

$

208

 

 

$

8,886

 

 

$

9,094

 


Nine months ended September 30, 2017 compared with nine months ended September 30, 2016. The following table presents the distribution of average assets, liabilities and equity, as well as interest income and fees earned on average interest earning assets and interest expense paid on average interest bearing liabilities for the nine months ended September 30, 2017 and 2016:

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

 

Average

 

 

 

 

 

 

Average

 

 

Average

 

 

 

 

 

 

Average

 

(Dollars in thousands)

 

Balance

 

 

Interest

 

 

Rate(4)

 

 

Balance

 

 

Interest

 

 

Rate(4)

 

Interest earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

121,479

 

 

$

986

 

 

 

1.09

%

 

$

107,322

 

 

$

498

 

 

 

0.62

%

Taxable securities

 

 

239,353

 

 

 

4,750

 

 

 

2.65

%

 

 

202,983

 

 

 

2,848

 

 

 

1.87

%

Tax-exempt securities

 

 

25,581

 

 

 

254

 

 

 

1.33

%

 

 

10,212

 

 

 

93

 

 

 

1.22

%

FHLB and FRB stock

 

 

11,295

 

 

 

129

 

 

 

1.53

%

 

 

6,227

 

 

 

39

 

 

 

0.84

%

Loans (1)

 

 

2,126,532

 

 

 

118,888

 

 

 

7.47

%

 

 

1,413,344

 

 

 

83,240

 

 

 

7.87

%

Total interest earning assets

 

 

2,524,240

 

 

 

125,007

 

 

 

6.62

%

 

 

1,740,088

 

 

 

86,718

 

 

 

6.66

%

Noninterest earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

36,897

 

 

 

 

 

 

 

 

 

 

 

26,049

 

 

 

 

 

 

 

 

 

Other noninterest earning assets

 

 

170,289

 

 

 

 

 

 

 

 

 

 

 

137,864

 

 

 

 

 

 

 

 

 

Total assets

 

$

2,731,426

 

 

 

 

 

 

 

 

 

 

$

1,904,001

 

 

 

 

 

 

 

 

 

Interest bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing demand

 

$

326,798

 

 

$

385

 

 

 

0.16

%

 

$

248,249

 

 

$

187

 

 

 

0.10

%

Individual retirement accounts

 

 

100,224

 

 

 

903

 

 

 

1.20

%

 

 

71,297

 

 

 

641

 

 

 

1.20

%

Money market

 

 

205,585

 

 

 

356

 

 

 

0.23

%

 

 

139,164

 

 

 

230

 

 

 

0.22

%

Savings

 

 

170,431

 

 

 

81

 

 

 

0.06

%

 

 

98,714

 

 

 

43

 

 

 

0.06

%

Certificates of deposit

 

 

767,680

 

 

 

6,682

 

 

 

1.16

%

 

 

599,475

 

 

 

4,943

 

 

 

1.10

%

Brokered deposits

 

 

69,359

 

 

 

791

 

 

 

1.52

%

 

 

49,970

 

 

 

377

 

 

 

1.01

%

Total deposits

 

 

1,640,077

 

 

 

9,198

 

 

 

0.75

%

 

 

1,206,869

 

 

 

6,421

 

 

 

0.71

%

Subordinated notes

 

 

48,767

 

 

 

2,508

 

 

 

6.88

%

 

 

—

 

 

 

—

 

 

 

0.00

%

Junior subordinated debentures

 

 

32,881

 

 

 

1,435

 

 

 

5.83

%

 

 

26,506

 

 

 

996

 

 

 

5.02

%

Other borrowings

 

 

286,910

 

 

 

1,978

 

 

 

0.92

%

 

 

176,426

 

 

 

487

 

 

 

0.37

%

Total interest bearing liabilities

 

 

2,008,635

 

 

 

15,119

 

 

 

1.01

%

 

 

1,409,801

 

 

 

7,904

 

 

 

0.75

%

Noninterest bearing liabilities and equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest bearing demand deposits

 

 

388,217

 

 

 

 

 

 

 

 

 

 

 

203,747

 

 

 

 

 

 

 

 

 

Other liabilities

 

 

12,984

 

 

 

 

 

 

 

 

 

 

 

10,723

 

 

 

 

 

 

 

 

 

Total equity

 

 

321,590

 

 

 

 

 

 

 

 

 

 

 

279,730

 

 

 

 

 

 

 

 

 

Total liabilities and equity

 

$

2,731,426

 

 

 

 

 

 

 

 

 

 

$

1,904,001

 

 

 

 

 

 

 

 

 

Net interest income

 

 

 

 

 

$

109,888

 

 

 

 

 

 

 

 

 

 

$

78,814

 

 

 

 

 

Interest spread (2)

 

 

 

 

 

 

 

 

 

 

5.61

%

 

 

 

 

 

 

 

 

 

 

5.91

%

Net interest margin (3)

 

 

 

 

 

 

 

 

 

 

5.82

%

 

 

 

 

 

 

 

 

 

 

6.05

%

bearing:

(1)

Balance totals include respective nonaccrual assets.

Three Months Ended
September 30, 2021 vs. 2020
Increase (Decrease) Due to:
(Dollars in thousands)RateVolumeNet Increase
Interest earning assets:
Cash and cash equivalents$14 $96 $110 
Taxable securities(77)(649)(726)
Tax-exempt securities2 (77)(75)
FHLB and other restricted stock(45)(49)(94)
Loans10,137 5,019 15,156 
Total interest income10,031 4,340 14,371 
Interest bearing liabilities:
Interest bearing demand147 81 228 
Individual retirement accounts(160)(14)(174)
Money market(55)17 (38)
Savings2 31 33 
Certificates of deposit(2,679)(378)(3,057)
Brokered time deposits(868)(44)(912)
Other brokered deposits(62)96 34 
Total interest bearing deposits(3,675)(211)(3,886)
Federal Home Loan Bank advances11 (132)(121)
Subordinated notes529 572 1,101 
Junior subordinated debentures(25)6 (19)
Other borrowings(10)(86)(96)
Total interest expense(3,170)149 (3,021)
Change in net interest income$13,201 $4,191 $17,392 

(2)

Net interest spread is the yield on average interest earning assets less the rate on interest bearing liabilities.

(3)

Net interest margin is the ratio of net interest income to average interest earning assets.

Credit Loss Expense

(4)

Ratios have been annualized.

We earned net interest income of $109.9 million for the nine months ended September 30, 2017 compared to $78.8 million for the nine months ended September 30, 2016, an increase of $31.1 million, or 39.5%.


This increase in net interest income was driven by the change in average interest earning assets, which increased to $2.524 billion for the nine months ended September 30, 2017 from $1.740 billion for the nine months ended September 30, 2016, an increase of $784 million, or 45.1%.  This increase was partly attributable to $461 million of loans and $162 million of investment securities acquired in the ColoEast acquisition, which were outstanding for only two months during the nine months ended September 30, 2016.  Additional interest income also resulted from organic growth in our loan portfolio.  Our commercial finance product lines, including our factored receivables, asset based loans, equipment finance loans, and premium finance loans all increased on a period over period basis as a result of the continued execution of our growth strategy for such products.  Our outstanding commercial finance balances increased $249.0 million, or 39.0%, from $637.9 million at September 30, 2016 to $886.9 million at September 30, 2017.  We also experienced organic growth in our mortgage warehouse facilities and community banking lending products period over period, including commercial real estate and general commercial and industrial loans.  

The increases in our net interest income resulting from changes in the interest income generated by our loan portfolio discussed above were offset in part by an increase in our interestCredit loss expense associated with the growth in customer deposits and other borrowings.  Average total interest bearing deposits increased to $1.640 billion for the nine months ended September 30, 2017 from $1.207 billion for the nine months ended September 30, 2016, an increase of $433 million, or 35.9%.  This increase was primarily due to $653 million of customer deposits assumed in the ColoEast acquisition, of which $492 million were interest bearing, and were outstanding for only two months during the nine months ended September 30, 2016.  Excluding the ColoEast customer deposits, we also experienced growth in our certificates of deposit as these higher cost deposit products were used to fund our loan growth period over period.  In addition, our use of other interest bearing borrowings, consisting primarily of FHLB advances, was increased to fund our loan growth.  Our mortgage warehouse facilities are included in our borrowing base with the FHLB.  Finally, we issued $50.0 million of subordinated notes on September 30, 2016 that contributed to the increase in interest expense period over period.

Net interest margin decreased to 5.82% for the nine months ended September 30, 2017 from 6.05% for the nine months ended September 30, 2016, a decrease of 23 basis points.

The decline in our net interest margin resulted in part from a decrease in yields on our interest earning assets.  Our average yield on interest earning assets decreased to 6.62% for the nine months ended September 30, 2017 from 6.66% for the nine months ended September 30, 2016, a decrease of 4 basis points. The decrease is primarily attributable to a change in the mix within our loan portfolio period over period.  The lower yielding community banking loans acquired in the ColoEast acquisition, which were outstanding for only two months during the nine months ended September 30, 2016, resulted in our higher yielding commercial finance products as a percentage of the total portfolio decreasing on average during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. During the nine months ended September 30, 2016, our higher-yielding commercial finance loans comprised approximately 40% of our loan portfolio on average.  However, during the nine months ended September 30, 2017, our higher-yielding commercial finance products comprised only 36% of our loan portfolio on average.  In addition, we experienced a diminishing impact of discount accretion on the loan portfolio yield period over period. These decreases were offset in part by our Prime- and LIBOR-indexed floating rate loans adjusting higher as short term rates have risen during 2017.  

A component of the yield on our loan portfolio consists of discount accretion on the portfolios acquired in connection with our acquisitions.  The aggregate increased yield on our loan portfolio attributable to accretion of purchase discounts associated with our acquisitions was 33 basis points for the nine months ended September 30, 2017, and 45 basis points for the nine months ended September 30, 2016.   Excluding the impact of this discount accretion, the adjusted yield on our loan portfolio was 7.14% and 7.42% for the nine months ended September 30, 2017 and 2016, respectively.  Subject to future acquisitions, we anticipate that the contribution of this discount accretion to our interest income will continue to decline over time, but we expect that any resulting decreases in aggregate yield on our loan portfolio will be offset in part by continued growth in our higher yielding specialized commercial finance product lines which include our factored receivables, asset based loans, equipment finance loans, and premium finance loans.  As of September 30, 2017, there was approximately $10.8 million of purchase discount remaining, of which $9.4 million is expected to be accreted over the remaining lives of the acquired loan portfolios.

Our adjusted net interest margin, which excludes the impact of the acquired loan discount accretion described above, was 5.54% and 5.69% for the nine months ended September 30, 2017 and 2016, respectively.

An increase in our average cost of funds also contributed to the decrease in our net interest margin.  Our average cost of interest bearing liabilities increased to 1.01% for the nine months ended September 30, 2017 from 0.75% for the nine months ended September 30, 2016, an increase of 26 basis points.  This increase was caused by an increased use of higher rate certificates of deposit to fund our growth period over period, higher rates on short term and floating rate FHLB advances as a result of higher interest rates in the economy, and our issuance of $50.0 million of subordinated notes at an initial fixed rate of 6.50%.


The following table shows the effects changes in average balances (volume) and average interest rates (rate) had on the interest earned in our interest earning assets and the interest incurred on our interest bearing liabilities for the nine months ended September 30, 2017 and 2016:

 

Nine Months Ended

 

 

 

September 30, 2017 vs. 2016

 

 

 

Increase (Decrease) Due to:

 

 

 

 

 

(Dollars in thousands)

 

Rate

 

 

Volume

 

 

Net Increase

 

Interest earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

373

 

 

$

115

 

 

$

488

 

Taxable securities

 

 

1,180

 

 

 

722

 

 

 

1,902

 

Tax-exempt securities

 

 

8

 

 

 

153

 

 

 

161

 

FHLB and FRB stock

 

 

32

 

 

 

58

 

 

 

90

 

Loans

 

 

(4,224

)

 

 

39,872

 

 

 

35,648

 

Total interest income

 

 

(2,631

)

 

 

40,920

 

 

 

38,289

 

Interest bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing demand

 

 

105

 

 

 

93

 

 

 

198

 

Individual retirement accounts

 

 

1

 

 

 

261

 

 

 

262

 

Money market

 

 

11

 

 

 

115

 

 

 

126

 

Savings

 

 

4

 

 

 

34

 

 

 

38

 

Certificates of deposit

 

 

275

 

 

 

1,464

 

 

 

1,739

 

Brokered deposits

 

 

193

 

 

 

221

 

 

 

414

 

Total deposits

 

 

589

 

 

 

2,188

 

 

 

2,777

 

Subordinated notes

 

 

—

 

 

 

2,508

 

 

 

2,508

 

Junior subordinated debentures

 

 

161

 

 

 

278

 

 

 

439

 

Other borrowings

 

 

729

 

 

 

762

 

 

 

1,491

 

Total interest expense

 

 

1,479

 

 

 

5,736

 

 

 

7,215

 

Change in net interest income

 

$

(4,110

)

 

$

35,184

 

 

$

31,074

 

Provision for Loan Losses

The provision for loan losses is the amount of expense that, based on our judgment, is required to maintain the allowanceallowances for loan and leasecredit losses (“ALLL”ACL”) at an adequateappropriate level to absorb probable losses incurred inunder the loan portfolio at the balance sheet date and that, in management’s judgment, is appropriate under GAAP.current expected credit loss model. The determination of the amount of the allowance is complex and involves a high degree of judgment and subjectivity.

The provision for loan losses is primarily driven by the allowance allocation for incurred losses recorded on collectively evaluated loans outstanding for a period.  As outstanding loan balances fluctuate period over period, the associated provision for loan losses typically increases or decreases accordingly.  In addition, the product types associated with fluctuations within the loan portfolio also contribute Refer to the allowance allocation, as different loan products require different levels of ALLL based upon their credit risk characteristics. Finally, loan loss valuation allowances are recorded on specific at-risk balances, typically consisting of impaired loans and factored invoices greater than 90 days past due with negative cash reserves.

Under accounting standards for business combinations, acquired loans are recorded at fair value on the date of acquisition. This fair value adjustment eliminates anyNote 1 of the seller’s ALLL associated with suchCompany’s 2020 Form 10-K for detailed discussion regarding ACL methodologies for available for sale debt securities, held to maturity securities and loans asheld for investment.

The following table presents the major categories of suchcredit loss expense:
Three Months Ended September 30,
(Dollars in thousands)20212020$ Change% Change
Credit loss expense (benefit) on loans$(959)$(356)$(603)(169.4)%
Credit loss expense (benefit) on off balance sheet credit exposures(238)(8)(230)(2,875.0)%
Credit loss expense (benefit) on held to maturity securities10 106 (96)(90.6)%
Credit loss expense on available for sale securities— — — — 
Total credit loss expense (benefit)$(1,187)$(258)$(929)360.1 %
62
Table of Contents
For available for sale debt securities in an unrealized loss position, the Company evaluates the securities at each measurement date as any credit exposure associated with such loans is incorporated intoto determine whether the decline in the fair value adjustment.  A provisionbelow the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors. Any impairment that is not credit related is recognized in other comprehensive income, net of applicable taxes. Credit-related impairment is recognized as an ACL on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings via credit loss expense. At September 30, 2021 and June 30, 2021, the Company determined that all impaired available for loan losses is recordedsale securities experienced a decline in fair value below the amortized cost basis due to noncredit-related factors. Therefore, the Company carried no ACL at those respective dates and there was no credit loss expense recognized by the Company during the three months ended September 30, 2021. The same was true for the emergencesame period in the prior year.
The ACL on held to maturity ("HTM") securities is estimated at each measurement date on a collective basis by major security type. At September 30, 2021 and June 30, 2021, the Company’s held to maturity securities consisted of new probablethree investments in the subordinated notes of collateralized loan obligation (“CLO”) funds. Expected credit losses for these securities are estimated using a discounted cash flow methodology which considers historical credit loss information that is adjusted for current conditions and estimable lossesreasonable and supportable forecasts. At September 30, 2021 and June 30, 2021, the Company carried $7.2 million and $7.4 million of these HTM securities at amortized cost, respectively. The required ACL on acquiredthese balances was $1.7 million at September 30, 2021 and June 30, 2021, respectively. The impact to credit loss expense was not material during the three months ended September 30, 2021. None of the overcollateralization triggers tied to the CLO securities were tripped as of September 30, 2021. Ultimately, the realized cash flows on CLO securities such as these will be driven by a variety of factors, including credit performance of the underlying loan portfolio, adjustments to the portfolio by the asset manager, and the timing of a potential call.
At June 30, 2020 and September 30, 2020, the Company carried $8.1 million of these HTM securities at amortized cost, respectively. The ACL on these balances was $1.9 million and $2.0 million at June 30, 2020 and September 30, 2020, respectively resulting in $0.1 million of credit loss expense recognized during the three months ended September 30, 2020.
Our ACL on loans after the acquisition date.

Our ALLL was $20.4$41.0 million as of September 30, 2017 versus $15.42021, compared to $95.7 million as of December 31, 2016,2020, representing an ALLLACL to total loans ratio of 0.84%0.86% and 0.76%1.92% respectively.


Three months ended September 30, 2017 compared withOur credit loss expense on loans decreased $0.6 million, or 169.4%, for the three months ended September 30, 2016.  Our provision for loan2021 compared to the three months ended September 30, 2020.

The decreased credit loss expense was primarily driven by net new specific reserves on non-PCD assets. We recorded net new specific reserves of $0.8 million during the three months ended September 30, 2020 compared to a release of net specific reserves of $1.4 million during the same period of the current year. The decreased credit loss expense was also due to projected improvement of the loss drivers that the Company forecasted over the reasonable and supportable forecast period to calculate expected losses was $0.6at September 30, 2021 which resulted in a benefit to credit loss expense of $0.2 million for the three months ended September 30, 2017 compared to $2.82021. During the three months ended September 30, 2020 the Company forecasted deterioration in the loss factors driven by the projected economic impact of COVID-19 which resulted in credit loss expense of $0.6 million. See further discussion in the allowance for credit loss section below.
Net charge-offs were $3.7 million for the three months ended September 30, 2016.  

The change2021 and approximately $3.2 million of the gross charge-off balance had been reserved in the provisiona prior period. Net charge-offs were $0.7 million for loan losses was the result of several factors.  We experienced $2 thousand net charge-offs in the three months ended September 30, 2017 compared to net charge-offs of $1.7 million for the same period in 2016.  Net charge-offs in the three months ended September 30, 2017 were reduced by2020 and approximately $0.8 million of recoveries collected on two individualthe gross charge-off balance had been reserved in a prior period.

Changes in loan relationships charged-offvolume and mix partially offset the decrease in prior periods. In addition, we recorded a $0.4 million reductioncredit loss expense period over period. Changes in specific reserves during the three months ended September 30, 2017 compared to an increasevolume and mix resulted in specific reservescredit loss expense of $1.0$0.1 million during the three months ended September 30, 2016.  

Offsetting2021 compared to a benefit of $1.7 million during the three months ended September 30, 2020.

The Over-Formula Advances classified as factored receivables and deemed to be purchased credit deteriorated ("PCD") from Covenant did not have an impact on credit loss expense during the three months ended September 30, 2021. During the period, there were no material changes in part the decreased provision dueunderlying credit quality of the remaining two Over-Formula Advance clients. As such, there were no charge-offs related to these balances and no adjustments were made to the change in net charge-offscorresponding ACL balances that would impact credit loss expense. At quarter end, our entire remaining over formula advance position was down from $62.1 million at December 31, 2020 to $10.1 million at September 30, 2021 and specific reserves,the $10.1 million balance at September 30, 2021 was an increase due to a higher loan portfolio growth rate period over period.fully reserved. During the three months ended September 30, 2017, outstanding loans increased $130.42020, the ACL on PCD assets was established through purchase accounting with no impact to credit loss expense.
Credit loss expense for off balance sheet credit exposures decreased $0.2 million, from June 30, 2017.  During the three months ended September 30, 2016, outstanding loans, excluding the $461 million acquired ColoEast portfolio, increased $88.6 million from June 30, 2016.  The larger increase in outstanding loan balances within the three months ended September 30, 2017 resulted in a higher provision for loan losses comparedprimarily due to the three months ended September 30, 2016.

Nine months ended September 30, 2017 compared with nine months ended September 30, 2016.  Our provision for loan losses was $9.7 million for the nine months ended September 30, 2017 compared to $4.2 million for the nine months ended September 30, 2016.

The increased provision for loan losses was primarily the result of an increase in loan charge-offs recorded during the nine months ended September 30, 2017.  We experienced higher total net charge-offs of $4.7 millionchanges in the nine months ended September 30, 2017 comparedassumptions used to net charge-offsproject the loss rates previously discussed partially offset by increased outstanding commitments to fund period over period.

63
Table of $1.9 million for the same period in 2016.  Approximately $1.4 million of the charge-offs for the nine months ended September 30, 2017 had specific reserves previously recorded.  In addition, this charge-off activity contributed to an increase in the estimate of the ALLL levels recorded against the remaining loan portfolio as a result of higher loss factors incorporated into our ALLL methodology for the nine months ended September 30, 2017. Approximately $3.1 million of the charge-offs recorded during the nine months ended September 30, 2017 were associated with two individual loan relationships that were charged-off in the first quarter of 2017.  One of the loan relationships was part of our healthcare finance unit and one was acquired in the ColoEast acquisition.

In addition, during the nine months ended September 30, 2017, outstanding loans increased $397.8 million from December 31, 2016.  During the nine months ended September 30, 2016, outstanding loans, excluding the $461 million acquired ColoEast portfolio, increased $207.2 million from December 31, 2015.  The larger increase in outstanding loan balances within the nine months ended September 30, 2017 resulted in a higher provision for loan losses compared to the nine months ended September 30, 2016.  

Contents


Noninterest Income

The following table presents theour major categories of noninterest income:
Three Months Ended September 30,
(Dollars in thousands)20212020$ Change% Change
Service charges on deposits$2,030 $1,470 $560 38.1 %
Card income2,144 2,091 53 2.5 %
Net OREO gains (losses) and valuation adjustments(9)(41)32 78.0 %
Net gains (losses) on sale or call of securities4 3,109 (3,105)(99.9)%
Fee income5,198 1,402 3,796 270.8 %
Insurance commissions1,231 990 241 24.3 %
Other1,457 1,472 (15)(1.0)%
Total noninterest income$12,055 $10,493 $1,562 14.9 %
Noninterest income for the three and nine months ended September 30, 2017 and 2016:

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in thousands)

 

2017

 

 

2016

 

 

$ Change

 

 

% Change

 

 

2017

 

 

2016

 

 

$ Change

 

 

% Change

 

Service charges on deposits

 

$

1,046

 

 

$

984

 

 

$

62

 

 

 

6.3

%

 

$

3,003

 

 

$

2,338

 

 

$

665

 

 

 

28.4

%

Card income

 

 

956

 

 

 

767

 

 

 

189

 

 

 

24.6

%

 

 

2,700

 

 

 

1,890

 

 

 

810

 

 

 

42.9

%

Net OREO gains (losses) and valuation adjustments

 

 

15

 

 

 

63

 

 

 

(48

)

 

 

76.2

%

 

 

(86

)

 

 

(1,152

)

 

 

1,066

 

 

 

92.5

%

Net gains on sale of securities

 

 

35

 

 

 

(68

)

 

 

103

 

 

 

(2

)

 

 

35

 

 

 

(63

)

 

 

98

 

 

 

(155.6

%)

Net gains on sale of loans

 

 

—

 

 

 

—

 

 

 

—

 

 

 

0.0

%

 

 

—

 

 

 

16

 

 

 

(16

)

 

 

(100.0

%)

Fee income

 

 

625

 

 

 

655

 

 

 

(30

)

 

 

(4.6

%)

 

 

1,845

 

 

 

1,693

 

 

 

152

 

 

 

9.0

%

Gain on sale of subsidiary

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

20,860

 

 

 

—

 

 

 

20,860

 

 

 

100.0

%

Asset management fees

 

 

—

 

 

 

1,553

 

 

 

(1,553

)

 

 

(100.0

%)

 

 

1,717

 

 

 

4,787

 

 

 

(3,070

)

 

 

(64.1

%)

CLO warehouse investment income

 

 

—

 

 

 

657

 

 

 

(657

)

 

 

(100.0

%)

 

 

1,954

 

 

 

2,415

 

 

 

(461

)

 

 

(19.1

%)

Insurance commissions

 

 

826

 

 

 

389

 

 

 

437

 

 

 

112.3

%

 

 

2,125

 

 

 

574

 

 

 

1,551

 

 

 

270.2

%

Other

 

 

668

 

 

 

1,099

 

 

 

(431

)

 

 

(39.2

%)

 

 

2,505

 

 

 

2,250

 

 

 

255

 

 

 

11.3

%

Total noninterest income

 

$

4,171

 

 

$

6,099

 

 

$

(1,928

)

 

 

(31.6

%)

 

$

36,658

 

 

$

14,748

 

 

$

21,910

 

 

 

148.6

%

Three months ended September 30, 2017 compared with three months ended September 30, 2016. We earned noninterest income of $4.2increased $1.6 million, for the three months ended September 30, 2017, compared to $6.1 million for the three months ended September 30, 2016.

The decrease was primarily due to a decrease in asset management fees earned due to the sale of TCA and a reduction in CLO warehouse investment income.or 14.9%. Changes in selected components of noninterest income in the above table are discussed below.


•

Asset Management Fees.  As a result of the sale of TCA, we no longer earn asset management fees.  As a result, there was no asset management fee income recorded for the three months ended September 30, 2017, compared to $1.6 million for the three months ended September 30, 2016.

•Service charges on deposits. Service charges on deposits increased $0.6 million consistent with increased average deposit balances subject to such fees period over period.
•Net gains (losses) on sale or call of securities. Net gains (losses) on sale or call of securities decreased $3.1 million due to decreased sales activity during the current period.

Insurance Commissions.  Commissions•Fee income. Fee income increased $3.8 million due to $2.9 million of payment fees earned by TriumphPay during the three months ended September 30, 2021. The fees were a result of the acquired operations of HubTran during the year. There were no other significant changes within the components of fee income.

Noninterest Expense
The following table presents our Triumph Insurance Group subsidiarymajor categories of noninterest expense:
Three Months Ended September 30,
(Dollars in thousands)20212020$ Change% Change
Salaries and employee benefits$43,769 $31,651 $12,118 38.3 %
Occupancy, furniture and equipment6,388 5,574 814 14.6 %
FDIC insurance and other regulatory assessments353 360 (7)(1.9)%
Professional fees2,362 3,265 (903)(27.7)%
Amortization of intangible assets3,274 2,141 1,133 52.9 %
Advertising and promotion1,403 1,105 298 27.0 %
Communications and technology7,090 5,569 1,521 27.3 %
Travel and entertainment1,352 314 1,038 330.6 %
Other6,822 5,318 1,504 28.3 %
Total noninterest expense$72,813 $55,297 $17,516 31.7 %
64
Table of Contents
Noninterest expense increased $0.4$17.5 million, from $0.4or 31.7%. Noninterest expense for the three months ended September 30, 2020 was impacted by $0.8 million of transaction costs associated with the TFS acquisition. Excluding the TFS acquisition transaction costs, we incurred adjusted noninterest expense of $54.5 million for the three months ended September 30, 2016 to $0.8 million for the three months ended September 30, 2017 due to increased volumes resulting from organic growth of the business and the acquisition of Southern Transportation Insurance Agency, Ltd.

