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 SeptemberJune 30, 20212022
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)

Texas20-0477066
(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 every Interactive Data File required to be submitted 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 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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerxAccelerated filer
Non-accelerated filerSmaller 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, 25,123,97824,464,746 shares, as of OctoberJuly 18, 2021.2022.
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
SeptemberJune 30, 20212022
TABLE OF CONTENTS
i

Table of Contents
PART I – FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS
1

Table of Contents
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SeptemberJune 30, 20212022 and December 31, 20202021
(Dollar amounts in thousands)
September 30,
2021
December 31,
2020
June 30,
2022
December 31,
2021
(Unaudited)(Unaudited)
ASSETSASSETSASSETS
Cash and due from banksCash and due from banks$66,672 $85,525 Cash and due from banks$84,625 $122,929 
Interest bearing deposits with other banksInterest bearing deposits with other banks466,092 228,868 Interest bearing deposits with other banks639,612 260,249 
Total cash and cash equivalentsTotal cash and cash equivalents532,764 314,393 Total cash and cash equivalents724,237 383,178 
Securities - equity investments5,623 5,826 
Securities - equity investments with readily determinable fair valuesSecurities - equity investments with readily determinable fair values5,050 5,504 
Securities - available for saleSecurities - available for sale164,816 224,310 Securities - available for sale215,909 182,426 
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, respectively5,488 5,919 
Securities - held to maturity, net of allowance for credit losses of $2,355 and $2,082, respectively, fair value of $5,790 and $5,447, respectivelySecurities - held to maturity, net of allowance for credit losses of $2,355 and $2,082, respectively, fair value of $5,790 and $5,447, respectively4,335 4,947 
Loans held for saleLoans held for sale26,437 24,546 Loans held for sale7,330 
Loans, 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 cost4,901 6,751 
Loans, net of allowance for credit losses of $43,407 and $42,213, respectivelyLoans, net of allowance for credit losses of $43,407 and $42,213, respectively4,391,959 4,825,359 
Assets held for saleAssets held for sale24,405 — 
Federal Home Loan Bank and other restricted stockFederal Home Loan Bank and other restricted stock6,169 10,146 
Premises and equipment, netPremises and equipment, net104,311 103,404 Premises and equipment, net105,293 105,729 
Other real estate owned, netOther real estate owned, net893 1,432 Other real estate owned, net168 524 
GoodwillGoodwill233,727 163,209 Goodwill233,709 233,727 
Intangible assets, netIntangible assets, net46,328 26,713 Intangible assets, net36,957 43,129 
Bank-owned life insuranceBank-owned life insurance41,540 41,608 Bank-owned life insurance41,278 40,993 
Deferred tax asset, netDeferred tax asset, net— 6,427 Deferred tax asset, net13,117 10,023 
Indemnification assetIndemnification asset4,786 36,225 Indemnification asset4,377 4,786 
Other assetsOther assets111,208 73,991 Other assets148,538 98,449 
Total assetsTotal assets$6,024,535 $5,935,791 Total assets$5,955,507 $5,956,250 
LIABILITIES AND STOCKHOLDERS' EQUITYLIABILITIES AND STOCKHOLDERS' EQUITYLIABILITIES AND STOCKHOLDERS' EQUITY
LiabilitiesLiabilitiesLiabilities
DepositsDepositsDeposits
Noninterest bearingNoninterest bearing$2,020,984 $1,352,785 Noninterest bearing$2,085,249 $1,925,370 
Interest bearingInterest bearing2,801,591 3,363,815 Interest bearing2,695,675 2,721,309 
Total depositsTotal deposits4,822,575 4,716,600 Total deposits4,780,924 4,646,679 
Deposits held for saleDeposits held for sale1,410 — 
Customer repurchase agreementsCustomer repurchase agreements11,990 3,099 Customer repurchase agreements11,746 2,103 
Federal Home Loan Bank advancesFederal Home Loan Bank advances30,000 105,000 Federal Home Loan Bank advances30,000 180,000 
Paycheck Protection Program Liquidity FacilityPaycheck Protection Program Liquidity Facility97,554 191,860 Paycheck Protection Program Liquidity Facility— 27,144 
Subordinated notesSubordinated notes106,755 87,509 Subordinated notes107,377 106,957 
Junior subordinated debenturesJunior subordinated debentures40,467 40,072 Junior subordinated debentures40,876 40,602 
Deferred tax liability, net982 — 
Other liabilitiesOther liabilities93,538 64,870 Other liabilities108,893 93,901 
Total liabilitiesTotal liabilities5,203,861 5,209,010 Total liabilities5,081,226 5,097,386 
Commitments and contingencies - See Note 9 and Note 10Commitments and contingencies - See Note 9 and Note 1000Commitments and contingencies - See Note 9 and Note 1000
Stockholders' equity - See Note 13Stockholders' equity - See Note 13Stockholders' equity - See Note 13
Preferred stockPreferred stock45,000 45,000 Preferred stock45,000 45,000 
Common stock, 25,123,342 and 24,868,218 shares outstanding, respectively282 280 
Common stock, 24,457,777 and 25,158,879 shares outstanding, respectivelyCommon stock, 24,457,777 and 25,158,879 shares outstanding, respectively283 283 
Additional paid-in-capitalAdditional paid-in-capital499,282 489,151 Additional paid-in-capital524,636 510,939 
Treasury stock, at costTreasury stock, at cost(104,600)(103,052)Treasury stock, at cost(156,924)(104,743)
Retained earningsRetained earnings373,512 289,583 Retained earnings466,269 399,351 
Accumulated other comprehensive income (loss)Accumulated other comprehensive income (loss)7,198 5,819 Accumulated other comprehensive income (loss)(4,983)8,034 
Total stockholders’ equityTotal stockholders’ equity820,674 726,781 Total stockholders’ equity874,281 858,864 
Total liabilities and stockholders' equityTotal liabilities and stockholders' equity$6,024,535 $5,935,791 Total liabilities and stockholders' equity$5,955,507 $5,956,250 
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 NineSix Months Ended SeptemberJune 30, 20212022 and 20202021
(Dollar amounts in thousands, except per share amounts)
(Unaudited)
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended June 30,Six Months Ended June 30,
20212020202120202022202120222021
Interest and dividend income:Interest and dividend income:Interest and dividend income:
Loans, including feesLoans, including fees$44,882 $48,774 $139,576 $147,491 Loans, including fees$44,131 $45,988 $84,978 $94,694 
Factored receivables, including feesFactored receivables, including fees50,516 31,468 135,639 76,861 Factored receivables, including fees60,026 47,328 121,232 85,123 
SecuritiesSecurities1,126 1,927 3,963 6,710 Securities1,329 1,187 2,507 2,837 
FHLB and other restricted stockFHLB and other restricted stock28 122 131 474 FHLB and other restricted stock34 27 110 103 
Cash depositsCash deposits183 73 467 640 Cash deposits787 158 915 284 
Total interest incomeTotal interest income96,735 82,364 279,776 232,176 Total interest income106,307 94,688 209,742 183,041 
Interest expense:Interest expense:Interest expense:
DepositsDeposits1,948 5,834 7,790 23,095 Deposits2,706 2,470 4,267 5,842 
Subordinated notesSubordinated notes2,449 1,348 5,148 4,016 Subordinated notes1,302 1,350 2,601 2,699 
Junior subordinated debenturesJunior subordinated debentures443 462 1,331 1,662 Junior subordinated debentures556 446 1,010 888 
Other borrowingsOther borrowings124 341 434 2,273 Other borrowings315 140 357 310 
Total interest expenseTotal interest expense4,964 7,985 14,703 31,046 Total interest expense4,879 4,406 8,235 9,739 
Net interest incomeNet interest income91,771 74,379 265,073 201,130 Net interest income101,428 90,282 201,507 173,302 
Credit loss expense (benefit)Credit loss expense (benefit)(1,187)(258)(10,838)33,649 Credit loss expense (benefit)2,901 (1,806)3,402 (9,651)
Net interest income after credit loss expense (benefit)Net interest income after credit loss expense (benefit)92,958 74,637 275,911 167,481 Net interest income after credit loss expense (benefit)98,527 92,088 198,105 182,953 
Noninterest income:Noninterest income:Noninterest income:
Service charges on depositsService charges on deposits2,030 1,470 5,674 3,631 Service charges on deposits1,664 1,857 3,627 3,644 
Card incomeCard income2,144 2,091 6,341 5,832 Card income2,080 2,225 4,091 4,197 
Net OREO gains (losses) and valuation adjustmentsNet OREO gains (losses) and valuation adjustments(9)(41)(376)(399)Net OREO gains (losses) and valuation adjustments18 (287)(114)(367)
Net gains (losses) on sale or call of securitiesNet gains (losses) on sale or call of securities3,109 3,210 Net gains (losses) on sale or call of securities2,514 2,514 
Net gains (losses) on sale of loansNet gains (losses) on sale of loans17,269 1,019 17,203 2,588 
Fee incomeFee income5,198 1,402 11,917 4,392 Fee income6,273 4,470 11,976 6,719 
Insurance commissionsInsurance commissions1,231 990 3,989 2,905 Insurance commissions1,346 1,272 3,018 2,758 
Gain on sale of subsidiary or division— — — 9,758 
OtherOther1,457 1,472 12,692 8,670 Other16,996 3,339 16,966 8,647 
Total noninterest incomeTotal noninterest income12,055 10,493 40,242 37,999 Total noninterest income48,160 13,896 59,281 28,187 
Noninterest expense:Noninterest expense:Noninterest expense:
Salaries and employee benefitsSalaries and employee benefits43,769 31,651 121,407 93,177 Salaries and employee benefits54,257 41,658 100,541 77,638 
Occupancy, furniture and equipmentOccupancy, furniture and equipment6,388 5,574 18,279 15,720 Occupancy, furniture and equipment6,507 6,112 12,943 11,891 
FDIC insurance and other regulatory assessmentsFDIC insurance and other regulatory assessments353 360 1,830 1,170 FDIC insurance and other regulatory assessments382 500 793 1,477 
Professional feesProfessional fees2,362 3,265 9,959 7,023 Professional fees3,607 5,052 7,266 7,597 
Amortization of intangible assetsAmortization of intangible assets3,274 2,141 7,677 6,265 Amortization of intangible assets3,064 2,428 6,172 4,403 
Advertising and promotionAdvertising and promotion1,403 1,105 3,534 3,548 Advertising and promotion1,785 1,241 2,987 2,131 
Communications and technologyCommunications and technology7,090 5,569 19,018 16,514 Communications and technology9,820 6,028 18,932 11,928 
OtherOther8,174 5,632 22,799 19,359 Other9,185 7,779 17,537 14,625 
Total noninterest expenseTotal noninterest expense72,813 55,297 204,503 162,776 Total noninterest expense88,607 70,798 167,171 131,690 
Net income before income tax expenseNet income before income tax expense32,200 29,833 111,650 42,704 Net income before income tax expense58,080 35,186 90,215 79,450 
Income tax expenseIncome tax expense7,771 6,929 25,316 10,810 Income tax expense13,888 7,204 21,694 17,545 
Net incomeNet income$24,429 $22,904 $86,334 $31,894 Net income$44,192 $27,982 $68,521 $61,905 
Dividends on preferred stockDividends on preferred stock(802)(899)(2,405)(899)Dividends on preferred stock(802)(802)(1,603)(1,603)
Net income available to common stockholdersNet income available to common stockholders$23,627 $22,005 $83,929 $30,995 Net income available to common stockholders$43,390 $27,180 $66,918 $60,302 
Earnings per common shareEarnings per common shareEarnings per common share
BasicBasic$0.95 $0.89 $3.40 $1.28 Basic$1.78 $1.10 $2.72 $2.44 
DilutedDiluted$0.94 $0.89 $3.33 $1.27 Diluted$1.74 $1.08 $2.66 $2.39 
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 NineSix Months Ended SeptemberJune 30, 20212022 and 20202021
(Dollar amounts in thousands)
(Unaudited)
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended June 30,Six Months Ended June 30,
20212020202120202022202120222021
Net incomeNet income$24,429 $22,904 $86,334 $31,894 Net income$44,192 $27,982 $68,521 $61,905 
Other comprehensive income:Other comprehensive income:Other comprehensive income:
Unrealized gains (losses) on securities:Unrealized gains (losses) on securities:Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the periodUnrealized holding gains (losses) arising during the period(378)2,443 (1,303)8,589 Unrealized holding gains (losses) arising during the period(5,457)(611)(8,358)(926)
Tax effectTax effect89 (637)300 (2,144)Tax effect1,251 145 1,941 214 
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 Unrealized holding gains (losses) arising during the period, net of taxes(4,206)(466)(6,417)(712)
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)Reclassification of amount realized through sale or call of securities(2,514)(1)(2,514)(1)
Tax effectTax effect761 805 Tax effect619 — 619 — 
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)Reclassification of amount realized through sale or call of securities, net of taxes(1,895)(1)(1,895)(1)
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 Change in unrealized gains (losses) on securities, net of tax(6,101)(467)(8,312)(713)
Unrealized gains (losses) on derivative financial instruments: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 Unrealized holding gains (losses) arising during the period— (592)3,152 3,071 
Tax effectTax effect(88)(729)(9)Tax effect— 141 (754)(734)
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 Unrealized holding gains (losses) arising during the period, net of taxes— (451)2,398 2,337 
Reclassification of amount of gains (losses) recognized into income18 (16)70 (16)
Reclassification of amount of (gains) losses recognized into incomeReclassification of amount of (gains) losses recognized into income(9,083)29 (9,316)52 
Tax effectTax effect(4)(17)Tax effect2,144 (7)2,213 (12)
Reclassification of amount of gains (losses) recognized into income, net of taxes14 (12)53 (12)
Reclassification of amount of (gains) losses recognized into income, net of taxesReclassification of amount of (gains) losses recognized into income, net of taxes(6,939)22 (7,103)40 
Change in unrealized gains (losses) on derivative financial instrumentsChange in unrealized gains (losses) on derivative financial instruments257 2,386 11 Change in unrealized gains (losses) on derivative financial instruments(6,939)(429)(4,705)2,377 
Total other comprehensive income (loss)Total other comprehensive income (loss)(285)(285)1,379 4,051 Total other comprehensive income (loss)(13,040)(896)(13,017)1,664 
Comprehensive incomeComprehensive income$24,144 $22,619 $87,713 $35,945 Comprehensive income$31,152 $27,086 $55,504 $63,569 
See accompanying condensed notes to consolidated financial statements.