CLO Warehouse Investment Income.  The CLO associated with our remaining CLO warehouse investment was issued and closed in June 2017, and as a result our invested funds were returned.  At September 30, 2017 we no longer held investments in CLO warehouse entities and, absent future investments in new CLO warehouse entities, we do not expect to realize CLO warehouse investment income ongoing.  As a result, there was no CLO warehouse investment income recorded for the three months ended September 30, 2017, compared to $0.7 million for the three months ended September 30, 2016.  

Other.  Other noninterest income decreased from $1.1 million for the three months ended September 30, 2016 to $0.7 million for the three months ended September 30, 2017.  Other noninterest income includes income for check cashing and wire transfer fees, income associated with trust activities, and bank-owned life insurance.  There were no significant increases or decreases in the components of other noninterest income period over period.

Nine months ended September 30, 2017 compared with nine months ended September 30, 2016. We earned noninterest income of $36.7 million for the nine months ended September 30, 2017, compared to $14.7 million for the nine months ended September 30, 2016. The increase in the nine months ended September 30, 2017 was impacted by the realization of the $20.9 million gain associated with the sale of TCA. Excluding the gain on sale of TCA, we earned noninterest income of $15.8 million for the nine months ended September 30, 2017,2020, resulting in an adjusted increase in noninterest incomeexpense of $1.1$18.3 million, or 7.5% period over period.  

The adjusted increase was primarily due to an increase in service charges on deposits, card income, and insurance commissions.  In addition, a decrease in OREO losses contributed to the increase in noninterest income during the nine months ended September 30, 2017.  These increases in noninterest income were offset in part by a decrease in asset management fees earned due to the sale of TCA and a reduction in CLO warehouse investment income. Changes in selected components of noninterest income in the above table are discussed below.

Service Charges on Deposits.  Service charges on deposit accounts, including overdraft and non-sufficient funds fees, increased from $2.3 million for the nine months ended September 30, 2016 to $3.0 million for the nine months ended September 30, 2017.  The increase was primarily due to additional service charges associated with the increase in customer deposits due to the ColoEast acquisition.

Card Income.  Debit and credit card income increased from $1.9 million for the nine months ended September 30, 2016 to $2.7 million for the nine months ended September 30, 2017.  The increase was primarily due to additional customer debit and credit card activity associated with the increase in issued cards due to the ColoEast acquisition.

Net OREO Gains (Losses) and Valuation Adjustments.  Net OREO gains (losses) and valuation adjustments represents gains on loans transferred to OREO with a fair value in excess of the foreclosed loans’ carrying value, gains and losses on the sale of OREO, and valuation allowances recorded due to subsequent write-downs of OREO.  The net loss of $1.2 million for the nine months ended September 30, 2016 was primarily due to a $1.2 million OREO write-down related to a branch facility previously transferred to OREO that is no longer being actively operated.  The write-down was the result of obtaining an updated appraisal on the property.

Asset Management Fees.  Asset management fees earned by TCA decreased from $4.8 million for the nine months ended September 30, 2016 to $1.7 million for the nine months ended September 30, 2017.  The decrease is due to the sale of TCA in the first quarter of 2017.  As a result of the sale of TCA, we no longer earn asset management fees.

CLO Warehouse Investment Income.  Income from our CLO warehouse equity investments decreased $0.4 million, from $2.4 million for the nine months ended September 30, 2016 to $2.0 million for the nine months ended September 30, 2017.  The CLO associated with our remaining CLO warehouse investment was issued and closed in June 2017, and as a result our invested funds were returned.  At September 30, 2017 we no longer held investments in CLO warehouse entities and, absent future investments in new CLO warehouse entities, we do not expect to realize CLO warehouse investment income ongoing.


•

Insurance Commissions.  Commissions earned by our Triumph Insurance Group subsidiary increased $1.5 million from $0.6 million for the nine months ended September 30, 2016 to $2.1 million for the nine months ended September 30, 2017 due to increased volumes resulting from organic growth of the business and the acquisition of Southern Transportation Insurance Agency, Ltd. in the third quarter of 2016.

Noninterest Expense

The following table presents the major categories of noninterest expense for the three and nine months ended September 30, 2017 and 2016:

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(Dollars in thousands)

 

2017

 

 

2016

 

 

$ Change

 

 

% Change

 

 

2017

 

 

2016

 

 

$ Change

 

 

% Change

 

Salaries and employee benefits

 

$

16,717

 

 

$

14,699

 

 

$

2,018

 

 

 

13.7

%

 

$

54,687

 

 

$

39,180

 

 

$

15,507

 

 

 

39.6

%

Occupancy, furniture and equipment

 

 

2,398

 

 

 

1,921

 

 

 

477

 

 

 

24.8

%

 

 

7,105

 

 

 

4,937

 

 

 

2,168

 

 

 

43.9

%

FDIC insurance and other regulatory assessments

 

 

294

 

 

 

143

 

 

 

151

 

 

 

105.6

%

 

 

790

 

 

 

648

 

 

 

142

 

 

 

21.9

%

Professional fees

 

 

1,465

 

 

 

1,874

 

 

 

(409

)

 

 

(21.8

%)

 

 

4,671

 

 

 

4,048

 

 

 

623

 

 

 

15.4

%

Amortization of intangible assets

 

 

870

 

 

 

958

 

 

 

(88

)

 

 

(9.2

%)

 

 

2,892

 

 

 

2,652

 

 

 

240

 

 

 

9.0

%

Advertising and promotion

 

 

804

 

 

 

779

 

 

 

25

 

 

 

3.2

%

 

 

2,653

 

 

 

1,926

 

 

 

727

 

 

 

37.7

%

Communications and technology

 

 

2,145

 

 

 

1,966

 

 

 

179

 

 

 

9.1

%

 

 

6,552

 

 

 

4,661

 

 

 

1,891

 

 

 

40.6

%

Travel and entertainment

 

 

543

 

 

 

615

 

 

 

(72

)

 

 

(11.7

%)

 

 

1,835

 

 

 

1,502

 

 

 

333

 

 

 

22.2

%

Other

 

 

2,989

 

 

 

2,837

 

 

 

152

 

 

 

5.4

%

 

 

9,198

 

 

 

6,647

 

 

 

2,551

 

 

 

38.4

%

Total noninterest expense

 

$

28,225

 

 

$

25,792

 

 

$

2,433

 

 

 

9.4

%

 

$

90,383

 

 

$

66,201

 

 

$

24,182

 

 

 

36.5

%

Three months ended September 30, 2017 compared with three months ended September 30, 2016. Noninterest expense totaled $28.2 million for the three months ended September 30, 2017 compared to $25.8 million for the three months ended September 30, 2016.  This activity was impacted by the transaction costs incurred in the amount of $1.6 million associated with the acquisition of ColoEast in August 2016.

Excluding the ColoEast transaction costs, we incurred noninterest expense of $24.2 million for the three months ended September 30, 2016, resulting in an adjusted net increase in noninterest expense of $4.0 million33.6%, period over period. Details of the more significant changes in the various components of noninterest expense are further discussed below.

•Salaries and Employee Benefits. Salaries and employee benefits expenses have historically been our largest category of noninterest expense. Salaries and employee benefits expenses were $16.7increased $12.1 million, for the three months ended September 30, 2017 comparedor 38.3%, which is primarily due to $14.7 million for the three months ended September 30, 2016. This increase is attributable to several factors.  Most notably, we experienced an increase in the average size of our workforce between these periods.  Our full-time equivalent employees totaled 711 and 709 at September 30, 2017 and 2016, respectively, however our average full-time equivalent employees were 713 and 639 during the three months ended September 30, 2017 and 2016, respectively. Sources of this increased headcount were primarily employees added through the ColoEast acquisition, which were present for only two months during the three months ended September 30, 2016.  In addition, employees were hired to support growth in our commercial finance product lines and other strategic initiatives. Other factors contributing to the increase in salaries and employee benefits include merit increases for existing employees, higher health insurance benefit costs, incentive compensation, and 401(k) expenses. Salariesexpense. The size of our workforce increased period over period due in part due to the acquisition of HubTran, but also organic growth within the Company. Our average full-time equivalent employees were 1,215.7 and employee benefits1,123.5 for the three months ended September 30, 2016 included $0.42021 and 2020, respectively. Given improved 2021 performance compared to 2020, our bonus expense increased $2.6 million of severance costs incurred as part of the ColoEast restructuring activities.  

period over period. Further, sales commissions, primarily related to our operations at Triumph Business Capital and TriumphPay, increased $1.1 million and compensation paid to temporary contract labor increased $0.9 million period over period. Additionally, stock based compensation expense increased $3.1 million period over period.

•Occupancy, Furniture and Equipment. Occupancy, furniture and equipment expenses were $2.4increased $0.8 million, for the three months ended September 30, 2017 compared to $1.9 million for the three months ended September 30, 2016. This increase isor 14.6%, primarily due to expensesgrowth in our operations period over period.

•Professional Fees. Professional fees decreased $0.9 million, or 27.7%, primarily due to the $0.8 million of transaction costs associated with the infrastructure and facilities added through the ColoEastTFS acquisition which were operational for only two months during the three months ended September 30, 2016.  In addition, infrastructure has been expanded to support our growing business activities and workforce in 2017.

Professional Fees. Professional fees are primarily comprised of external audit, tax, consulting, and legal fees and were $1.5 million for the three months ended September 30, 2017 compared to $1.9 million for the three months ended September 30, 2016. The decrease is primarily attributable to $1.0 million of professional fees incurredrecognized in the three months ended September 30, 2016 associated with the ColoEast acquisition.  Our remaining ongoing external audit, legal, and consulting activitiesprior period.

•Amortization of Intangible Assets. Amortization of intangible assets increased period over period consistent with the growth in our business activities.

Nine months ended September 30, 2017 compared with nine months ended September 30, 2016. Noninterest expense totaled $90.4 million for the nine months ended September 30, 2017 compared to $66.2 million of noninterest expense for the nine months ended September 30, 2016.  Noninterest expense was impacted by the recognition of an incremental $5.1 million of transaction related costs


associated with the TCA sale in the nine months ended September 30, 2017, including $4.8 million of bonus expense for the amount paid to team members to recognize their contribution to the value realized from the TCA sale and approximately $0.3 million of other transaction related costs.  Noninterest expense for the nine months ended September 30, 2016 was impacted by the transaction costs incurred in the amount of $1.6 million associated with the acquisition of ColoEast.  Excluding the TCA sale bonus and transaction related costs and the ColoEast transaction costs, we incurred adjusted noninterest expense of $85.3 million for the nine months ended September 30, 2017 and $64.6 million for the nine months ended September 30, 2016, resulting in an adjusted net increase in noninterest expense of $20.7$1.1 million, or 32.0% period over period.  

Details of the more significant changes in the various components of noninterest expense are further discussed below.

Salaries and Employee Benefits. Salaries and employee benefits expenses have historically been our largest category of noninterest expense. Salaries and employee benefits expenses were $54.7 million for the nine months ended September 30, 2017 compared to $39.2 million for the nine months ended September 30, 2016. This increase is partly attributable to the $4.8 million bonus expense incurred in the nine months ended September 30, 2017 associated with the TCA sale.  In addition, we experienced a significant increase in the average size of our workforce between these periods.  Our full-time equivalent employees totaled 711 and 709 at September 30, 2017 and 2016, respectively, however our average full-time equivalent employees were 709 and 543 during the nine months ended September 30, 2017 and 2016, respectively.  Sources of this increased headcount were primarily employees added through the ColoEast acquisition, which were present for only two months during the nine months ended September 30, 2016.  In addition, employees were hired to support growth in our commercial finance product lines and other strategic initiatives. Other factors contributing to the increase in salaries and employee benefits include merit increases for existing employees, higher health insurance benefit costs, incentive compensation, and 401(k) expenses. Salaries and employee benefits for the nine months ended September 30, 2016 included $0.4 million of severance costs incurred as part of the ColoEast restructuring activities.

Occupancy, Furniture and Equipment. Occupancy, furniture and equipment expenses were $7.1 million for the nine months ended September 30, 2017 compared to $4.9 million for the nine months ended September 30, 2016. This increase is52.9%, primarily due to expenses associated with the infrastructure and facilities addedadditional intangibles recorded through the ColoEastHubTran acquisition which were operational for only two months during the nine months ended September 30, 2016.  In addition, infrastructure has been expandedcurrent year.

•Communication and Technology. Communication and technology increased $1.5 million, or 27.3%, primarily as a result as a result of increased spending on IT consulting to supportdevelop efficiency in our growing business activitiesoperations and workforce in 2017.

Professional Fees. Professional fees are primarily comprisedimprove the functionality of external audit, tax, consulting, and legal fees and were $4.7 million for the nine months ended September 30, 2017 compared to $4.0 million for the nine months ended September 30, 2016. Our external audit, legal, and consulting activities increasedTriumphPay platform period over period consistent with the growth in our business activities.  Professional fees for the nine months ended September 30, 2016 includedperiod.

•Travel and Entertainment. Travel and entertainment expense increased $1.0 million, of professional fees associated with the ColoEast acquisition, which impacted the change period over period.

Communications and Technology. Communications and technology expenses were $6.6 million for the nine months ended September 30, 2017, comparedor 330.6%, primarily due to $4.7 million for the nine months ended September 30, 2016. The increase is attributed to increased usage and transaction volumes resulting from the ColoEast acquisition, which were present for only two months during the nine months ended September 30, 2016, as well as communications and technology expense associated with the recent investments we have made in our communications and technology infrastructure to further our movement toward a single operating platform, which positions us for future acquisitions and greater operating efficiencies.  Communications and technology expenses for the nine months ended September 30, 2016 included $0.3 million of contract termination fees associated with ColoEast systems that are no longer utilized by our integrated organization.

Other. Other noninterest expenses were $9.2 million for the nine months ended September 30, 2017, compared to $6.6 million for the nine months ended September 30, 2016.   Approximately $0.3 million of transaction related costs were incurred in the nine months ended September 30, 2017 associated with the TCA sale.  The remaining increase in other noninterest expenses are generally attributable to the ColoEast acquisition as well as the impact of continued growth of our business and workforce and include increases inthe COVID-19 pandemic on such activities during the prior year.

•Other. Other noninterest expense includes loan-related expenses, software amortization, training and recruiting, postage, insurance, and subscription expenses.

services. Other noninterest expense increased $1.5 million, or 28.3%. There were no significant increases or decreases in the individual components of other noninterest expense period over period.

Income Taxes

The amount of income tax expense is influenced by the amount of pre-tax income, the amount of tax-exempt income and the effect of changes in valuation allowances maintained against deferred tax benefits.

Three months ended September 30, 2017 compared with three months ended September 30, 2016.  

Income tax expense for the three months ended September 30, 2017 was $5.1increased $0.9 million, compared to $3.1from $6.9 million for the three months ended September 30, 2016. The increase in income tax expense period over period is consistent with the increase in pre-tax income in the three months ended September 30, 2017.  The effective tax rate2020 to $7.8 million for the three months ended September 30, 20172021. The effective tax rate was 34% compared to 39%24% for the three months ended September 30, 2016.  The effective tax rate2021, compared to 23% for the three months ended September 30, 2017 reflects a reduction in

2020.

various state statutory income tax rates and apportionment during the period.  The effective tax rate for the three months ended September 30, 2016 reflected the increase in non-deductible direct transaction costs associated with the ColoEast acquisition.  Approximately $1.0 million of direct ColoEast transaction costs were deemed non-deductible for income tax purposes.  Excluding the impact of the ColoEast transaction costs, our effective tax rate for the three months ended September 30, 2016 was 36%.

Nine months ended September 30, 2017 compared with nine months ended September 30, 2016.  Income tax expense was $16.6 million for the nine months ended September 30, 2017 compared to $8.7 million for the nine months ended September 30, 2016. The increase in income tax expense period over period is consistent with the increase in pre-tax income in the nine months ended September 30, 2017.  The effective tax rate for the nine months ended September 30, 2017 was 36% compared to 38% for the nine months ended September 30, 2016.  The effective tax rate for the nine months ended September 30, 2017 was impacted by $0.3 million of excess tax benefits recognized in the nine months ended September 30, 2017 associated with the vesting of share-based payment awards.  The tax benefits of exercised or vested awards are treated as discreet items in the period in which they occur.  In addition, the effective tax rate for the nine months ended September 30, 2017 reflects a reduction in certain state statutory income tax rates and apportionment during the period.  The effective tax rate for the nine months ended September 30, 2016 reflected the increase in non-deductible direct transaction costs associated with the ColoEast acquisition.  Approximately $1.0 million of direct ColoEast transaction costs were deemed non-deductible for income tax purposes.  Excluding the impact of the ColoEast transaction costs, our effective tax rate for the nine months ended September 30, 2016 was 36%.

Operating Segment Results

Our reportable segments are Banking, Factoring, Asset Management,Payments, and Corporate, which have been determined based upon their business processes and economic characteristics. This determination also gave consideration to the structure and management of various product lines. The Banking segment includes the operations of TBK Bank, including loans originated under our Triumph Commercial Finance, Triumph Healthcare Finance, and Triumph Premium Finance brands.Bank. Our Banking segment derives its revenue principally from investments in interest earning assets as well as noninterest income typical for the banking industry. The Banking segment also includes certain factored receivables which are purchased by TBK Bank under its Triumph Commercial Finance brand as opposed to at Triumph Business Capital.  The Factoring segment includes the operations of Triumph Business Capital with revenue derived from factoring services. The Asset ManagementPayments segment includedincludes the operations of TCA withthe TBK Bank's TriumphPay division, which provides a presentment, audit, and payment solution to shipper, freight broker, and factor clients in the trucking industry. The Payments segment derives its revenue derived from transaction fees for managing or providing other servicesand interest income on factored receivables related to collateralized loan obligation funds. On March 31, 2017,invoice payments. These factored receivables consist of both invoices where we sold our 100% membership interestoffer a carrier a QuickPay opportunity to receive payment at a discount in TCA.  As a result, the Asset Management segment had no operations subsequent to March 31, 2017 and year-to-date results are included herein for reference and reconciliation purposes only.  Corporate includes holding company financing and investment activities and management and administrative expenses to support the overall operationsadvance of the Company.

standard payment term for such invoice in exchange for the assignment of such invoice to us and from offering freight brokers the ability to settle their invoices with us on an extended term following our payment to their carriers as an additional liquidity option for such freight brokers.

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Table of Contents
Reported segments and the financial information of the reported segments are not necessarily comparable with similar information reported by other financial institutions. Furthermore, changesAdditionally, because of the interrelationships of the various segments, the information presented is not indicative of how the segments would perform if they operated as independent entities. Changes in management structure or allocation methodologies and procedures may result in future changes to previously reported segment financial data. The accounting policies of the segments are substantially similar tothe same as those described in the “Summary of Significant Accounting Policies” in Note 1 of the Company’s 20162020 Form 10-K. Transactions between segments consist primarily of borrowed funds. Intersegment interest expense is allocated to the Factoring segmentand Payments segments based on the Company’s prime rate. The provision for loanFederal Home Loan Bank advance rates. Credit loss expense is allocated based on the segment’s ALLLACL determination. Noninterest income and expense directly attributable to a segment are assigned to it.accordingly. Taxes are paid on a consolidated basis and are not allocated for segment purposes.

Three months ended September 30, 2017 compared with three months ended September 30, 2016. The Factoring segment includes only factoring originated by TBC.

The following tables present our primary operating results for our operating segments assegments:
(Dollars in thousands)
Three Months Ended September 30, 2021BankingFactoringPaymentsCorporateConsolidated
Total interest income$46,175 $47,222 $3,295 $43 $96,735 
Intersegment interest allocations2,452 (2,341)(111)— — 
Total interest expense2,073 — — 2,891 4,964 
Net interest income (expense)46,554 44,881 3,184 (2,848)91,771 
Credit loss expense (benefit)(2,399)1,164 38 10 (1,187)
Net interest income after credit loss expense48,953 43,717 3,146 (2,858)92,958 
Noninterest income7,371 1,557 3,086 41 12,055 
Noninterest expense41,183 19,106 11,416 1,108 72,813 
Operating income (loss)$15,141 $26,168 $(5,184)$(3,925)$32,200 
(Dollars in thousands)
Three Months Ended September 30, 2020BankingFactoringPaymentsCorporateConsolidated
Total interest income$50,927 $30,068 $1,361 $8 $82,364 
Intersegment interest allocations3,459 (3,312)(147)— — 
Total interest expense6,176 — — 1,809 7,985 
Net interest income (expense)48,210 26,756 1,214 (1,801)74,379 
Credit loss expense (benefit)(3,419)3,053 2 106 (258)
Net interest income after credit loss expense51,629 23,703 1,212 (1,907)74,637 
Other noninterest income7,443 3,157 47 (154)10,493 
Noninterest expense37,389 13,665 3,195 1,048 55,297 
Operating income (loss)$21,683 $13,195 $(1,936)$(3,109)$29,833 
(Dollars in thousands)
September 30, 2021BankingFactoringPaymentsCorporateEliminationsConsolidated
Total assets$5,686,761 $1,559,378 $242,446 $975,939 $(2,439,989)$6,024,535 
Gross loans$4,390,659 $1,479,989 $127,039 $700 $(1,215,657)$4,782,730 
(Dollars in thousands)
December 31, 2020BankingFactoringPaymentsCorporateEliminationsConsolidated
Total assets$5,791,537 $1,121,704 $115,836 $861,967 $(1,955,253)$5,935,791 
Gross loans$4,788,093 $1,036,548 $84,222 $800 $(912,887)$4,996,776 
66
Table of and for the three month periods ended September 30, 2017 and 2016, respectively.

Contents

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

Asset

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2017

 

Banking

 

 

Factoring

 

 

Management

 

 

Corporate

 

 

Consolidated

 

Total interest income

 

$

32,973

 

 

$

11,736

 

 

$

—

 

 

$

428

 

 

$

45,137

 

Intersegment interest allocations

 

 

2,193

 

 

 

(2,193

)

 

 

—

 

 

 

—

 

 

 

—

 

Total interest expense

 

 

4,294

 

 

 

—

 

 

 

—

 

 

 

1,331

 

 

 

5,625

 

Net interest income (expense)

 

 

30,872

 

 

 

9,543

 

 

 

—

 

 

 

(903

)

 

 

39,512

 

Provision for loan losses

 

 

(69

)

 

 

649

 

 

 

—

 

 

 

(8

)

 

 

572

 

Net interest income after provision

 

 

30,941

 

 

 

8,894

 

 

 

—

 

 

 

(895

)

 

 

38,940

 

Noninterest income

 

 

3,498

 

 

 

774

 

 

 

—

 

 

 

(101

)

 

 

4,171

 

Noninterest expense

 

 

21,984

 

 

 

5,600

 

 

 

—

 

 

 

641

 

 

 

28,225

 

Operating income (loss)

 

$

12,455

 

 

$

4,068

 

 

$

—

 

 

$

(1,637

)

 

$

14,886

 

Banking


(Dollars in thousands)Three Months Ended September 30,
Banking20212020$ Change% Change
Total interest income$46,175 $50,927 $(4,752)(9.3)%
Intersegment interest allocations2,452 3,459 (1,007)(29.1)%
Total interest expense2,073 6,176 (4,103)(66.4)%
Net interest income (expense)46,554 48,210 (1,656)(3.4)%
Credit loss expense (benefit)(2,399)(3,419)1,020 29.8 %
Net interest income after credit loss expense48,953 51,629 (2,676)(5.2)%
Other noninterest income7,371 7,443 (72)(1.0)%
Noninterest expense41,183 37,389 3,794 10.1 %
Operating income (loss)$15,141 $21,683 $(6,542)(30.2)%

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

Asset

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2016

 

Banking

 

 

Factoring

 

 

Management

 

 

Corporate

 

 

Consolidated

 

Total interest income

 

$

24,863

 

 

$

8,465

 

 

$

61

 

 

$

82

 

 

$

33,471

 

Intersegment interest allocations

 

 

1,251

 

 

 

(1,251

)

 

 

—

 

 

 

—

 

 

 

—

 

Total interest expense

 

 

2,671

 

 

 

—

 

 

 

—

 

 

 

382

 

 

 

3,053

 

Net interest income (expense)

 

 

23,443

 

 

 

7,214

 

 

 

61

 

 

 

(300

)

 

 

30,418

 

Provision for loan losses

 

 

2,861

 

 

 

33

 

 

 

—

 

 

 

(75

)

 

 

2,819

 

Net interest income after provision

 

 

20,582

 

 

 

7,181

 

 

 

61

 

 

 

(225

)

 

 

27,599

 

Noninterest income

 

 

3,147

 

 

 

680

 

 

 

1,534

 

 

 

738

 

 

 

6,099

 

Noninterest expense

 

 

19,000

 

 

 

4,984

 

 

 

1,259

 

 

 

549

 

 

 

25,792

 

Operating income (loss)

 

$

4,729

 

 

$

2,877

 

 

$

336

 

 

$

(36

)

 

$

7,906

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

Asset

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2017

 

Banking

 

 

Factoring

 

 

Management

 

 

Corporate

 

 

Eliminations

 

 

Consolidated

 

Total assets

 

$

2,852,651

 

 

$

327,194

 

 

$

—

 

 

$

493,335

 

 

$

(767,019

)

 

$

2,906,161

 

Gross loans

 

$

2,331,514

 

 

$

315,742

 

 

$

—

 

 

$

12,737

 

 

$

(234,530

)

 

$

2,425,463

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

Asset

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

Banking

 

 

Factoring

 

 

Management

 

 

Corporate

 

 

Eliminations

 

 

Consolidated

 

Total assets

 

$

2,588,509

 

 

$

223,994

 

 

$

4,879

 

 

$

391,745

 

 

$

(568,060

)

 

$

2,641,067

 

Gross loans

 

$

1,961,552

 

 

$

212,784

 

 

$

—

 

 

$

1,866

 

 

$

(148,578

)

 

$

2,027,624

 

Banking

(Dollars in thousands)

 

Three Months Ended September 30,

 

 

 

 

 

Banking

 

2017

 

 

2016

 

 

$ Change

 

 

% Change

 

Total interest income

 

$

32,973

 

 

$

24,863

 

 

$

8,110

 

 

 

32.6

%

Intersegment interest allocations

 

 

2,193

 

 

 

1,251

 

 

 

942

 

 

 

75.3

%

Total interest expense

 

 

4,294

 

 

 

2,671

 

 

 

1,623

 

 

 

60.8

%

Net interest income (expense)

 

 

30,872

 

 

 

23,443

 

 

 

7,429

 

 

 

31.7

%

Provision for loan losses

 

 

(69

)

 

 

2,861

 

 

 

(2,930

)

 

 

(102.4

%)

Net interest income (expense) after provision

 

 

30,941

 

 

 

20,582

 

 

 

10,359

 

 

 

50.3

%

Noninterest income

 

 

3,498

 

 

 

3,147

 

 

 

351

 

 

 

11.2

%

Noninterest expense

 

 

21,984

 

 

 

19,000

 

 

 

2,984

 

 

 

15.7

%

Operating income (loss)

 

$

12,455

 

 

$

4,729

 

 

$

7,726

 

 

 

163.4

%

Our Banking segment’s operating income totaled $12.5decreased $6.5 million, or 30.2%.