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Table of Contents
TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the Three and NineSix Months Ended SeptemberJune 30, 20212022 and 20202021
(Dollar amounts in thousands)
(Unaudited)
Preferred StockCommon StockAdditional
Paid-in-
Capital
Treasury StockRetained
Earnings
AccumulatedTotal
Stockholders'
Equity
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)
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 
Balance, January 1, 2022Balance, January 1, 2022$45,000 25,158,879 $283 $510,939 3,102,801 $(104,743)$399,351 $8,034 $858,864 
Issuance of restricted stock awardsIssuance of restricted stock awards— 4,613 — — — — — — — Issuance of restricted stock awards— 5,502 — — — — — — — 
Stock option exercises, netStock option exercises, net— 2,021 — (74)— — — — (74)
Issuance of common stock pursuant to the Employee Stock Purchase PlanIssuance of common stock pursuant to the Employee Stock Purchase Plan— 10,585 — 688 — — — — 688 
Stock based compensationStock based compensation— — — 4,952 — — — — 4,952 
Forfeiture of restricted stock awardsForfeiture of restricted stock awards— (487)— 46 487 (46)— — — 
Purchase of treasury stockPurchase of treasury stock— (14,810)— — 14,810 (1,316)— — (1,316)
Dividends on preferred stockDividends on preferred stock— — — — — — (801)— (801)
Net incomeNet income— — — — — — 24,329 — 24,329 
Other comprehensive income (loss)Other comprehensive income (loss)— — — — — — — 23 23 
Balance, March 31, 2022Balance, March 31, 2022$45,000 25,161,690 $283 $516,551 3,118,098 $(106,105)$422,879 $8,057 886,665 
Issuance of restricted stock awardsIssuance of restricted stock awards— — — — — — — — — 
Vesting of performance stock unitsVesting of performance stock units— 20,996 — — — — — — — 
Stock option exercises, netStock option exercises, net— 10,205 — 191 — — — — 191 Stock option exercises, net— 32 — — — — — — — 
Stock based compensationStock based compensation— — — 1,350 — — — — 1,350 Stock based compensation— — — 7,880 — — — — 7,880 
Forfeiture of restricted stock awardsForfeiture of restricted stock awards— (107)— 107 (7)— — — Forfeiture of restricted stock awards— (2,417)— 205 2,417 (205)— — — 
Purchase of treasury stockPurchase of treasury stock— — — — — — — — — Purchase of treasury stock— (722,524)— — 722,524 (50,614)— — (50,614)
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)— — — — — 
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)
Dividends on preferred stockDividends on preferred stock— — — — — — (802)— (802)
Net incomeNet income— — — — — — 27,982 — 27,982 Net income— — — — — — 44,192 — 44,192 
Other comprehensive income (loss)Other comprehensive income (loss)— — — — — — — (896)(896)Other comprehensive income (loss)— — — — — — — (13,040)(13,040)
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 
Balance, June 30, 2022Balance, June 30, 2022$45,000 24,457,777 $283 $524,636 3,843,039 $(156,924)$466,269 $(4,983)874,281 


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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
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
CostLiquidation
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 $636,590 
Impact of adoption of ASU 2016-13
— — — — — — (1,771)— (1,771)
Issuance of restricted stock awards— 8,079 (1)— — — — — 
Stock based compensation— — — 1,168 — — — — 1,168 
Forfeiture of restricted stock awards— (601)— 23 601 (23)— — — 
Purchase of treasury stock— (871,319)— — 871,319 (35,586)— — (35,586)
Net income (loss)— — — — — — (4,450)— (4,450)
Other comprehensive income (loss)— — — — — — (6,604)(6,604)
Balance, March 31, 2020$— 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)— — — — — 
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 13,935 — — — — 13,942 
Balance, January 1, 2021Balance, 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 awardsIssuance of restricted stock awards— 20,303 (1)— — — — — Issuance of restricted stock awards— 4,613 — — — — — — — 
Stock option exercises, netStock option exercises, net— 344 — — — — — — — Stock option exercises, net— 10,205 — 191 — — — — 191 
Stock based compensationStock based compensation— — — 1,309 — — — — 1,309 Stock based compensation— — — 1,350 — — — — 1,350 
Forfeiture of restricted stock awardsForfeiture of restricted stock awards— (2,000)— 54 2,000 (54)— — — Forfeiture of restricted stock awards— (107)— 107 (7)— — — 
Dividends declared— — — — — — (899)— (899)
Dividends on preferred stockDividends on preferred stock— — — — — — (801)— (801)
Net incomeNet income— — — — — — 22,904 — 22,904 Net income— — — — — — 33,923 — 33,923 
Other comprehensive income (loss)Other comprehensive income (loss)— — — — — — — (285)(285)Other comprehensive income (loss)— — — — — — 2,560 2,560 
Balance, September 30, 2020$45,000 24,851,601 $279 $488,094 3,081,070 $(102,942)$258,254 $5,157 $693,842 
Balance, March 31, 2021Balance, 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 awardsIssuance of restricted stock awards— 224,287 (2)— — — — — 
Stock option exercises, netStock option exercises, net— 18,934 — (45)— — — — (45)
Stock based compensationStock based compensation— — — 3,386 — — — — 3,386 
Forfeiture of restricted stock awardsForfeiture of restricted stock awards— (2,278)— 186 2,278 (186)— — — 
Purchase of treasury stockPurchase of treasury stock— (14,169)— — 14,169 (1,241)— — (1,241)
Dividends on preferred stockDividends on preferred stock— — — — — — (802)— (802)
Net incomeNet income— — — — — — 27,982 — 27,982 
Other comprehensive income (loss)Other comprehensive income (loss)— — — — — — — (896)(896)
Balance, June 30, 2021Balance, June 30, 2021$45,000 25,109,703 $282 $494,224 3,100,057 $(104,486)$349,885 $7,483 $792,388 
See accompanying condensed notes to consolidated financial statements.
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TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the NineSix Months Ended SeptemberJune 30, 20212022 and 20202021
(Dollar amounts in thousands)
(Unaudited)
Nine Months Ended September 30,Six Months Ended June 30,
2021202020222021
Cash flows from operating activities:Cash flows from operating activities:Cash flows from operating activities:
Net incomeNet income$86,334 $31,894 Net income$68,521 $61,905 
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:Adjustments to reconcile net income to net cash provided by (used in) operating activities:
DepreciationDepreciation8,992 7,378 Depreciation6,044 5,905 
Net accretion on loansNet accretion on loans(7,615)(8,377)Net accretion on loans(5,092)(5,662)
Amortization of subordinated notes issuance costsAmortization of subordinated notes issuance costs1,022 128 Amortization of subordinated notes issuance costs420 111 
Amortization of junior subordinated debenturesAmortization of junior subordinated debentures395 378 Amortization of junior subordinated debentures274 261 
Net amortization on securities(465)(104)
Net (accretion) amortization on securitiesNet (accretion) amortization on securities(398)(337)
Amortization of intangible assetsAmortization of intangible assets7,677 6,265 Amortization of intangible assets6,172 4,403 
Deferred taxesDeferred taxes5,432 (3,320)Deferred taxes943 4,464 
Credit Loss Expense (benefit)Credit Loss Expense (benefit)(10,838)33,649 Credit Loss Expense (benefit)3,402 (9,651)
Stock based compensationStock based compensation9,181 3,443 Stock based compensation12,832 4,736 
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 sale or call of debt securities(2,514)(1)
Net (gains) losses on equity securitiesNet (gains) losses on equity securities203 (603)Net (gains) losses on equity securities(9,709)(28)
Net OREO (gains) losses and valuation adjustmentsNet OREO (gains) losses and valuation adjustments376 399 Net OREO (gains) losses and valuation adjustments114 367 
Gain on sale of subsidiary or division— (9,758)
Origination of loans held for saleOrigination of loans held for sale(32,645)(45,220)Origination of loans held for sale(6,873)(26,771)
Purchases of loans held for salePurchases of loans held for sale(19,001)(33,811)Purchases of loans held for sale(6,913)(16,096)
Proceeds from sale of loans originated or purchased for saleProceeds from sale of loans originated or purchased for sale50,931 71,782 Proceeds from sale of loans originated or purchased for sale14,145 45,138 
Net (gains) losses on sale of loansNet (gains) losses on sale of loans(1,289)(2,323)Net (gains) losses on sale of loans(17,203)(2,588)
Net (gains) losses on transfer of loans to loans held for sale(1,676)466 
Net change in operating leasesNet change in operating leases468 92 Net change in operating leases555 303 
(Increase) decrease in other assets(Increase) decrease in other assets(19,275)(4,206)(Increase) decrease in other assets(38,471)(12,261)
Increase (decrease) in other liabilitiesIncrease (decrease) in other liabilities11,071 15,387 Increase (decrease) in other liabilities(12,122)3,306 
Net cash provided by (used in) operating activitiesNet cash provided by (used in) operating activities89,273 60,329 Net cash provided by (used in) operating activities14,127 57,504 
Cash flows from investing activities:Cash flows from investing activities:Cash flows from investing activities:
Purchases of securities available for salePurchases of securities available for sale(18,250)(128,970)Purchases of securities available for sale(79,119)(8,000)
Proceeds from sales of securities available for saleProceeds from sales of securities available for sale— 65,184 Proceeds from sales of securities available for sale40,163 — 
Proceeds from maturities, calls, and pay downs of securities available for saleProceeds from maturities, calls, and pay downs of securities available for sale76,864 78,276 Proceeds from maturities, calls, and pay downs of securities available for sale20,798 43,344 
Proceeds from maturities, calls, and pay downs of securities held to maturityProceeds from maturities, calls, and pay downs of securities held to maturity762 581 Proceeds from maturities, calls, and pay downs of securities held to maturity424 560 
Purchases of loans held for investmentPurchases of loans held for investment(77,571)(277,333)Purchases of loans held for investment(68,908)(51,585)
Proceeds from sale of loansProceeds from sale of loans63,028 145,513 Proceeds from sale of loans207,405 45,582 
Net change in loansNet change in loans227,650 (524,820)Net change in loans215,676 164,616 
Purchases of premises and equipment, netPurchases of premises and equipment, net(9,899)(16,283)Purchases of premises and equipment, net(5,608)(9,221)
Net proceeds from sale of OREONet proceeds from sale of OREO807 1,918 Net proceeds from sale of OREO289 408 
(Purchases) redemptions of FHLB and other restricted stock, net(Purchases) redemptions of FHLB and other restricted stock, net1,850 1,396 (Purchases) redemptions of FHLB and other restricted stock, net3,977 (1,345)
Net cash (paid for) received in acquisitionsNet cash (paid for) received in acquisitions(96,926)(108,375)Net cash (paid for) received in acquisitions— (96,926)
Proceeds from sale of subsidiary or division, net— 93,835 
Proceeds from sale of disposal groupProceeds from sale of disposal group66,918 — 
Net cash provided by (used in) investing activitiesNet cash provided by (used in) investing activities168,315 (669,078)Net cash provided by (used in) investing activities402,015 87,433 
Cash flows from financing activities:Cash flows from financing activities:Cash flows from financing activities:
Net increase (decrease) in depositsNet increase (decrease) in deposits105,975 452,582 Net increase (decrease) in deposits145,337 8,850 
Increase (decrease) in customer repurchase agreementsIncrease (decrease) in customer repurchase agreements8,891 12,159 Increase (decrease) in customer repurchase agreements9,643 6,144 
Increase (decrease) in Federal Home Loan Bank advancesIncrease (decrease) in Federal Home Loan Bank advances(75,000)5,000 Increase (decrease) in Federal Home Loan Bank advances(150,000)25,000 
Proceeds from Paycheck Protection Program Liquidity Facility borrowingsProceeds from Paycheck Protection Program Liquidity Facility borrowings226,630 231,370 Proceeds from Paycheck Protection Program Liquidity Facility borrowings— 226,630 
Repayment of Paycheck Protection Program Liquidity Facility borrowingsRepayment of Paycheck Protection Program Liquidity Facility borrowings(320,936)(7,657)Repayment of Paycheck Protection Program Liquidity Facility borrowings(27,144)(278,817)
Proceeds from issuance of subordinated notes, net68,224 — 
Repayment of subordinated notes(50,000)— 
Issuance of preferred stock, net of issuance costs— 42,364 
Preferred dividendsPreferred dividends(2,405)(899)Preferred dividends(1,603)(1,603)
Stock option exercisesStock option exercises196 — Stock option exercises(74)146 
Proceeds from employee stock purchase plan common stock issuanceProceeds from employee stock purchase plan common stock issuance449 — Proceeds from employee stock purchase plan common stock issuance688 — 
Purchase of treasury stockPurchase of treasury stock(1,241)(35,772)Purchase of treasury stock(51,930)(1,241)
Net cash provided by (used in) financing activitiesNet cash provided by (used in) financing activities(39,217)699,147 Net cash provided by (used in) financing activities(75,083)(14,891)
Net increase (decrease) in cash and cash equivalentsNet increase (decrease) in cash and cash equivalents218,371 90,398 Net increase (decrease) in cash and cash equivalents341,059 130,046 
Cash and cash equivalents at beginning of periodCash and cash equivalents at beginning of period314,393 197,880 Cash and cash equivalents at beginning of period383,178 314,393 
Cash and cash equivalents at end of periodCash and cash equivalents at end of period532,764 288,278 Cash and cash equivalents at end of period724,237 444,439 
See accompanying condensed notes to consolidated financial statements.
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TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the NineSix Months Ended SeptemberJune 30, 20212022 and 20202021
(Dollar amounts in thousands)
(Unaudited)
Nine Months Ended September 30,Six Months Ended June 30,
2021202020222021
Supplemental cash flow information:Supplemental cash flow information:Supplemental cash flow information:
Interest paidInterest paid$15,551 $33,868 Interest paid$7,296 $11,393 
Income taxes paid, netIncome taxes paid, net$36,353 $4,572 Income taxes paid, net$45,035 $28,449 
Cash paid for operating lease liabilitiesCash paid for operating lease liabilities$3,440 $3,183 Cash paid for operating lease liabilities$1,903 $2,147 
Supplemental noncash disclosures:Supplemental noncash disclosures:Supplemental noncash disclosures:
Loans transferred to OREOLoans transferred to OREO$644 $1,012 Loans transferred to OREO$47 $356 
Loans held for investment transferred to loans held for saleLoans held for investment transferred to loans held for sale$76,976 $172,565 Loans held for investment transferred to loans held for sale$197,899 $64,603 
Assets transferred to assets held for saleAssets transferred to assets held for sale$— $84,077 Assets transferred to assets held for sale$80,819 $— 
Deposits transferred to deposits held for saleDeposits transferred to deposits held for sale$10,434 $— 
Lease liabilities arising from obtaining right-of-use assetsLease liabilities arising from obtaining right-of-use assets$19,404 $1,777 Lease liabilities arising from obtaining right-of-use assets$5,267 $16,396 
Securities available for sale purchased, not settledSecurities available for sale purchased, not settled$— $— Securities available for sale purchased, not settled$23,370 $5,250 
Indemnification recognized$35,633 $— 
Indemnification reductionIndemnification reduction$— $35,633 
Non-cash consideration received from sale of loan portfolio or disposal groupNon-cash consideration received from sale of loan portfolio or disposal group$4,502 $— 
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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.Texas offering a diversified line of payments, factoring and banking services. 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, 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, 2020.2021. Operating results for the three and ninesix months ended SeptemberJune 30, 20212022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.2022.
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 4 reportable segments consisting of Banking, Factoring, Payments, and Corporate.
The Banking segment includes 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 over-the-road trucking invoices. 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 QuickPayquickpay 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.
The corporateCorporate segment includes holding company financing and investment activities and management and administrative expenses to support the overall operations of the Company.
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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 had 3 reportable segments consisting of Banking, Factoring, and Corporate, and the Banking 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 trucking industry’s back office (see Note 2 – Business CombinationsAcquisitions and Divestitures for further 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 increaseprovide automation, mitigate fraud, and create back-office efficiency and improve the payment experience.efficiency. Through the acquisition of HubTran, TriumphPay created additional value through the enhancement ofbuilding upon 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 meaningfulan 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 hashad 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 pandemicCOVID-19 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 directionhave improved as of SeptemberJune 30, 2021,2022, 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 positionAllowance for credit losses
Improving conditions around COVID-19 had an impact on the Company's allowance for credit losses ("ACL") throughout the prior year as the Company experienced a decline in required reserves over that period. Pertaining to the Company's June 30, 2022 financial condition and year to date results of operations,
COVID-19 had little impact on required ACL levels. The Company’s interest income could be reduced dueCompany has not yet experienced material charge-offs related to COVID-19. In keeping with guidance from regulators,The Company's ACL calculation, and resulting provision for credit losses, are significantly impacted by changes in forecasted economic conditions. Should economic conditions worsen as a result of a resurgence in the virus and resulting measures to curtail its spread, the Company continues to work withcould experience increases in its required ACL and record additional credit loss expense. It is possible that the Company's asset quality measures could worsen at future measurement periods if the effects of 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 economic impact may affect its borrowers’ ability to repay in future periods.are prolonged.