Total interest income decreased $4.8 million, or 9.3%, at our Banking segment primarily as a result of decreases in the majority of the balances of our interest earning assets, primarily loans. Average loans in our Banking segment, excluding intersegment loans, decreased 11.0% from $3.707 billion for the three months ended September 30, 2020 to $3.299 billion for the three months ended September 30, 2021. The decrease in interest income was partially offset by a slight increase in yields on interest earning assets at our Banking segment.
Interest expense decreased consistent with a decrease in average interest-bearing liabilities including a decrease in average total interest bearing deposits period over period. This decrease was primarily caused by lower interest rates paid on our interest-bearing liabilities driven by changes in interest rates in the macro economy.
Credit loss expense at our Banking segment is made up of credit loss expense related to loans and credit loss expense related to off balance sheet commitments to lend. Credit loss expense related to loans was a benefit to credit loss expense of $2.2 million for the three months ended September 30, 20172021 compared to operating incomea benefit to credit loss expense of $4.7$3.4 million for the three months ended September 30, 2016. We experienced increases in net interest income and noninterest income, as well as a reduction in the provision for loan losses period over period. These increases were offset in part by an increase in noninterest expenses for the three months ended September 30, 2017.  

2020. The increase in net interest incomedecreased benefit to credit loss expense was primarily the result of increaseschanges in the balancesvolume and mix of our interest earning assets, primarily loans, dueBanking loan portfolio which drove benefits to the continued growthcredit loss expense of our commercial finance products, including equipment loans, asset based loans,$0.9 million and premium finance loans.  We also experienced organic growth in our mortgage warehouse facilities and community banking lending products period over period, including commercial real estate and general commercial and industrial loans.  In addition, we acquired $461 million of loans and $162 million of investment securities in our Banking segment as part of the ColoEast acquisition, which were outstanding for only two months during the three months ended September 30, 2016.  Outstanding loans grew 23% from $1.895 billion as of September 30, 2016 to $2.332 billion as of September 30, 2017.


Our provision for loan losses was $(0.1)$3.7 million for the three months ended September 30, 20172021 and 2020, respectively. For the three months ended September 30, 2021, we released specific reserves of $1.4 million compared with $2.9to no change in specific reserves for the same period during the prior year. Additionally, changes to projected loss drivers that the Company forecasted over the reasonable and supportable forecast period created a benefit to credit loss expense of $0.2 million during the three months ended September 30, 2021 compared to credit loss expense of $0.6 million during the same period of the prior year. Net charge-offs at our Banking segment were $0.3 million during the three months ended September 30, 2021 compared to no significant net charge-offs during the three months ended September 30, 2020. Gross charge-off balances during the three months ended September 30, 2021 and 2020 carried no reserves and $0.2 reserves, respectively.

Credit loss expense for off balance sheet credit exposures decreased $0.2 million from no meaningful charge during the three months ended September 30, 2020 to $0.2 million for the three months ended September 30, 2016.  As2021. This is primarily due to the changes in the assumptions used to project the loss rates previously discussed partially offset by increased outstanding loan balances fluctuatecommitments to fund period over period the associated provision for loan losses typically increases or decreases accordingly.  In addition, the product types associated with fluctuations within the loan portfolio also contribute to the allowance allocation, as different loan products require different levels of ALLL based upon their credit risk characteristics. Finally, loan loss valuation allowances and charge-offs are recorded on specific at-risk balances, typically consisting of impaired loans.  We experienced a $0.1 million net recovery in.

Noninterest income at our Banking segment was relatively flat period over period with no significant fluctuations in any of its components. Noninterest expense increased primarily due to an increase in salaries and employee benefits expense due to merit increases for existing employees, higher health insurance benefit costs, incentive compensation, stock based compensation and 401(k) expense. Remaining fluctuations in the individual components of noninterest expense at our Banking segment were insignificant period over period.
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Table of Contents
Factoring
(Dollars in thousands)Three Months Ended September 30,
Factoring20212020$ Change% Change
Total interest income$47,222 $30,068 $17,154 57.1 %
Intersegment interest allocations(2,341)(3,312)971 29.3 %
Total interest expense— — — — 
Net interest income (expense)44,881 26,756 18,125 67.7 %
Credit loss expense (benefit)1,164 3,053 (1,889)(61.9)%
Net interest income (expense) after credit loss expense43,717 23,703 20,014 84.4 %
Noninterest income1,557 3,157 (1,600)(50.7)%
Noninterest expense19,106 13,665 5,441 39.8 %
Operating income (loss)$26,168 $13,195 $12,973 98.3 %
Three Months Ended September 30,
20212020
Factored receivable period end balance$1,479,989,000 $953,434,000 
Yield on average receivable balance13.75 %15.59 %
Current quarter charge-off rate0.24 %0.09 %
Factored receivables - transportation concentration90 %88 %
Interest income, including fees$47,222,000 $30,068,000 
Non-interest income(1)
1,557,000 1,157,000 
Factored receivable total revenue48,779,000 31,225,000 
Average net funds employed1,235,610,000 694,170,000 
Yield on average net funds employed15.66 %17.89 %
Accounts receivable purchased$3,531,811,000 $1,984,490,000 
Number of invoices purchased1,535,321 1,027,839 
Average invoice size$2,300 $1,931 
Average invoice size - transportation$2,195 $1,787 
Average invoice size - non-transportation$4,944 $5,181 
Our Factoring segment’s operating income increased $13.0 million, or 98.3%.
Our average invoice size increased 19.1% from $1,931 for the three months ended September 30, 2017 compared2020 to net charge-offs of $1.4 million$2,300 for the same period in 2016.  Net recoveries in the three months ended September 30, 2017 were primarily2021, and the resultnumber of $0.8 million of recoveries collected on two individual loan relationships charged-off in prior periods. In addition, we recorded a $0.4 million reduction in specific reservesinvoices purchased increased 49.4% period over period.
Overall average net funds employed (“NFE”) increased 78.0% during the three months ended September 30, 20172021 compared to anthe same period in 2020. The increase in specific reservesaverage NFE was the result of $0.8increased invoice purchase volume as well as increased average invoice size. Those, in turn, resulted from historically high freight volume in a reduced capacity market. See further discussion under the Recent Developments: COVID-19 and the CARES Act section. The increase in net interest income was partially offset by decreased purchase discount rates driven by greater focus on larger lower priced fleets and competitive pricing pressure; however, those negative factors were somewhat mitigated by increased concentration in transportation factoring balances, which typically generate a higher yield than our non-transportation factoring balances. This concentration was up 2% period over period from 88% at September 30, 2020 to 90% at September 30, 2021.
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Table of Contents
The decrease in credit loss expense at our Factoring segment is primarily due to decreased growth in the underlying factored receivables. During the three months ended September 30, 2021, the outstanding factored receivable balance at our Factoring segment grew $195.7 million compared to $425.1 million during the same period in the prior year. These changes in volume resulted in $1.0 million and $2.1 million of credit loss expense during the three months ended September 30, 2016.  

Offsetting2021 and 2020, respectively. The decrease in part the decreased provisioncredit loss expense was also due to the change in net charge-offs andnew specific reserves was an increase due to a higher loan portfolio growth rate period over period.  Duringat our Factoring segment which were insignificant for the three months ended September 30, 2017, outstanding loans increased $124.6 million from June 30, 2017.  During the three months ended September 30, 2016, outstanding loans, excluding the $461 million acquired ColoEast portfolio, increased $96.3 million from June 30, 2016.  The larger increase in outstanding loan balances within the three months ended September 30, 2017 resulted in a higher provision for loan losses2021 compared to net new specific reserves of $0.9 million for the three months ended September 30, 2016.  

Noninterest income was $3.5same period a year ago. Net charge-offs at our Factoring segment were $3.3 million for the three months ended September 30, 20172021 and the gross balance of said charge-offs carried $3.2 million of reserves established in a prior period. This compares to net charge-offs of $0.7 million for the three months ended September 30, 2020 that carried $0.6 million of reserves established in a prior period.

The decrease in noninterest income at our Factoring segment was primarily driven by the recognition of $2.0 million of income during the three months ended September 30, 2020 resulting from an increase in the value of the receivable due from Covenant previously discussed. There were no other material fluctuations in noninterest income at our Factoring segment.
Noninterest expense increased primarily due to an increase in salaries and employee benefits expense due to growth in the workforce, merit increases for existing employees, higher health insurance benefit costs, incentive compensation, stock based compensation and 401(k) expense. Remaining fluctuations in the individual components of noninterest expense at our Factoring segment were insignificant period over period.
Payments
(Dollars in thousands)Three Months Ended September 30,
Payments20212020$ Change% Change
Total interest income$3,295 $1,361 $1,934 142.1 %
Intersegment interest allocations(111)(147)36 24.5 %
Total interest expense— — — — %
Net interest income (expense)3,184 1,214 1,970 162.3 %
Credit loss expense (benefit)38 2 36 1800.0 %
Net interest income after credit loss expense3,146 1,212 1,934 159.6 %
Noninterest income3,086 47 3,039 6466.0 %
Noninterest expense11,416 3,195 8,221 257.3 %
Operating income (loss)$(5,184)$(1,936)$(3,248)(167.8)%
Three Months Ended September 30,
20212020
Factored receivable period end balance$127,039,000 $62,903,000 
Interest income$3,295,000 $1,361,000 
Noninterest income3,086,000 47,000 
Total revenue$6,381,000 $1,408,000 
Operating income (loss)$(5,184,000)$(1,936,000)
Interest expense111,000 147,000 
Depreciation and software amortization expense77,000 63,000 
Intangible amortization expense1,490,000 — 
Earnings (losses) before interest, taxes, depreciation, and amortization$(3,506,000)$(1,726,000)
Transaction costs$— $— 
Adjusted earnings (losses) before interest, taxes, depreciation, and amortization(1)
$(3,506,000)$(1,726,000)
Number of invoices processed3,760,948 1,408,232 
Amount of payments processed$4,191,424,000 $1,221,305,000 
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Table of Contents
(1)Adjusted earnings (losses) before interest, taxes, depreciation, and amortization excludes material gains and expenses related to merger and acquisition-related activities and is a non-GAAP financial measure used to provide meaningful supplemental information regarding the segment's operational performance and to enhance investors' overall understanding of such financial performance by removing the volatility associated with certain acquisition-related items that are unrelated to our core business.
Our Payments segment's operating loss increased $3.2 million, or 167.8%.
The number of invoices processed by our Payments segment increased 167.1% from 1,408,232 for the three months ended September 30, 2020 to 3,760,948 for the three months ended September 30, 2021, and the amount of payments processed increased 243.2% from $1.221 billion for the three months ended September 30, 2020 to $4.191 billion for the three months ended September 30, 2021.
Interest income increased due to increased factoring activity at our Payments segment and increased yields period over period. Noninterest income increased almost entirely due to $2.9 million in Payments fees related to a full quarter of acquired HubTran operations during the three months ended September 30, 2021.
Noninterest expense increased primarily due to an increase in salaries and employee benefits expense driven by increased headcount, merit increases for existing employees, higher health insurance benefit costs, incentive compensation, stock based compensation and 401(k) expense. We continue to invest heavily in the operations of TriumphPay.
The acquisition of HubTran during the three months ended June 30, 2021 allows TriumphPay to create a fully integrated payments network for trucking; servicing brokers and factors. TriumphPay already offered tools and services to increase automation, mitigate fraud, create back-office efficiency and improve the payment experience. Through the acquisition of HubTran, TriumphPay created additional value through the enhancement of its presentment, audit, and payment capabilities for shippers, third party logistics companies (i.e., freight brokers) and their carriers, and factors. The acquisition of HubTran was a meaningful inflection point in the operations of TriumphPay as the TriumphPay strategy has shifted from a capital-intensive on-balance sheet product with a focus on interest income to an open-loop payments network for the trucking industry with a focus on fee revenue. It is for this reason that management believes that earnings before interest, taxes, depreciation, and amortization and the adjustment to that metric enhance investors' overall understanding of the financial performance of the Payments segment. Further, as a result of the HubTran acquisition, management recorded $27.3 million of intangible assets that will lead to meaningful amounts of amortization going forward.
Corporate
(Dollars in thousands)Three Months Ended September 30,
Corporate20212020$ Change% Change
Total interest income$43 $8 $35 437.5 %
Intersegment interest allocations— — — — 
Total interest expense2,891 1,809 1,082 59.8 %
Net interest income (expense)(2,848)(1,801)(1,047)(58.1)%
Credit loss expense (benefit)10 106 (96)(90.6)%
Net interest income (expense) after credit loss expense(2,858)(1,907)(951)(49.9)%
Other noninterest income41 (154)195 126.6 %
Noninterest expense1,108 1,048 60 5.7 %
Operating income (loss)$(3,925)$(3,109)$(816)(26.2)%
The Corporate segment reported an operating loss of $3.9 million for the three months ended September 30, 2021 compared to an operating loss of $3.1 million for the three months ended September 30, 2016. The increase is2020. This was primarily due to commissions earned by our Triumph Insurance Group subsidiary, which is reported within our Banking segment.  Insurance commissions increased $0.4 million from $0.4 million forinterest expense. During the three months ended September 30, 2021, management issued a new subordinated debt facility and used the majority of the proceeds to redeem the 2016 tosubordinated debt facility in whole. The 2016 subordinated debt facility carried a discount and fees of $0.8 million forat the three months ended September 30, 2017 due to increased volumes due to organic growthtime of the business and the acquisition of Southern Transportation Insurance Agency, Ltd. in the third quarter of 2016.

Noninterestpayoff that was written off through interest expense was $22.0 million for the three months ended September 30, 2017, compared with $19.0 million for the three months ended September 30, 2016.  This increase includes incremental costs associated with the growth in our Banking segment personnel and infrastructure in conjunction with our acquisition of ColoEast, which were present for only two months during the three months ended September 30, 2016,2021. There were no other significant fluctuations in accounts in our Corporate segment period over period.

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Results of Operations
Nine months ended September 30, 2021 compared with nine months ended September 30, 2020
Net Income
We earned net income of $86.3 million for the nine months ended September 30, 2021 compared to $31.9 million for the nine months ended September 30, 2020, an increase of $54.4 million.
The results for the nine months ended September 30, 2021 were impacted by $3.0 million of transaction costs associated with the HubTran acquisition reported as noninterest expense. The results for the nine months ended September 30, 2020 were impacted by the gain on sale of TPF of $9.8 million reported as noninterest income and transaction costs of $0.8 million associated with the TFS Acquisition reported as noninterest expense. Excluding the transaction costs, net of taxes, we earned adjusted net income to common stock holders of $86.2 million for the nine months ended September 30, 2021 compared to $24.3 million for the nine months ended September 30, 2020, an increase of $61.9 million. The adjusted increase was primarily the result of a $63.9 million increase in net interest income, a $44.5 million decrease in credit loss expense, and a $12.0 million increase in adjusted noninterest income offset by a $39.6 million increase in adjusted noninterest expense, a $17.4 million increase in adjusted income tax expense, and a $1.5 million increase in dividends on preferred stock.
Details of the changes in the various components of net income are further discussed below.
Net Interest Income
Our operating results depend primarily on our net interest income, which is the difference between interest income on interest earning assets, including loans and securities, and interest expense incurred on interest bearing liabilities, including deposits and other borrowed funds. Interest rate fluctuations, as well as personnel, facilitieschanges in the amount and infrastructuretype of interest earning assets and interest bearing liabilities, combine to supportaffect net interest income. Our net interest income is affected by changes in the continued growthamount and mix of interest earning assets and interest bearing liabilities, referred to as a “volume change.” It is also affected by changes in yields earned on interest earning assets and rates paid on interest bearing liabilities, referred to as a “rate change.”
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The following table presents the distribution of average assets, liabilities and equity, as well as interest income and fees earned on average interest earning assets and interest expense paid on average interest bearing liabilities:
Nine Months Ended September 30,
20212020
(Dollars in thousands)Average
Balance		Interest
Average
Rate(4)
Average
Balance		Interest
Average
Rate(4)
Interest earning assets:
Cash and cash equivalents$508,279 $467 0.12 %$209,621 $640 0.41 %
Taxable securities169,607 3,343 2.64 %263,978 6,029 3.05 %
Tax-exempt securities31,977 620 2.59 %36,535 681 2.49 %
FHLB and other restricted stock8,094 131 2.16 %26,515 474 2.39 %
Loans (1)
4,812,985 275,215 7.65 %4,327,919 224,352 6.92 %
Total interest earning assets5,530,942 279,776 6.76 %4,864,568 232,176 6.38 %
Noninterest earning assets:
Cash and cash equivalents81,419 58,942 
Other noninterest earning assets430,316 381,393 
Total assets$6,042,677 $5,304,903 
Interest bearing liabilities:
Deposits:
Interest bearing demand$746,590 $1,288 0.23 %$617,392 $838 0.18 %
Individual retirement accounts88,579 455 0.69 %99,827 1,061 1.42 %
Money market404,651 670 0.22 %408,487 1,657 0.54 %
Savings465,041 530 0.15 %382,236 419 0.15 %
Certificates of deposit674,284 3,838 0.76 %993,590 14,844 2.00 %
Brokered time deposits134,781 259 0.26 %297,829 4,085 1.83 %
Other brokered deposits641,959 750 0.16 %86,064 191 0.30 %
Total interest bearing deposits3,155,885 7,790 0.33 %2,885,425 23,095 1.07 %
Federal Home Loan Bank advances37,234 67 0.24 %430,250 1,959 0.61 %
Subordinated notes96,495 5,148 7.13 %87,372 4,016 6.14 %
Junior subordinated debentures40,256 1,331 4.42 %39,743 1,662 5.59 %
Other borrowings146,005 367 0.34 %125,756 314 0.33 %
Total interest bearing liabilities3,475,875 14,703 0.57 %3,568,546 31,046 1.16 %
Noninterest bearing liabilities and equity:
Noninterest bearing demand deposits1,720,213 1,021,745 
Other liabilities62,570 72,461 
Total equity784,019 642,151 
Total liabilities and equity$6,042,677 $5,304,903 
Net interest income$265,073 $201,130 
Interest spread (2)
6.19 %5.22 %
Net interest margin (3)
6.41 %5.52 %
(1)Balance totals include respective nonaccrual assets.
(2)Net interest spread is the yield on average interest earning assets less the rate on interest bearing liabilities.
(3)Net interest margin is the ratio of net interest income to average interest earning assets.
(4)Ratios have been annualized.
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The following table presents loan yields earned on our community banking and commercial finance loan portfolios:
Nine Months Ended September 30,
(Dollars in thousands)20212020
Average Banking loans$3,511,379 $3,661,573 
Average Factoring receivables1,203,494 636,107 
Average Payments receivables98,112 30,239 
Average total loans$4,812,985 $4,327,919 
Banking yield5.31 %5.38 %
Factoring yield14.19 %15.63 %
Payments Yield10.82 %10.78 %
Total loan yield7.65 %6.92 %
We earned net interest income of $265.1 million for the nine months ended September 30, 2021 compared to $201.1 million for the nine months ended September 30, 2020, an increase of $64.0 million, or 31.8%, primarily driven by the following factors.
Interest income increased $47.6 million, or 20.5%, reflecting an increase in total average interest earning assets of $666.4 million, or 13.7%, and an increase in average total loans of $485.1 million, or 11.2%. The average balance of our higher yielding Factoring factored receivables increased $567.4 million, or 89.2%, driving the majority of the increase in interest income along with an increase in average Payments factored receivables. This was partially offset by a decrease in average Banking loans of $150.2 million, or 4.1%. Interest income from our Banking loans is impacted by our lower yielding mortgage warehouse lending product. The average mortgage warehouse lending balance was $827.1 million for the nine months ended September 30, 2021 compared to $672.4 million for the nine months ended September 30, 2020. A component of interest income consists of discount accretion on acquired loan portfolios. We recognized discount accretion on purchased loans of $7.6 million and $8.4 million for the nine months ended September 30, 2021 and 2020, respectively.
Interest expense decreased $16.3 million, or 52.6%, and average interest bearing liabilities decreased $92.7 million, or 2.6%. While average total interest bearing deposits increased $270.5 million, or 9.4%, the increase in average balance was offset by lower average rates discussed below. The decrease in interest expense was partially offset by $0.8 million of remaining discount and deferred fees that were recognized during the nine months ended September 30, 2021 as a result of paying off our 2016 Subordinated Notes as discussed in Note 8 of the Condensed Notes to the Consolidated Financial Statements.
Net interest margin increased to 6.41% for the nine months ended September 30, 2021 from 5.52% for the nine months ended September 30, 2020, an increase of 89 basis points, or 16.1%.
Our net interest margin was impacted by an increase in yield on our interest earning assets of 38 basis points to 6.76% for the nine months ended September 30, 2021. This increase was primarily driven by higher yields on loans which increased 73 basis points to 7.65% for the same period. While Factoring yield decreased period over period, its average factored receivables as a percentage of the total loan portfolio increased significantly having a meaningful upward impact on total loan yield. Our transportation factoring balances, which generate a higher yield than our non-transportation factoring balances, increased as a percentage of the overall factoring portfolio to 91% at September 30, 2021 compared to 88% at September 30, 2020. Banking and Payments yields were relatively flat period over period and non-loan yields had little impact on our yield on interest earning assets.
The increase in our commercial financenet interest margin was also impacted by a decrease in our average cost of interest bearing liabilities of 59 basis points. This decrease was caused by lower interest rates paid on our interest bearing liabilities driven by changes in interest rates in the macro economy.
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The following table shows the effects that changes in average balances (volume) and average interest rates (rate) had on the interest earned on our interest earning assets and the interest incurred on our interest bearing liabilities:
Nine Months Ended
September 30, 2021 vs. 2020
Increase (Decrease) Due to:Net Increase
(Dollars in thousands)RateVolume
Interest earning assets:
Cash and cash equivalents$(447)$274 $(173)
Taxable securities(826)(1,860)(2,686)
Tax-exempt securities27 (88)(61)
FHLB and other restricted stock(45)(298)(343)
Loans23,126 27,737 50,863 
Total interest income21,835 25,765 47,600 
Interest bearing liabilities:
Interest bearing demand227 223 450 
Individual retirement accounts(548)(58)(606)
Money market(981)(6)(987)
Savings17 94 111 
Certificates of deposit(9,189)(1,817)(11,006)
Brokered time deposits(3,513)(313)(3,826)
Other brokered deposits(90)649 559 
Total interest bearing deposits(14,077)(1,228)(15,305)
Federal Home Loan Bank advances(1,185)(707)(1,892)
Subordinated notes645 487 1,132 
Junior subordinated debentures(348)17 (331)
Other borrowings2 51 53 
Total interest expense(14,963)(1,380)(16,343)
Change in net interest income$36,798 $27,145 $63,943 
Credit Loss Expense
Credit loss expense is the amount of expense that, based on our judgment, is required to maintain the allowances for credit losses (“ACL”) at an appropriate level under the current expected credit loss model. The determination of the amount of the allowance is complex and involves a high degree of judgment and subjectivity. Refer to Note 1 of the Company’s 2020 Form 10-K for detailed discussion regarding ACL methodologies for available for sale debt securities, held to maturity securities and loans held for investment.
The following table presents the major categories of credit loss expense:
Nine Months Ended September 30,
(Dollars in thousands)20212020$ Change% Change
Credit loss expense on loans$(9,390)$27,974 $(37,364)(133.6)%
Credit loss expense on off balance sheet credit exposures(1,159)3,840 (4,999)(130.2)%
Credit loss expense on held to maturity securities(289)1,835 (2,124)(115.7)%
Credit loss expense on available for sale securities— — — — 
Total credit loss expense$(10,838)$33,649 $(44,487)(132.2)%
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Upon and subsequent to adoption of ASC 326, for available for sale debt securities in an unrealized loss position, the Company evaluates the securities at each measurement date to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors. Any impairment that is not credit related is recognized in other comprehensive income, net of applicable taxes. Credit-related impairment is recognized as an ACL on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings via credit loss expense. At December 31, 2020 and September 30, 2021, the Company determined that all impaired available for sale securities experienced a decline in fair value below the amortized cost basis due to noncredit-related factors. Therefore, the Company carried no ACL at those respective dates and there was no credit loss expense recognized by the Company during the nine months ended September 30, 2021. The same was true for the same period in the prior year.
Upon and subsequent to adoption of ASC 326, the ACL on held to maturity securities is estimated at each measurement date on a collective basis by major security type. At September 30, 2021 and December 31, 2020, the Company’s held to maturity securities consisted of three investments in the subordinated notes of collateralized loan obligation (“CLO”) funds. Expected credit losses for these securities are estimated using a discounted cash flow methodology which considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. At September 30, 2021 and December 31, 2020, the Company carried $7.2 million and $7.9 million of these HTM securities at amortized cost, respectively. The ACL on these balances was $1.7 million at September 30, 2021 and $2.0 million at December 31, 2020 and we recognized a benefit to credit loss expense of $0.3 million during the nine months ended September 30, 2021. None of the overcollateralization triggers tied to the CLO securities were tripped as of September 30, 2021. Ultimately, the realized cash flows on CLO securities such as these will be driven by a variety of factors, including credit performance of the underlying loan portfolio, adjustments to the portfolio by the asset based lendingmanager, and equipment lending.the timing of a potential call.
At January 1, 2020 and September 30, 2020, the Company carried $8.4 million and $8.1 million of these HTM securities at amortized cost, respectively. The ACL on these balances was $0.1 million at January 1, 2020. During the nine months ended September 30, 2020, pandemic-related downgrades and default activity caused overcollateralization triggers to be tripped on two of the three CLO investments which had a material impact on expected cash flows used to calculate the ACL. The ACL on these balances was $2.0 million at September 30, 2020 resulting in $1.8 million of credit loss expense recognized during the nine months ended September 30, 2020.
Our ACL on loans was $41.0 million as of September 30, 2021, compared to $95.7 million as of December 31, 2020, representing an ACL to total loans ratio of 0.86% and 1.92% respectively.
Our credit loss expense on loans decreased $37.4 million, or 133.6%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.
The Over-Formula Advances classified as factored receivables and deemed to be purchased credit deteriorated ("PCD") from Covenant had an impact on credit loss expense during the nine months ended September 30, 2021. During that time, new adverse developments with the largest of the three Over-Formula Advance clients caused us to charge-off the entire Over-Formula Advance amount due from that client. This resulted in a net charge-off of $41.3 million; however, this net charge-off had no impact on credit loss expense for the nine months ended September 30, 2021 as the entire amount had been reserved in a prior period. In addition,accordance with the Agreement reached with Covenant, Covenant reimbursed us for $35.6 million of this charge-off by drawing on its secured line of credit. As of September 30, 2021 the balance of Covenant's credit facility had been fully repaid. Given separate developments with the other two Over-Formula Advance clients, we reserved an additional $2.8 million reflected in credit loss expense during the nine months ended September 30, 2021. At quarter end, our entire remaining over formula advance position was down from $62.1 million at December 31, 2020 to $10.1 million at September 30, 2021 and that $10.1 million balance at September 30, 2021 was fully reserved. The $2.8 million increase in required ACL as well as accretion of most of the fair value discount on the indemnification asset held at December 31, 2020 resulted in a $4.7 million gain on the indemnification asset which was recorded through non-interest income during the nine months ended September 30, 2021.
The decreased credit loss expense was primarily the result of projected improvement of the loss drivers that the Company forecasted over the reasonable and supportable forecast period to calculate expected losses at September 30, 2021 which resulted in a benefit to credit loss expense of $10.3 million for the nine months ended September 30, 2021. During the nine months ended September 30, 2020 the Company forecasted deterioration in the loss factors driven by the projected economic impact of COVID-19 which resulted in credit loss expense of $23.3 million. See further discussion in the allowance for credit loss section below.
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The decrease in credit loss expense was further driven by changes in net new specific reserves. Including the aforementioned $2.8 million additional specific reserve on PCD assets, we recorded net new specific reserves of $1.1 million during the nine months ended September 30, 2021 compared to net new specific reserves of $5.7 million during the nine months ended September 30, 2020. Including the aforementioned PCD charge-off, net charge-offs were $45.3 million for the nine months ended September 30, 2021 and approximately $45.2 million of the gross charge-offs had been reserved in a prior period. Net charge-offs were $3.3 million for the nine months ended September 30, 2020 and approximately $1.6 million of that balance had been reserved in a prior period.