Capital and liquidity
TheAs of June 30, 2022, all of the Company's capital ratios, and its subsidiary bank’s capital ratios, were in excess of all regulatory requirements. While the Company believes that it has sufficient capital to withstand an economic recession brought about by a resurgence in COVID-19 and/or resulting impacts of efforts used to curtail its spread, 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-termshort 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 valuationCredit
The lingering effectsWhile all industries experienced adverse impacts as a result of COVID-19 could cause a decline invirus, the Company’s stock price or the occurrence of whatCompany had no material exposure to loan categories that management would deemconsidered 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"at-risk" of its goodwill is impaired, a non-cash charge for the amountsignificant impact as of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital.June 30, 2022.
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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 the event that the Company concludes that all or a portion of its intangible assets are impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital.
Lending operations and accommodations to borrowers
In keeping with regulatory guidance to work with borrowers during this unprecedented situation and as outlined in the Section 4013 of the 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 the demonstrated need of the client, the Company is deferring either the full loan payment or the principal component of the loan payment for a stated period of time. As of September 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 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 understanding that loans funded through the PPP program are fully guaranteed by the U.S. government. Should those circumstances change, the Company could be requiredcontinues to establish an allowance for credit loss through additional credit loss expense charged to earnings.
Credit
The Company is workingwork with customers directly affected by COVID-19. The Company is prepared to offer assistance in accordance with regulator guidelines. As a result of the current economic environment caused by the COVID-19 virus, the Company is engagingcontinues to engage in communication with borrowers to better understand their situation and the challenges faced, allowing the Company to respond proactively as needs and issues arise. Should
Newly Issued, But Not Yet Effective Accounting Standards
In March 2022, the economy experience a prolonged periodFinancial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2022-02, "Financial Instruments – Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures" ("ASU 2022-02"). ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings ("TDRs") in ASC 310-40, "Receivables - Troubled Debt Restructurings by Creditors" for entities that have adopted the current expected credit loss ("CECL") model introduced by ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of poor economic conditions or should economic conditions worsen,Credit Losses on Financial Instruments” (ASU 2016-13"). ASU 2022-02 also requires that public business entities disclose current-period gross charge-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, "Financial Instruments—Credit Losses—Measured at Amortized Cost".
ASU 2022-02 is effective for the Company could experience increasesfor fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. The Company is evaluating the effect that ASU 2022-02 will have on its consolidated financial statements and related disclosures.
NOTE 2 — ACQUISITIONS AND DIVESTITURES
Equipment Loan Sale
During the second quarter of 2022, the Company made the decision to sell and closed on the sale of a portfolio of equipment loans for cash consideration. The sale closed on June 23, 2022. A summary of the carrying amount of the assets sold and the gain on sale is as follows:
(Dollars in thousands)
Equipment loans$191,167 
Accrued interest receivable$1,587 
Assets sold$192,754 
Cash consideration$197,454 
Return of premium liability$(708)
Total consideration$196,746 
Transaction costs$73 
Gain on sale, net of transaction costs$3,919 
The associated agreement contains a provision that in its requiredthe event that a sold loan is prepaid in full prior to the due date of the final scheduled contractual payment, the Company will return a pro-rata portion of the premium calculated as of the date of such prepayment in full. As this transaction qualified as a sale of a group of entire financial assets, management must recognize, as proceeds, any assets obtained and liabilities incurred. Thus, management recorded a $708,000 liability for the potential return of premium measured at fair value as of the date of close. Management has elected the fair value option to account for the liability. It is recorded in other liabilities in the Company's Consolidated Balance Sheet and will be marked to fair value through earnings at each reporting period.
The gain on sale, net of transaction costs, was included in net gains (losses) on sale of loans in the Company’s Consolidated Statements of Income and was allocated to the Banking segment.
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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Factored Receivable Disposal Group
During the quarter ended March 31, 2022, the Company made the decision to sell a portfolio of non-transportation factored receivables and their related customer reserves, (the "Factored Receivable Disposal Group"). As a result, the Factored Receivable Disposal Group was classified as assets and deposits held for sale on the unaudited March 31, 2022 Consolidated Balance Sheet. The fair value of the Factored Receivable Disposal Group exceeded the Company’s corresponding cost basis and thus, the Factored Receivable Disposal Group was classified as held for sale at cost with no impact to earnings except for the reversal of the allowance for credit loss associated with the factored receivables discussed below.
A summary of the carrying amount of the assets and liabilities in the Factored Receivable Disposal Group transferred to held for sale at March 31, 2022 is as follows:
(Dollars in thousands)
Factored receivables$80,819 
Assets held for sale$80,819 
Customer reserve noninterest bearing deposits$10,434 
Deposits held for sale$10,434 
The Company reversed $415,000 of allowance for credit losses (“ACL”)on loans during the quarter ended March 31, 2022 when the factored receivables were transferred to assets held for sale.
On June 30, 2022, the Company entered into an agreement to sell and record additional credit loss expense.closed on the sale of a portion of the Factored Receivable Disposal Group. A summary of the carrying amount of the assets and liabilities sold and the gain on sale is as follows:
(Dollars in thousands)
Factored receivables$67,888 
Assets held for sale$67,888 
Customer reserve noninterest bearing deposits$9,682 
Liabilities held for sale$9,682 
Net assets sold$58,206 
Cash consideration$66,292 
Revenue share asset5,210 
Total consideration$71,502 
Transaction costs82 
Gain on sale, net of transaction costs$13,214 
The associated agreement contains a revenue share provision that entitles the Company to an amount equal to 15 percent of the future gross monthly revenue of the clients associated with the sold factored receivable portfolio. As this transaction qualified as a sale of a group of entire financial assets, management must recognize, as proceeds, any assets obtained and liabilities incurred. Thus, management recorded a $5,210,000 asset for the contractual right to receive future cash flows from a third party measured at fair value as of the date of close. This is a financial asset for which management elected the fair value option. It is possible thatrecorded in other assets in the Company's Consolidated Balance Sheet and will be marked to fair value through earnings at each reporting period.
The gain on sale, net of transaction costs, was included in net gains (losses) on sale of loans in the Company’s asset quality measures could worsenConsolidated Statements of Income and was allocated to the Factoring segment.
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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A summary of the remaining carrying amount of the assets and liabilities in the Factored Receivable Disposal Group held for sale at future measurement periods ifJune 30, 2022 is as follows.
(Dollars in thousands)
Factored receivables$24,405 
Assets held for sale$24,405 
Customer reserve noninterest bearing deposits$1,410 
Deposits held for sale$1,410 
Factored receivables in the effectsFactored Receivable Disposal Group with a recorded investment of COVID-19 are prolonged.$1,647,000 and $2,012,000 were past due 30-59 days and past due 60-90 days, respectively, and factored receivables with a recorded investment of $164,000 were past due 90 days or more and considered nonperforming assets at June 30, 2022. The Factored Receivable Disposal Group is included in the Factoring segment.
Branch Disposal Group
NOTE 2 – BUSINESS COMBINATIONS AND DIVESTITURESDuring the quarter ended March 31, 2022, the Company made the decision to sell 15 branches primarily located in rural eastern Colorado and western Kansas (the “Branch Disposal Group”). The gross assets and deposits of the Branch Disposal Group were classified as held for sale on the unaudited March 31, 2022 Consolidated Balance Sheet. During the quarter ended June 30, 2022, there was a change in circumstances and the Company made the decision to terminate the sale process completely (including all marketing activities) and retain the branches indefinitely. The gross assets and deposits of the Branch Disposal Group were returned to held for investment at their carrying amounts less depreciation and amortization expense that would have been recognized had the disposal group been continuously classified as held for investment.
HubTran Inc.
On June 1, 2021, the Company, through TriumphPay, a division of the 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.
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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)(Dollars in thousands)Initial ValuesMeasurement Period AdjustmentsAdjusted Values(Dollars in thousands)Initial ValuesMeasurement Period AdjustmentsAdjusted Values
Assets acquired:Assets acquired:Assets acquired:
CashCash$170 $— $170 Cash$170 $— $170 
Intangible assets - capitalized softwareIntangible assets - capitalized software16,932 — 16,932 Intangible assets - capitalized software16,932 — 16,932 
Intangible assets - customer relationshipIntangible assets - customer relationship10,360 — 10,360 Intangible assets - customer relationship10,360 — 10,360 
Other assetsOther assets1,546 24 1,570 Other assets1,546 24 1,570 
29,008 24 29,032 29,008 24 29,032 
Liabilities assumed:Liabilities assumed:Liabilities assumed:
Deferred income taxesDeferred income taxes4,703 (3,230)1,473 Deferred income taxes4,703 (3,248)1,455 
Other liabilitiesOther liabilities906 16 922 Other liabilities906 16 922 
5,609 (3,214)2,395 5,609 (3,232)2,377 
Fair value of net assets acquiredFair value of net assets acquired$23,399 $3,238 $26,637 Fair value of net assets acquired$23,399 $3,256 $26,655 
Consideration:Consideration:Consideration:
Cash paidCash paid$97,096 $— $97,096 Cash paid$97,096 $— $97,096 
GoodwillGoodwill$73,697 $(3,238)$70,459 Goodwill$73,697 $(3,256)$70,441 
The Company has recognized goodwill of $70,459,000,$70,441,000, which included measurement period adjustments related to customary settlement adjustments and the finalization of the HubTran stub period tax return and its impact on the acquired deferred tax liability.
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(Unaudited)
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 Payments 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 assetassets with an acquisition date fair value of $10,360,000 which will be amortized utilizing an accelerated method over its their eleven year estimated useful life.lives.
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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(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.
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(Unaudited)
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.
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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 ACL70,10970,109
Intangible assets3,5003,500
Indemnification asset30,95930,959
Deferred income taxes1,448(59)1,389
106,016(59)105,957
Liabilities assumed:
Deposits5,3615,361
5,3615,361
Fair value of net assets acquired$100,655$(59)$100,596
Consideration:
Cash paid$108,375$108,375
Stock consideration13,94213,942
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 in the factoring market. The goodwill will not be 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 fair value of cash due from Covenant was based on the Company'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 sold by Covenant, Covenant delivered net proceeds of $28,064,000, and the Company recognized $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, 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.
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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The indemnification asset wascreated by the ARPA is measured separately from the related covered portfolio. It is not contractually embedded in the covered portfolio nor is it transferable with the covered portfolio should the Company choose 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 $4,377,000 and $4,786,000 and $36,225,000 at SeptemberJune 30, 20212022 and December 31, 2020,2021, 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 performing 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 SeptemberJune 30, 2021.2022. At SeptemberJune 30, 2021,2022, Covenant had remaining availability of $9,361,000 on its TBK line of credit available to cover our gross indemnification balance of up to $5,038,000.$4,608,000.
During the threesix months ended SeptemberJune 30, 2021,2022, 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 werebalances. One of the remaining Over-Formula Advance clients has made topayments totaling $861,000 during the six months ended June 30, 2022, which resulted in a dollar-for-dollar reduction in the required ACL as well as a write-off of a portion of the corresponding ACL balances orindemnification asset. The impact of the indemnification asset during that period.
The contractually required payments andpayment to net income available to common stockholders for the fair value at acquisition of factored receivables purchased for which theresix months ended June 30, 2022 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 significant.$62,200,000 in Over-Formula Advances obtained through the TFS Acquisition had experienced more than insignificant credit deterioration since origination and thus, deemed those Over-Formula Advances to be purchased credit deteriorated ("PCD"). Other, less significant factored receivables were also considered to be PCD. The following table presents information at the acquisition date for factored receivables purchased for which there was, at acquisition, evidence of more 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 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 $827,000 were recorded in noninterest expense in the consolidated statements of income during the three months ended September 30, 2020.
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(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 withWith Readily Determinable Fair Values
The Company held equity securities with fair values of $5,623,000$5,050,000 and $5,826,000$5,504,000 at SeptemberJune 30, 20212022 and December 31, 2020,2021, respectively. The gross realized and unrealized losses recognized on equity securities with readily determinable fair values in noninterest income in the Company’s consolidated statements of income were as follows:
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended June 30,Six Months Ended June 30,
(Dollars in thousands)(Dollars in thousands)2021202020212020(Dollars in thousands)2022202120222021
Unrealized gains (losses) on equity securities held at the reporting dateUnrealized gains (losses) on equity securities held at the reporting date$(231)$(371)$(203)$603 Unrealized gains (losses) on equity securities held at the reporting date$(35)$28 $(454)$28 
Realized gains (losses) on equity securities sold during the periodRealized gains (losses) on equity securities sold during the period— — — — Realized gains (losses) on equity securities sold during the period— — — — 
$(231)$(371)$(203)$603 $(35)$28 $(454)$28 
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(Unaudited)
Equity Securities Without Readily Determinable Fair Values
The following table summarizes the Company's investments in equity securities without readily determinable fair values:
(Dollars in thousands)June 30, 2022December 31, 2021
Equity Securities without readily determinable fair value, at cost$38,505 $14,671 
Upward adjustments based on observable price changes, cumulative10,163 — 
Equity Securities without readily determinable fair value, carrying value$48,668 $14,671 
Equity securities without readily determinable fair values include Federal Home Loan Bank and other restricted stock, which are reported separately in the Company's consolidated balance sheets, and other investments, which are included in other assets in the Company's consolidated balance sheets.
The gross realized and unrealized gains (losses) recognized on equity securities without readily determinable fair values in noninterest income in the Company’s consolidated statements of income were as follows:
Three Months Ended June 30,Six Months Ended June 30,
(Dollars in thousands)2022202120222021
Unrealized gains (losses) on equity securities still held at the reporting date$10,163 $— $10,163 $— 
Realized gains (losses) on equity securities sold during the period— — — — 
$10,163 $— $10,163 $— 
During the three months ended June 30, 2022, the Company adjusted the fair value of an equity security without readily determinable fair value upwards due to an orderly and observable transaction for an identical investment. For further information on this transaction, see Note 6 – Equity Method Investment.