Changes in loan volume and mix partially offset the decrease in credit loss expense period over period. Changes in volume and mix resulted in a benefit to credit loss expense of $0.4 million during the nine months ended September 30, 2021 compared to a benefit of $2.7 million during the nine months ended September 30, 2020.
Credit loss expense for off balance sheet credit exposures decreased $5.0 million, primarily due to the changes in the assumptions used to project the loss rates previously discussed.
Noninterest Income
The following table presents our major categories of noninterest income:
Nine Months Ended September 30,
(Dollars in thousands)20212020$ Change% Change
Service charges on deposits$5,674 $3,631 $2,043 56.3 %
Card income6,341 5,832 509 8.7 %
Net OREO gains (losses) and valuation adjustments(376)(399)23 5.8 %
Net gains (losses) on sale or call of securities5 3,210 (3,205)99.8 %
Fee income11,917 4,392 7,525 171.3 %
Insurance commissions3,989 2,905 1,084 37.3 %
Gain on sale of subsidiary or division— 9,758 (9,758)(100.0 %)
Other12,692 8,670 4,022 46.4 %
Total noninterest income$40,242 $37,999 $2,243 5.9 %
Noninterest income increased $2.2 million, or 5.9%. Noninterest income for the nine months ended September 30, 2020 was impacted by the realization of the $9.8 million gain associated with the sale of TPF in the second quarter of 2020. Excluding the gain on sale of TPF, we earned adjusted noninterest income of $28.2 million for the nine months ended September 30, 2020, resulting in an adjusted increase in noninterest income of $12.0 million, or 42.6%, period over period. Changes in selected components of noninterest income in the above table are discussed below.
•Service Charges on Deposits. Service charges on deposit accounts, including overdraft and non-sufficient funds fees, increased $2.0 million, or 56.3% consistent with increased average deposit balances subject to such fees period over period. Further, in keeping with guidance from regulators, we actively worked with COVID-19 affected customers during the second quarter of 2020 to waive fees from a variety of sources, such as, but not limited to, insufficient funds and overdraft fees, ATM fees, account maintenance fees, etc. These reductions in fees were temporary and expired on June 1, 2020.
•Card income. Card income increased $0.5 million, or 8.7% primarily due to increased debit card activity during the nine months ended September 30, 2021.
•Net gains (losses) on sale or call of securities. Net gains (losses) on sale or call of securities decreased $3.2 million due to decreased sales activity during the current period.
•Fee income. Fee income increased $7.5 million, or 171.3% primarily due to $1.2 million of early termination fees charged to two customers during the nine months ended September 30, 2021. We also recognized $3.9 million in Payments fees related to the acquired operations of HubTran during the same period. There were no other significant changes within the components of fee income.
•Insurance commissions. Insurance commissions increased $1.1 million, or 37.3%, due to higher policy volumes processed by Triumph Insurance Group.
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•Other. Other noninterest income increased $4.0 million, or 46.4% primarily due to a $4.2 million gain on the Company's indemnification asset during the nine months ended September 30, 2021. We also recognized a $1.5 million recovery during the nine months ended September 30, 2021 on an acquired loan that was charged off prior to our acquisition of the originating bank. Additionally, during the current period, we recognized a $0.4 million increase in revenue from BOLI primarily related to a benefit payment. We recognized a gain on sale of liquid credit and mortgage loans during the nine months ended September 30, 2021 of $3.0 million compared to $1.9 million during the same period a year ago. These increases were partially offset by the recognition of $1.9 million of loan syndication fees related to the syndication and placement of one large relationship that closed during the nine months ended September 30, 2020. This revenue was recognized at the time of closing as all required services had been completed and did not repeat during the nine months ended September 30, 2021. Additionally, we recognized $2.0 million of income during the nine months ended September 30, 2020 driven by an increase in the value of the receivable due from Covenant resulting from the Agreement previously discussed. The increase was partially offset by a $0.7 million loss recognized on the donation of a branch to a local municipality during the nine months ended September 30, 2020. There were no other significant changes within the components of other income.
Noninterest Expense
The following table presents our major categories of noninterest expense:
Nine Months Ended September 30,
(Dollars in thousands)20212020$ Change% Change
Salaries and employee benefits$121,407 $93,177 $28,230 30.3 %
Occupancy, furniture and equipment18,279 15,720 2,559 16.3 %
FDIC insurance and other regulatory assessments1,830 1,170 660 56.4 %
Professional fees9,959 7,023 2,936 41.8 %
Amortization of intangible assets7,677 6,265 1,412 22.5 %
Advertising and promotion3,534 3,548 (14)(0.4 %)
Communications and technology19,018 16,514 2,504 15.2 %
Travel and entertainment2,725 1,504 1,221 81.2 %
Other20,074 17,855 2,219 12.4 %
Total noninterest expense$204,503 $162,776 $41,727 25.6 %

Noninterest expense increased $41.7 million, or 25.6%. Noninterest expense for the nine months ended September 30, 2021 was impacted by $3.0 million of transaction costs associated with the HubTran acquisition. Noninterest expense for the nine months ended September 30, 2020 was impacted by $0.8 million of transaction costs associated with the TFS Acquisition. Excluding the HubTran and TFS acquisition costs, we incurred adjusted noninterest expense of $201.5 million and $161.9 million for the nine months ended September 30, 2021 and 2020, respectively, resulting in an adjusted increase in noninterest expense of $39.6 million, or 24.5%, period over period. Details of the more significant changes in the various components of noninterest expense are further discussed below.
•Salaries and Employee Benefits. Salaries and employee benefits expenses increased $28.2 million, or 30.3%, which is primarily due to merit increases for existing employees, higher health insurance benefit costs, incentive compensation, and 401(k) expenses contributed to the increase.  Noninterest expense for the three months ended September 30, 2016 also included $1.6 millionexpense. The size of acquisition-related transaction costs incurred as part of the ColoEast acquisition.

Factoring

(Dollars in thousands)

 

Three Months Ended September 30,

 

 

 

 

 

Factoring

 

2017

 

 

2016

 

 

$ Change

 

 

% Change

 

Total interest income

 

$

11,736

 

 

$

8,465

 

 

$

3,271

 

 

 

38.6

%

Intersegment interest allocations

 

 

(2,193

)

 

 

(1,251

)

 

 

(942

)

��

 

75.3

%

Total interest expense

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Net interest income (expense)

 

 

9,543

 

 

 

7,214

 

 

 

2,329

 

 

 

32.3

%

Provision for loan losses

 

 

649

 

 

 

33

 

 

 

616

 

 

 

1866.7

%

Net interest income (expense) after provision

 

 

8,894

 

 

 

7,181

 

 

 

1,713

 

 

 

23.9

%

Noninterest income

 

 

774

 

 

 

680

 

 

 

94

 

 

 

13.8

%

Noninterest expense

 

 

5,600

 

 

 

4,984

 

 

 

616

 

 

 

12.4

%

Operating income (loss)

 

$

4,068

 

 

$

2,877

 

 

$

1,191

 

 

 

41.4

%

Our Factoring segment’s operating income for the three months ended September 30, 2017 was $4.1 million, compared with $2.9 million for the three months ended September 30, 2016. We experienced increases in net interest income and noninterest income period over period. These increases were offset in part by an increase in the provision for loan losses and noninterest expenses for the three months ended September 30, 2017.  

Factored receivables in our Factoring segment grew 66% from $190.1 million as of September 30, 2016 to $315.7 million as of September 30, 2017. Our average number of clientsworkforce increased from 2,330 for the three months ended September 30, 2016 to 2,835 for the three months ended September 30, 2017 and the corresponding factored accounts receivable purchases increased from $488.1 million during the three months ended September 30, 2016 to $732.4 million during the three months ended September 30, 2017.  Our average invoice size increased 19% from $1,291 for the three months ended September 30, 2016 to $1,537 for the three months ended September 30, 2017, and the number of invoices purchased increased 26% period over period.


Net interest income was $9.5 million for the three months ended September 30, 2017 compared to $7.2 million for the three months ended September 30, 2016. Net interest income increased due to a 43% increase in overall average net funds employed from $181.6 million for the three months ended September 30, 2016 to $260.4 million for the three months ended September 30, 2017.  This increase in net interest income is offset in part by pricing pressure on factored receivable balances in the current period due to increased competition and market conditions, resulting in slightly lower yields on net funds employed at our Factoring segment.  In addition, a change in the mix within our factored receivables portfolio period over period contributed to the partially offsetting decrease, as our transportation factoring balances, which generate a higher yield than our non-transportation factoring balances, decreased as a percentage of the overall Factoring segment portfolio to 84% at September 30, 2017 compared to 87% at September 30, 2016 as we continued to expand our non-transportation factoring product lines throughout 2016 and into 2017.  

Our provision for loan losses was $0.6 million for the three months ended September 30, 2017 compared with $0.03 million for the three months ended September 30, 2016.  The provision for loan losses on factored receivables is primarily driven by the allowance allocation for incurred losses recorded on collectively evaluated factored receivables purchased and outstanding for a period.  As factored receivables purchased fluctuate period over period, the associated provision for loan losses typically increases or decreases accordingly.  In addition, loan loss valuation allowances are recorded on specific at-risk balances, typically consisting of invoices greater than 90 days past due with negative cash reserves.  During the three months ended September 30, 2017 factored receivables increased approximately $47 million from June 30, 2017.  During the three months ended September 30, 2016, factored receivables actually decreased approximately $16 million from June 30, 2016.  The larger increase in factored receivable balances within the three month period ended September 30, 2017 resulted in a higher provision for loan losses compared to the three months ended September 30, 2016.

Noninterest income was $0.8 million for the three months ended September 30, 2017 compared to $0.7 million for the three months ended September 30, 2016.  The increase in noninterest income is consistent with the increase in factored receivable purchase volume period over period.

Noninterest expense was $5.6 million for the three months ended September 30, 2017 compared with $5.0 million for the three months ended September 30, 2016, driven primarily by increased personnel, operating, and technology costs incurred in connection with growth in our factoring portfolio, particularly the increase in the number of clients and number of invoices processed period over period.

Corporate

(Dollars in thousands)

 

Three Months Ended September 30,

 

 

 

 

 

Corporate

 

2017

 

 

2016

 

 

$ Change

 

 

% Change

 

Total interest income

 

$

428

 

 

$

82

 

 

$

346

 

 

 

422.0

%

Intersegment interest allocations

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total interest expense

 

 

1,331

 

 

 

382

 

 

 

949

 

 

 

248.4

%

Net interest income (expense)

 

 

(903

)

 

 

(300

)

 

 

(603

)

 

 

201.0

%

Provision for loan losses

 

 

(8

)

 

 

(75

)

 

 

67

 

 

 

89.3

%

Net interest income (expense) after provision

 

 

(895

)

 

 

(225

)

 

 

(670

)

 

 

297.8

%

Noninterest income

 

 

(101

)

 

 

738

 

 

 

(839

)

 

 

(113.7

%)

Noninterest expense

 

 

641

 

 

 

549

 

 

 

92

 

 

 

16.8

%

Operating income (loss)

 

$

(1,637

)

 

$

(36

)

 

$

(1,601

)

 

 

4447.2

%

The Corporate segment’s operating loss totaled $1.7 million for the three months ended September 30, 2017, compared with an operating loss of $0.04 million for the three months ended September 30, 2016.  The increase in the operating loss for the three months ended September 30, 2017 is primarily due to a decrease in noninterest income associated with CLO warehouse investments.  The CLO associated with our remaining CLO warehouse investment was issued and closed in June 2017, and as a result our invested funds were returned.  At September 30, 2017 we no longer held investments in CLO warehouse entities and, absent future investments in new CLO warehouse entities, we do not expect to realize CLO warehouse investment income ongoing.  As a result, there was no CLO warehouse investment income recorded for the three months ended September 30, 2017.  In addition, we issued $50.0 million of subordinated notes on September 30, 2016 that contributed to the increase in interest expense period over period in part due to the Corporate segment.  Asacquisition of HubTran as well as organic growth within the subordinated notesCompany. Our average full-time equivalent employees were issued at1,181.8 and 1,122.6 for the end of the period, no interest was recorded on the subordinated notes in the three months ended September 30, 2016.


Nine months ended September 30, 2017 compared with nine months ended September 30, 20162021 and 2020, respectively. Given improved 2021 performance compared to 2020, our annual bonus accrual increased $6.5 million period over period. Further, sales commissions, primarily related to our operations at Triumph Business Capital and TriumphPay, increased $3.5 million and compensation paid to temporary contract labor increased $2.5 million period over period. Additionally, stock based compensation expense increased $5.7 million period over period.

•Occupancy, Furniture and Equipment. Occupancy, furniture and equipment expenses increased $2.6 million, or 16.3%, primarily due to growth in our operations period over period.
•FDIC Insurance and Other Regulatory Assessments. FDIC insurance and other regulatory assessments increased $0.7 million, or 56.4%, primarily due to increased assessments period over period.
•Professional Fees. Professional fees increased $2.9 million, or 41.8%, primarily due to $3.0 million of transaction costs associated with the HubTran acquisition slightly offset by $0.8 million of transaction costs associated with the TFS acquisition.
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Table of Contents
•Amortization of intangible assets. Amortization of intangible assets increased $1.4 million, or 22.5%, primarily due to the additional intangibles recorded through the HubTran acquisition during the current year.
•Communications and Technology. Communications and technology expenses increased $2.5 million, or 15.2%, primarily as a result of increased spending on IT consulting to develop efficiency in our operations and improve the functionality of the TriumphPay platform period over period.
•Travel and entertainment. Travel and entertainment expenses increased $1.2 million, or 81.2%, primarily due to the impact of the COVID-19 pandemic on such activities during the prior year.
•Other. Other noninterest expense increased $2.2 million or 12.4%. There were no significant increases or decreases in the individual components of other noninterest expense period over period.
Income Taxes
The amount of income tax expense is influenced by the amount of pre-tax income, the amount of tax-exempt income and the effect of changes in valuation allowances maintained against deferred tax benefits.
Income tax expense increased $14.5 million, or 134.2%, from $10.8 million for the nine months ended September 30, 2020 to $25.3 million for the nine months ended September 30, 2021. The effective tax rate was 23% for the nine months ended September 30, 2021 and 25% for the nine months ended September 30, 2020. The decrease in the effective tax rate period over period is principally due to an adjustment to state taxes during the prior year.
Operating Segment Results
Our reportable segments are Banking, Factoring, Payments, and Corporate, which have been determined based upon their business processes and economic characteristics. This determination also gave consideration to the structure and management of various product lines. The Banking segment includes the operations of TBK Bank. Our Banking segment derives its revenue principally from investments in interest earning assets as well as noninterest income typical for the banking industry. The Factoring segment includes the operations of Triumph Business Capital with revenue derived from factoring services. The Payments segment includes the operations of the TBK Bank's TriumphPay division, which provides a presentment, audit, and payment solution to shipper, freight broker, and factor clients in the trucking industry. The Payments segment derives its revenue from transaction fees and interest income on factored receivables related to invoice payments. These factored receivables consist of both invoices where we offer a carrier a QuickPay opportunity to receive payment at a discount in advance of the standard payment term for such invoice in exchange for the assignment of such invoice to us and from offering freight brokers the ability to settle their invoices with us on an extended term following our payment to their carriers as an additional liquidity option for such freight brokers.
Reported segments and the financial information of the reported segments are not necessarily comparable with similar information reported by other financial institutions. Additionally, because of the interrelationships of the various segments, the information presented is not indicative of how the segments would perform if they operated as independent entities. Changes in management structure or allocation methodologies and procedures may result in future changes to previously reported segment financial data. The accounting policies of the segments are substantially the same as those described in the “Summary of Significant Accounting Policies” in Note 1 of the Company’s 2020 Form 10-K. Transactions between segments consist primarily of borrowed funds. Intersegment interest expense is allocated to the Factoring and Payments segments based on Federal Home Loan Bank advance rates. Credit loss expense is allocated based on the segment’s ACL determination. Noninterest income and expense directly attributable to a segment are assigned accordingly. Taxes are paid on a consolidated basis and are not allocated for segment purposes. The Factoring segment includes only factoring originated by TBC.
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Table of Contents
The following tables present our primary operating results for our operating segments assegments:
(Dollars in thousands)
Nine Months Ended September 30, 2021BankingFactoringPaymentsCorporateConsolidated
Total interest income$144,087 $127,699 $7,939 $51 $279,776 
Intersegment interest allocations8,117 (7,700)(417)— — 
Total interest expense8,225 — — 6,478 14,703 
Net interest income (expense)143,979 119,999 7,522 (6,427)265,073 
Credit loss expense (benefit)(19,187)8,091 548 (290)(10,838)
Net interest income after credit loss expense163,166 111,908 6,974 (6,137)275,911 
Noninterest income25,139 10,710 4,242 151 40,242 
Noninterest expense122,497 52,433 26,393 3,180 204,503 
Operating income (loss)$65,808 $70,185 $(15,177)$(9,166)$111,650 
(Dollars in thousands)
Nine Months Ended September 30, 2020BankingFactoringPaymentsCorporateConsolidated
Total interest income$155,517 $73,952 $2,440 $267 $232,176 
Intersegment interest allocations9,139 (8,873)(266)— — 
Total interest expense25,368 — — 5,678 31,046 
Net interest income (expense)139,288 65,079 2,174 (5,411)201,130 
Credit loss expense (benefit)27,211 4,437 167 1,834 33,649 
Net interest income after credit loss expense112,077 60,642 2,007 (7,245)167,481 
Gain on sale of subsidiary or division9,758 — — — 9,758 
Other noninterest income22,512 5,524 74 131 28,241 
Noninterest expense113,047 37,695 8,954 3,080 162,776 
Operating income (loss)$31,300 $28,471 $(6,873)$(10,194)$42,704 
(Dollars in thousands)
September 30, 2021BankingFactoringPaymentsCorporateEliminationsConsolidated
Total assets$5,686,761 $1,559,378 $242,446 $975,939 $(2,439,989)$6,024,535 
Gross loans$4,390,659 $1,479,989 $127,039 $700 $(1,215,657)$4,782,730 
(Dollars in thousands)
December 31, 2020BankingFactoringPaymentsCorporateEliminationsConsolidated
Total assets$5,791,537 $1,121,704 $115,836 $861,967 $(1,955,253)$5,935,791 
Gross loans$4,788,093 $1,036,548 $84,222 $800 $(912,887)$4,996,776 
Banking
(Dollars in thousands)Nine Months Ended September 30,% Change
Banking20212020$ Change
Total interest income$144,087 $155,517 $(11,430)(7.3 %)
Intersegment interest allocations8,117 9,139 (1,022)(11.2 %)
Total interest expense8,225 25,368 (17,143)(67.6 %)
Net interest income143,979 139,288 4,691 3.4 %
Credit loss expense (benefit)(19,187)27,211 (46,398)(170.5 %)
Net interest income after credit loss expense163,166 112,077 51,089 45.6 %
Gain on sale of subsidiary or division— 9,758 (9,758)(100.0 %)
Other noninterest income25,139 22,512 2,627 11.7 %
Noninterest expense122,497 113,047 9,450 8.4 %
Operating income (loss)$65,808 $31,300 $34,508 110.2 %
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Table of andContents
Our Banking segment’s operating income increased $34.5 million, or 110.2%. Our Banking segment’s operating income for the nine months ended September 30, 2017 and 2016, respectively.

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

Asset

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2017

 

Banking

 

 

Factoring

 

 

Management

 

 

Corporate

 

 

Consolidated

 

Total interest income

 

$

93,204

 

 

$

30,828

 

 

$

3

 

 

$

972

 

 

$

125,007

 

Intersegment interest allocations

 

 

5,211

 

 

 

(5,211

)

 

 

—

 

 

 

—

 

 

 

—

 

Total interest expense

 

 

11,177

 

 

 

—

 

 

 

—

 

 

 

3,942

 

 

 

15,119

 

Net interest income (expense)

 

 

87,238

 

 

 

25,617

 

 

 

3

 

 

 

(2,970

)

 

 

109,888

 

Provision for loan losses

 

 

7,571

 

 

 

2,042

 

 

 

—

 

 

 

84

 

 

 

9,697

 

Net interest income after provision

 

 

79,667

 

 

 

23,575

 

 

 

3

 

 

 

(3,054

)

 

 

100,191

 

Gain on sale of subsidiary

 

 

—

 

 

 

—

 

 

 

—

 

 

 

20,860

 

 

 

20,860

 

Other noninterest income

 

 

10,604

 

 

 

2,203

 

 

 

1,717

 

 

 

1,274

 

 

 

15,798

 

Noninterest expense

 

 

65,171

 

 

 

16,677

 

 

 

1,456

 

 

 

7,079

 

 

 

90,383

 

Operating income (loss)

 

$

25,100

 

 

$

9,101

 

 

$

264

 

 

$

12,001

 

 

$

46,466

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

Asset

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2016

 

Banking

 

 

Factoring

 

 

Management

 

 

Corporate

 

 

Consolidated

 

Total interest income

 

$

62,399

 

 

$

23,589

 

 

$

125

 

 

$

605

 

 

$

86,718

 

Intersegment interest allocations

 

 

3,351

 

 

 

(3,351

)

 

 

—

 

 

 

—

 

 

 

—

 

Total interest expense

 

 

6,908

 

 

 

—

 

 

 

—

 

 

 

996

 

 

 

7,904

 

Net interest income (expense)

 

 

58,842

 

 

 

20,238

 

 

 

125

 

 

 

(391

)

 

 

78,814

 

Provision for loan losses

 

 

4,128

 

 

 

118

 

 

 

—

 

 

 

1

 

 

 

4,247

 

Net interest income after provision

 

 

54,714

 

 

 

20,120

 

 

 

125

 

 

 

(392

)

 

 

74,567

 

Noninterest income

 

 

5,984

 

 

 

1,622

 

 

 

4,819

 

 

 

2,323

 

 

 

14,748

 

Noninterest expense

 

 

45,987

 

 

 

14,519

 

 

 

3,818

 

 

 

1,877

 

 

 

66,201

 

Operating income (loss)

 

$

14,711

 

 

$

7,223

 

 

$

1,126

 

 

$

54

 

 

$

23,114

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

Asset

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2017

 

Banking

 

 

Factoring

 

 

Management

 

 

Corporate

 

 

Eliminations

 

 

Consolidated

 

Total assets

 

$

2,852,651

 

 

$

327,194

 

 

$

—

 

 

$

493,335

 

 

$

(767,019

)

 

$

2,906,161

 

Gross loans

 

$

2,331,514

 

 

$

315,742

 

 

$

—

 

 

$

12,737

 

 

$

(234,530

)

 

$

2,425,463

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

Asset

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

Banking

 

 

Factoring

 

 

Management

 

 

Corporate

 

 

Eliminations

 

 

Consolidated

 

Total assets

 

$

2,588,509

 

 

$

223,994

 

 

$

4,879

 

 

$

391,745

 

 

$

(568,060

)

 

$

2,641,067

 

Gross loans

 

$

1,961,552

 

 

$

212,784

 

 

$

—

 

 

$

1,866

 

 

$

(148,578

)

 

$

2,027,624

 

Banking

(Dollars in thousands)

 

Nine Months Ended September 30,

 

 

 

 

 

Banking

 

2017

 

 

2016

 

 

$ Change

 

 

% Change

 

Total interest income

 

$

93,204

 

 

$

62,399

 

 

$

30,805

 

 

 

49.4

%

Intersegment interest allocations

 

 

5,211

 

 

 

3,351

 

 

 

1,860

 

 

 

55.5

%

Total interest expense

 

 

11,177

 

 

 

6,908

 

 

 

4,269

 

 

 

61.8

%

Net interest income (expense)

 

 

87,238

 

 

 

58,842

 

 

 

28,396

 

 

 

48.3

%

Provision for loan losses

 

 

7,571

 

 

 

4,128

 

 

 

3,443

 

 

 

83.4

%

Net interest income (expense) after provision

 

 

79,667

 

 

 

54,714

 

 

 

24,953

 

 

 

45.6

%

Gain on sale of subsidiary

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Other noninterest income

 

 

10,604

 

 

 

5,984

 

 

 

4,620

 

 

 

77.2

%

Noninterest expense

 

 

65,171

 

 

 

45,987

 

 

 

19,184

 

 

 

41.7

%

Operating income (loss)

 

$

25,100

 

 

$

14,711

 

 

$

10,389

 

 

 

70.6

%


Our2020 was impacted by the realization of the $9.8 million gain associated with the sale of TPF in the second quarter of 2020. Excluding the gain on sale of TPF, our Banking segment’s adjusted operating income totaled $25.1was $24.8 million for the nine months ended September 30, 2017 compared to operating income of $14.7 million for the nine months ended September 30, 2016. We experienced2020, resulting in an increase in net interest income and noninterest income for the nine months ended September 30, 2017.  Thisadjusted increase in operating income was partially offset by an increase in the provision for loan losses and an increase in noninterest expenseof $41.0 million period over period.

The increase in net

Total interest income wasdecreased $11.4 million, or 7.3%, primarily theas a result of increasesdecreases in the balances of our interest earning assets, primarily loans, due to the continued growth of our commercial finance products, including equipment loans, general asset based loans, healthcare asset based loans, and premium finance loans. We also experienced organic growth in our mortgage warehouse facilities and community banking lending products period over period, including commercial real estate and general commercial and industrial loans.  In addition, we acquired $461 million ofAverage loans and $162 million of investment securities in our Banking segment, as part of the ColoEast acquisition, which were outstandingexcluding intersegment loans, decreased 4.1% from $3.662 billion for only two months during the nine months ended September 30, 2016.  Outstanding loans2020 to $3.511 billion for the nine months ended September 30, 2021. The decrease in interest income was also driven by a decrease in yields on interest earning assets.
Interest expense decreased period over period. While the average balance of interest bearing liabilities at our Banking segment grew 23% from $1.895 billion asdecreased overall, average total interest bearing deposits increased $270.5 million, or 9.4%. The decrease in interest expense was the result of September 30, 2016a decrease in our average cost of interest bearing liabilities driven by changes in interest rates in the macro economy.
Credit loss expense at our Banking segment is made up of credit loss expense related to $2.332 billion asloans and credit loss expense related to off balance sheet commitments to lend. Credit loss expense related to loans was a benefit to credit loss expense of September 30, 2017.