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 the corresponding amounts of gross unrealized gains and losses of available for sale securities recognized in accumulated other comprehensive income (loss) and gross unrecognized gains and losses of held to maturity securities:
(Dollars in thousands)Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Allowance
for Credit
Losses
Fair
Value
September 30, 2021
Available for sale securities:
U.S. Government agency obligations$4,999 $$— $— $5,001 
Mortgage-backed securities, residential17,308 860 (1)— 18,167 
Asset-backed securities6,860 (1)— 6,864 
State and municipal28,513 662 — — 29,175 
CLO securities96,928 3,806 (15)— 100,719 
Corporate bonds1,990 71 — — 2,061 
SBA pooled securities2,735 94 — — 2,829 
Total available for sale securities$159,333 $5,500 $(17)$— $164,816 
(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 
(Dollars in thousands)Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Allowance
for Credit
Losses
Fair
Value
June 30, 2022
Available for sale securities:
Mortgage-backed securities, residential$51,742 $113 $(3,217)$— $48,638 
Asset-backed securities6,590 — (39)— 6,551 
State and municipal14,995 83 (55)— 15,023 
CLO securities145,631 — (3,380)— 142,251 
Corporate bonds1,270 (3)— 1,268 
SBA pooled securities2,191 62 (75)— 2,178 
Total available for sale securities$222,419 $259 $(6,769)$— $215,909 
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(Unaudited)
(Dollars in thousands)Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrecognized
Losses
Fair
Value
June 30, 2022
Held to maturity securities:
CLO securities$6,690 $336 $(1,236)$5,790 
Allowance for credit losses(2,355)
Total held to maturity securities, net of ACL$4,335 
(Dollars in thousands)Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Allowance for Credit LossesFair
Value
December 31, 2021
Available for sale securities:
Mortgage-backed securities, residential$36,885 $720 $(156)$— $37,449 
Asset-backed securities6,763 (1)— 6,764 
State and municipal26,309 516 — — 26,825 
CLO Securities103,579 3,109 (54)— 106,634 
Corporate bonds1,992 64 — — 2,056 
SBA pooled securities2,536 162 — — 2,698 
Total available for sale securities$178,064 $4,573 $(211)$— $182,426 
(Dollars in thousands)Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrecognized
Losses
Fair
Value
December 31, 2021
Held to maturity securities:
CLO securities$7,029 $— $(1,582)$5,447 
Allowance for credit losses(2,082)
Total held to maturity securities, net of ACL$4,947 
The amortized cost and estimated fair value of securities at SeptemberJune 30, 2021,2022, 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 SecuritiesHeld to Maturity SecuritiesAvailable for Sale SecuritiesHeld to Maturity Securities
(Dollars in thousands)(Dollars in thousands)Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
(Dollars in thousands)Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Due in one year or lessDue in one year or less$14,984 $15,046 $— $— Due in one year or less$1,872 $1,873 $— $— 
Due from one year to five yearsDue from one year to five years3,697 3,770 — — Due from one year to five years2,079 2,088 — — 
Due from five years to ten yearsDue from five years to ten years72,591 75,497 7,225 5,534 Due from five years to ten years49,899 48,875 6,690 5,790 
Due after ten yearsDue after ten years41,158 42,643 — — Due after ten years108,046 105,706 — — 
132,430 136,956 7,225 5,534 161,896 158,542 6,690 5,790 
Mortgage-backed securities, residentialMortgage-backed securities, residential17,308 18,167 — — Mortgage-backed securities, residential51,742 48,638 — — 
Asset-backed securitiesAsset-backed securities6,860 6,864 — — Asset-backed securities6,590 6,551 — — 
SBA pooled securitiesSBA pooled securities2,735 2,829 — — SBA pooled securities2,191 2,178 — — 
$159,333 $164,816 $7,225 $5,534 $222,419 $215,909 $6,690 $5,790 
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TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Proceeds from sales of debt securities and the associated gross gains and losses as well as net gains and losses from calls of debt securities are as follows:
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended June 30,Six Months Ended June 30,
(Dollars in thousands)(Dollars in thousands)2021202020212020(Dollars in thousands)2022202120222021
ProceedsProceeds$— $65,184 $— $65,184 Proceeds$40,163 $— $40,163 $— 
Gross gainsGross gains— 3,217 — 3,217 Gross gains2,512 — 2,512 — 
Gross lossesGross losses— (140)— (140)Gross losses— — — — 
Net gains and losses from calls of securitiesNet gains and losses from calls of securities32 133 Net gains and losses from calls of securities
Debt securities with a carrying amount of approximately $88,968,000$99,294,000 and $73,056,000$72,805,000 at SeptemberJune 30, 20212022 and December 31, 2020,2021, respectively, were pledged to secure public deposits, customer repurchase agreements, and for other purposes required or permitted by law.
Accrued interest on available for sale securities totaled $776,000$944,000 and $1,233,000$802,000 at SeptemberJune 30, 20212022 and December 31, 2020,2021, respectively, and was included in other assets inon the Company's consolidated balance sheets. There was no accrued interest related to debt securities reversed against interest income for the three and ninesix months ended SeptemberJune 30, 20212022 and 2020.2021.
The following table summarizes available for sale debt securities in an unrealized loss position for which an allowance for credit losses has not been recorded, aggregated by investment category and length of time that individual securities have been in a continuous loss position:
Less than 12 Months12 Months or MoreTotalLess than 12 Months12 Months or MoreTotal
(Dollars in thousands)(Dollars in thousands)Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
(Dollars in thousands)Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
September 30, 2021
June 30, 2022June 30, 2022Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Available for sale securities:Available for sale securities:Available for sale securities:
U.S. Government agency obligations$— $— $— $— $— $— 
Mortgage-backed securities, residentialMortgage-backed securities, residential— — 18 (1)18 (1)Mortgage-backed securities, residential$35,002 $(3,217)$— $— $35,002 $(3,217)
Asset-backed securitiesAsset-backed securities— — 5,060 (1)5,060 (1)Asset-backed securities1,561 (29)4,990 (10)6,551 (39)
State and municipalState and municipal— — — — — — State and municipal1,880 (55)— — 1,880 (55)
CLO securitiesCLO securities9,972 (9)2,766 (6)12,738 (15)CLO securities118,933 (3,272)4,892 (108)123,825 (3,380)
Corporate bondsCorporate bonds— — — — — — Corporate bonds766 (3)— — 766 (3)
SBA pooled securitiesSBA pooled securities— — — — — — SBA pooled securities1,471 (75)— — 1,471 (75)
$9,972 $(9)$7,844 $(8)$17,816 $(17)$159,613 $(6,651)$9,882 $(118)$169,495 $(6,769)
18

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TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Less than 12 Months12 Months or MoreTotalLess than 12 Months12 Months or MoreTotal
(Dollars in thousands)(Dollars in thousands)Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
(Dollars in thousands)Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
December 31, 2020
December 31, 2021December 31, 2021Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Available for sale securities:Available for sale securities:Available for sale securities:
U.S. Government agency obligations$— $— $— $— $— $— 
Mortgage-backed securities, residentialMortgage-backed securities, residential100 (1)215 (1)315 (2)Mortgage-backed securities, residential$20,386 $(155)$$(1)$20,392 $(156)
Asset-backed securitiesAsset-backed securities129 — 6,911 (52)7,040 (52)Asset-backed securities37 — 4,999 (1)5,036 (1)
State and municipalState and municipal— — — — — — State and municipal30 — — — 30 — 
CLO SecuritiesCLO Securities12,083 (93)29,785 (166)41,868 (259)CLO Securities22,707 (54)— — 22,707 (54)
Corporate bondsCorporate bonds498 (5)150 — 648 (5)Corporate bonds— — — — — — 
SBA pooled securitiesSBA pooled securities889 (6)29 — 918 (6)SBA pooled securities— — — — — — 
$13,699 $(105)$37,090 $(219)$50,789 $(324)$43,160 $(209)$5,005 $(2)$48,165 $(211)
Management evaluates available for sale debt securities in unrealized loss positions to determine whether the impairment is due to credit-related factors or noncredit-related factors. Consideration is given to (1) the extent to which the fair value is 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.
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TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
At SeptemberJune 30, 2021,2022, the Company had 12102 available for sale debt securities in an unrealized loss 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. Accordingly, as of SeptemberJune 30, 2021,2022, management believes that the unrealized losses detailed in the previous table are due to noncredit-related factors, including changes in interest rates and other market conditions, and therefore no losses 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)(Dollars in thousands)Three Months Ended September 30,Nine Months Ended September 30,(Dollars in thousands)Three Months Ended June 30,Six Months Ended June 30,
Held to Maturity CLO SecuritiesHeld to Maturity CLO Securities2021202020212020Held to Maturity CLO Securities2022202120222021
Allowance for credit losses:Allowance for credit losses:Allowance for credit losses:
Beginning balanceBeginning balance$1,727 $1,855 $2,026 $— Beginning balance$2,455 $1,859 $2,082 $2,026 
Impact of adopting ASC 326— — — 126 
Credit loss expenseCredit loss expense10 106 (289)1,835 Credit loss expense(100)(132)273 (299)
Allowance for credit losses ending balanceAllowance for credit losses ending balance$1,737 $1,961 $1,737 $1,961 Allowance for credit losses ending balance$2,355 $1,727 $2,355 $1,727 
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 SeptemberJune 30, 20212022 and December 31, 2020,2021, 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 SeptemberAt June 30, 2021, $5,810,0002022, $5,258,000 of the Company’s held to maturity securities were classified as nonaccrual.
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TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans Held for Sale
The following table presents loans held for sale:
(Dollars in thousands)(Dollars in thousands)September 30, 2021December 31, 2020(Dollars in thousands)June 30, 2022December 31, 2021
Commercial real estate$19,519 $— 
1-4 family residential1-4 family residential1,554 6,319 1-4 family residential$— $712 
CommercialCommercial5,364 18,227 Commercial6,618 
Total loans held for saleTotal loans held for sale$26,437 $24,546 Total loans held for sale$$7,330 
Loans held for sale exclude loans transferred to assets held for sale as part of a disposal group. For further information regarding loans transferred to assets held for sale as part of a disposal group, see Note 2 – Acquisitions and Divestitures.
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TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Loans Held for Investment
Loans
The following table presents the amortized cost and unpaid principal balance of loans held for investment:
September 30, 2021December 31, 2020June 30, 2022December 31, 2021
(Dollars in thousands)(Dollars in thousands)Amortized
Cost
Unpaid
Principal
DifferenceAmortized
Cost
Unpaid
Principal
Difference(Dollars in thousands)Amortized
Cost
Unpaid
Principal
DifferenceAmortized
Cost
Unpaid
Principal
Difference
Commercial real estateCommercial real estate$630,106 $632,182 $(2,076)$779,158 $782,614 $(3,456)Commercial real estate$649,280 $650,900 $(1,620)$632,775 $634,319 $(1,544)
Construction, land development, landConstruction, land development, land171,814 171,998 (184)219,647 220,021 (374)Construction, land development, land103,377 103,416 (39)123,464 123,643 (179)
1-4 family residential1-4 family residential127,073 127,446 (373)157,147 157,731 (584)1-4 family residential126,362 126,599 (237)123,115 123,443 (328)
FarmlandFarmland82,990 83,549 (559)103,685 104,522 (837)Farmland70,272 70,661 (389)77,394 77,905 (511)
CommercialCommercial1,398,497 1,410,739 (12,242)1,562,957 1,579,841 (16,884)Commercial1,225,479 1,234,555 (9,076)1,430,429 1,440,542 (10,113)
Factored receivablesFactored receivables1,607,028 1,611,525 (4,497)1,120,770 1,122,008 (1,238)Factored receivables1,596,282 1,601,310 (5,028)1,699,537 1,703,936 (4,399)
ConsumerConsumer12,677 12,689 (12)15,838 15,863 (25)Consumer9,709 9,713 (4)10,885 10,883 
Mortgage warehouseMortgage warehouse752,545 752,545 — 1,037,574 1,037,574 — Mortgage warehouse654,605 654,605 — 769,973 769,973 — 
Total loans held for investmentTotal loans held for investment4,782,730 $4,802,673 $(19,943)4,996,776 $5,020,174 $(23,398)Total loans held for investment4,435,366 $4,451,759 $(16,393)4,867,572 $4,884,644 $(17,072)
Allowance for credit lossesAllowance for credit losses(41,017)(95,739)Allowance for credit losses(43,407)(42,213)
$4,741,713 $4,901,037 $4,391,959 $4,825,359 
The difference between the amortized cost and the unpaid principal is primarilydue to (1) premiums and discounts associated with acquired loans totaling $12,119,000$10,256,000 and $18,511,000$11,723,000 at SeptemberJune 30, 20212022 and December 31, 2020,2021, respectively, and (2) net deferred origination and factoring fees totaling $7,824,000$6,137,000 and $4,887,000$5,349,000 at SeptemberJune 30, 20212022 and December 31, 2020,2021, respectively.
Accrued interest on loans, which is excluded from the amortized cost of loans held for investment, totaled $15,235,000$13,586,000 and $18,198,000$14,513,000 at SeptemberJune 30, 20212022 and December 31, 2020,2021, respectively, and was included in other assets inon the Company's consolidated balance sheets.
At SeptemberJune 30, 20212022 and December 31, 2020,2021, the Company had $189,565,000$248,812,000 and $145,892,000,$254,970,000, 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 SeptemberJune 30, 20212022 and December 31, 20202021 the balance of the Over-Formula Advance Portfolio included in factored receivables was $9,216,000 and $10,077,000, and $62,100,000, respectively. These balances were fully reserved as of those respective dates.
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TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of SeptemberAt June 30, 20212022 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, weWe have commenced litigation in the United States Court of Federal Claims 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 haswe have not reserved for such balance as of SeptemberJune 30, 2021.2022.
Loans with carrying amounts of $1,652,900,000$1,538,687,000 and $2,255,441,000$1,733,917,000 at SeptemberJune 30, 20212022 and December 31, 2020,2021, 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, 2021, loans with carrying amounts
20

Table of $12,373,000 and $76,976,000, respectively, were transferred from loans held for investment to loans held for sale 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, 2021, loans transferred to held for sale were sold resulting in proceeds of $17,446,000 and $63,028,000, respectively. The Company recorded net gains on transfers and sales of loans of $210,000 and $1,676,000, respectively, for the three and nine months ended September 30, 2021, which are recorded as other noninterest income in the consolidated statements of income.Contents
During the three and nine months ended September 30, 2020, loans with a carrying amount of $56,934,000 and $172,565,000, respectively, were transferred from loans held for investment to loans held for sale 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 sold resulting in proceeds of $58,313,000 and $145,513,000, respectively. The Company recorded net losses on transfers and sales of loans of $515,000 and $466,000 for the three and nine months ended September 30, 2020.TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Allowance for Credit 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 credit losses (“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)$$3,936 
Construction, land development, land1,490 (434)— 1,057 
1-4 family residential545 (64)(1)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 

(Dollars in thousands)Beginning
Balance
Credit Loss
Expense
Charge-offsRecoveriesEnding
Balance
Three months ended June 30, 2022
Commercial real estate$3,527 $1,594 $— $46 $5,167 
Construction, land development, land901 290 — 1,192 
1-4 family residential450 305 — 757 
Farmland121 369 — — 490 
Commercial13,215 (407)(260)190 12,738 
Factored receivables22,471 (120)(712)573 22,212 
Consumer175 77 (96)41 197 
Mortgage warehouse693 (39)— — 654 
$41,553 $2,069 $(1,068)$853 $43,407 
(Dollars in thousands)Beginning
Balance
Credit Loss
Expense
Charge-offsRecoveriesEnding
Balance
Three months ended June 30, 2021
Commercial real estate$6,823 $(2,422)$— $$4,404 
Construction, land development, land1,670 (181)— 1,490 
1-4 family residential631 (62)(25)545 
Farmland699 (30)— — 669 
Commercial17,158 (1,678)(8)202 15,674 
Factored receivables19,716 2,643 (583)47 21,823 
Consumer296 (59)(90)89 236 
Mortgage warehouse1,031 (178)— — 853 
$48,024 $(1,967)$(706)$343 $45,694 
(Dollars in thousands)Beginning
Balance
Credit Loss
Expense
Charge-offsRecoveriesEnding
Balance
Six Months Ended June 30, 2022
Commercial real estate$3,961 $1,254 $(108)$60 $5,167 
Construction, land development, land827 363 — 1,192 
1-4 family residential468 284 — 757 
Farmland562 (72)— — 490 
Commercial14,485 (1,014)(984)251 12,738 
Factored receivables20,915 2,115 (1,420)602 22,212 
Consumer226 118 (207)60 197 
Mortgage warehouse769 (115)— — 654 
$42,213 $2,933 $(2,719)$980 $43,407 
(Dollars in thousands)Beginning
Balance
Credit Loss
Expense
Charge-offsRecoveriesEnding
Balance
Six months ended June 30, 2021
Commercial real estate$10,182 $(5,786)$— $$4,404 
Construction, land development, land3,418 (1,918)(12)1,490 
1-4 family residential1,225 (740)(25)85 545 
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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)— 5,600 
1-4 family residential2,027 — (56)(6)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)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 — — 5,600 
1-4 family residential308 513 — 1,138 (27)40 — 1,972 
FarmlandFarmland670 437 — (324)— 80 — 863 Farmland832 (163)— — 669 
CommercialCommercial12,566 (184)— 11,004 (1,173)949 (449)22,713 Commercial22,040 (6,749)(281)664 15,674 
Factored receivablesFactored receivables7,657 (1,630)37,415 4,475 (3,027)95 — 44,985 Factored receivables56,463 7,361 (42,086)85 21,823 
ConsumerConsumer488 (52)— 583 (410)101 — 710 Consumer542 (252)(169)115 236 
Mortgage warehouseMortgage warehouse668 — — 332 — — — 1,000 Mortgage warehouse1,037 (184)— — 853 
$29,092 $269 $37,415 $27,974 $(4,637)$1,331 $(449)$90,995 $95,739 $(8,431)$(42,573)$959 $45,694 
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 decreaseincrease in required ACL during the three months ended SeptemberJune 30, 20212022 is a decrease in specific reserves commensurate with a decrease in nonperforming loans.
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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 insignificantnet charge-offs of $215,000 and credit deterioration since origination and thus deemed those Over-Formula Advances to be purchased credit deteriorated ("PCD").loss expense of $2,069,000. 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 decreaseincrease in required ACL during the ninesix months ended SeptemberJune 30, 2021 was2022 is a function of net charge-offcharge-offs of $41,265,000 due from the largest acquired Over-Formula Advance client. This was partially offset by an additional $2,844,000 million$1,739,000 and credit loss expense 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.$2,933,000.
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)credit and PPP), 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. The Company also forecasts prepayments speeds for use in the DCF models with higher prepayment speeds resulting in lower required ACL levels and vice versa for shorter prepayment speeds. These assumed prepayment speeds are based upon our historical prepayment speeds by loan type adjusted for the expected impact of the current interest rate environment. Generally, the impact of these assumed prepayment speeds is lesser in magnitude than the aforementioned loss driver assumptions.
For all DCF models at SeptemberJune 30, 2021,2022, 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 SeptemberJune 30, 2021,2022, as compared to December 31, 2020,2021, the Company forecasted a significant decreasean increase in national unemployment, an increasea decrease in one-year percentage change in national retail sales, an increasea decrease in one-year percentage change in the national home price index, and an increasea decrease in one-year percentage change in national gross domestic product. At SeptemberJune 30, 2021,2022 for national unemployment, the Company projected a low percentage changesin the first quarter followed by a gradual rise in the following three quarters. For percentage change in national retail sales, the Company projected sustained levels in the first two projected quarters followed by a decline over the last two projected quarters to a level below recent actual periods. For percentage changes in national home price index and national gross domestic product, the Company projected significant growth in the first projected quarter followed by percentage change growth fordeclines over the last three projected quarters resembling something closer to pre-COVID-19 levels albeit slightly more modest. Projected unemployment rates used bybelow recent actual periods. At June 30, 2022, the Company are relatively stable overslowed its historical prepayment speeds in response to the four projected quarters at levels somewhat higher than pre-COVID-19 conditions.rising interest rate environment in the macro economy.
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 ninethree months ended SeptemberJune 30, 2022, changes in projected loss drivers and prepayment assumptions over the reasonable and supportable forecast period increased the required ACL by $2,558,000. Changes in net new required specific reserves also increased the required ACL at June 30, 2022. Changes in loan volume and mix during the three months ended June 30, 2022 decreased the ACL during the period. Charge-offs had an insignificant impact on the change in required ACL during the three months ended June 30, 2022.
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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the three months ended June 30, 2021, changes in projected loss drivers and prepayment assumptions over the reasonable and supportable forecast period decreased the required ACL by $1,847,000. Changes in loan volume and mix during the three months ended June 30, 2021 also decreased the ACL during the period. These decreases were partially offset by an increase in net new specific reserves. Charge-offs had an insignificant impact on the change in required ACL during the three months ended June 30, 2021.
For the six months ended June 30, 2022, changes in projected loss drivers and prepayment assumptions over the reasonable and supportable forecast period increased the required ACL by $1,541,000. Changes in net new required specific reserves also increased the required ACL at June 30, 2022. Changes in loan volume and mix during the six months ended June 30, 2022 decreased the ACL during the period. Net charge-offs during the period were $1,739,000.
For the six months ended June 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 prepayment assumptions over the reasonable and supportable forecast period decreased the required ACL by $10,319,000.$10,142,000. Further, the Company experienced a net reserve release of specific reserves on non-PCD loans. Changes in loan volume and mix during the ninesix months ended SeptemberJune 30, 2021 also decreased the ACL during the period. Non-PCD-related net charge-offs reducedhad an insignificant impact on the ACL by $4,067,000 during the nine months ended September 30, 2021.
For the three months ended September 30, 2021, changeschange 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 threesix months ended SeptemberJune 30, 2021.
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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)(Dollars in thousands)Real EstateAccounts
Receivable
EquipmentOtherTotalACL
Allocation
(Dollars in thousands)Real EstateAccounts
Receivable
EquipmentOtherTotalACL
Allocation
September 30, 2021
June 30, 2022June 30, 2022Real EstateAccounts
Receivable
EquipmentOtherTotalACL
Allocation
Commercial real estateCommercial real estate$3,544 $— $— $142 $3,686 $267 Commercial real estate
Construction, land development, landConstruction, land development, land1,008 — — — 1,008 — Construction, land development, land152 — — — 152 — 
1-4 family residential1-4 family residential1,260 — — 168 1,428 10 1-4 family residential1,455 — — 55 1,510 80 
FarmlandFarmland1,916 — 130 — 2,046 — Farmland983 — 117 116 1,216 — 
CommercialCommercial569 — 4,266 3,062 7,897 2,187 Commercial223 — 4,575 1,725 6,523 1,897 
Factored receivablesFactored receivables— 45,524 — — 45,524 11,650 Factored receivables— 49,471 — — 49,471 14,191 
ConsumerConsumer— — — 251 251 — Consumer— — — 183 183 18 
Mortgage warehouseMortgage warehouse— — — — — — Mortgage warehouse— — — — — — 
TotalTotal$8,297 $45,524 $4,396 $3,623 $61,840 $14,114 Total$4,850 $49,471 $4,692 $2,225 $61,238 $16,469 
At SeptemberJune 30, 20212022 the balance of the Over-Formula Advance Portfolio included in factored receivables $10,077,000was $9,216,000 and was fully reserved. At SeptemberJune 30, 20212022 the balance of Misdirected Payments included in factored receivables was $19,361,000 and carried no ACL allocation.
(Dollars in thousands)(Dollars in thousands)Real EstateAccounts
Receivable
EquipmentOtherTotalACL
Allocation
(Dollars in thousands)Real EstateAccounts
Receivable
EquipmentOtherTotalACL
Allocation
December 31, 2020
December 31, 2021December 31, 2021Real EstateAccounts
Receivable
EquipmentOtherTotalACL
Allocation
Commercial real estateCommercial real estate$12,454 $— $— $162 $12,616 $1,334 Commercial real estate
Construction, land development, landConstruction, land development, land2,317 — — — 2,317 271 Construction, land development, land987 — — — 987 — 
1-4 family residential1-4 family residential1,948 — — 248 2,196 34 1-4 family residential1,583 — — 116 1,699 39 
FarmlandFarmland2,189 — 143 198 2,530 — Farmland1,803 — 126 116 2,045 — 
CommercialCommercial1,813 — 5,842 9,352 17,007 5,163 Commercial254 — 5,598 3,017 8,869 1,733 
Factored receivablesFactored receivables— 92,437 — — 92,437 51,371 Factored receivables— 42,863 — — 42,863 12,640 
ConsumerConsumer— — — 253 253 37 Consumer— — — 240 240 21 
Mortgage warehouseMortgage warehouse— — — — — — Mortgage warehouse— — — — — — 
TotalTotal$20,721 $92,437 $5,985 $10,213 $129,356 $58,210 Total$6,770 $42,863 $5,724 $3,644 $59,001 $14,716 
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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
At December 31, 20202021 the balance of the Over-Formula Advance Portfolio included in factored receivables was $62,100,000$10,077,000 and carried an ACL allocation of $48,485,000.$10,077,000. At December 31, 20202021 the balance of Misdirected Payments included in factored receivables was $19,600,000$19,361,000 and carried no ACL allocation.
Past Due and Nonaccrual Loans
The following tables present an aging of contractually past due loans:
(Dollars in thousands)(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
(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
June 30, 2022June 30, 2022Past 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
Commercial real estateCommercial real estate$376 $— $16 $392 $629,714 $630,106 $— Commercial real estate
Construction, land development, landConstruction, land development, land— — 977 977 170,837 171,814 — Construction, land development, land— — 145 145 103,232 103,377 — 
1-4 family residential1-4 family residential680 437 720 1,837 125,236 127,073 — 1-4 family residential1,476 212 927 2,615 123,747 126,362 — 
FarmlandFarmland— — 550 550 82,440 82,990 — Farmland141 — 553 694 69,578 70,272 — 
CommercialCommercial1,541 141 3,843 5,525 1,392,972 1,398,497 84 Commercial176 1,238 4,925 6,339 1,219,140 1,225,479 — 
Factored receivablesFactored receivables49,084 14,643 36,936 100,663 1,506,365 1,607,028 36,936 Factored receivables46,043 14,192 38,679 98,914 1,497,368 1,596,282 38,679 
ConsumerConsumer300 41 85 426 12,251 12,677 — Consumer116 63 83 262 9,447 9,709 — 
Mortgage warehouseMortgage warehouse— — — — 752,545 752,545 — Mortgage warehouse— — — — 654,605 654,605 — 
TotalTotal$51,981 $15,262 $43,127 $110,370 $4,672,360 $4,782,730 $37,020 Total$48,518 $15,705 $45,328 $109,551 $4,325,815 $4,435,366 $38,679 
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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)(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
(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
December 31, 2021December 31, 2021Past 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
Commercial real estateCommercial real estate$1,512 $147 $7,623 $9,282 $769,876 $779,158 $— Commercial real estate
Construction, land development, landConstruction, land development, land185 1,001 323 1,509 218,138 219,647 22 Construction, land development, land30 — 145 175 123,289 123,464 — 
1-4 family residential1-4 family residential1,978 448 952 3,378 153,769 157,147 — 1-4 family residential730 332 1,114 2,176 120,939 123,115 134 
FarmlandFarmland407 1,000 300 1,707 101,978 103,685 — Farmland378 154 977 1,509 75,885 77,394 — 
CommercialCommercial2,084 1,765 5,770 9,619 1,553,338 1,562,957 35 Commercial996 346 4,948 6,290 1,424,139 1,430,429 — 
Factored receivablesFactored receivables33,377 28,506 72,717 134,600 986,170 1,120,770 72,717 Factored receivables70,109 18,302 39,134 127,545 1,571,992 1,699,537 39,134 
ConsumerConsumer385 116 81 582 15,256 15,838 — Consumer255 48 99 402 10,483 10,885 — 
Mortgage warehouseMortgage warehouse— — — — 1,037,574 1,037,574 — Mortgage warehouse— — — — 769,973 769,973 — 
TotalTotal$39,928 $32,983 $87,766 $160,677 $4,836,099 $4,996,776 $72,774 Total$73,519 $19,182 $46,433 $139,134 $4,728,438 $4,867,572 $39,268 
At SeptemberJune 30, 20212022 and December 31, 2020,2021, total past due Over-Formula Advances recorded in factored receivables was $10,077,000$9,216,000 and $62,100,000,$10,077,000, 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 SeptemberJune 30, 20212022 and December 31, 2020,2021, the Misdirected Payments totaled $19,361,000, and $19,600,000, respectively. At September 30, 2021, the entire $19,361,000 balanceall of the Misdirected Payments was considered past due 90 days or more, and at December 31, 2020 approximately $6,000,000which 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 SeptemberJune 30, 2021.2022. Historically, any income recognized on factored receivables that are past due 90 days or more has not been material.
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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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, 2020June 30, 2022December 31, 2021
(Dollars in thousands)(Dollars in thousands)NonaccrualNonaccrual
With No ACL
NonaccrualNonaccrual
With No ACL
(Dollars in thousands)NonaccrualNonaccrual
With No ACL
NonaccrualNonaccrual
With No ACL
Commercial real estateCommercial real estate$2,113 $1,438 $9,945 $3,461 Commercial real estate$1,906 $1,317 $2,025 $1,375 
Construction, land development, landConstruction, land development, land986 986 2,294 1,199 Construction, land development, land152 152 964 964 
1-4 family residential1-4 family residential1,310 1,262 1,848 1,651 1-4 family residential1,494 1,438 1,683 1,582 
FarmlandFarmland2,046 2,046 2,531 2,531 Farmland1,215 1,215 2,044 2,044 
CommercialCommercial7,828 4,262 17,202 4,891 Commercial5,881 3,067 8,078 3,910 
Factored receivablesFactored receivables— — — — Factored receivables— — — — 
ConsumerConsumer251 251 253 188 Consumer183 125 240 159 
Mortgage warehouseMortgage warehouse— — — — Mortgage warehouse— — — — 
$14,534 $10,245 $34,073 $13,921 $10,831 $7,314 $15,034 $10,034 
The following table presents accrued interest on nonaccrual loans reversed through interest income:
Three Months Ended September 30,Nine Months Ended September 30,
(Dollars in thousands)2021202020212020
Commercial real estate$— $371 $$435 
Construction, land development, land— — 
1-4 family residential— 21 31 
Farmland— 36 36 
Commercial— 37 23 76 
Factored receivables— — — — 
Consumer— 
Mortgage warehouse— — — — 
$$466 $41 $581 
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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three Months Ended June 30,Six Months Ended June 30,
(Dollars in thousands)2022202120222021
Commercial real estate$— $$— $
Construction, land development, land— — — — 
1-4 family residential— — — 
Farmland— — — 
Commercial20 23 
Factored receivables— — — — 
Consumer— — — — 
Mortgage warehouse— — — — 
$$28 $$38 
There was no interest earned on nonaccrual loans during the three and ninesix months ended SeptemberJune 30, 20212022 and 2020.2021.
The following table presents information regarding nonperforming loans:
(Dollars in thousands)(Dollars in thousands)September 30, 2021December 31, 2020(Dollars in thousands)June 30, 2022December 31, 2021
Nonaccrual loans(1)
Nonaccrual loans(1)
$14,534 $34,073 
Nonaccrual loans(1)
$10,831 $15,034 
Factored receivables greater than 90 days past dueFactored receivables greater than 90 days past due26,859 13,927 Factored receivables greater than 90 days past due29,463 29,057 
Other nonperforming factored receivables(2)
Other nonperforming factored receivables(2)
1,428 10,029 
Other nonperforming factored receivables(2)
997 1,428 
Troubled debt restructurings accruing interestTroubled debt restructurings accruing interest17 Troubled debt restructurings accruing interest643 765 
$42,838 $58,032 $41,934 $46,284 
(1)Includes troubled debt restructurings of $5,048,000$2,859,000 and $13,321,000$3,912,000 at SeptemberJune 30, 20212022 and December 31, 2020,2021, respectively.
(2)Other nonperforming factored receivables represent the 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.
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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 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 – Pass rated loans have low to average risk and are not otherwise classified.
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. Certain classified loans have 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.