Our provision for loan losses was $7.6$18.0 million for the nine months ended September 30, 20172021 compared with $4.1to credit loss expense of $23.4 million for the nine months ended September 30, 2016.  As outstanding loan balances fluctuate period over period, the associated provision for loan losses typically increases or decreases accordingly. In addition, the product types associated with fluctuations within the loan portfolio also contribute to the allowance allocation, as different loan products require different levels of ALLL based upon their2020. The decreased credit risk characteristics.  Finally, loan loss valuation allowances and charge-offs are recorded on specific at-risk balances, typically consisting of impaired loans.  The increased provision for loan lossesexpense was primarily the result of an increase in loan charge-offs recorded duringprojected improvement of the nine months ended September 30, 2017.  We experienced higher total net charge-offs of $3.7 million inloss drivers that the Company forecasted over the reasonable and supportable forecast period to calculate expected losses at our Banking segment in the nine months endedas of September 30, 2017 compared2021 which resulted in a benefit to net charge-offscredit loss expense of $1.3 million for the same period in 2016.  Approximately $1.4 million of the charge-offs for the nine months ended September 30, 2017 had specific reserves previously recorded.  In addition, this charge-off activity contributed to an increase in the estimate of the ALLL levels recorded against the remaining loan portfolio as a result of higher loss factors incorporated into our ALLL methodology for the nine months ended September 30, 2017. Approximately $3.1 million of the charge-offs recorded during the nine months ended September 30, 2017 were associated with two individual loan relationships that were charged-off in the first quarter of 2017.  One of the loan relationships was part of our healthcare finance unit and one was acquired in the ColoEast acquisition.

In addition, during the nine months ended September 30, 2017 outstanding loans in our Banking segment increased $370.0 million from December 31, 2016.  During the nine months ended September 30, 2016, outstanding loans in our Banking segment, excluding the $461 million acquired ColoEast portfolio, increased $211.6 million from December 31, 2015.  The larger increase in outstanding balances within the nine months ended September 30, 2017 contributed to a higher provision for loan losses compared to the nine months ended September 30, 2016.  

Noninterest income was $10.6$10.2 million for the nine months ended September 30, 20172021. During the nine months ended September 30, 2020 the Company forecasted deterioration in the loss factors driven by the projected economic impact of COVID-19 which resulted in credit loss expense of $23.2 million at our Banking segment. The decrease in credit loss expense was further driven by the impact of specific reserve releases on our Banking segment loans. These releases created a $4.3 million benefit to credit loss expense for the nine months ended September 30, 2021 compared to $6.0$4.8 million of credit loss expense on net new specific reserves during the nine months ended September 30, 2020. Net charge-offs at our Banking segment were insignificant during the nine months ended September 30, 2021 compared to net charge-offs of $0.4 million during the same period a year ago. Said charge-offs carried a reserve balance of $0.2 million established during a prior period. Changes in loan volume and mix at our Banking segment partially offset the decrease in credit loss expense as these factors created a $3.3 million benefit to credit loss expense during the nine months ended September 30, 2021 compared to a $5.0 million benefit during the same period of the prior year.

Credit loss expense for off balance sheet credit exposures decreased $5.0 million from $3.8 million for the nine months ended September 30, 2016. Commissions earned by our Triumph Insurance Group subsidiary, which is reported within our Banking segment, increased $1.5 million from $0.62020 to a benefit of $1.2 million for the nine months ended September 30, 20162021. The decrease was primarily due to $2.1the changes in the assumptions used to project the loss rates previously discussed.
Noninterest income at our Banking segment increased due to a $2.0 million forincrease in service charges on deposits consistent with increased average deposit balances subject to such fees period over period. Further, in keeping with guidance from regulators, we actively worked with COVID-19 affected customers during the second quarter of 2020 to waive fees from a variety of sources, such as, but not limited to, insufficient funds and overdraft fees, ATM fees, account maintenance fees, etc. These reductions in fees were temporary and expired on June 1, 2020. Additionally card income at our Banking segment increased $0.5 million primarily due to increased debit card activity during the nine months ended September 30, 20172021. Further, insurance commissions at our Banking segment increased $1.1 million due to increasedhigher policy volumes due to organic growth of the business and the acquisition of Southern Transportationprocessed by Triumph Insurance Agency, Ltd. in the third quarter of 2016.  In addition, we recordedgroup. The Banking segment also recognized a $1.2$1.5 million OREO write-down inrecovery during the nine months ended September 30, 20162021 on an acquired loan that was charged off prior to our acquisition of the originating bank. Additionally, during the current period, we recognized a $0.4 million increase in revenue from BOLI primarily related to a branch facility transferred to OREO that was no longer being actively operated, which reduced noninterest incomebenefit payment. We also recognized a gain on sale of liquid credit and mortgage loans during that period.  The remaining increase was primarily due to additional service charges and card income associated with the increase in customer deposit and credit/debit card accounts acquired in the ColoEast acquisition.  In addition, other sources of noninterest income, such as check cashing fees, wire transfer fees, and trust activities increased due to incremental transaction volumes associated with the ColoEast acquisition.

Noninterest expense was $65.2 million for the nine months ended September 30, 2017,2021 of $3.0 million compared with $46.0to a gain of $1.9 million forduring the same period a year ago. These increases were partially offset by a decrease in net gains on sale or call of securities of $3.2 million period over period. Additionally offsetting the increase was the recognition of $1.9 million of loan syndication fees related to the syndication and placement of one large relationship that closed during the nine months ended September 30, 2016.  This2020 and did not repeat during the nine months ended September 30, 2021. We also recognized a $0.7 million loss on the donation of a branch to a local municipality during the nine months ended September 30, 2020. There were no other significant changes within the components of other noninterest income.

Noninterest expense increased primarily due to an increase includes incremental costs associated with the growth in our Banking segment personnelsalaries and infrastructure in conjunction with our acquisition of ColoEast, as well as personnel, facilities and infrastructure to support the continued growth in our commercial finance asset based lending and equipment lending. In addition, increasesemployee benefits expense due to merit increases for existing employees, higher health insurance benefit costs, incentive compensation, stock based compensation and 401(k) expenses contributed toexpense. Remaining fluctuations in the increase.  Noninterestindividual components of noninterest expense at our Banking segment were insignificant period over period.
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Factoring
(Dollars in thousands)Nine Months Ended September 30,
Factoring20212020$ Change% Change
Total interest income$127,699 $73,952 $53,747 72.7 %
Intersegment interest allocations(7,700)(8,873)1,173 13.2 %
Total interest expense— — — — 
Net interest income119,999 65,079 54,920 84.4 %
Credit loss expense (benefit)8,091 4,437 3,654 82.4 %
Net interest income after credit loss expense111,908 60,642 51,266 84.5 %
Noninterest income10,710 5,524 5,186 93.9 %
Noninterest expense52,433 37,695 14,738 39.1 %
Operating income (loss)$70,185 $28,471 $41,714 146.5 %
Nine Months Ended September 30,
20212020
Factored receivable period end balance$1,479,989,000 $953,434,000 
Yield on average receivable balance14.19 %15.63 %
Year to date charge-off rate(1)
3.76 %0.45 %
Factored receivables - transportation concentration90 %88 %
Interest income, including fees$127,699,000 $73,952,000 
Non-interest income(2)
6,056,000 3,524,000 
Factored receivable total revenue133,755,000 77,476,000 
Average net funds employed1,082,610,000 569,928,000 
Yield on average net funds employed16.52 %18.16 %
Accounts receivable purchased$9,092,541,000 $4,673,573,000 
Number of invoices purchased4,125,694 2,719,508 
Average invoice size$2,204 $1,719 
Average invoice size - transportation$2,096 $1,567 
Average invoice size - non-transportation$4,812 $4,527 
(1) Net charge-offs for the nine months ended September 30, 2016 also included $1.62021 includes a $45.3 million of acquisition-related transaction costs incurred as part ofcharge-off related to the ColoEast acquisition.

TFS acquisition, which contributed approximately 3.43% to the net charge-off rate for the period.

Factoring

(Dollars in thousands)

 

Nine Months Ended September 30,

 

 

 

 

 

Factoring

 

2017

 

 

2016

 

 

$ Change

 

 

% Change

 

Total interest income

 

$

30,828

 

 

$

23,589

 

 

$

7,239

 

 

 

30.7

%

Intersegment interest allocations

 

 

(5,211

)

 

 

(3,351

)

 

 

(1,860

)

 

 

55.5

%

Total interest expense

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Net interest income (expense)

 

 

25,617

 

 

 

20,238

 

 

 

5,379

 

 

 

26.6

%

Provision for loan losses

 

 

2,042

 

 

 

118

 

 

 

1,924

 

 

 

1630.5

%

Net interest income (expense) after provision

 

 

23,575

 

 

 

20,120

 

 

 

3,455

 

 

 

17.2

%

Gain on sale of subsidiary

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Other noninterest income

 

 

2,203

 

 

 

1,622

 

 

 

581

 

 

 

35.8

%

Noninterest expense

 

 

16,677

 

 

 

14,519

 

 

 

2,158

 

 

 

14.9

%

Operating income (loss)

 

$

9,101

 

 

$

7,223

 

 

$

1,878

 

 

 

26.0

%

Our Factoring segment’s operating(2) Non-interest income for the nine months ended September 30, 20172021 excludes $4.7 million of income recognized on our indemnification asset resulting from the amended TFS acquisition agreement.

Our Factoring segment’s operating income increased $41.7 million, or 146.5%.
Our average invoice size increased 28.2% from $1,719 for the nine months ended September 30, 2020 to $2,204 for the nine months ended September 30, 2021 and the number of invoices purchased increased 51.7% period over period.
Net interest income at our Factoring segment increased period over period. Overall average net funds employed (“NFE”) increased 90.0% during the nine months ended September 30, 2021 compared to the same period in 2020. The increase in average NFE was $9.1the result of increased invoice purchase volume as well as increased average invoice size. Those, in turn, resulted from historically high freight volume in a reduced capacity market. See further discussion under the Recent Developments: COVID-19 and the CARES Act section. The increase in net interest income was partially offset by decreased purchase discount rates driven by greater focus on larger lower priced fleets and competitive pricing pressure; however, those negative factors were somewhat mitigated by increased concentration in transportation factoring balances, which typically generate a higher yield than our non-transportation factoring balances. This concentration was up 2% period over period from 88% at September 30, 2020 to 90% at September 30, 2021.
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Table of Contents
The increase in credit loss expense was primarily due to the $2.8 million comparedincrease in required reserves on acquired Over-Formula advances as previously explained in the Credit Loss Expense discussion. Including the additional specific reserves attributable to the acquired Over-Formula Advances, net new specific reserves at our Factoring segment increased $1.5 million period over period. Growth in the underlying factored receivable portfolio at our Factoring segment resulted in $2.6 million and $2.1 million of credit loss expense during the nine months ended September 30, 2021 and 2020, respectively. Net charge-offs at our factoring segment were $45.2 million consisting mostly of the aforementioned $41.3 million charge-off of the Over-Formula Advance balance associated with $7.2the largest over-advanced client which contributed 3.43% to the current period charge-off rate in the table above. A reserve of $41.5 million on the gross charge-offs was established in a prior period. During the nine months ended September 30, 2020, net charge-offs at our factoring segment were $2.9 million of which $0.7 million was reserved in a prior period. Changes in loss assumptions did not have a meaningful impact on credit loss expense during the nine months ended September 30, 2021 or 2020.
The increase in noninterest income at our Factoring segment was primarily due to a $4.2 million gain on the Company's indemnification asset during the nine months ended September 30, 2021. Additionally, we recognized $1.2 million early termination fees during the nine months ended September 30, 2021. These increases were partially offset by the recognition of $2.0 million of income during the nine months ended September 30, 2021 driven by an increase in the value of the receivable due from Covenant resulting from the Agreement previously discussed. There were no other material fluctuations in noninterest income at our Factoring segment.
Noninterest expense increased primarily due to an increase in salaries and employee benefits expense due to merit increases for existing employees, higher health insurance benefit costs, incentive compensation, stock based compensation and 401(k) expense. Remaining fluctuations in the individual components of noninterest expense at our Factoring segment were insignificant period over period.
Payments
(Dollars in thousands)Nine Months Ended September 30,
Payments20212020$ Change% Change
Total interest income$7,939 $2,440 $5,499 225.4 %
Intersegment interest allocations(417)(266)(151)(56.8)%
Total interest expense— — — — %
Net interest income7,522 2,174 5,348 246.0 %
Credit loss expense (benefit)548 167 381 228.1 %
Net interest income after credit loss expense6,974 2,007 4,967 247.5 %
Noninterest income4,242 74 4,168 5632.4 %
Noninterest expense26,393 8,954 17,439 194.8 %
Operating income (loss)$(15,177)$(6,873)$(8,304)(120.8)%
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Table of Contents
Nine Months Ended
20212020
Factored receivable period end balance$127,039,000 $62,903,000 
Interest income$7,939,000 $2,440,000 
Noninterest income4,242,000 74,000 
Total revenue$12,181,000 $2,514,000 
Operating income (loss)$(15,177,000)$(6,873,000)
Interest expense417,000 266,000 
Depreciation and software amortization expense210,000 186,000 
Intangible amortization expense1,987,000 — 
Earnings (losses) before interest, taxes, depreciation, and amortization$(12,563,000)$(6,421,000)
Transaction costs$2,992,000 $— 
Adjusted earnings (losses) before interest, taxes, depreciation, and amortization(1)
$(9,571,000)$(6,421,000)
Number of invoices processed9,455,740 2,679,662 
Amount of payments processed$9,919,864,000 $2,419,500,000 
(1)Adjusted earnings (losses) before interest, taxes, depreciation, and amortization excludes material gains and expenses related to merger and acquisition-related activities and is a non-GAAP financial measure used to provide meaningful supplemental information regarding the segment's operational performance and to enhance investors' overall understanding of such financial performance by removing the volatility associated with certain acquisition-related items that are unrelated to our core business.
Our Payments segment's operating loss increased $8.3 million, or 120.8%.
The number of invoices processed by our Payments segment increased 252.9% from 2,679,662 for the nine months ended September 30, 2020 to 9,455,740 for the nine months ended September 30, 2021, and the amount of payments processed increased 310.0% from $2.420 billion for the nine months ended September 30, 2020 to $9.920 billion for the nine months ended September 30, 2021.
Interest income increased due to increased factoring activity at our Payments segment and increased yields period over period. Noninterest income increased primarily due to $3.9 million in Payments fees related to the acquired HubTran operations during the nine months ended September 30, 2021.
Noninterest expense increased primarily due to $3.0 million of transaction costs related to the acquisition of HubTran and an increase in salaries and employee benefits expense driven by merit increases for existing employees, higher health insurance benefit costs, incentive compensation, stock based compensation and 401(k) expense. Our average full-time equivalent employees at our Payments segment were 87.1 and 40.8 for the nine months ended September 30, 2021 and 2020, respectively. We continue to invest heavily in the operations of TriumphPay.
The acquisition of HubTran during the nine months ended September 30, 2021 allows TriumphPay to create a fully integrated payments network for transportation; servicing brokers and factors. TriumphPay already offered tools and services to increase automation, mitigate fraud, create back-office efficiency and improve the payment experience. Through the acquisition of HubTran, TriumphPay created additional value through the enhancement of its presentment, audit, and payment capabilities for shippers, third party logistics companies (i.e., freight brokers) and their carriers, and factors. The acquisition of HubTran was a meaningful inflection point in the operations of TriumphPay as the TriumphPay strategy has shifted from a capital-intensive on-balance sheet product with a focus on interest income to an open-loop payments network for the trucking industry with a focus on fee revenue. It is for this reason that management believes that earnings before interest, taxes, depreciation, and amortization and the adjustment to that metric enhance investors' overall understanding of the financial performance of the Payments segment. Further, as a result of the HubTran acquisition, management recorded $27.3 million of intangible assets that will lead to meaningful amounts of amortization going forward.
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Table of Contents
Corporate
(Dollars in thousands)Nine Months Ended September 30,% Change
Corporate20212020$ Change
Total interest income$51 $267 $(216)(80.9 %)
Intersegment interest allocations— — — — 
Total interest expense6,478 5,678 800 14.1 %
Net interest income (expense)(6,427)(5,411)(1,016)(18.8 %)
Credit loss expense (benefit)(290)1,834 (2,124)(115.8 %)
Net interest income (expense) after credit loss expense(6,137)(7,245)1,108 15.3 %
Noninterest income151 131 20 15.3 %
Noninterest expense3,180 3,080 100 3.2 %
Operating income (loss)$(9,166)$(10,194)$1,028 10.1 %
The Corporate segment reported an operating loss of $9.2 million for the nine months ended September 30, 2016. We experienced increases in net interest income and noninterest income period over period. These increases were offset in part by2021 compared to an increase in the provision for loan losses and noninterest expenses for the nine months ended September 30, 2017.

Factored receivables in our Factoring segment grew 66% from $190.1 million asoperating loss of September 30, 2016 to $315.7 million as of September 30, 2017. Our average number of clients increased from 2,217 for the nine months ended September 30, 2016 to 2,650 for the nine months ended September 30, 2017 and the corresponding factored accounts receivable purchases increased from $1.304 billion during the nine months ended September 30, 2016 to $1.893 billion during the nine months ended September 30, 2017.  Our average invoice size increased 13% from $1,282 for the nine months ended September 30, 2016 to $1,453 for the nine months ended September 30, 2017, and the number of invoices purchased increased 28% period over period.

Net interest income was $25.6$10.2 million for the nine months ended September 30, 2017 compared2020. This was primarily due to $20.2 million fordecreased credit loss expense on our HTM CLOs previously discussed in the Credit Loss Expense section. Operating income during the nine months ended September 30, 2016. Net interest income2021 was also impacted by increased due to a 35% increase in overall average net funds employed from $163.9 million for the nine months ended September 30, 2016 to $221.6 million for the nine months ended September 30, 2017.  This increase in net interest income is offset in part by pricing pressure on factored receivable balances in the current period due to increased competition and market conditions, resulting in slightly lower yields on net funds employed at our Factoring segment.  In addition, a change in the mix within our factored receivables portfolio period over period contributed to the partially offsetting decrease, as our transportation factoring balances, which generate a higher yield than our non-transportation factoring balances, decreased as a percentage of the overall Factoring segment portfolio to 84% at September 30, 2017 compared to 87% at September 30, 2016 as we continued to expand our non-transportation factoring product lines throughout 2016 and into 2017.  

Our provision for loan losses was $2.0 million for the nine months ended September 30, 2017 compared with $0.1 million for the nine months ended September 30, 2016. The provision for loan losses on factored receivables is primarily driven by the allowance allocation for incurred losses recorded on collectively evaluated factored receivables purchased and outstanding for a period.  As factored receivables purchased fluctuate period over period, the associated provision for loan losses typically increases or decreases accordingly.  In addition, loancredit loss valuation allowances are recorded on specific at-risk balances, typically consisting of invoices greater than 90 days past due with negative cash reserves.expense. During the nine months ended September 30, 2017 factored receivables at our Factoring segment increased approximately $103 million from December 31, 2016.  During2021, management issued a new subordinated debt facility and used the nine months ended September 30, 2016, factored receivables at our Factoring segment increased approximately $4 million from December 31, 2015.  The higher increase in factored receivable balances within the nine months ended September 30, 2017 contributed to a higher provision for loan losses compared to the nine months ended September 30, 2016.  

Noninterest income was $2.2 million for the nine months ended September 30, 2017 compared to $1.6 million for the nine months ended September 30, 2016.  The increase in noninterest income is consistent with the increase in factored receivable purchase volume period over period.

Noninterest expense was $16.7 million for the nine months ended September 30, 2017 compared with $14.5 million for the nine months ended September 30, 2016, driven primarily by increased personnel, operating, and technology costs incurred in connection with growth in our factoring portfolio, particularly the increase in the number of clients and number of invoices processed period over period.


Corporate

(Dollars in thousands)

 

Nine Months Ended September 30,

 

 

 

 

 

Corporate

 

2017

 

 

2016

 

 

$ Change

 

 

% Change

 

Total interest income

 

$

972

 

 

$

605

 

 

$

367

 

 

 

60.7

%

Intersegment interest allocations

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total interest expense

 

 

3,942

 

 

 

996

 

 

 

2,946

 

 

 

295.8

%

Net interest income (expense)

 

 

(2,970

)

 

 

(391

)

 

 

(2,579

)

 

 

659.6

%

Provision for loan losses

 

 

84

 

 

 

1

 

 

 

83

 

 

 

8300.0

%

Net interest income (expense) after provision

 

 

(3,054

)

 

 

(392

)

 

 

(2,662

)

 

 

679.1

%

Gain on sale of subsidiary

 

 

20,860

 

 

 

—

 

 

 

20,860

 

 

 

100.0

%

Other noninterest income

 

 

1,274

 

 

 

2,323

 

 

 

(1,049

)

 

 

(45.2

%)

Noninterest expense

 

 

7,079

 

 

 

1,877

 

 

 

5,202

 

 

 

277.1

%

Operating income (loss)

 

$

12,001

 

 

$

54

 

 

$

11,947

 

 

 

22124.1

%

The Corporate segment’s operating income totaled $12.0 million for the nine months ended September 30, 2017, compared with operating income of $0.1 million for the nine months ended September 30, 2016.  The increase in the operating income is primarily due to the net impactmajority of the TCA sale transaction recordedproceeds to redeem the 2016 subordinated debt facility in whole. The 2016 subordinated debt facility carried a discount and fees of $0.8 million at the time of payoff that was written off through interest expense during the nine months ended September 30, 2017.  As TCA was a wholly owned subsidiary of2021. There were no other significant fluctuations in accounts in our parent company, the $20.9 million gain on sale of TCA was reported as noninterest income and the $5.1 million of bonus expense and transaction related costs associated with the TCA sale were reported as noninterest expense in the Corporate segment.  Excluding the impact of the TCA sale, the Corporate segment reported an operating loss of $3.8 million for the nine months ended September 30, 2017, primarily due to an increase in interest expense resulting from our subordinated notes offering in the third quarter of 2016.  In addition, noninterest income from our CLO warehouse equity investments decreased $0.4 million, from $2.4 million for the nine months ended September 30, 2016 to $2.0 million for the nine months ended September 30, 2017.  The CLO associated with our remaining CLO warehouse investment was issued and closed in June 2017, and as a result our invested funds were returned.  At September 30, 2017 we no longer held investments in CLO warehouse entities and, absent future investments in new CLO warehouse entities, we do not expect to realize CLO warehouse investment income ongoing.

period over period.

Financial Condition

Assets

Total assets were $2.906$6.025 billion at September 30, 2017,2021, compared to $2.641$5.936 billion at December 31, 2016,2020, an increase of $265$88.7 million, the components of which are discussed below.


Loan Portfolio

Loans held for investment were $2.425$4.783 billion at September 30, 2017,2021, compared with $2.028$4.997 billion at December 31, 2016.

We offer a broad range of lending and credit products.  Within our TBK Bank subsidiary, we offer a full range of lending products, including commercial real estate, construction and development, residential real estate, production agriculture, general commercial, mortgage warehouse facilities, farmland and consumer loans, focused on our community banking markets in Iowa, Illinois, Colorado, and Kansas.  We also originate a variety of commercial finance products offered on a nationwide basis.  These products include our factored receivables, the asset based loans and equipment loans originated under our Triumph Commercial Finance brand, the healthcare asset based loans originated under our Triumph Healthcare Finance brand, and the premium finance loans originated under our Triumph Premium Finance brand.  

2020.

The following table shows our total loan portfolio by portfolio segments as of September 30, 2017 and December 31, 2016:

segments:

 

September 30, 2017

 

 

December 31, 2016

 

September 30, 2021December 31, 2020$ Change% Change

(Dollars in thousands)

 

 

 

 

 

% of Total

 

 

 

 

 

 

% of Total

 

(Dollars in thousands)% of Total% of Total

Commercial real estate

 

$

574,530

 

 

 

24

%

 

$

442,237

 

 

 

22

%

Commercial real estate$630,106 13 %$779,158 16 %$(149,052)(19.1 %)

Construction, land development, land

 

 

141,368

 

 

 

6

%

 

 

109,812

 

 

 

5

%

Construction, land development, land171,814 4 %219,647 4 %(47,833)(21.8 %)

1-4 family residential properties

 

 

96,032

 

 

 

4

%

 

 

104,974

 

 

 

5

%

1-4 family residential1-4 family residential127,073 3 %157,147 3 %(30,074)(19.1 %)

Farmland

 

 

130,471

 

 

 

5

%

 

 

141,615

 

 

 

7

%

Farmland82,990 2 %103,685 2 %(20,695)(20.0 %)

Commercial

 

 

890,372

 

 

 

37

%

 

 

778,643

 

 

 

39

%

Commercial1,398,497 29 %1,562,957 32 %(164,460)(10.5 %)

Factored receivables

 

 

341,880

 

 

 

14

%

 

 

238,198

 

 

 

12

%

Factored receivables1,607,028 33 %1,120,770 22 %486,258 43.4 %

Consumer

 

 

30,093

 

 

 

1

%

 

 

29,764

 

 

 

1

%

Consumer12,677 — %15,838 — %(3,161)(20.0 %)

Mortgage warehouse

 

 

220,717

 

 

 

9

%

 

 

182,381

 

 

 

9

%

Mortgage warehouse752,545 16 %1,037,574 21 %(285,029)(27.5 %)

Total Loans

 

$

2,425,463

 

 

 

100

%

 

$

2,027,624

 

 

 

100

%

Total Loans$4,782,730 100 %$4,996,776 100 %$(214,046)(4.3 %)

Commercial Real Estate Loans.Our commercial real estate loans were $574.5decreased $149.1 million, at September 30, 2017, an increase of $132.3 million from $442.2 million at December 31, 2016,or 19.1%, due primarily to paydowns for the period that outpaced new loan origination activity during the nine months ended September 30, 2017. We have recently allocated internal resources to focus on and source additional commercial real estate opportunities on a nationwide basis.

activity.

Construction and Development Loans.Our construction and development loans decreased $47.8 million, or 21.8%, due primarily to paydowns and conversions to term loans that were $141.4 million at September 30, 2017, an increase of $31.6 million from $109.8 million at December 31, 2016, due to new loan activity for the period.

offset by modest origination and draw activity.

Residential Real Estate Loans.Our one-to-four family residential loans were $96.0decreased $30.1 million, at September 30, 2017, a decrease of $9.0 million from $105.0 million at December 31, 2016,or 19.1%, due primarily to paydowns in excessthat were offset by modest origination and draw activity.
84
Table of new loan activity for the period.  As previously discussed, we made the decision to exit the residential mortgage production business in the fourth quarter of 2015.  As a result, we expect our residential real estate loan balances to continue to decline as existing loans payoff.  The decrease was offset in part by an increase in home equity lines of credit originated during the period and reported in this loan classification.

Contents

Farmland Loans.Our farmland loans were $130.5decreased $20.7 million, at September 30, 2017, a decrease of $11.1 compared to $141.6 million at December 31, 2016,or 20.0%, due to paydowns in excess offor the period that outpaced new loan origination activity during the nine months ended September 30, 2017.

activity.

Commercial Loans. Our commercial loans held for investment were $890.4decreased $164.5 million, at September 30, 2017 an increase of $111.8 million from $778.6 million at December 31, 2016.or 10.5%, due to decreases in liquid credit, PPP, agriculture and other commercial loans. The increasedecline in commercial loans was drivenoffset by growthincreases in the asset based and equipment finance loans originated under our Triumph Commercial Finance brand as we continue to execute on our growth strategy for such products. In addition, premium finance loans originated under our Triumph Premium Finance brand continued to grow during the period.and asset-based lending. Our other commercial lending products, comprised primarily of general commercial loans originated in our community banking markets, increased from $215.0decreased $51.6 million, at December 31, 2016 to $245.4 million at September 30, 2017 as a result of new originations in our community banking markets in excess of paydowns as we continue to focus on lending activities to support businesses within our local communities. This increase also included the $10.5 million seller financed loan receivable associated with the TCA sale on March 31, 2017.  

or 15.1%.

The following table shows our commercial loans as of September 30, 2017 and December 31, 2016:

loans:

 

September 30,

 

 

December 31,

 

(Dollars in thousands)

 

2017

 

 

2016

 

(Dollars in thousands)September 30, 2021December 31, 2020$ Change% Change

Commercial

 

 

 

 

 

 

 

 

Commercial

Equipment

 

$

226,120

 

 

$

190,393

 

Equipment$588,105 $573,163 $14,942 2.6 %

Asset based lending (general)

 

 

193,884

 

 

 

161,454

 

Asset based lending (healthcare)

 

 

67,889

 

 

 

79,668

 

Premium finance

 

 

57,083

 

 

 

23,971

 

Asset-based lendingAsset-based lending213,927 180,488 33,439 18.5 %
Liquid creditLiquid credit142,547 184,027 (41,480)(22.5 %)
Paycheck Protection Program loansPaycheck Protection Program loans87,413 189,857 (102,444)(54.0 %)

Agriculture

 

 

99,975

 

 

 

108,197

 

Agriculture77,263 94,572 (17,309)(18.3 %)

Other commercial lending

 

 

245,421

 

 

 

214,960

 

Other commercial lending289,242 340,850 (51,608)(15.1 %)

Total commercial loans

 

$

890,372

 

 

$

778,643

 

Total commercial loans$1,398,497 $1,562,957 $(164,460)(10.5 %)

Factored Receivables.Our factored receivables were $341.9increased $486.3 million, ator 43.4%. At September 30, 2017, an increase2021, the balance of $103.7 million from $238.2 million at December 31, 2016 as we continue to execute on our growth strategy for this product at Triumph Business Capital,the Over-Formula Advance Portfolio included in factored receivables was $10.1 million. At September 30, 2021, the balance of Misdirected Payments included in factored receivables was $19.4 million. See discussion of our factoring subsidiary as well as through growth in the Operating Segment Results for analysis of the key drivers impacting the change in the ending factored receivables purchased under our Triumph Commercial Finance brand.  Purchase volume at Triumph Business Capital was $1.893 billionbalance during the nine months ended September 30, 2017 and Triumph Commercial Finance recorded purchase volume of $144 million for the nine months ended September 30, 2017.

period.

Consumer Loans.Our consumer loans were $30.1decreased $3.2 million, at September 30, 2017, an increase of $0.3 compared to $29.8 million at December 31, 2016,or 20.0%, due to paydowns in excess of new loan origination activity in excess of paydowns during the nine months ended September 30, 2017.

period.

Mortgage Warehouse.Our mortgage warehouse facilities maintained outstanding balances of $220.7decreased$285.0 million, at September 30, 2017, an increase of $38.3 million from $182.4 million at December 31, 2016. The increase wasor27.5%, due to in part to new clients added during the period.  In addition, higher utilization of our existing clients’ mortgage warehouse facilities contributed to the increase.  decreased utilization.Client utilization of mortgage warehouse facilities may experience significant fluctuation on a day-to-day basis given mortgage origination market conditions.

Our average mortgage warehouse lending balance was $772.3 million for the three months ended September 30, 2021 compared to $786.3 million for the three months ended September 30, 2020 and $827.1 million for the nine months ended September 30, 2021 compared to $672.4 million for the nine months ended September 30, 2020.

The following tables set forth the contractual maturities, including scheduled principal repayments, of our loan portfolio and the distribution between fixed and floating interest rate loans asloans:
September 30, 2021
(Dollars in thousands)One Year or
Less		After One
but within
Five Years		After Five
Years		Total
Commercial real estate$131,874 $368,071 $130,161 $630,106 
Construction, land development, land99,602 59,587 12,625 171,814 
1-4 family residential9,988 37,034 80,051 127,073 
Farmland10,578 26,778 45,634 82,990 
Commercial311,838 997,252 89,407 1,398,497 
Factored receivables1,607,028 — — 1,607,028 
Consumer2,605 7,137 2,935 12,677 
Mortgage warehouse752,545 — — 752,545 
$2,926,058 $1,495,859 $360,813 $4,782,730 
Sensitivity of loans to changes in interest rates:
Predetermined (fixed) interest rates$1,034,447 $66,962 
Floating interest rates461,412 293,851 
Total$1,495,859 $360,813 
85
Table of September 30, 2017.

Contents

  

 

September 30, 2017

 

(Dollars in thousands)

 

One Year or

Less

 

 

After One

but within

Five Years

 

 

After Five

Years

 

 

Total

 

Commercial real estate

 

$

82,174

 

 

$

350,039

 

 

$

142,317

 

 

$

574,530

 

Construction, land development, land

 

 

50,258

 

 

 

64,348

 

 

 

26,762

 

 

 

141,368

 

1-4 family residential properties

 

 

6,174

 

 

 

33,214

 

 

 

56,644

 

 

 

96,032

 

Farmland

 

 

14,243

 

 

 

27,243

 

 

 

88,985

 

 

 

130,471

 

Commercial

 

 

345,577

 

 

 

487,151

 

 

 

57,644

 

 

 

890,372

 

Factored receivables

 

 

341,880

 

 

 

—

 

 

 

—

 

 

 

341,880

 

Consumer

 

 

2,526

 

 

 

10,033

 

 

 

17,534

 

 

 

30,093

 

Mortgage warehouse

 

 

220,717

 

 

 

—

 

 

 

—

 

 

 

220,717

 

 

 

$

1,063,549

 

 

$

972,028

 

 

$

389,886

 

 

$

2,425,463

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sensitivity of loans to changes in interest rates:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Predetermined (fixed) interest rates

 

 

 

 

 

$

756,377

 

 

$

145,538

 

 

 

 

 

Floating interest rates

 

 

 

 

 

 

215,651

 

 

 

244,348

 

 

 

 

 

Total

 

 

 

 

 

$

972,028

 

 

$

389,886

 

 

 

 

 

As of September 30, 2017,2021, most of the Company’s non-factoring business activity is with customers located within certain states. The states of Colorado (16%), Texas (25%(20%), Illinois (20%), Colorado (19%(14%), and Iowa (7%(6%) make up 71%56% of the Company’s gross loans, excluding factored receivables. Therefore, the Company’s exposure to credit risk is affected by changes in the economies in these states. At December 31, 2016,2020, the states of Texas (23%Colorado (17%), ColoradoTexas (22%), Illinois (21%(12%) and Iowa (7%(6%) made up 73%57% of the Company’s gross loans, excluding factored receivables.

Further, a majority (77%(91%) of our factored receivables, representing approximately 11%31% of our total loan portfolio as of September 30, 2017,2021, are receivables purchased from trucking fleets, owner-operators, and freight brokers in the transportation industry. Although


such concentration may cause our future interest income with respect to our factoring operations to be correlated with demand for the transportation industry in the United States generally, and small-to-mid-sized operators in such industry specifically, we feel that the credit risk with respect to our outstanding portfolio is appropriately mitigated as we limit the amount of receivables acquired from individual debtors and creditors thereby achieving diversification across a number of companies and industries. At December 31, 2016, 77%2020, 90% of our factored receivables, representing approximately 9%20% of our total loan portfolio, were receivables purchased from trucking fleets, owner-operators, and freight brokers in the transportation industry.

Nonperforming Assets

We have established procedures to assist us in maintaining the overall quality of our loan portfolio. In addition, we have adopted underwriting guidelines to be followed by our lending officers and require significant senior management review of proposed extensions of credit exceeding certain thresholds. When delinquencies exist, we rigorously monitor them for any negative or adverse trends. Our loan review procedures include approval of lending policies and underwriting guidelines by the Boardboard of Directorsdirectors of our bank subsidiary, independent loan review, approval of large credit relationships by our bank subsidiary’s Management Loan Committee and loan quality documentation procedures. We, like other financial institutions, are subject to the risk that our loan portfolio will be subject to increasing pressures from deteriorating borrower credit due to general economic conditions.

The following table sets forth the allocation of our nonperforming assets among our different asset categories as of the dates indicated. We classify nonperforming assets as nonaccrual loans and securities, loans modified under restructurings as a result of the borrower experiencing financial difficulties (“TDR”), factored receivables greater than 90 days past due, OREO, and other repossessed assets. Additionally, we consider the portion of the Over-Formula Advance Portfolio that is not covered by Covenant's indemnification to be nonperforming (reflected in nonperforming loans - factored receivables). The balances of nonperforming loans reflect the recorded investment in these assets, including deductions for purchase discounts.

 

September 30,

 

 

December 31,

 

(Dollars in thousands)

 

2017

 

 

2016

 

(Dollars in thousands)September 30, 2021December 31, 2020

Nonperforming loans:

 

 

 

 

 

 

 

 

Nonperforming loans:

Commercial real estate

 

$

843

 

 

$

1,456

 

Commercial real estate$2,113 $9,945 

Construction, land development, land

 

 

136

 

 

 

362

 

Construction, land development, land986 2,294 

1-4 family residential properties

 

 

1,918

 

 

 

1,039

 

1-4 family residential1-4 family residential1,312 1,851 

Farmland

 

 

3,241

 

 

 

1,334

 

Farmland2,046 2,531 

Commercial

 

 

20,814

 

 

 

30,640

 

Commercial7,844 17,202 

Factored receivables

 

 

1,594

 

 

 

2,153

 

Factored receivables28,287 23,956 

Consumer

 

 

162

 

 

 

89

 

Consumer251 253 

Mortgage warehouse

 

 

—

 

��

 

—

 

Mortgage warehouse— — 

Purchased credit impaired

 

 

1,540

 

 

 

8,233

 

Total nonperforming loans

 

 

30,248

 

 

 

45,306

 

Total nonperforming loans42,839 58,032 
Held to maturity securitiesHeld to maturity securities5,810 7,945 

Other real estate owned, net

 

 

10,753

 

 

 

6,077

 

Other real estate owned, net893 1,432 

Other repossessed assets

 

 

208

 

 

 

817

 

Other repossessed assets2,444 1,069 

Total nonperforming assets

 

$

41,209

 

 

$

52,200

 

Total nonperforming assets$51,986 $68,478 

 

 

 

 

 

 

 

 

Nonperforming assets to total assets

 

 

1.42

%

 

 

1.98

%

Nonperforming assets to total assets0.86 %1.15 %

Nonperforming loans to total loans held for investment

 

 

1.25

%

 

 

2.23

%

Nonperforming loans to total loans held for investment0.90 %1.16 %

Total past due loans to total loans held for investment

 

 

2.22

%

 

 

3.61

%

Total past due loans to total loans held for investment2.31 %3.22 %

We had $30.2 million and $45.3 million in nonperforming loans, including nonaccrual PCI loans, as

86
Table of September 30, 2017 and December 31, 2016, respectively. This represents a decrease of $15.1 million, or 33%.  Contents
Nonperforming loans decreased from December 31, 2016 to September 30, 2017,$15.2 million, or 26.2%, primarily due to the paydown and/or payoff of certain nonperforming loans, the charge-off of a $2.7$5.7 million nonperforming commercial financereal estate loan, that was partthe payoff of our healthcare finance unit,$5.0 million nonperforming general commercial loan, the payoff of a $2.3 million nonperforming commercial relationship, and the foreclosure and transferpayoff of a $7.1$1.0 million nonperforming asset based lending relationship.  Ofconstruction loan during the $7.1year. Additionally, the portion of the Over-Formula Advances not covered by Covenant's indemnification decreased by $8.6 million foreclosed asset based loan balance, $5.6from $10.0 million at December 31, 2020 to $1.4 million at September 30, 2021 primarily as a result of the aforementioned charge-off activity. These decreases were partially offset by $13.3 million of the total $19.4 million of Misdirected Payments amount at September 30, 2021 moving to greater than 90 days past due during the year. The entire $19.4 million amount is now included in nonperforming loans (specifically, factored receivables) in accordance with our policy. The remaining activity in nonperforming loans was collateralizedalso impacted by real estate that was transferredadditions and removals of smaller credits to and from nonperforming loans.
OREO anddecreased $0.5 million, or 37.6%, due to the remaining $1.5 million was collateralized by equipment that was transferred to other repossessed assets and subsequently sold.

removal of individually insignificant OREO properties as well as insignificant valuation adjustments made throughout the period.

As a result of the above activity combined with the organic growth ofpreviously described and changes in our loan portfolio during the period end total loans held for investment, the ratio of nonperforming loans to total loans held for investment decreased to 1.25%0.90% at September 30, 2017 compared to 2.23% at2021 from 1.16% December 31, 2016, and, offset in part with the increase in our OREO balances, our2020.
Our ratio of nonperforming assets to total assets decreased to 1.42%0.86% at September 30, 2017 compared to 1.98% at2021 from 1.15% December 31, 2016.  


We experienced a decrease2020. This is due to the aforementioned loan activity and changes in our period end total pastassets. Additionally, the amortized cost basis of our HTM CLO securities considered to be nonaccrual decreased $2.1 million during the year.

Past due loans to total loans during the nine months endedheld for investment decreased to 2.31% at September 30, 2017 to 2.22%2021 from 3.61%3.22% at December 31, 2016.  This decrease was partially2020, as a result of above activity. Additionally, past due toloans associated with the decline in the nonperforming loans described above as well as other payment performance improvements.  In addition, our organic loan growthacquired Over-Formula Advances decreased $52.1 million during the period contributed toyear primarily as a result of the decrease in theaforementioned charge-off activity. The remaining $10.1 million acquired Over-Formula Advance balance is considered greater than 90 days past due ratio.

Our OREO as ofat September 30, 2017 totaled $10.8 million, an increase2021. Aging of $4.7 million from $6.1 million as of December 31, 2016.  Other repossessed assets as of September 30, 2017 totaled $0.2 million, a decrease of $0.6 million from $0.8 million as of December 31, 2016.  These changesthe Over-Formula Advances is based upon the service month on which the advances were primarily duemade by TFS prior to OREO with a fair value of $5.6 million and equipment with a fair value of $1.5 million acquired via the $7.1 million asset based loan foreclosure described above.  The $1.5 million of equipment initially acquired was subsequently sold at auction.

acquisition.

Potential problem loans consist of loans that are performing in accordance with contractual terms but for which management has concerns about the ability of an obligor to continue to comply with repayment terms because of the obligor’s potential operating or financial difficulties. Management monitors these loans and reviews their performance on a regular basis. Potential problem loans contain potential weaknesses that could improve, persist or further deteriorate. At September 30, 2017 and December 31, 2016,2021, we had $20.9 million and $20.1$18.1 million in loans of this type which are not included in any of the nonperforming loan categories. AllRefer to previous discussion of loans currently in deferral in accordance with the loans identified as potential problem loans at September 30, 2017CARES Act and December 31, 2016 were graded as “substandard”.

March 2020 interagency guidance.

Allowance for Loan and LeaseCredit Losses

ALLL on Loans

The ACL is a valuation allowance for probable incurred credit losses. Loan losses are charged againstestimated at each balance sheet date in accordance with US GAAP that is deducted from the ALLL when management believesloans’ amortized cost basis to present the uncollectabilitynet amount expected to be collected on the loans. When the Company deems all or a portion of a loan balanceto be uncollectible the appropriate amount is confirmed.written off and the ACL is reduced by the same amount. Subsequent recoveries, if any, are credited to the ALLL. Management estimates the ALLL balance required using past loan loss experience, the nature and volumeACL when received. See Note 1 of the portfolio, information about specific borrower situationsCompany’s 2020 Form 10-K and estimated collateral values, economic conditions and other factors.notes to the consolidated financial statements included elsewhere in this report for discussion of our ACL methodology on loans. Allocations of the ALLLACL may be made for specific loans, but the entire allowance is available for any loan that, in management’sthe Company’s judgment, should be charged-off.

Loan loss valuation allowances are recorded on specific at-risk balances, typically consisting of collateral dependent loans and factored invoices greater than 90 days past due with negative cash reserves.
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Table of Contents
The following table sets forth the ALLLACL by category of loan:

 

September 30, 2017

 

 

December 31, 2016

 

September 30, 2021December 31, 2020

(Dollars in thousands)

 

Allocated

Allowance

 

 

% of Loan

Portfolio

 

 

ALLL to

Loans

 

 

Allocated

Allowance

 

 

% of Loan

Portfolio

 

 

ALLL to

Loans

 

(Dollars in thousands)Allocated
Allowance		% of Loan
Portfolio		ACL to
Loans		Allocated
Allowance		% of Loan
Portfolio		ACL to
Loans

Commercial real estate

 

$

2,564

 

 

 

24

%

 

 

0.45

%

 

$

1,813

 

 

 

22

%

 

 

0.41

%

Commercial real estate$3,936 13 %0.62 %$10,182 16 %1.31 %

Construction, land development, land

 

 

1,125

 

 

 

6

%

 

 

0.80

%

 

 

465

 

 

 

5

%

 

 

0.42

%

Construction, land development, land1,057 4 %0.62 %3,418 4 %1.56 %

1-4 family residential properties

 

 

282

 

 

 

4

%

 

 

0.29

%

 

 

253

 

 

 

5

%

 

 

0.24

%

1-4 family residential1-4 family residential485 3 %0.38 %1,225 3 %0.78 %

Farmland

 

 

239

 

 

 

5

%

 

 

0.18

%

 

 

170

 

 

 

7

%

 

 

0.12

%

Farmland610 2 %0.74 %832 2 %0.80 %

Commercial

 

 

10,148

 

 

 

37

%

 

 

1.14

%

 

 

8,014

 

 

 

39

%

 

 

1.03

%

Commercial14,276 29 %1.02 %22,040 32 %1.41 %

Factored receivables

 

 

5,046

 

 

 

14

%

 

 

1.48

%

 

 

4,088

 

 

 

12

%

 

 

1.72

%

Factored receivables19,651 33 %1.22 %56,463 22 %5.04 %

Consumer

 

 

743

 

 

 

1

%

 

 

2.47

%

 

 

420

 

 

 

1

%

 

 

1.41

%

Consumer250 — %1.97 %542 — %3.42 %

Mortgage warehouse

 

 

220

 

 

 

9

%

 

 

0.10

%

 

 

182

 

 

 

9

%

 

 

0.10

%

Mortgage warehouse752 16 %0.10 %1,037 21 %0.10 %

Total Loans

 

$

20,367

 

 

 

100

%

 

 

0.84

%

 

$

15,405

 

 

 

100

%

 

 

0.76

%

Total Loans$41,017 100 %0.86 %$95,739 100 %1.92 %

From December 31, 2016 to September 30, 2017, the ALLL increased from $15.4

The ACL decreased $54.7 million, or 0.76% of total loans to $20.4 million or 0.84% of total loans. The increase in ALLL57.2%. This decrease was primarily driven by the $4.7aforementioned charge-off of $41.3 million of PCD Over-Formula Advances classified as factored receivables. The charge-off was partially offset by an additional $2.8 million reserve required on remaining PCD Over-Formula Advances and discussed previously in the Credit Loss Expense section of Management's Discussion and Analysis. At quarter end, our entire remaining Over-Formula Advance position was down from $62.1 million at December 31, 2020 to $10.1 million at September 30, 2021 and the entire balance at September 30, 2021 was fully reserved.
Another driver of the decrease in required ACL is projected improvement of the loss drivers that the Company forecasted to calculate expected losses at September 30, 2021 as compared to December 31, 2020. This improvement was brought on by a quicker projected economic recovery post-COVID-19 than was anticipated at December 31, 2020. It had a positive impact on the Company’s loss drivers and assumptions over the reasonable and supportable forecast period and resulted in a release of $10.3 million of ACL period over period.
The Company uses the discounted cash flow (DCF) method to estimate ACL for the commercial real estate, construction, land development, land, 1-4 family residential, commercial (excluding liquid credit), and consumer loan pools. For all loan pools utilizing the DCF method, the Company utilizes and forecasts national unemployment as a loss driver. The Company also utilizes and forecasts either one-year percentage change in national retail sales (commercial real estate – non multifamily, commercial general, commercial agriculture, commercial asset-based lending, commercial equipment finance, consumer), one-year percentage change in the national home price index (1-4 family residential and construction, land development, land), or one-year percentage change in national gross domestic product (commercial real estate – multifamily) as a second loss driver depending on the nature of the underlying loan pool and how well that loss driver correlates to expected future losses. Consistent forecasts of the loss drivers are used across the loan segments.
For all DCF models at September 30, 2021, the Company has determined that four quarters represents a reasonable and supportable forecast period and reverts back to a historical loss rate over eight quarters on a straight-line basis. The Company leverages economic projections from a reputable and independent third party to inform its loss driver forecasts over the four-quarter forecast period. Other internal and external indicators of economic forecasts are also considered by the Company when developing the forecast metrics. At September 30, 2021 as compared to December 31, 2020, the Company forecasted a significant decrease in national unemployment, an increase in one-year percentage change in national retail sales, an increase in one-year percentage change in the national home price index, and an increase in one-year percentage change in national gross domestic product. For percentage changes in national retail sales, national home price index and national gross domestic product, the Company projected significant growth in the first projected quarter followed by percentage change growth for the last three projected quarters resembling something closer to pre-COVID-19 levels albeit slightly more modest. Projected unemployment rates used by the Company are relatively stable over the four projected quarters at levels somewhat higher than pre-COVID-19 conditions.
The Company uses a loss-rate method to estimate expected credit losses for the farmland, liquid credit, factored receivable, and mortgage warehouse loan pools. For each of these loan segments, the Company applies an expected loss ratio based on internal and peer historical losses adjusted as appropriate for qualitative factors. Qualitative loss factors are based on the Company's judgment of company, market, industry or business specific data, changes in underlying loan composition of specific portfolios, trends relating to credit quality, delinquency, non-performing and adversely rated loans, and reasonable and supportable forecasts of economic conditions. Loss factors used to calculate the required ACL on pools that use the loss-rate method reflect the forecasted economic conditions described above.
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Table of Contents
The decrease in required ACL was also driven by a net charge-offs recordedreversal of specific reserves on non-PCD loans of $1.7 million during the nine months ended September 30, 2017 which increased2021. Excluding the reserve levels recorded againstaforementioned PCD charge-off, net charge-offs were $4.1 million for the remainingnine months ended September 30, 2021. Changes in loan portfolio as a result of higher lossvolume and credit risk factors incorporated into our ALLL methodologymix during the nine months ended September 30, 2017.  The change in our ALLL factors due primarily to this charge-off activity contributed approximately $1.72021 decreased the required ACL by $0.4 million to the increase in ALLL during the period.  In addition, approximately $3.4
With the passage of the PPP, administered by the Small Business Administration (“SBA”), the Company has actively participated in assisting its customers with applications for resources through the program.  At September 30, 2021, the Company carried $87.4 million of general ALLLPPP loans classified as Commercial loans for reporting purposes. Loans funded through the PPP program are fully guaranteed by the U.S. government. This guarantee exists at the inception of the loans and throughout the lives of the loans and was added duringnot entered into separately and apart from the nine months endedloans. Credit enhancements that mitigate credit losses, such as the U.S. government guarantee on PPP loans, are required to be considered in estimating credit losses. The guarantee is considered “embedded” and, therefore, is considered when estimating credit loss on the PPP loans. Given that the loans are fully guaranteed by the U.S. government and absent any specific loss information about any of our PPP loans, the Company does not carry an ACL on its PPP loans at September 30, 2017 to as a result of organic loan growth.  Our outstanding loans increased $397.8 million from December 31, 2016.  The increase in outstanding loan balances within the nine months ended September 30, 2017 resulted in a higher ALLL requirement.

2021.

The following table presents the unpaid principal and recorded investment for loans at September 30, 2017.2021. The difference between the unpaid principal balance and recorded investment is principally associated with (1) premiums and discounts associated with acquisition date fair value adjustments on acquired loans (both PCI and non-PCI) totaling $10.8$12.1 million of which approximately $9.4 million is expected to be accretable into income over the remaining lives of the acquired loans,at September 30, 2021, and (2) net deferred origination costs and fees totaling $3.6 million.$7.8 million at September 30, 2021. The net difference can provide protection from credit loss in addition to the ALLLACL as future potential charge-offs for an individual loan is limited to the recorded investment plus unpaid accrued interest.

(Dollars in thousands)

 

Recorded

 

 

Unpaid

 

 

 

 

 

(Dollars in thousands)Recorded
Investment		Unpaid
Principal		Difference

September 30, 2017

 

Investment

 

 

Principal

 

 

Difference

 

September 30, 2021September 30, 2021Recorded
Investment		Unpaid
Principal		Difference

Commercial real estate

 

$

574,530

 

 

$

579,896

 

 

$

(5,366

)

Commercial real estate

Construction, land development, land

 

 

141,368

 

 

 

143,200

 

 

 

(1,832

)

Construction, land development, land171,814 171,998 (184)

1-4 family residential properties

 

 

96,032

 

 

 

97,469

 

 

 

(1,437

)

1-4 family residential1-4 family residential127,073 127,446 (373)

Farmland

 

 

130,471

 

 

 

131,528

 

 

 

(1,057

)

Farmland82,990 83,549 (559)

Commercial

 

 

890,372

 

 

 

893,268

 

 

 

(2,896

)

Commercial1,398,497 1,410,739 (12,242)

Factored receivables

 

 

341,880

 

 

 

343,684

 

 

 

(1,804

)

Factored receivables1,607,028 1,611,525 (4,497)

Consumer

 

 

30,093

 

 

 

30,110

 

 

 

(17

)

Consumer12,677 12,689 (12)

Mortgage warehouse

 

 

220,717

 

 

 

220,717

 

 

 

—

 

Mortgage warehouse752,545 752,545 — 

 

$

2,425,463

 

 

$

2,439,872

 

 

$

(14,409

)

$4,782,730 $4,802,673 $(19,943)

At September 30, 20172021 and December 31, 2016,2020, we had on deposit $31.8$189.6 million and $23.6$145.9 million, respectively, of customer reserves associated with factored receivables. These deposits represent customer reserves held to settle any payment disputes or collection shortfalls, may be used to pay customers’ obligations to various third parties as directed by the customer, are periodically released to or withdrawn by customers, and are reported as deposits on our consolidated balance sheets.