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Management considers the guidance in ASC 310-20 when determining whether a modification, extension, or renewal of loan constitutes a current period origination. Generally, current period renewals of credit are re-underwritten at the point of renewal and considered current period originations for purposes of the table below. As of SeptemberJune 30, 20212022 and December 31, 2020,2021, based on the most recent analysis performed, the risk category of loans is as follows:
Revolving
Loans
Revolving
Loans
Converted
To Term
Loans
TotalRevolving
Loans
Revolving
Loans
Converted
To Term
Loans
Total
(Dollars in thousands)(Dollars in thousands)Year of Origination(Dollars in thousands)Year of Origination
September 30, 202120212020201920182017Prior
June 30, 2022June 30, 202220222021202020192018PriorRevolving
Loans
Revolving
Loans
Converted
To Term
Loans
Total
Commercial real estateCommercial real estateCommercial real estate
PassPass$161,022 $254,852 $48,186 $33,865 $56,081 $46,685 $25,243 $— $625,934 Pass$159,609 $165,100 $213,311 $35,879 $19,446 $43,806 
ClassifiedClassified690 3,425 41 — 16 — — — 4,172 Classified— 3,522 2,565 40 — 1,108 256 — 7,491 
Total commercial real estateTotal commercial real estate$161,712 $258,277 $48,227 $33,865 $56,097 $46,685 $25,243 $— $630,106 Total commercial real estate$159,609 $168,622 $215,876 $35,919 $19,446 $44,914 $4,894 $— $649,280 
Construction, land development, landConstruction, land development, landConstruction, land development, land
PassPass$76,239 $57,943 $12,580 $21,680 $1,214 $1,159 $$— $170,824 Pass$34,136 $33,901 $27,972 $4,446 $673 $748 $$— $101,885 
ClassifiedClassified— 845 — — — 145 — — 990 Classified— 1,340 — — 145 — — 1,492 
Total construction, land development, landTotal construction, land development, land$76,239 $58,788 $12,580 $21,680 $1,214 $1,304 $$— $171,814 Total construction, land development, land$34,136 $35,241 $27,979 $4,446 $673 $893 $$— $103,377 
1-4 family residential1-4 family residential1-4 family residential
PassPass$21,915 $18,191 $9,961 $7,170 $10,068 $25,998 $32,018 $327 $125,648 Pass$15,577 $23,796 $13,257 $8,628 $4,137 $23,987 $35,147 $271 $124,800 
ClassifiedClassified219 240 53 816 82 — 1,425 Classified— 239 164 53 1,083 19 — 1,562 
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 Total 1-4 family residential$15,577 $24,035 $13,421 $8,681 $4,141 $25,070 $35,166 $271 $126,362 
FarmlandFarmlandFarmland
PassPass$11,922 $14,111 $11,021 $8,749 $10,212 $22,761 $1,283 $130 $80,189 Pass$6,610 $12,925 $12,249 $6,372 $6,896 $22,297 $1,301 $233 $68,883 
ClassifiedClassified699 524 650 336 128 307 157 — 2,801 Classified199 — 497 607 — 86 — — 1,389 
Total farmlandTotal farmland$12,621 $14,635 $11,671 $9,085 $10,340 $23,068 $1,440 $130 $82,990 Total farmland$6,809 $12,925 $12,746 $6,979 $6,896 $22,383 $1,301 $233 $70,272 
CommercialCommercialCommercial
PassPass$419,788 $401,324 $92,389 $25,544 $17,534 $7,485 $413,973 $436 $1,378,473 Pass$182,667 $264,391 $201,907 $49,325 $9,454 $15,229 $473,418 $265 $1,196,656 
ClassifiedClassified1,422 7,995 5,493 571 66 464 4,013 — 20,024 Classified1,532 11,792 5,518 2,548 68 109 7,256 — 28,823 
Total commercialTotal commercial$421,210 $409,319 $97,882 $26,115 $17,600 $7,949 $417,986 $436 $1,398,497 Total commercial$184,199 $276,183 $207,425 $51,873 $9,522 $15,338 $480,674 $265 $1,225,479 
Factored receivablesFactored receivablesFactored receivables
PassPass$1,575,756 $— $— $— $— $— $— $— $1,575,756 Pass$1,561,503 $— $— $— $— $— $— $— $1,561,503 
ClassifiedClassified10,594 20,678 — — — — — — 31,272 Classified14,204 — 20,575 — — — — — 34,779 
Total factored receivablesTotal factored receivables$1,586,350 $20,678 $— $— $— $— $— $— $1,607,028 Total factored receivables$1,575,707 $— $20,575 $— $— $— $— $— $1,596,282 
ConsumerConsumerConsumer
PassPass$2,173 $2,072 $805 $689 $2,739 $3,881 $68 $— $12,427 Pass$2,161 $1,943 $1,244 $444 $410 $3,163 $161 $— $9,526 
ClassifiedClassified— — 123 121 — — 250 Classified— — — 179 — — 183 
Total consumerTotal consumer$2,178 $2,072 $805 $690 $2,862 $4,002 $68 $— $12,677 Total consumer$2,161 $1,946 $1,245 $444 $410 $3,342 $161 $— $9,709 
Mortgage warehouseMortgage warehouseMortgage warehouse
PassPass$752,545 $— $— $— $— $— $— $— $752,545 Pass$654,605 $— $— $— $— $— $— $— $654,605 
ClassifiedClassified— — — — — — — — — Classified— — — — — — — — — 
Total mortgage warehouseTotal mortgage warehouse$752,545 $— $— $— $— $— $— $— $752,545 Total mortgage warehouse$654,605 $— $— $— $— $— $— $— $654,605 
Total loansTotal loansTotal loans
PassPass$3,021,360 $748,493 $174,942 $97,697 $97,848 $107,969 $472,594 $893 $4,721,796 Pass$2,616,868 $502,056 $469,940 $105,094 $41,016 $109,230 $514,674 $769 $4,359,647 
ClassifiedClassified13,629 33,707 6,237 915 341 1,853 4,252 — 60,934 Classified15,935 16,896 29,327 3,248 72 2,710 7,531 — 75,719 
Total loansTotal loans$3,034,989 $782,200 $181,179 $98,612 $98,189 $109,822 $476,846 $893 $4,782,730 Total loans$2,632,803 $518,952 $499,267 $108,342 $41,088 $111,940 $522,205 $769 $4,435,366 

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TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Revolving
Loans
Revolving
Loans
Converted
To Term
Loans
TotalRevolving
Loans
Revolving
Loans
Converted
To Term
Loans
Total
(Dollars in thousands)(Dollars in thousands)Year of Origination(Dollars in thousands)Year of Origination
December 31, 202020202019201820172016Prior
December 31, 2021December 31, 202120212020201920182017PriorRevolving
Loans
Revolving
Loans
Converted
To Term
Loans
Total
Commercial real estateCommercial real estateCommercial real estate
PassPass$271,406 $94,085 $62,075 $49,115 $27,921 $230,731 $27,666 $908 $763,907 Pass$211,088 $249,652 $50,223 $25,930 $47,447 $37,290 
ClassifiedClassified10,298 2,239 133 1,367 664 550 — — 15,251 Classified2,879 3,358 41 — 16 — 256 — 6,550 
Total commercial real estateTotal commercial real estate$281,704 $96,324 $62,208 $50,482 $28,585 $231,281 $27,666 $908 $779,158 Total commercial real estate$213,967 $253,010 $50,264 $25,930 $47,463 $37,290 $4,851 $— $632,775 
Construction, land development, landConstruction, land development, landConstruction, land development, land
PassPass$72,149 $12,490 $11,829 $5,820 $8,946 $105,584 $12 $500 $217,330 Pass$56,764 $33,756 $4,744 $23,696 $1,199 $994 $$— $121,161 
ClassifiedClassified2,031 34 — — — 252 — — 2,317 Classified2,150 — — — 145 — — 2,303 
Total construction, land development, landTotal construction, land development, land$74,180 $12,524 $11,829 $5,820 $8,946 $105,836 $12 $500 $219,647 Total construction, land development, land$58,914 $33,764 $4,744 $23,696 $1,199 $1,139 $$— $123,464 
1-4 family residential1-4 family residential1-4 family residential
PassPass$58,300 $11,280 $11,425 $8,982 $4,400 $20,167 $35,326 $5,320 $155,200 Pass$26,840 $15,195 $9,485 $6,526 $8,591 $22,151 $32,210 $318 $121,316 
ClassifiedClassified1,473 149 137 23 11 49 105 — 1,947 Classified273 233 53 64 1,089 81 — 1,799 
Total 1-4 family residentialTotal 1-4 family residential$59,773 $11,429 $11,562 $9,005 $4,411 $20,216 $35,431 $5,320 $157,147 Total 1-4 family residential$27,113 $15,428 $9,538 $6,532 $8,655 $23,240 $32,291 $318 $123,115 
FarmlandFarmlandFarmland
PassPass$37,212 $10,095 $7,388 $15,262 $7,908 $20,572 $1,421 $486 $100,344 Pass$14,387 $13,396 $7,892 $8,040 $10,040 $19,792 $1,317 $241 $75,105 
ClassifiedClassified994 407 403 — 22 590 925 — 3,341 Classified199 612 593 333 128 298 126 — 2,289 
Total farmlandTotal farmland$38,206 $10,502 $7,791 $15,262 $7,930 $21,162 $2,346 $486 $103,685 Total farmland$14,586 $14,008 $8,485 $8,373 $10,168 $20,090 $1,443 $241 $77,394 
CommercialCommercialCommercial
PassPass$470,477 $162,203 $127,569 $94,154 $70,405 $181,312 $416,197 $11,396 $1,533,713 Pass$466,254 $332,746 $77,010 $18,940 $15,032 $7,704 $490,159 $49 $1,407,894 
ClassifiedClassified8,128 2,390 983 190 4,470 2,787 10,296 — 29,244 Classified9,317 6,858 5,088 558 56 456 202 — 22,535 
Total commercialTotal commercial$478,605 $164,593 $128,552 $94,344 $74,875 $184,099 $426,493 $11,396 $1,562,957 Total commercial$475,571 $339,604 $82,098 $19,498 $15,088 $8,160 $490,361 $49 $1,430,429 
Factored receivablesFactored receivablesFactored receivables
PassPass$1,081,316 $— $— $— $— $— $— $— $1,081,316 Pass$1,667,922 $— $— $— $— $— $— $— $1,667,922 
ClassifiedClassified39,454 — — — — — — — 39,454 Classified10,826 20,789 — — — — — — 31,615 
Total factored receivablesTotal factored receivables$1,120,770 $— $— $— $— $— $— $— $1,120,770 Total factored receivables$1,678,748 $20,789 $— $— $— $— $— $— $1,699,537 
ConsumerConsumerConsumer
PassPass$8,382 $2,251 $1,336 $1,258 $688 $1,594 $74 $— $15,583 Pass$3,252 $1,794 $669 $553 $2,424 $1,882 $70 $— $10,644 
ClassifiedClassified146 28 18 36 11 16 — — 255 Classified— — 12 119 105 — — 241 
Total consumerTotal consumer$8,528 $2,279 $1,354 $1,294 $699 $1,610 $74 $— $15,838 Total consumer$3,257 $1,794 $669 $565 $2,543 $1,987 $70 $— $10,885 
Mortgage warehouseMortgage warehouseMortgage warehouse
PassPass$1,037,574 $— $— $— $— $— $— $— $1,037,574 Pass$769,973 $— $— $— $— $— $— $— $769,973 
ClassifiedClassified— — — — — — — — — Classified— — — — — — — — — 
Total mortgage warehouseTotal mortgage warehouse$1,037,574 $— $— $— $— $— $— $— $1,037,574 Total mortgage warehouse$769,973 $— $— $— $— $— $— $— $769,973 
Total loansTotal loansTotal loans
PassPass$3,036,816 $292,404 $221,622 $174,591 $120,268 $559,960 $480,696 $18,610 $4,904,967 Pass$3,216,480 $646,539 $150,023 $83,685 $84,733 $89,813 $528,359 $608 $4,800,240 
ClassifiedClassified62,524 5,247 1,674 1,616 5,178 4,244 11,326 — 91,809 Classified25,649 31,858 5,775 909 383 2,093 665 — 67,332 
Total loansTotal loans$3,099,340 $297,651 $223,296 $176,207 $125,446 $564,204 $492,022 $18,610 $4,996,776 Total loans$3,242,129 $678,397 $155,798 $84,594 $85,116 $91,906 $529,024 $608 $4,867,572 
Troubled Debt Restructurings and Loan Modifications
The Company had troubled debt restructurings with an amortized cost of $5,065,000$3,502,000 and $13,324,000$4,677,000 as of SeptemberJune 30, 20212022 and December 31, 2020,2021, respectively. The Company had allocated $1,292,000$1,069,000 and $2,469,000$1,068,000 of allowance for those loans at SeptemberJune 30, 20212022 and December 31, 2020,2021, respectively, and had not committed to lend additional amounts.
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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents the pre- and post-modification recorded investment of loans modified as troubled debt restructurings during the three and nine months ended September 30, 2021 and 2020.restructurings. The Company did not grant principal reductions on any restructured loans.
(Dollars in thousands)Extended
Amortization
Period
Payment
Deferrals
Protective AdvancesTotal
Modifications
Number of
Loans
Nine months ended September 30, 2021
Commercial real estate$— $— $741 $741 
Three months ended September 30, 2020
Commercial123 3,503 — 3,626 14 
Nine months ended September 30, 2020
Commercial real estate$— $246 $— $246 
Construction, land development, land$$— $— $
Farmland3,486 — — 3,486 
Commercial4,714 9,296 — 14,010 19 
$8,208 $9,542 $— $17,750 23 
(Dollars in thousands)Extended
Amortization
Period
Payment
Deferrals
Protective AdvancesTotal
Modifications
Number of
Loans
Six months ended June 30, 2021
Commercial real estate$— 0$741 $741 
There were no loans modified as troubled debt restructurings during the three and six months ended SeptemberJune 30, 2022 or during the three months ended June 30, 2021.
During the ninesix months ended SeptemberJune 30, 2022, the Company had 1 loan modified as a troubled debt restructuring with a recorded investment of $521,000 for which there was payment default within twelve months following the modification. During the six months ended June 30, 2021, the Company had 34 loans modified as troubled debt restructurings with a recorded investment of $1,681,000 for which there were payment defaults within twelve months following the modification. During the nine months ended September 30, 2020, the Company had 2 loans modified as troubled debt restructurings with a recorded investment of $18,000$670,000 for which there were payment defaults within twelve months following the modification. Default is determined at 90 or more days past due, upon charge-off, or upon foreclosure.
The following table summarizes the balance of loans modified for borrowers impacted by the COVID-19 pandemic.