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Table of Contents
The following table provides an analysis of the provisions for loan losses, net charge-offs and recoveries, for the three and nine months ended September 30, 2017 and 2016, and the effects of those items on our ALLL:

ACL:

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

Three Months Ended September 30,Nine Months Ended September 30,

(Dollars in thousands)

 

2017

 

 

2016

 

 

2017

 

 

2016

 

(Dollars in thousands)2021202020212020

Balance at beginning of period

 

$

19,797

 

 

$

13,772

 

 

$

15,405

 

 

$

12,567

 

Balance at beginning of period$45,694 $54,613 $95,739 $29,092 

Loans charged-off:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans charged-off:

Commercial real estate

 

 

—

 

 

 

(4

)

 

 

(137

)

 

 

(5

)

Commercial real estate(17)— (17)— 

Construction, land development, land

 

 

—

 

 

 

—

 

 

 

(582

)

 

 

—

 

Construction, land development, land— — (12)— 

1-4 family residential properties

 

 

(1

)

 

 

—

 

 

 

(29

)

 

 

(63

)

1-4 family residential1-4 family residential(1)(6)(26)(27)

Farmland

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Farmland— — — — 

Commercial

 

 

(755

)

 

 

(1,615

)

 

 

(3,833

)

 

 

(1,784

)

Commercial(211)(528)(426)(1,173)

Factored receivables

 

 

(136

)

 

 

(285

)

 

 

(1,102

)

 

 

(743

)

Factored receivables(3,597)(773)(45,683)(3,027)

Consumer

 

 

(270

)

 

 

(68

)

 

 

(877

)

 

 

(223

)

Consumer(139)(118)(285)(410)

Mortgage warehouse

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Mortgage warehouse— — — — 

Total loans charged-off

 

$

(1,162

)

 

$

(1,972

)

 

$

(6,560

)

 

$

(2,818

)

Total loans charged-off$(3,965)$(1,425)$(46,449)$(4,637)

Recoveries of loans charged-off:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recoveries of loans charged-off:

Commercial real estate

 

 

—

 

 

 

1

 

 

 

—

 

 

 

15

 

Commercial real estate2 53 10 61 

Construction, land development, land

 

 

—

 

 

 

7

 

 

 

7

 

 

 

7

 

Construction, land development, land1 2 3 5 

1-4 family residential properties

 

 

23

 

 

 

6

 

 

 

42

 

 

 

82

 

1-4 family residential1-4 family residential5 7 90 40 

Farmland

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Farmland— — — 80 

Commercial

 

 

929

 

 

 

217

 

 

 

1,307

 

 

 

648

 

Commercial— 615 598 949 

Factored receivables

 

 

30

 

 

 

33

 

 

 

82

 

 

 

102

 

Factored receivables239 40 324 95 

Consumer

 

 

178

 

 

 

29

 

 

 

387

 

 

 

62

 

Consumer— 31 92 101 

Mortgage warehouse

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Mortgage warehouse— — — — 

Total loans recoveries

 

$

1,160

 

 

$

293

 

 

$

1,825

 

 

$

916

 

Total loans recoveries$247 $748 $1,117 $1,331 

Net loans charged-off

 

$

(2

)

 

$

(1,679

)

 

$

(4,735

)

 

$

(1,902

)

Net loans charged-off$(3,718)$(677)$(45,332)$(3,306)

Provision for (reversal of) loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit loss expense on loans:Credit loss expense on loans:

Commercial real estate

 

 

58

 

��

 

123

 

 

 

888

 

 

 

413

 

Commercial real estate(453)(2,440)(6,239)6,366 

Construction, land development, land

 

 

210

 

 

 

44

 

 

 

1,235

 

 

 

(142

)

Construction, land development, land(434)(319)(2,352)4,400 

1-4 family residential properties

 

 

111

 

 

 

(10

)

 

 

16

 

 

 

(38

)

1-4 family residential1-4 family residential(64)(56)(804)1,138 

Farmland

 

 

(22

)

 

 

(22

)

 

 

69

 

 

 

(13

)

Farmland(59)(95)(222)(324)

Commercial

 

 

(629

)

 

 

2,521

 

 

 

4,660

 

 

 

3,680

 

Commercial(1,187)(657)(7,936)11,004 

Factored receivables

 

 

645

 

 

 

(7

)

 

 

1,978

 

 

 

77

 

Factored receivables1,186 3,059 8,547 4,475 

Consumer

 

 

208

 

 

 

114

 

 

 

813

 

 

 

313

 

Consumer153 29 (99)583 

Mortgage warehouse

 

 

(9

)

 

 

56

 

 

 

38

 

 

 

(43

)

Mortgage warehouse(101)123 (285)332 

Total provision for loan losses

 

$

572

 

 

$

2,819

 

 

$

9,697

 

 

$

4,247

 

Total credit loss expense (benefit) on loansTotal credit loss expense (benefit) on loans$(959)$(356)$(9,390)$27,974 
Impact of adopting ASU 2016-13Impact of adopting ASU 2016-13— — — 269 
Initial allowance on loans purchased with credit deteriorationInitial allowance on loans purchased with credit deterioration— 37,415 — 37,415 
Reclassification to held for saleReclassification to held for sale— — — (449)

Balance at end of period

 

$

20,367

 

 

$

14,912

 

 

$

20,367

 

 

$

14,912

 

Balance at end of period$41,017 $90,995 $41,017 $90,995 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average total loans held for investment

 

$

2,295,356

 

 

$

1,723,722

 

 

$

2,126,532

 

 

$

1,413,030

 

Average total loans held for investment$4,770,850 $4,499,058 $4,801,059 $4,307,006 

Net charge-offs to average total loans held for investment

 

 

0.00

%

 

 

0.10

%

 

 

0.22

%

 

 

0.13

%

Net charge-offs to average total loans held for investment0.08 %0.02 %0.94 %0.08 %

Allowance to total loans held for investment

 

 

0.84

%

 

 

0.76

%

 

 

0.84

%

 

 

0.76

%

Allowance to total loans held for investment0.86 %1.88 %0.86 %1.88 %

Net loans charged off for the three and nine months ended September 30, 2017 were $2 thousand and $4.7 million, respectively, compared

Quarter to date net loans charged off increased $3.0 million primarily due to increased charge-offs on factored receivables partially offset by decreased charge-offs on commercial loans.
Year to date net loans charged off increased $42.0 million due to the aforementioned charge-off of $1.7$41.3 million of PCD Over-Formula Advances classified as factored receivables. Remaining charge-off and $1.9 million, respectively, for the three and nine months ended September 30, 2016. The commercial loan charge-offrecovery activity during the nine months endedperiods was insignificant individually and in the aggregate.
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Table of Contents

Securities
As of September 30, 2017 was primarily due2021 and December 31, 2020, we held equity securities with a fair value of $5.6 million and $5.8 million, respectively. These securities represent investments in a publicly traded Community Reinvestment Act mutual fund and are subject to the $2.7 million charge-offmarket pricing volatility, with changes in fair value reflected in earnings.
As of the individual healthcare finance client relationship previously discussed.  Net charge-offs as a percentage of average total loans held for investment were 0.00% and 0.22% for the three and nine months ended September 30, 2017, respectively.


Securities

We2021, we held debt securities classified as available for sale with a fair value of $209.3$164.8 million, as of September 30, 2017, a decrease of $65.7$59.5 million from $275.0$224.3 million at December 31, 2016.2020. The decrease is attributable to normal portfolio management activities. Duringfollowing table illustrates the nine months ended September 30, 2017, we sold $2.90 million of securitieschanges in our available for sale debt securities:

Available For Sale Debt Securities:
(Dollars in thousands)September 30, 2021December 31, 2020$ Change% Change
U.S. Government agency obligations$5,001 $15,088 $(10,087)(66.9)%
Mortgage-backed securities, residential18,167 27,684 (9,517)(34.4)%
Asset-backed securities6,864 7,039 (175)(2.5)%
State and municipal29,175 37,395 (8,220)(22.0)%
CLO Securities100,719 122,204 (21,485)(17.6)%
Corporate bonds2,061 11,573 (9,512)(82.2)%
SBA pooled securities2,829 3,327 (498)(15.0)%
$164,816 $224,310 $(59,494)(26.5)%
Our available for proceedssale CLO portfolio consists of $2.94 million, resultinginvestment grade positions in high ranking tranches within their respective securitization structures. As of September 30, 2021, the Company determined that all impaired available for sale securities experienced a net gain of $0.04 million.decline in fair value below their amortized cost basis due to noncredit-related factors. Therefore, the Company carried no ACL at September 30, 2021. Our available for sale securities can be used for pledging to secure FHLB borrowings and public deposits, or can be sold to meet liquidity needs.

Equity securities classified as available for sale at September 30, 2017 represent investments in a publicly traded Community Reinvestment Act mutual fund and are subject to market pricing volatility.

needs.

As of September 30, 2017,2021, we haveheld investments classified as held to maturity with an amortized cost, net of $18.0ACL, of $5.5 million, a decrease of $11.4$0.4 million from $29.4$5.9 million at December 31, 2016 due2020. See previous discussion of Credit Loss Expense related to the call of certain securities during the period. Approximately $9.5 million of these securities represent investments in “A” rated floating rate CLO securities.  The remaining $8.5 million ofour held to maturity securities represent a minority investment infor further details regarding the unrated subordinated notesnature of recently issued CLOs managed by Trinitas Capital Management.  Our former subsidiary, TCA, provides certain middlethese securities and back office services to Trinitas Capital Management with respect to the CLOs, but does not serve as asset manager.

required ACL at September 30, 2021.

The following tables set forth the amortized cost and average yield of our debt securities, by type and contractual maturity as of September 30, 2017:

 

Maturity as of September 30, 2017

 

 

 

One Year or Less

 

 

After One but within Five Years

 

 

After Five but within Ten Years

 

 

After Ten Years

 

 

Total

 

 

 

Amortized

 

 

Average

 

 

Amortized

 

 

Average

 

 

Amortized

 

 

Average

 

 

Amortized

 

 

Average

 

 

Amortized

 

 

Average

 

(Dollars in thousands)

 

Cost

 

 

Yield

 

 

Cost

 

 

Yield

 

 

Cost

 

 

Yield

 

 

Cost

 

 

Yield

 

 

Cost

 

 

Yield

 

U.S. Government agency obligations

 

$

31,758

 

 

 

1.02

%

 

$

93,589

 

 

 

1.65

%

 

$

—

 

 

 

—

 

 

$

—

 

 

 

—

 

 

$

125,347

 

 

 

1.49

%

U.S. Treasury notes

 

 

—

 

 

 

—

 

 

 

1,936

 

 

 

1.94

%

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,936

 

 

 

1.94

%

Mortgage-backed securities

 

 

—

 

 

 

—

 

 

 

484

 

 

 

3.58

%

 

 

2,253

 

 

 

1.77

%

 

 

18,413

 

 

 

2.04

%

 

 

21,150

 

 

 

2.04

%

Asset backed securities

 

 

—

 

 

 

—

 

 

 

4,638

 

 

 

2.14

%

 

 

—

 

 

 

—

 

 

 

7,854

 

 

 

2.52

%

 

 

12,492

 

 

 

2.38

%

State and municipal

 

 

309

 

 

 

2.72

%

 

 

3,123

 

 

 

1.35

%

 

 

7,570

 

 

 

1.30

%

 

 

14,167

 

 

 

1.71

%

 

 

25,169

 

 

 

1.55

%

Corporate bonds

 

 

14,928

 

 

 

1.94

%

 

 

5,549

 

 

 

2.44

%

 

 

—

 

 

 

—

 

 

 

275

 

 

 

5.08

%

 

 

20,752

 

 

 

2.11

%

SBA pooled securities

 

 

—

 

 

 

—

 

 

 

3

 

 

 

3.37

%

 

 

136

 

 

 

3.67

%

 

 

—

 

 

 

—

 

 

 

139

 

 

 

3.66

%

Mutual fund(1)

 

 

2,000

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

2,000

 

 

 

—

 

Total available for sale securities

 

$

48,995

 

 

 

1.32

%

 

$

109,322

 

 

 

1.72

%

 

$

9,959

 

 

 

1.44

%

 

$

40,709

 

 

 

2.05

%

 

$

208,985

 

 

 

1.68

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held to maturity securities:

 

$

—

 

 

 

—

 

 

$

—

 

 

 

—

 

 

$

9,470

 

 

 

5.46

%

 

$

8,529

 

 

 

11.88

%

 

$

17,999

 

 

 

8.58

%

maturity:

(1)

These equity securities do not have a stated maturity.

Maturity as of September 30, 2021
One Year or LessAfter One but within Five YearsAfter Five but within Ten YearsAfter Ten YearsTotal
(Dollars in thousands)Amortized
Cost		Average
Yield		Amortized
Cost		Average
Yield		Amortized
Cost		Average
Yield		Amortized
Cost		Average
Yield		Amortized
Cost		Average
Yield
U.S. Government agency obligations$4,999 2.18 %$— — %$— — %$— — %$4,999 2.18 %
Mortgage-backed securities487 3 %2,022 1.84 %4,176 1.84 %10,623 3.07 %17,308 2.63 %
Asset-backed securities— — %61 0.27 %5,000 0.27 %1,799 1.28 %6,860 0.53 %
State and municipal9,267 2.63 %2,696 3.02 %2,414 2.80 %14,136 2.53 %28,513 2.63 %
CLO securities— — %— — %70,177 4.02 %26,751 2.61 %96,928 3.63 %
Corporate bonds718 3.17 %1,001 1.37 %— — %271 5.07 %1,990 2.50 %
SBA pooled securities— — %22 3.04 %— — %2,713 4.10 %2,735 4.09 %
Total available for sale securities$15,471 2.52 %$5,802 2.30 %$81,767 3.66 %$56,293 2.71 %$159,333 3.17 %
Held to maturity securities:$— — %$— — %$7,225 — %$— — %$7,225 — %

Liabilities

Our total

Total liabilities were $2.520$5.204 billion as of September 30, 2017, an increase of $168 million, from $2.3522021, compared to $5.209 billion at December 31, 2016. 2020, a decrease of $5.1 million, the components of which are discussed below.

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Table of Contents
Deposits
The net change wasfollowing table summarizes our deposits:
(Dollars in thousands)September 30, 2021December 31, 2020$ Change% Change
Noninterest bearing demand$2,020,984 $1,352,785 $668,199 49.4 %
Interest bearing demand795,234 688,680 106,554 15.5 %
Individual retirement accounts86,012 92,584 (6,572)(7.1 %)
Money market472,242 393,325 78,917 20.1 %
Savings483,946 421,488 62,458 14.8 %
Certificates of deposit574,539 790,844 (216,305)(27.4 %)
Brokered time deposits117,064 516,786 (399,722)(77.3 %)
Other brokered deposits272,554 460,108 (187,554)(40.8 %)
Total Deposits$4,822,575 $4,716,600 $105,975 2.2 %
Our total deposits increased $106.0 million, or 2.2%, primarily due to a $9 million increase in customer repurchase agreements, a $155 million increase in Federal Home Loan Bank advances, and a $7 million increase in other liabilities, offset in part by a $3 million decrease in customer deposits.

Deposits

Deposits represent our primary source of funds. We intend to continue to focus on growth in transactionalnoninterest and interest bearing demand deposits partially offset by decreases in certificates of deposit, accounts as part of our growth strategy, both in our existing branch networksbrokered time deposits, and through targeted acquisitions.

Our totalother brokered deposits. Other brokered deposits were $2.013 billion as of September 30, 2017, compared to $2.016 billion as of December 31, 2016, a decrease of $3 million.  The decrease inare non-maturity deposits was due in part to an intentional reduction in our reliance on the use of public funds during the period.obtained from wholesale sources. As of September 30, 2017,2021, interest bearing demand deposits, noninterest bearing deposits, money market deposits, other brokered deposits, and savings deposits accounted for 51%84% of our total deposits, while individual retirement accounts, certificates of deposit, and brokered time deposits made up 49%16% of total deposits. See Note 7 – Deposits in the accompanying condensed notes to consolidated financial statements included elsewhere in this report for details of our deposit balances as of September 30, 2017 and December 31, 2016.


The following table provides information on the maturity distribution of time deposits with individual balances of $100,000 to $250,000 and of time deposits with individual balances of $250,000 or more as of September 30, 2017:

2021:

 

$100,000 to

 

 

$250,000 and

 

 

 

 

 

(Dollars in thousands)

 

$250,000

 

 

Over

 

 

Total

 

(Dollars in thousands)$100,000 to
$250000		$250,000 and
Over		Total

Maturity

 

 

 

 

 

 

 

 

 

 

 

 

Maturity

3 months or less

 

$

76,588

 

 

$

29,309

 

 

$

105,897

 

3 months or less$92,070 $40,259 $132,329 

Over 3 through 6 months

 

 

88,641

 

 

 

43,569

 

 

 

132,210

 

Over 3 through 6 months97,148 19,042 116,190 

Over 6 through 12 months

 

 

148,295

 

 

 

49,621

 

 

 

197,916

 

Over 6 through 12 months126,159 49,354 175,513 

Over 12 months

 

 

93,527

 

 

 

31,671

 

 

 

125,198

 

Over 12 months33,113 15,949 49,062 

 

$

407,051

 

 

$

154,170

 

 

$

561,221

 

$348,490 $124,604 $473,094 

The following table summarizes our average deposit balances and weighted average rates for the three and nine months ended September 30, 2017 and 2016:

rates:

 

Three Months Ended September 30, 2017

 

 

Three Months Ended September 30, 2016

 

 

Average

 

 

Weighted

 

 

% of

 

 

Average

 

 

Weighted

 

 

% of

 

(Dollars in thousands)

 

Balance

 

 

Avg Yields

 

 

Total

 

 

Balance

 

 

Avg Yields

 

 

Total

 

Interest bearing demand

 

$

312,009

 

 

 

0.17

%

 

 

15

%

 

$

280,689

 

 

 

0.10

%

 

 

17

%

Individual retirement accounts

 

 

98,713

 

 

 

1.24

%

 

 

5

%

 

 

87,723

 

 

 

1.15

%

 

 

5

%

Money market

 

 

201,462

 

 

 

0.23

%

 

 

10

%

 

 

182,124

 

 

 

0.21

%

 

 

11

%

Savings

 

 

167,908

 

 

 

0.05

%

 

 

8

%

 

 

140,338

 

 

 

0.07

%

 

 

8

%

Certificates of deposit

 

 

773,075

 

 

 

1.22

%

 

 

38

%

 

 

670,372

 

 

 

1.09

%

 

 

39

%

Brokered deposits

 

 

72,094

 

 

 

1.69

%

 

 

4

%

 

 

49,964

 

 

 

1.00

%

 

 

3

%

Total interest bearing deposits

 

 

1,625,261

 

 

 

0.80

%

 

 

80

%

 

 

1,411,210

 

 

 

0.68

%

 

 

83

%

Noninterest bearing demand

 

 

398,774

 

 

 

—

 

 

 

20

%

 

 

283,128

 

 

 

—

 

 

 

17

%

Total deposits

 

$

2,024,035

 

 

 

0.64

%

 

 

100

%

 

$

1,694,338

 

 

 

0.57

%

 

 

100

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2017

 

 

Nine Months Ended September 30, 2016

 

Three Months Ended September 30, 2021Three Months Ended September 30, 2020

 

Average

 

 

Weighted

 

 

% of

 

 

Average

 

 

Weighted

 

 

% of

 

Average

(Dollars in thousands)

 

Balance

 

 

Avg Yields

 

 

Total

 

 

Balance

 

 

Avg Yields

 

 

Total

 

(Dollars in thousands)Average
Balance		Weighted
Avg Yields		% of
Total		Average
Balance		Weighted
Avg Yields		% of
Total

Interest bearing demand

 

$

326,798

 

 

 

0.16

%

 

 

16

%

 

$

248,249

 

 

 

0.10

%

 

 

18

%

Interest bearing demand$779,625 0.22 %16 %$635,287 0.13 %15 %

Individual retirement accounts

 

 

100,224

 

 

 

1.20

%

 

 

5

%

 

 

71,297

 

 

 

1.20

%

 

 

5

%

Individual retirement accounts86,571 0.58 %2 %95,962 1.24 %2 %

Money market

 

 

205,585

 

 

 

0.23

%

 

 

10

%

 

 

139,164

 

 

 

0.22

%

 

 

10

%

Money market417,435 0.21 %9 %385,620 0.27 %9 %

Savings

 

 

170,431

 

 

 

0.06

%

 

 

8

%

 

 

98,714

 

 

 

0.06

%

 

 

7

%

Savings479,915 0.15 %10 %400,102 0.15 %10 %

Certificates of deposit

 

 

767,680

 

 

 

1.16

%

 

 

39

%

 

 

599,475

 

 

 

1.10

%

 

 

42

%

Certificates of deposit595,001 0.48 %12 %905,075 1.66 %23 %

Brokered deposits

 

 

69,359

 

 

 

1.52

%

 

 

3

%

 

 

49,970

 

 

 

1.01

%

 

 

4

%

Brokered time depositsBrokered time deposits99,116 0.12 %2 %247,928 1.51 %6 %
Other brokered depositsOther brokered deposits441,446 0.20 %9 %251,701 0.30 %6 %

Total interest bearing deposits

 

 

1,640,077

 

 

 

0.75

%

 

 

81

%

 

 

1,206,869

 

 

 

0.71

%

 

 

86

%

Total interest bearing deposits2,899,109 0.27 %60 %2,921,675 0.79 %71 %

Noninterest bearing demand

 

 

388,217

 

 

 

—

 

 

 

19

%

 

 

203,747

 

 

 

—

 

 

 

14

%

Noninterest bearing demand1,912,398 — 40 %1,213,494 — 29 %

Total deposits

 

$

2,028,294

 

 

 

0.61

%

 

 

100

%

 

$

1,410,616

 

 

 

0.61

%

 

 

100

%

Total deposits$4,811,507 0.16 %100 %$4,135,169 0.56 %100 %


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Table of Contents
Nine Months Ended September 30, 2021Nine Months Ended September 30, 2020
(Dollars in thousands)Average
Balance		Weighted
Avg Yields		% of
Total		Average
Balance		Weighted
Avg Yields		% of
Total
Interest bearing demand$746,590 0.23 %15 %$617,392 0.18 %16 %
Individual retirement accounts88,579 0.69 %2 %99,827 1.42 %3 %
Money market404,651 0.22 %8 %408,487 0.54 %10 %
Savings465,041 0.15 %10 %382,236 0.15 %10 %
Certificates of deposit674,284 0.76 %14 %993,590 2.00 %25 %
Brokered time deposits134,781 0.26 %3 %297,829 1.83 %8 %
Other brokered deposits641,959 0.16 %13 %86,064 0.30 %2 %
Total interest bearing deposits3,155,885 0.33 %65 %2,885,425 1.07 %74 %
Noninterest bearing demand1,720,213 — 35 %1,021,745 — 26 %
Total deposits$4,876,098 0.21 %100 %$3,907,170 0.79 %100 %
Other Borrowings

Customer Repurchase Agreements

Customer repurchase agreements outstanding totaled $19.9 million at September 30, 2017 and $10.5 million at December 31, 2016. Our customer repurchase agreements generally overnight maturities. Variances in these balances are attributable to normal customer behavior and seasonal factors affecting their liquidity positions.

The following provides a summary of our customer repurchase agreements as of and for the nine months ended September 30, 20172021 and the year ended December 31, 2016:

2020:

 

September 30,

 

 

December 31,

 

(Dollars in thousands)

 

2017

 

 

2016

 

(Dollars in thousands)September 30, 2021December 31, 2020

Amount outstanding at end of period

 

$

19,869

 

 

$

10,490

 

Amount outstanding at end of period$11,990 $3,099 

Weighted average interest rate at end of period

 

 

0.03

%

 

 

0.02

%

Weighted average interest rate at end of period0.03 %0.03 %

Average daily balance during the period

 

$

12,736

 

 

$

11,984

 

Average daily balance during the period$6,200 $6,716 

Weighted average interest rate during the period

 

 

0.02

%

 

 

0.02

%

Weighted average interest rate during the period0.03 %0.03 %

Maximum month-end balance during the period

 

$

21,041

 

 

$

15,329

 

Maximum month-end balance during the period$12,405 $14,192 

Our customer repurchase agreements generally have overnight maturities. Variances in these balances are attributable to normal customer behavior and seasonal factors affecting their liquidity positions.
FHLB Advances

As part of our overall funding and liquidity management program, we borrow from the Federal Home Loan Bank. Our FHLB advances are collateralized by assets, including a blanket pledge of certain loans.  Our mortgage warehouse facilities are also included in our borrowing base with the FHLB. Our FHLB borrowings totaled $385.0 million as of September 30, 2017 and $230.0 million as of December 31, 2016.  As of September 30, 2017 and December 31, 2016, we had $120.1 million and $267.1 million, respectively, in unused and available advances from the FHLB.

The following provides a summary of our FHLB advances as of and for the nine months ended September 30, 20172021 and the year ended December 31, 2016:

2020:

 

September 30,

 

 

December 31,

 

(Dollars in thousands)

 

2017

 

 

2016

 

(Dollars in thousands)September 30, 2021December 31, 2020

Amount outstanding at end of period

 

$

385,000

 

 

$

230,000

 

Amount outstanding at end of period$30,000 $105,000 

Weighted average interest rate at end of period

 

 

1.16

%

 

 

0.58

%

Weighted average interest rate at end of period0.27 %0.17 %

Average amount outstanding during the period

 

 

274,174

 

 

 

174,784

 

Average amount outstanding during the period37,234 342,264 

Weighted average interest rate during the period

 

 

0.96

%

 

 

0.41

%

Weighted average interest rate during the period0.24 %0.58 %

Highest month end balance during the period

 

 

385,000

 

 

 

291,000

 

Highest month end balance during the period180,000 850,000 

Our FHLB advances are collateralized by assets, including a blanket pledge of certain loans. At September 30, 2021 and December 31, 2020, we had $995.3 million and $1.247 billion, respectively, in unused and available advances from the FHLB.
Paycheck Protection Program Liquidity Facility (“PPPLF”)
The PPPLF is a lending facility offered by the Federal Reserve Banks to facilitate lending to small businesses under the PPP. Borrowings under the PPPLF are secured by PPP loans guaranteed by the Small Business Administration (“SBA”) and mature at the same time as the PPP loan pledged to secure the extension of credit. The maturity dates of the borrowings will be accelerated if the underlying PPP loan goes into default and Company sells the PPP loan to the SBA to realize on the SBA guarantee or if the Company receives any loan forgiveness reimbursement from the SBA for the underlying PPP loan.
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Table of Contents
Information concerning borrowings under the PPPLF is summarized as follows for the nine months ended September 30, 2021and the year ended December 31, 2020:
(Dollars in thousands)September 30, 2021December 31, 2020
Amount outstanding at end of period$97,554 $191,860 
Weighted average interest rate at end of period0.35 %0.35 %
Average amount outstanding during the period116,134 143,608 
Weighted average interest rate during the period0.35 %0.35 %
Highest month end balance during the period181,635 223,809 
At September 30, 2021, scheduled maturities of PPPLF borrowings are as follows:
(Dollars in thousands)September 30, 2021
Within one year$24,796 
After four but within five years72,758 
Total$97,554 
At September 30, 2021 and December 31, 2020, the PPPLF borrowings were secured by PPP Loans totaling $97.6 million and $191.9 million, respectively, and bear interest at a fixed rate of 0.35% annually.
Subordinated Notes

In

On September 30, 2016, we issued $50.0 million of Fixed-to-Floating Rate Subordinated Notes due 2026 (the “Notes”“2016 Notes”). The 2016 Notes which initially bear interest at 6.50% per annum, are payable semi-annually in arrears, to, but excluding, September 30, 2021, and, thereafter and to, but excluding, the maturity date or earlier redemption, interest shall be payable quarterly in arrears, at an annual floating rate equal to three-month LIBOR as determined for the applicable quarterly period, plus 5.345%. We redeemed the 2016 Notes in whole on September 30, 2021.
On November 27, 2019, we issued $39.5 million of Fixed-to-Floating Rate Subordinated Notes due 2029 (the “2019 Notes”). The 2019 Notes initially bear interest at 4.875% per annum, payable semi-annually in arrears, to, but excluding, November 27, 2024, and, thereafter and to, but excluding, the maturity date or earlier redemption, interest shall be payable quarterly in arrears, at an annual floating rate equal to a benchmark rate, initially three-month LIBOR, as determined for the applicable quarterly period, plus 3.330%. We may, at our option, beginning on September 30, 2021November 27, 2024 and on any scheduled interest payment date thereafter, redeem the 2019 Notes, in whole or in part, at a redemption price equal to 100% of the outstanding principal amount of the 2019 Notes to be redeemed plus accrued and unpaid interest to, but excluding, the date of redemption.