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended June 30,Six Months Ended June 30,
(Dollars in thousands)(Dollars in thousands)2021202020212020(Dollars in thousands)2022202120222021
Total modificationsTotal modifications— 12,62510,459617,976Total modifications— 10,459
These modifications primarily consisted of payment deferrals to assist customers. As these modifications related to the COVID-19 pandemic and qualify under the provisions of either 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 currently in deferral and the accrued interest related to the loans with payments in deferral at SeptemberJune 30, 20212022 and December 31, 2020:2021:
(Dollars in thousands)(Dollars in thousands)Total
Loans
Balance of
Loans Currently
in Deferral
Percentage
of Portfolio
Accrued
Interest
Receivable
(Dollars in thousands)Total
Loans
Balance of
Loans Currently
in Deferral
Percentage
of Portfolio
Accrued
Interest
Receivable
September 30, 2021
June 30, 2022June 30, 2022Total
Loans
Balance of
Loans Currently
in Deferral
Percentage
of Portfolio
Accrued
Interest
Receivable
Commercial real estateCommercial real estate$630,106 $30,389 4.8 %$105 Commercial real estate
Construction, land development, landConstruction, land development, land171,814 1,340 0.8 %Construction, land development, land
1-4 family residential1-4 family residential127,073 491 0.4 %11 1-4 family residential126,362 — — %— 
FarmlandFarmland82,990 — — %— Farmland70,272 — — %— 
CommercialCommercial1,398,497 — — %— Commercial1,225,479 — — %— 
Factored receivablesFactored receivables1,607,028 — — %— Factored receivables1,596,282 — — %— 
ConsumerConsumer12,677 — — %— Consumer9,709 — — %— 
Mortgage warehouseMortgage warehouse752,545 — — %— Mortgage warehouse654,605 — — %— 
TotalTotal$4,782,730 $32,220 0.7 %$121 Total$4,435,366 $1,340 — %$

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(Dollars in thousands)(Dollars in thousands)Total
Loans
Balance of
Loans Currently
in Deferral
Percentage
of Portfolio
Accrued
Interest
Receivable
(Dollars in thousands)Total
Loans
Balance of
Loans Currently
in Deferral
Percentage
of Portfolio
Accrued
Interest
Receivable
December 31, 2020
December 31, 2021December 31, 2021Total
Loans
Balance of
Loans Currently
in Deferral
Percentage
of Portfolio
Accrued
Interest
Receivable
Commercial real estateCommercial real estate$779,158 $69,980 9.0 %$357 Commercial real estate
Construction, land development, landConstruction, land development, land219,647 18,821 8.6 %183 Construction, land development, land
1-4 family residential1-4 family residential157,147 1,129 0.7 %15 1-4 family residential123,115 — — %— 
FarmlandFarmland103,685 — — %— Farmland77,394 338 0.4 %
CommercialCommercial1,562,957 14,561 0.9 %166 Commercial1,430,429 — — %— 
Factored receivablesFactored receivables1,120,770 — — %— Factored receivables1,699,537 — — %— 
ConsumerConsumer15,838 106 0.7 %Consumer10,885 0.1 %— 
Mortgage warehouseMortgage warehouse1,037,574 — — %— Mortgage warehouse769,973 — — %— 
TotalTotal$4,996,776 $104,597 2.1 %$726 Total$4,867,572 $31,896 0.7 %$124 
Residential Real Estate Loans In Process of Foreclosure
At SeptemberJune 30, 20212022 and December 31, 2020,2021, the Company had $375,000$254,000 and $251,000,$301,000, respectively, in 1-4 family residential real estate loans for which formal foreclosure proceedings were in process.
NOTE 5 - GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets consist of the following:
(Dollars in thousands)(Dollars in thousands)September 30, 2021December 31, 2020(Dollars in thousands)June 30, 2022December 31, 2021
GoodwillGoodwill$233,727 $163,209 Goodwill$233,709 $233,727 
September 30, 2021December 31, 2020June 30, 2022December 31, 2021
(Dollars in thousands)(Dollars in thousands)Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
(Dollars in thousands)Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Core deposit intangiblesCore deposit intangibles$43,578 $(30,784)$12,794 $43,578 $(27,436)$16,142 Core deposit intangibles$43,578 $(33,649)$9,929 $43,578 $(31,800)$11,778 
Software intangible assetsSoftware intangible assets16,932 (1,411)15,521 — — — Software intangible assets16,932 (4,586)12,346 16,932 (2,469)14,463 
Other intangible assetsOther intangible assets29,560 (11,547)18,013 19,200 (8,629)10,571 Other intangible assets29,560 (14,878)14,682 29,560 (12,672)16,888 
$90,070 $(43,742)$46,328 $62,778 $(36,065)$26,713 $90,070 $(53,113)$36,957 $90,070 $(46,941)$43,129 
The changes in goodwill and intangible assets during the three and ninesix months ended SeptemberJune 30, 20212022 and 20202021 are as follows:
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended June 30,Six Months Ended June 30,
(Dollars in thousands)(Dollars in thousands)2021202020212020(Dollars in thousands)2022202120222021
Beginning balanceBeginning balance$286,567 $186,162 $189,922 $190,286 Beginning balance$269,119 $188,006 $276,856 $189,922 
Acquired goodwillAcquired goodwill— 4,520 73,697 4,520 Acquired goodwill— 73,697 — 73,697 
Acquired intangible assetsAcquired intangible assets— 3,500 27,292 3,500 Acquired intangible assets— 27,292 — 27,292 
Acquired goodwill - measurement period adjustmentAcquired goodwill - measurement period adjustment(3,238)— (3,179)— Acquired goodwill - measurement period adjustment— — (18)59 
Goodwill transferred to assets held for saleGoodwill transferred to assets held for sale— — (3,217)— 
Intangible assets transferred to assets held for saleIntangible assets transferred to assets held for sale— — (1,394)— 
Goodwill transferred from assets held for saleGoodwill transferred from assets held for sale3,217 — 3,217 — 
Intangible assets transferred from assets held for saleIntangible assets transferred from assets held for sale1,394 — 1,394 — 
Amortization of intangiblesAmortization of intangibles(3,274)(2,141)(7,677)(6,265)Amortization of intangibles(3,064)(2,428)(6,172)(4,403)
Ending balanceEnding balance$280,055 $192,041 $280,055 $192,041 Ending balance$270,666 $286,567 $270,666 $286,567 
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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 — EQUITY METHOD INVESTMENT
On October 17, 2019, the Company made a minority equity investment of $8,000,000 in Warehouse Solutions Inc. (“WSI”), purchasing 8% of the common stock of WSI and receiving warrants to purchase an additional 10% of the common stock of WSI upon exercise of the warrants at a later date. WSI provides technology solutions to help reduce supply chain costs for a global client base across multiple industries.
Although the Company held less than 20% of the voting stock of WSI, the investment in common stock was initially accounted for using the equity method as the Company’s representation on WSI’s board of directors, which was disproportionately larger in size than the common stock investment held, demonstrated that it had significant influence over the investee.
On June 10, 2022, the Company entered into 2 separate agreements with WSI. First, the Company entered into an Affiliate Agreement. The Affiliate Agreement canceled the Company’s outstanding warrants and modified the structure of the existing operating agreement to be consistent with TriumphPay operating as an open loop payments network. By modifying the operating agreement, the Company’s Payments segment operations now have greater ability to operate in the freight shipper audit space. As a result of the Affiliate Agreement, the Company recognized a total loss on impairment of the warrants of $3,224,000, which represented the full book balance of the warrants on the date the Affiliate Agreement was executed. The impairment loss was included in other noninterest income on the Company's consolidated statements of income during the three and six months ended June 30, 2022.
Separately, the Company also entered into an Amended and Restated Investor Rights Agreement (the “Investor Rights Agreement”). The Investor Rights Agreement eliminated the Company’s representation on WSI’s board of directors making the Company a completely passive investor. The Investor Rights Agreement also provided for the Company’s purchase of an additional 10% of WSI’s common stock for $23,000,000 raising the Company’s ownership of WSI’s common stock to 18%. As a passive investor, the Company no longer holds significant influence over the investee and the investment in WSI’s common stock no longer qualifies for equity method accounting. The investment in WSI’s common stock is now accounted for as an equity investment without a readily determinable fair value measured under the measurement alternative. The measurement alternative requires the Company to remeasure its investment in the common stock of WSI only upon the execution of an orderly and observable transaction in an identical or similar instrument.
The Company's additional investment in WSI under the Investor Rights Agreement resulted in the Company discontinuing the equity method of accounting and qualified as an orderly and observable transaction for an identical investment in WSI, therefore the fair value of the Company's original 8% common stock investment was required to be adjusted from $4,925,000 at March 31, 2022 to $15,088,000, resulting in a gain of $10,163,000 that was recorded in other noninterest income on the Company's consolidated statements of income during the three and six months ended June 30, 2022.
The following table presents the Company’s investment in WSI:
(Dollars in thousands)June 30,
2022
December 31,
2021
Common stock$38,088 $5,142 
Warrants— 3,224 
Total investment$38,088 $8,366 
The investment is included in other assets on the Company’s consolidated balance sheets and is included in other assets on the Payment Segment’s balance sheets. All gains and losses related to the investment are included in the Payment segment’s operating results.
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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 7 — DERIVATIVE 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 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 andThe Company discontinues hedge accounting when it determines that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recordedno longer effective in Accumulated Other Comprehensive Incomeoffsetting changes in the cash flows of the hedged item, the derivative is settled or terminated, or treatment of the derivative as a hedge is no longer appropriate or intended. During the three months ended March 31, 2022, the Company terminated its single derivative with a notional value totaling $200,000,000, resulting in a termination value of $9,316,000. During the three and subsequentlysix months ended June 31, 2022, the Company reclassified $232,000 and $465,000, respectively, into earnings through interest expense in the same period(s) during whichconsolidated statements of income. On May 4, 2022, the Company terminated the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified tofunding, incurring a termination fee of $732,000, which was recognized through interest expense as interest payments are madein the consolidated statements of income, and reclassified the remaining $8,851,000 unrealized gain on the Company’s variable-rate interest bearing deposits. During 2021,terminated derivative into earnings through other noninterest income in the consolidated statements of income.
The following table presents the pre-tax impact of the terminated cash flow hedge on AOCI:
Three Months Ended June 30,Six Months Ended June 30,
(Dollars in thousands)2022202120222021
Unrealized gains on terminated hedges
Beginning Balance$9,083 $— $— $— 
Unrealized gains arising during the period— — 9,316 — 
Reclassification adjustments for amortization of unrealized (gains) into net income(9,083)— (9,316)— 
Ending Balance$— $— $— $— 
The Company estimates that an additional $58,000 will be reclassified as an increase in interest expense.
did not have any derivative financial instruments at June 30, 2022. The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Balance Sheet:Sheet as of December 31, 2021:
Derivative AssetsDerivative Assets
As of September 30, 2021As of December 31, 2020As of December 31, 2021
(Dollars in thousands)(Dollars in thousands)Notional
Amount
Balance
Sheet Location
Fair Value
Total
Notional
Amount
Balance
Sheet Location
Fair Value
Total
(Dollars in thousands)Notional
Amount
Balance
Sheet Location
Fair Value
Total
Derivatives designated as hedging instruments:Derivatives designated as hedging instruments:Derivatives designated as hedging instruments:
Interest rate swapsInterest rate swaps$200,000 Other Assets$3,948 $200,000 Other Assets$816 Interest rate swaps$200,000 Other Assets$6,164 
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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$$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.
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 June 30, 2022
Derivatives in cash flow hedging relationships:
Interest rate swaps$(6,939)$(6,939)Interest Expense, Noninterest Income$(6,939)$(6,939)
Three Months Ended June 30, 2021
Derivatives in cash flow hedging relationships:
Interest rate swaps$(429)$(429)Interest Expense$22 $22 
Six Months Ended June 30, 2022
Derivatives in cash flow hedging relationships:
Interest rate swaps$(4,705)$(4,705)Interest Expense, Noninterest Income$(7,103)$(7,103)
Six Months Ended June 30, 2021
Derivatives in cash flow hedging relationships:
Interest rate swaps$2,377 $2,377 Interest Expense$40 $40 
NOTE 7 –8 — VARIABLE INTEREST ENTITIES
Collateralized Loan Obligation Funds – Closed
The Company holds investments in the subordinated notes of the following closed Collateralized Loan Obligation (“CLO”) funds:
(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 
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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 $5,488,000$4,335,000 and $5,919,000$4,947,000 at SeptemberJune 30, 20212022 and December 31, 2020,2021, 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 closed CLO funds in its financial statements. The Company concluded that the closed CLO funds were 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 was not the primary beneficiary and therefore was not required to consolidate the assets, liabilities, equity, or operations of the closed CLO funds in the Company’s financial statements.
NOTE 8 - BORROWINGS9 — LEGAL CONTINGENCIES
Subordinated Notes
On SeptemberVarious legal claims have arisen from time to time in the normal course of business which, in the opinion of management as of June 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 included2022, will have no material effect on the Company’s consolidated balance sheets as liabilities at their carrying values of $38,479,000 and $38,356,000 at September 30, 2021 and December 31, 2020, 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 being amortized using the effective interest method through the earliest redemption date and recognized as a component of interest expense.
On 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 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 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 2021 Notes are included on the consolidated balance sheets as liabilities at their carrying values of $68,276,000 at September 30, 2021; 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 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.financial statements.
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(Unaudited)
NOTE 9 - 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.
NOTE 10 - 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, 2021December 31, 2020June 30, 2022December 31, 2021
(Dollars in thousands)(Dollars in thousands)Fixed RateVariable RateTotalFixed RateVariable RateTotal(Dollars in thousands)Fixed RateVariable RateTotalFixed RateVariable RateTotal
Unused lines of creditUnused lines of credit$25,574 $381,584 $407,158 $43,406 $547,430 $590,836 Unused lines of credit$14,774 $505,448 $520,222 $26,029 $523,483 $549,512 
Standby letters of creditStandby letters of credit$7,819 $5,782 $13,601 $5,464 $8,429 $13,893 Standby letters of credit$11,501 $5,524 $17,025 $11,090 $5,409 $16,499 
Commitments to purchase loansCommitments to purchase loans$— $88,620 $88,620 $— $66,373 $66,373 Commitments to purchase loans$— $127,358 $127,358 $— $108,423 $108,423 
Mortgage warehouse commitmentsMortgage warehouse commitments$— $844,903 $844,903 $— $417,722 $417,722 Mortgage warehouse commitments$— $997,165 $997,165 $— $823,060 $823,060 
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 SeptemberJune 30, 20212022 and December 31, 2020,2021, the allowance for credit losses on off-balance sheet credit exposures totaled $3,846,000$4,278,000 and $5,005,000,$4,082,000, 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,Three Months Ended June 30,Six Months Ended June 30,
(Dollars in thousands)(Dollars in thousands)2021202020212020(Dollars in thousands)2022202120222021
Credit loss expense (benefit)Credit loss expense (benefit)$(238)$(8)$(1,159)$3,840 Credit loss expense (benefit)$932 $293 $196 $(921)
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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 11 - Fair Value Disclosures— 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.
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(Unaudited)
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 the methodologies disclosed in Note 17 of the Company’s 20202021 Form 10-K.
Assets and liabilities measured at fair value on a recurring basis are summarized in the table below.