On August 26, 2021, we issued $70.0 million of Fixed-to-Floating Rate Subordinated Notes due 2031 (the “2021 Notes”). The 2021 Notes initially bear interest at 3.500% per annum, payable semi-annually in arrears, to, but excluding, September 1, 2026, and, thereafter and to, but excluding, the maturity date or earlier redemption, interest shall be payable quarterly in arrears, at an annual floating rate equal to a benchmark rate, initially the three-month term secured overnight financing rate ("SOFR"), as determined for the applicable quarterly period, plus 2.860%. We may, at our option, beginning on September 1, 2026 and on any scheduled interest payment date thereafter, redeem the 2021 Notes, in whole or in part, at a redemption price equal to the outstanding principal amount of the 2021 Notes to be redeemed plus accrued and unpaid interest to, but excluding, the date of redemption.
The Subordinated Notes are included on theour consolidated balance sheet as liabilities; however, for regulatory purposes, the carrying value of these obligations is eligible for inclusion in Tier 2 regulatory capital.

Issuance costs related to the Subordinated Notes totaled $1.3 million, including an underwriting discount of 1.5%, or $0.8 million, and have been netted against the subordinated notes liability on the consolidated balance sheets. The underwriting discountsheets and other debt issuance costs are being amortized using the effective interest method overthrough the lifeearliest respective redemption date as a component of interest expense. The carrying value of the Subordinated Notes as an adjustment to interest expense.  

totaled $106.8 million at September 30, 2021.

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Table of Contents
Junior Subordinated Debentures

The following provides a summary of our junior subordinated debentures as of September 30, 2017:

2021:

(Dollars in thousands)

 

Face Value

 

 

Carrying Value

 

 

Maturity Date

 

Interest Rate

(Dollars in thousands)Face ValueCarrying ValueMaturity DateInterest Rate

National Bancshares Capital Trust II

 

$

15,464

 

 

$

12,834

 

 

September 2033

 

LIBOR + 3.00%

National Bancshares Capital Trust II$15,464 $13,316 September 2033LIBOR + 3.00%

National Bancshares Capital Trust III

 

 

17,526

 

 

 

12,343

 

 

July 2036

 

LIBOR + 1.64%

National Bancshares Capital Trust III17,526 13,134 July 2036LIBOR + 1.64%

ColoEast Capital Trust I

 

 

5,155

 

 

 

3,402

 

 

September 2035

 

LIBOR + 1.60%

ColoEast Capital Trust I5,155 3,665 September 2035LIBOR + 1.60%

ColoEast Capital Trust II

 

 

6,700

 

 

 

4,468

 

 

March 2037

 

LIBOR + 1.79%

ColoEast Capital Trust II6,700 4,763 March 2037LIBOR + 1.79%
Valley Bancorp Statutory Trust IValley Bancorp Statutory Trust I3,093 2,889 September 2032LIBOR + 3.40%
Valley Bancorp Statutory Trust IIValley Bancorp Statutory Trust II3,093 2,700 July 2034LIBOR + 2.75%

 

$

44,845

 

 

$

33,047

 

 

 

 

 

$51,031 $40,467 

These debentures are unsecured obligations and were issued to trusts that are unconsolidated subsidiaries. The trusts in turn issued trust preferred securities with identical payment terms to unrelated investors. The debentures may be called by the Company at par plus any accrued but unpaid interest; however, we have no current plans to redeem them prior to maturity. Interest on the debentures is calculated quarterly, based on a contractual rate equal to three month LIBOR plus a weighted average spread of 2.13%2.24%. As part of the purchase accounting adjustments made with the National Bancshares, Inc. acquisition on October 15, 2013, and the ColoEast acquisition on August 1, 2016, and the Valley acquisition on December 9, 2017, we adjusted the carrying value of the junior subordinated debentures to fair value as of the respective acquisition dates. The discounts on the debentures will continue to be amortized through maturity and recognized as a component of interest expense.

The debentures are included on our consolidated balance sheet as liabilities; however, for regulatory purposes, these obligations are eligible for inclusion in regulatory capital, subject to certain limitations. All of the carrying value of $33.0$40.5 million was allowed in the calculation of Tier I capital as of September 30, 2017.

2021.

Capital Resources and Liquidity Management

Capital Resources

Our stockholders’ equity totaled $386.1$820.7 million as of September 30, 2017, an increase of $96.8 million from $289.32021, compared to $726.8 million as of December 31, 2016.2020, an increase of $93.9 million. Stockholders’ equity increased during this period primarily due to $65.5 million of net proceeds from the August 1, 2017 common stock offering previously discussed, andour net income for the period of $29.9$86.3 million. Offsetting these increases were dividends paid on our preferred stock.

Liquidity Management

We define liquidity as our ability to generate sufficient cash to fund current loan demand, deposit withdrawals, or other cash demands and disbursement needs, and otherwise to operate on an ongoing basis.

We manage liquidity at the holding company level as well as that of our bank subsidiary. The management of liquidity at both levels is critical, because the holding company and our bank subsidiary have different funding needs and sources, and each areis subject to regulatory guidelines and requirements which require minimum levels of liquidity. We believe that our liquidity ratios meet or exceed those guidelines and that our present position is adequate to meet our current and future liquidity needs.

Our liquidity requirements are met primarily through cash flow from operations, receipt of pre-paid and maturing balances in our loan and investment portfolios, debt financing and increases in customer deposits. Our liquidity position is supported by management of liquid assets and liabilities and access to other sources of funds. Liquid assets include cash, interest earning deposits in banks, federal funds sold, securities available for sale and maturing or prepaying balances in our investment and loan portfolios. Liquid liabilities include core deposits, federal funds purchased, securities sold under repurchase agreements and other borrowings. Other sources of funds include the sale of loans, brokered deposits, the issuance of additional collateralized borrowings such as FHLB advances or borrowings from the Federal Reserve, the issuance of debt securities and the issuance of common securities. For additional information regarding our operating, investing and financing cash flows, see the Consolidated Statements of Cash Flows provided in our consolidated financial statements.

In addition to the liquidity provided by the sources described above, our subsidiary bank maintains correspondent relationships with other banks in order to sell loans or purchase overnight funds should additional liquidity be needed. As of September 30, 2017,2021, TBK Bank had $529.3 million of unused borrowing capacity from the Federal Reserve Bank discount window and unsecured federal funds lines of credit with seven unaffiliated banks totaling $137.5$227.5 million, with no amounts advanced against those lines at that time.

lines.

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Table of Contents
Regulatory Capital Requirements

Our capital management consists of providing equity to support our current and future operations. We are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s or TBK Bank’s financial statements. UnderFor further information regarding our regulatory capital adequacy guidelines andrequirements, see Note 12 – Regulatory Matters in the regulatory framework for prompt corrective action, the Company and TBK Bank each must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

The Company is subjectaccompanying condensed notes to the Basel III regulatory capital framework.  Beginningconsolidated financial statements included elsewhere in January 2016, the implementation of the capital conservation buffer was effective for the Company starting at the 0.625% level and increasing 0.625% each year thereafter, until it reaches 2.5% on January 1, 2019.  The capital conservation buffer was 1.25% and 0.625% at September 30, 2017 and December 31, 2016, respectively.  The capital conservation buffer is designed to absorb losses during periods of economic stress and requires increased capital levels for the purpose of capital distributions and other payments.  Failure to meet the full amount of the buffer will result in restrictions on the Company’s ability to make capital distributions, including dividend payments and stock repurchases, and to pay discretionary bonuses to executive officers.

Quantitative measures established by regulations to ensure capital adequacy require the Company and TBK Bank to maintain minimum amounts and ratios (as set forth in the table below) of total, Tier 1, and common equity Tier 1 capital to risk weighted assets, and of Tier 1 capital to average assets. Management believes, as of September 30, 2017, the Company and TBK Bank meet all capital adequacy requirements to which they are subject, including the capital conservation buffer requirement.

As of September 30, 2017, TBK Bank’s capital ratios exceeded those levels necessary to be categorized as “well capitalized” under the regulatory framework for prompt corrective action.  To be categorized as “well capitalized”, TBK Bank must maintain minimum total risk based, common equity Tier 1 risk based, Tier 1 risk based, and Tier 1 leverage ratios as set forth in the table below.  There are no conditions or events since September 30, 2017 that management believes would have changed TBK Bank’s category.

The actual capital amounts and ratios for the Company and TBK Bank are presented in the following table as of September 30, 2017.  The capital adequacy amounts and ratios below do not include the capital conservation buffer in effect at September 30, 2017.

this report.

  

 

 

 

 

 

 

 

To Be Well

 

 

 

 

 

 

 

 

 

Capitalized Under

 

 

 

 

 

 

Minimum for Capital

 

 

Prompt Corrective

 

(Dollars in thousands)

 

Actual

 

 

Adequacy Purposes

 

 

Action Provisions

 

As of September 30, 2017

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

Total capital (to risk weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Triumph Bancorp, Inc.

 

$

448,847

 

 

 

15.9%

 

 

$

225,685

 

 

 

8.0%

 

 

N/A

 

 

N/A

 

TBK Bank, SSB

 

$

331,031

 

 

 

12.4%

 

 

$

214,319

 

 

 

8.0%

 

 

$

267,898

 

 

 

10.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 capital (to risk weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Triumph Bancorp, Inc.

 

$

379,315

 

 

 

13.4%

 

 

$

169,264

 

 

 

6.0%

 

 

N/A

 

 

N/A

 

TBK Bank, SSB

 

$

310,387

 

 

 

11.6%

 

 

$

160,739

 

 

 

6.0%

 

 

$

214,319

 

 

 

8.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common equity Tier 1 capital (to risk weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Triumph Bancorp, Inc.

 

$

337,194

 

 

 

12.0%

 

 

$

126,948

 

 

 

4.5%

 

 

N/A

 

 

N/A

 

TBK Bank, SSB

 

$

310,387

 

 

 

11.6%

 

 

$

120,554

 

 

 

4.5%

 

 

$

174,134

 

 

 

6.5%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 capital (to average assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Triumph Bancorp, Inc.

 

$

379,315

 

 

 

13.5%

 

 

$

112,360

 

 

 

4.0%

 

 

N/A

 

 

N/A

 

TBK Bank, SSB

 

$

310,387

 

 

 

11.2%

 

 

$

110,892

 

 

 

4.0%

 

 

$

138,615

 

 

 

5.0%

 


Contractual Obligations

The following table summarizes our contractual obligations and other commitments to make future payments as of September 30, 2017.2021. The amount of the obligations presented in the table reflects principal amounts only and excludes the amount of interest we are obligated to pay. Also excluded from the table are a number of obligations to be settled in cash. These excluded items are reflected in our consolidated balance sheet and include deposits with no stated maturity, trade payables, and accrued interest payable.

 

Payments Due by Period - September 30, 2017

 

Payments Due by Period - September 30, 2021

(Dollars in thousands)

 

Total

 

 

One Year or

Less

 

 

After One

but within

Three Years

 

 

After Three

but within

Five Years

 

 

After Five

Years

 

(Dollars in thousands)TotalOne Year or
Less		After One
but within
Three Years		After Three
but within
Five Years		After Five
Years

Customer repurchase agreements

 

$

19,869

 

 

$

19,869

 

 

$

—

 

 

$

—

 

 

$

—

 

Customer repurchase agreements$11,990 $11,990 $— $— $— 

Federal Home Loan Bank advances

 

 

385,000

 

 

 

355,000

 

 

 

—

 

 

 

—

 

 

 

30,000

 

Federal Home Loan Bank advances30,000 — — — 30,000 
Paycheck Protection Program Liquidity FacilityPaycheck Protection Program Liquidity Facility97,554 24,796 — 72,758 — 

Subordinated notes

 

 

50,000

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

50,000

 

Subordinated notes109,500 — — — 109,500 

Junior subordinated debentures

 

 

44,845

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

44,845

 

Junior subordinated debentures51,031 — — — 51,031 

Operating lease agreements

 

 

6,459

 

 

 

1,919

 

 

 

3,022

 

 

 

1,168

 

 

 

350

 

Operating lease agreements40,282 5,101 9,616 9,025 16,540 

Time deposits with stated maturity dates

 

 

976,979

 

 

 

675,380

 

 

 

243,794

 

 

 

57,805

 

 

 

—

 

Time deposits with stated maturity dates777,615 675,332 94,049 8,234 — 

Total contractual obligations

 

$

1,483,152

 

 

$

1,052,168

 

 

$

246,816

 

 

$

58,973

 

 

$

125,195

 

Total contractual obligations$1,117,972 $717,219 $103,665 $90,017 $207,071 

Off-Balance Sheet Arrangements

In the normal course of business, we enter into various transactions, which, in accordance with GAAP, are not included in our consolidated balance sheets. We enter into these transactions to meet the financing needs of our customers. These transactions include commitments to extend credit and standby and commercial letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the consolidated balance sheets.

The following table details our commitments associated with outstanding standby and commercial letters of credit and commitments For further information, see Note 10 – Off-Balance Sheet Loan Commitments in the accompanying condensed notes to extend credit. Since commitments associated with letters of credit and commitments to extend credit may expire unused, the amounts shown do not necessarily reflect actual future cash funding requirements.

consolidated financial statements included elsewhere in this report.

 

September 30,

 

 

December 31,

 

(Dollars in thousands)

 

2017

 

 

2016

 

Commitments to make loans

 

$

7,028

 

 

$

14,925

 

Unused lines of credit

 

 

321,904

 

 

 

255,086

 

Standby letters of credit

 

 

8,800

 

 

 

7,253

 

Total other commitments

 

$

337,732

 

 

$

277,264

 

Critical Accounting Policies and Estimates

Our accounting policies are fundamental to understanding our management’s discussion and analysis of our results of operations and financial condition. We have identified certain significant accounting policies which involve a higher degree of judgment and complexity in making certain estimates and assumptions that affect amounts reported in our consolidated financial statements. The significant accounting policiespolicy which we believe to be the most critical in preparing our consolidated financial statements relate to originated loans, purchased loans, factored receivables, ALLL, goodwill and intangibles, and fair valuesis the determination of financial instruments.the allowance for credit losses. Since December 31, 2016,2020, there have been no changes in critical accounting policies as further described under “Critical Accounting Policies and Estimates” and in Note 1 to the Consolidated Financial Statements in our 20162020 Form 10-K.


Recently Issued Accounting Pronouncements

See Note 1 – Summary of Significant Accounting Policies in the accompanying condensed notes to consolidated financial statements included elsewhere in this report for details of recently issued accounting pronouncements and their expected impact on our consolidated financial statements.

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Forward-Looking Statements

This document contains forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would” and “outlook,” or the negative version of those words or other comparable of a future or forward-looking nature. These forward-looking statements are not historical facts and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control.control, particularly with regard to developments related to COVID-19. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.

There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but are not limited to, the following:

our limited operating history as an integrated company and our recent acquisitions;

•business and economic conditions generally and in the bank and non-bank financial services industries, nationally and within our local market area;

areas;
•the impact of COVID-19 on our business, including the impact of the actions taken by governmental authorities to try and contain the virus or address the impact of the virus on the United States economy (including, without limitation, the CARES Act), and the resulting effect of all of such items on our operations, liquidity and capital position, and on the financial condition of our borrowers and other customers;

•our ability to mitigate our risk exposures;

•our ability to maintain our historical earnings trends;

risks related to the integration of acquired businesses (including our acquisition of nine branches from Independent Bank in Colorado and our pending acquisition of Valley Bancorp, Inc.) and any future acquisitions;

•changes in management personnel;

•interest rate risk;

•concentration of our factoringproducts and services in the transportation industry;

•credit risk associated with our loan portfolio;

•lack of seasoning in our loan portfolio;

•deteriorating asset quality and higher loan charge-offs;

•time and effort necessary to resolve nonperforming assets;

•inaccuracy of the assumptions and estimates we make in establishing reserves for probable loan losses and other estimates;

•risks related to the integration of acquired businesses, including our acquisition of HubTran Inc. and developments related to our acquisition of Transport Financial Solutions and the related over-formula advances, and any future acquisitions;

•our ability to successfully identify and address the risks associated with our possible future acquisitions, and the risks that our prior and possible future acquisitions make it more difficult for investors to evaluate our business, financial condition and results of operations, and impairs our ability to accurately forecast our future performance;

•lack of liquidity;

•fluctuations in the fair value and liquidity of the securities we hold for sale;

•impairment of investment securities, goodwill, other intangible assets or deferred tax assets;

•our risk management strategies;

•environmental liability associated with our lending activities;

•increased competition in the bank and non-bank financial services industries, nationally, regionally or locally, which may adversely affect pricing and terms;

•the accuracy of our financial statements and related disclosures;

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•material weaknesses in our internal control over financial reporting;

•system failures or failures to prevent breaches of our network security;


•

the institution and outcome of litigation and other legal proceedings against us or to which we become subject;

•the institution and outcome of litigation and other legal proceedings against us or to which we become subject;

•changes in carry-forwards of net operating losses;

•changes in federal tax law or policy;

•the impact of recent and future legislative and regulatory changes, including changes in banking, securities and tax laws and regulations, such as the Dodd-Frank Act and their application by our regulators;

•governmental monetary and fiscal policies;

•changes in the scope and cost of FDIC, insurance and other coverages;

•failure to receive regulatory approval for future acquisitions; and

•increases in our capital requirements.

The foregoing factors should not be construed as exhaustive. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made and we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. New factors emerge from time to time and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Asset/Liability Management and Interest Rate Risk

The principal objective of our asset and liability management function is to evaluate the interest rate risk within the balance sheet and pursue a controlled assumption of interest rate risk while maximizing net income and preserving adequate levels of liquidity and capital. The Boardboard of Directorsdirectors of our subsidiary bank has oversight of our asset and liability management function, which is managed by our Chief Financial Officer. Our Chief Financial Officer meets with our senior executive management team regularly to review, among other things, the sensitivity of our assets and liabilities to market interest rate changes, local and national market conditions and market interest rates. That group also reviews our liquidity, capital, deposit mix, loan mix and investment positions.

As a financial institution, our primary component of market risk is interest rate volatility. Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most of our assets and liabilities, and the fair value of all interest-earning assets and interest-bearing liabilities, other than those which have a short term to maturity. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair values.

We manage our exposure to interest rates primarily by structuring our balance sheet in the ordinary course of business. We do not typically enter into derivative contracts for the purpose of managing interest rate risk, but we may elect to do so in the future. Based upon the nature of our operations, we are not subject to foreign exchange or commodity price risk. We do not own any trading assets.

We use an interest rate risk simulation model to test the interest rate sensitivity of net interest income and the balance sheet. Instantaneous parallel rate shift scenarios are modeled and utilized to evaluate risk and establish exposure limits for acceptable changes in projected net interest margin. These scenarios, known as rate shocks, simulate an instantaneous change in interest rates and use various assumptions, including, but not limited to, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, and reinvestment and replacement of asset and liability cash flows. We also analyze the economic value of equity as a secondary measure of interest rate risk. This is a complementary measure to net interest income where the calculated value is the result of the fair value of assets less the fair value of liabilities. The economic value of equity is a longer term view of interest rate risk because it measures the present value of all future cash flows. The impact of changes in interest rates on this calculation is analyzed for the risk to our future earnings and is used in conjunction with the analyses on net interest income.


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The following table summarizes simulated change in net interest income versus unchanged rates as of September 30, 20172021 and December 31, 2016:

2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2017

 

 

December 31, 2016

 

September 30, 2021December 31, 2020

 

Following 12 Months

 

 

Months

13-24

 

 

Following 12 Months

 

 

Months

13-24

 

Following 12 MonthsMonths
13-24		Following 12 MonthsMonths
13-24

+400 basis points

 

 

6.4

%

 

 

1.2

%

 

 

5.0

%

 

 

1.0

%

+400 basis points23.2 %31.6 %18.4 %19.8 %

+300 basis points

 

 

4.8

%

 

 

1.0

%

 

 

3.6

%

 

 

0.8

%

+300 basis points15.5 %19.7 %13.6 %15.3 %

+200 basis points

 

 

3.0

%

 

 

0.5

%

 

 

2.1

%

 

 

0.2

%

+200 basis points10.4 %13.9 %8.7 %10.7 %

+100 basis points

 

 

1.4

%

 

 

0.3

%

 

 

0.8

%

 

 

(0.2

%)

+100 basis points5.4 %8.1 %3.9 %6.0 %

Flat rates

 

 

0.0

%

 

 

0.0

%

 

 

0.0

%

 

 

0.0

%

Flat rates0.0 %0.0 %0.0 %0.0 %

-100 basis points

 

 

(2.0

%)

 

 

(1.9

%)

 

 

(2.8

%)

 

 

(3.6

%)

-100 basis points(2.8 %)(2.0 %)(3.6 %)(2.6 %)

The following table presents the change in our economic value of equity as of September 30, 20172021 and December 31, 2016,2020, assuming immediate parallel shifts in interest rates:

 

Economic Value of Equity at Risk (%)

 

Economic Value of Equity at Risk (%)

 

September 30, 2017

 

 

December 31, 2016

 

September 30, 2021December 31, 2020

+400 basis points

 

 

0.9

%

 

 

(2.0

%)

+400 basis points35.0 %36.5 %

+300 basis points

 

 

0.0

%

 

 

(3.2

%)

+300 basis points27.5 %28.9 %

+200 basis points

 

 

(0.9

%)

 

 

(4.3

%)

+200 basis points19.3 %20.3 %

+100 basis points

 

 

(1.3

%)

 

 

(4.1

%)

+100 basis points10.1 %10.7 %

Flat rates

 

 

0.0

%

 

 

0.0

%

Flat rates0.0 %0.0 %

-100 basis points

 

 

(10.1

%)

 

 

(12.2

%)

-100 basis points(10.8 %)(11.4 %)

Many assumptions are used to calculate the impact of interest rate fluctuations. Actual results may be significantly different than our projections due to several factors, including the timing and frequency of rate changes, market conditions and the shape of the yield curve. The computations of interest rate risk shown above do not include actions that our management may undertake to manage the risks in response to anticipated changes in interest rates, and actual results may also differ due to any actions taken in response to the changing rates.

As part of our asset/liability management strategy, our management has emphasized the origination of shorter duration loans as well as variable rate loans to limit the negative exposure to a rate increase. We also desire to acquire deposit transaction accounts, particularly noninterest or low interest-bearing non-maturity deposit accounts, whose cost is less sensitive to changes in interest rates. We intend to focus our strategy on utilizing our deposit base and operating platform to increase these deposit transaction accounts.

ITEM 4

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply judgment in evaluating its controls and procedures. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective as of the end of the period covered by this report.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 2017,2021, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.


PART

PART II – OTHER INFORMATION

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Table of Contents
Item 1. Legal Proceedings

From time to time we are a party to various litigation matters incidental to the conduct of our business. WeExcept as set forth below, we are not presently party to any legal proceedings the resolution of which we believe would have a material adverse effect on our business, prospects, financial condition, liquidity, results of operation, cash flows or capital levels.

We are party to a lawsuit filed against the United States Postal Service (“USPS”) seeking damages related to invoices totaling approximately $19.4 million that it separately paid to our customer, a vendor to the USPS who hauls mail pursuant to contracts it has with such entity, in violation of notices provided to the USPS that such payments were to be made directly to us (the “Misdirected Payments”). Such action was initially filed in the United States District Court for the Southern District of Florida. During the third quarter of 2021 we, together with the USPS, entered into a stipulation of dismissal without prejudice dismissing our initial action with respect to this matter in United States District Court, and we filed a new action seeking relief from the USPS for the Misdirected Payments in the United States Court of Federal Claims. Although we believe we have valid claims that the USPS is obligated to make payment on such receivable to us and that the USPS will have the capacity to make such payment, the issues in this litigation are novel issues of law that have little to no precedent and there can be no assurances that a court will agree with our interpretation of the law on these matters. If a court were to rule against us in this litigation, our only recourse would be against our customer, who failed to remit the Misdirected Payments to us as required when received, and who may not have capacity to make such payment to us. Consequently, we could incur losses up to the full amount of the Misdirected Payments in such event, which could be material to our business, financial condition and results of operations..
Item 1A. Risk Factors

On March 31, 2017, the Company sold its 100% membership interest in its asset management subsidiary, Triumph Capital Advisors, LLC.  As a result, a review of the risk factors related to our asset management business disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 should consider the fact that the Company does not anticipate engaging in this line of business going forward.

There have been no other material changes in the Company’s risk factors from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During 2012, the Company issued a warrant to Triumph Consolidated Cos., LLC (“TCC”) to purchase 259,067 shares of the Company’s common stock. The warrant had an exercise price of $11.58 per share, was immediately exercisable, and had an expiration date of December 12, 2022. TCC exercised the warrant in full on August 2, 2017 and was issued 153,134 shares of common stock, net of shares withheld by the Company to cover the exercise price.  The shares of common stock were issued in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended.

None.
Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibits (Exhibits marked with a “†” denote management contracts or compensatory plans or arrangements)

1.1

Underwriting Agreement, dated July 27, 2017 by and among Triumph Bancorp, Inc., Stephens Inc. and Keefe, Bruyette & Woods, Inc., as representatives of the several underwriters, incorporated by reference to Exhibit 1.1 to Form 8-K filed with the SEC on August 1, 2017.

2.1

3.1

Agreement and Plan of Merger, dated as of July 26, 2017, by and among Valley Bancorp, Inc., Triumph Bancorp, Inc. and James J. O’Dell as Shareholder Representative incorporated by reference to Exhibit 2.1 to Form 8-K filed with the SEC on July 26, 2017*

3.1

Second Amended and Restated Certificate of Formation of the Registrant, effective November 7, 2014, incorporated by reference to Exhibit 3.1 to Form 8-K filed with the SEC on November 13, 2014.

3.2

3.2
3.3
Statement of Designation of 7.125% Series C Fixed-Rate Non-Cumulative Perpetual Preferred Stock, dated June 17, 2020, incorporated by reference to Exhibit 3.1 to Form 8-K filed with the SEC on June 19, 2020.
3.4
Second Amended and Restated Bylaws of the Registrant, effective November 7, 2014, incorporated by reference to Exhibit 3.2 to Form 8-K filed with the SEC on November 13, 2014.

31.1

3.5
Amendment No. 1 to Second Amended and Restated Bylaws of Triumph Bancorp, Inc., incorporated by reference to Exhibit 3.2 to Form 8-K filed with the SEC on May 10, 2018.
4.1
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Table of Contents
4.2
10.1
10.2
10.3
10.4
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

32.1
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101

101.INSInline XBRL Instance Document

(the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).


*

The schedules

101.SCHInline XBRL Taxonomy Extension Schema Document.
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document.
101.LABInline XBRL Taxonomy Extension Label Linkbase Document.
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document.
104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).
* Schedules and exhibits have been omitted pursuant to Item 601(b)(2)601(a)(5) of Regulation S-K andS-K. A copy of any omitted schedule or exhibit will be providedfurnished to the SECSecurities and Exchange Commission upon request.

request; provided, however, that the parties may request confidential treatment pursuant to Rule 24b-2 of the Exchange Act for any document so furnished.


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Table of Contents
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

TRIUMPH BANCORP, INC.

(Registrant)

Date:

October 20, 2017

2021

 /s//s/ Aaron P. Graft

Aaron P. Graft


President and Chief Executive Officer

Date:

October 20, 2017

2021

 /s/ R. Bryce Fowler

/s/ W. Bradley Voss

R. Bryce Fowler

W. Bradley Voss
Chief Financial Officer

79

102