(Dollars in thousands)(Dollars in thousands)Fair Value Measurements UsingTotal
Fair Value
(Dollars in thousands)Fair Value Measurements UsingTotal
Fair Value
September 30, 2021Level 1Level 2Level 3
June 30, 2022June 30, 2022Level 1Level 2Level 3Total
Fair Value
Assets measured at fair value on a recurring basisAssets measured at fair value on a recurring basisAssets measured at fair value on a recurring basis
Securities available for saleSecurities available for saleSecurities available for sale
U.S. Government agency obligations$— $5,001 $— $5,001 
Mortgage-backed securities, residentialMortgage-backed securities, residential— 18,167 — 18,167 Mortgage-backed securities, residential$— $48,638 $— $48,638 
Asset-backed securitiesAsset-backed securities— 6,864 — 6,864 Asset-backed securities— 6,551 — 6,551 
State and municipalState and municipal— 29,175 — 29,175 State and municipal— 15,023 — 15,023 
CLO securitiesCLO securities— 100,719 — 100,719 CLO securities— 142,251 — 142,251 
Corporate bondsCorporate bonds— 2,061 — 2,061 Corporate bonds— 1,268 — 1,268 
SBA pooled securitiesSBA pooled securities— 2,829 — 2,829 SBA pooled securities— 2,178 — 2,178 
$— $164,816 $— $164,816 $— $215,909 $— $215,909 
Equity securities
Equity securities with readily determinable fair valuesEquity securities with readily determinable fair values
Mutual fundMutual fund$5,623 $— $— $5,623 Mutual fund$5,050 $— $— $5,050 
Loans held for saleLoans held for sale$— $26,437 $— $26,437 Loans held for sale$— $$— $
Derivative financial instruments (cash flow hedges)
Interest rate swap$— $3,948 $— $3,948 
Indemnification assetIndemnification asset$— $— $4,377 $4,377 
Indemnification asset$— $— $4,786 $4,786 
Revenue share assetRevenue share asset$— $— $5,210 $5,210 
Liabilities measured at fair value on a recurring basisLiabilities measured at fair value on a recurring basis
Return of premium liabilityReturn of premium liability$— $— $708 $708 
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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)(Dollars in thousands)Fair Value Measurements UsingTotal
Fair Value
(Dollars in thousands)Fair Value Measurements UsingTotal
Fair Value
December 31, 2020Level 1Level 2Level 3
December 31, 2021December 31, 2021Level 1Level 2Level 3Total
Fair Value
Assets measured at fair value on a recurring basisAssets measured at fair value on a recurring basisAssets measured at fair value on a recurring basis
Securities available for saleSecurities available for saleSecurities available for sale
U.S. Government agency obligations$— $15,088 $— $15,088 
Mortgage-backed securities, residentialMortgage-backed securities, residential— 27,684 — 27,684 Mortgage-backed securities, residential$— $37,449 $— $37,449 
Asset-backed securitiesAsset-backed securities— 7,039 — 7,039 Asset-backed securities— 6,764 — 6,764 
State and municipalState and municipal— 37,395 — 37,395 State and municipal— 26,825 — 26,825 
CLO SecuritiesCLO Securities— 122,204 — 122,204 CLO Securities— 106,634 — 106,634 
Corporate bondsCorporate bonds— 11,573 — 11,573 Corporate bonds— 2,056 — 2,056 
SBA pooled securitiesSBA pooled securities— 3,327 — 3,327 SBA pooled securities— 2,698 — 2,698 
$— $224,310 $— $224,310 $— $182,426 $— $182,426 
Equity securities
Equity securities with readily determinable fair valuesEquity securities with readily determinable fair values
Mutual fundMutual fund$5,826 $— $— $5,826 Mutual fund$5,504 $— $— $5,504 
Loans held for saleLoans held for sale$— $24,546 $— $24,546 Loans held for sale$— $7,330 $— $7,330 
Derivative financial instruments (cash flow hedges)Derivative financial instruments (cash flow hedges)Derivative financial instruments (cash flow hedges)
Interest rate swapInterest rate swap$— $816 $— $816 Interest rate swap$— $6,164 $— $6,164 
Indemnification assetIndemnification asset$— $— $36,225 $36,225 Indemnification asset$— $— $4,786 $4,786 
There were no transfers between levels during 20212022 or 2020.2021.
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 SeptemberJune 30, 20212022 and December 31, 2020,2021, 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$4,608,000 and $39,200,000,$5,038,000, respectively, and a discount rate of 5.0% and 8.8%5.0%, 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,Three Months Ended June 30,Six Months Ended June 30,
(Dollars in thousands)(Dollars in thousands)2021202020212020(Dollars in thousands)2022202120222021
Beginning balanceBeginning balance$5,246 $— $36,225 $— Beginning balance$4,582 $5,246 $4,786 $36,225 
Indemnification asset recognized in business combinationIndemnification asset recognized in business combination— 30,959 — 30,959 Indemnification asset recognized in business combination— — — — 
Change in fair value of indemnification asset recognized in earningsChange in fair value of indemnification asset recognized in earnings(460)— 4,194 — Change in fair value of indemnification asset recognized in earnings(205)— (409)4,654 
Indemnification recognized— — (35,633)— 
Indemnification reductionIndemnification reduction— — — (35,633)
Ending balanceEnding balance$4,786 $30,959 $4,786 $30,959 Ending balance$4,377 $5,246 $4,377 $5,246 
On June 30, 2022, the Company entered into an agreement to sell a portfolio of factored receivables. The associated agreement contains a revenue share provision that entitles the Company to an amount equal to 15 percent of the future gross monthly revenue of the clients associated with the sold factored receivable portfolio. The fair value of the revenue share asset is calculated each reporting period, and changes in the fair value of the revenue share asset are recorded in noninterest income in the consolidated statements of income. The revenue share asset fair value is considered a Level 3 classification. At June 30, 2022, the estimated cash payments expected to be received from the purchaser for the Company's share of future gross monthly revenue as $7,719,000 and a discount rate of 10.0% was applied to calculate the present value of the revenue share asset of $5,210,000. As the revenue share asset was recorded during the three months ended June 30, 2022, there was no difference between the opening balance and the closing balance of the fair value of the revenue share asset during the current period.
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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On June 23, 2022, the Company made the decision to sell and closed on the sale of a portfolio of equipment loans for cash consideration. The associated agreement contains a provision that in the event that a sold loan is prepaid in full prior to the due date of the final scheduled contractual payment, the Company will return a pro-rata portion of the premium calculated as of the date of such prepayment in full. The fair value of the return of premium liability is calculated each reporting period, and changes in the fair value of the return of premium liability are recorded in noninterest income in the consolidated statements of income. The return of premium liability is considered a Level 3 classification. At June 30, 2022, the fair value of the estimated premium expected to be returned to the purchaser for sold loans prepaid in full was $708,000 calculated as the difference between the discounted cash flows of each sold loan assuming no prepayments and the discounted cash flows of each sold loan assuming an 11% prepayment speed; consistent with management's expected prepayment speed. As the return of premium liability was recorded during the three months ended June 30, 2022, there was no difference between the opening balance and the closing balance of the fair value of the return of premium liability during the current period.
Assets measured at fair value on a non-recurring basis are summarized in the table below. There were no liabilities measured at fair value on a non-recurring basis at SeptemberJune 30, 20212022 and December 31, 2020.2021.
(Dollars in thousands)(Dollars in thousands)Fair Value Measurements UsingTotal
Fair Value
(Dollars in thousands)Fair Value Measurements UsingTotal
Fair Value
September 30, 2021Level 1Level 2Level 3
June 30, 2022June 30, 2022Level 1Level 2Level 3Total
Fair Value
Collateral dependent loansCollateral dependent loansCollateral dependent loans
Commercial real estateCommercial real estate$— $— $408 $408 Commercial real estate$— $— $306 $306 
Construction, land development, land— — — — 
1-4 family residential1-4 family residential— — 38 38 1-4 family residential— — 27 27 
CommercialCommercial— — 1,379 1,379 Commercial— — 2,020 2,020 
Factored receivablesFactored receivables— — 33,874 33,874 Factored receivables— — 35,280 35,280 
ConsumerConsumer— — — — Consumer— — 40 40 
Other real estate owned (1)
Other real estate owned (1)
Other real estate owned (1)
Commercial real estate— — 18 18 
1-4 family residential1-4 family residential— — 65 65 1-4 family residential— — 41 41 
Construction— — 167 167 
Equity investment without readily determinable fair valueEquity investment without readily determinable fair value$38,088 $— $— $38,088 
$— $— $35,949 $35,949 $38,088 $— $37,714 $75,802 
(Dollars in thousands)(Dollars in thousands)Fair Value Measurements UsingTotal
Fair Value
(Dollars in thousands)Fair Value Measurements UsingTotal
Fair Value
December 31, 2020Level 1Level 2Level 3
December 31, 2021December 31, 2021Level 1Level 2Level 3Total
Fair Value
Collateral dependent loansCollateral dependent loansCollateral dependent loans
Commercial real estateCommercial real estate$— $— $5,107 $5,107 Commercial real estate$— $— $366 $366 
Construction, land development, land— — 824 824 
1-4 family residential1-4 family residential— — — — 1-4 family residential— — 61 61 
CommercialCommercial— — 2,355 2,355 Commercial— — 2,435 2,435 
Factored receivablesFactored receivables— — 41,065 41,065 Factored receivables— — 30,224 30,224 
ConsumerConsumer— — Consumer— — 60 60 
PCI0000
Other real estate owned (1)
Other real estate owned (1)
Other real estate owned (1)
Commercial real estateCommercial real estate— — 273 273 Commercial real estate— — 
1-4 family residential— — 114 114 
Farmland— — 209 209 
Construction, land development, landConstruction, land development, land— — 63 63 
$— $— $49,950 $49,950 $— $— $33,216 $33,216 
(1)Represents the fair value of OREO that was adjusted during the year to date period and subsequent to its initial classification as OREO.
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(Unaudited)
Collateral Dependent Loans Specific Allocation of ACL:    A loan is considered to be a collateral dependent loan when, based on current information and events, the 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 borrower is experiencing financial difficulty as of the measurement 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 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 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.
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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 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.
Equity Investment Without Readily Determinable Fair Value: Equity investments without a readily determinable fair value are measured under the measurement alternative. The measurement alternative requires the fair value of the investment to be adjusted upwards or downwards only upon the execution of an orderly and observable transaction in an identical or similar instrument. As the fair value measurement is based on an observable price change, it is classified in Level 1of the valuation hierarchy.
The estimated fair values of the Company’s financial instruments not measured at fair value on a recurring or non-recurring basis at SeptemberJune 30, 20212022 and December 31, 20202021 were as follows:
(Dollars in thousands)(Dollars in thousands)Carrying
Amount
Fair Value Measurements UsingTotal
Fair Value
(Dollars in thousands)Carrying
Amount
Fair Value Measurements UsingTotal
Fair Value
September 30, 2021Level 1Level 2Level 3
June 30, 2022June 30, 2022Carrying
Amount
Level 1Level 2Level 3Total
Fair Value
Financial assets:Financial assets:Financial assets:
Cash and cash equivalentsCash and cash equivalents$532,764 $532,764 $— $— $532,764 Cash and cash equivalents$724,237 $724,237 $— $— $724,237 
Securities - held to maturitySecurities - held to maturity5,488 — — 5,534 5,534 Securities - held to maturity4,335 — — 5,790 5,790 
Loans not previously presented, grossLoans not previously presented, gross4,747,031 142,996 — 4,611,706 4,754,702 Loans not previously presented, gross4,397,693 167,575 — 4,172,858 4,340,433 
FHLB and other restricted stockFHLB and other restricted stock4,901  N/A N/A N/AN/AFHLB and other restricted stock6,169  N/A N/A N/AN/A
Accrued interest receivableAccrued interest receivable16,031 16,031 — — 16,031 Accrued interest receivable14,563 14,563 — — 14,563 
Financial liabilities:Financial liabilities:Financial liabilities:
DepositsDeposits4,822,575 — 4,823,597 — 4,823,597 Deposits4,782,334 — 4,773,774 — 4,773,774 
Customer repurchase agreementsCustomer repurchase agreements11,990 — 11,990 — 11,990 Customer repurchase agreements11,746 — 11,746 — 11,746 
Federal Home Loan Bank advancesFederal Home Loan Bank advances30,000 — 30,000 — 30,000 Federal Home Loan Bank advances30,000 — 30,000 — 30,000 
Paycheck Protection Program Liquidity Facility97,554 — 97,554 — 97,554 
Subordinated notesSubordinated notes106,755 — 107,536 — 107,536 Subordinated notes107,377 — 122,308 — 122,308 
Junior subordinated debenturesJunior subordinated debentures40,467 — 41,085 — 41,085 Junior subordinated debentures40,876 — 42,344 — 42,344 
Accrued interest payableAccrued interest payable1,976 1,976 — — 1,976 Accrued interest payable2,054 2,054 — — 2,054 
(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 

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)Carrying
Amount
Fair Value Measurements UsingTotal
Fair Value
December 31, 2021Level 1Level 2Level 3
Financial assets:
Cash and cash equivalents$383,178 $383,178 $— $— $383,178 
Securities - held to maturity4,947 — — 5,447 5,447 
Loans not previously presented, gross4,834,426 142,962 — 4,685,058 4,828,020 
FHLB and other restricted stock10,146 N/AN/AN/AN/A
Accrued interest receivable15,319 15,319 — — 15,319 
Financial liabilities:
Deposits4,646,679 — 4,646,552 — 4,646,552 
Customer repurchase agreements2,103 — 2,103 — 2,103 
Federal Home Loan Bank advances180,000 — 180,000 — 180,000 
Paycheck Protection Program Liquidity Facility27,144 — 27,144 — 27,144 
Subordinated notes106,957 — 110,045 — 110,045 
Junior subordinated debentures40,602 — 41,286 — 41,286 
Accrued interest payable1,951 1,951 — — 1,951 
NOTE 12 - 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.
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 SeptemberJune 30, 20212022 and December 31, 2020,2021, the Company and TBK Bank meet all capital adequacy requirements to which they are subject.
As of SeptemberJune 30, 20212022 and December 31, 2020,2021, 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 SeptemberJune 30, 20212022 that management believes have changed TBK Bank’s category.
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(Unaudited)
The actual capital amounts and ratios for the Company and TBK Bank are presented in the following table.
(Dollars in thousands)(Dollars in thousands)ActualMinimum for Capital
Adequacy Purposes
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
(Dollars in thousands)ActualMinimum for Capital
Adequacy Purposes
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
September 30, 2021AmountRatioAmountRatioAmountRatio
June 30, 2022June 30, 2022AmountRatioAmountRatioAmountRatio
Total capital (to risk weighted assets)Total capital (to risk weighted assets)Total capital (to risk weighted assets)
Triumph Bancorp, Inc.Triumph Bancorp, Inc.$727,171 13.7%$424,625 8.0% N/AN/ATriumph Bancorp, Inc.$806,684 15.9%$405,879 8.0% N/AN/A
TBK Bank, SSBTBK Bank, SSB$655,551 12.5%$419,553 8.0%$524,441 10.0%TBK Bank, SSB$777,831 15.5%$401,461 8.0%$501,826 10.0%
Tier 1 capital (to risk weighted assets)Tier 1 capital (to risk weighted assets)Tier 1 capital (to risk weighted assets)
Triumph Bancorp, Inc.Triumph Bancorp, Inc.$587,326 11.1%$317,474 6.0% N/AN/ATriumph Bancorp, Inc.$661,392 13.0%$305,258 6.0% N/AN/A
TBK Bank, SSBTBK Bank, SSB$623,674 11.9%$314,457 6.0%$419,277 8.0%TBK Bank, SSB$741,811 14.8%$300,734 6.0%$400,979 8.0%
Common equity Tier 1 capital (to risk weighted assets)Common equity Tier 1 capital (to risk weighted assets)Common equity Tier 1 capital (to risk weighted assets)
Triumph Bancorp, Inc.Triumph Bancorp, Inc.$501,859 9.4%$240,252 4.5% N/AN/ATriumph Bancorp, Inc.$575,516 11.3%$229,188 4.5% N/AN/A
TBK Bank, SSBTBK Bank, SSB$623,674 11.9%$235,843 4.5%$340,662 6.5%TBK Bank, SSB$741,811 14.8%$225,551 4.5%$325,795 6.5%
Tier 1 capital (to average assets)Tier 1 capital (to average assets)Tier 1 capital (to average assets)
Triumph Bancorp, Inc.Triumph Bancorp, Inc.$587,326 10.4%$225,895 4.0% N/AN/ATriumph Bancorp, Inc.$661,392 11.8%$224,201 4.0% N/AN/A
TBK Bank, SSBTBK Bank, SSB$623,674 11.1%$224,747 4.0%$280,934 5.0%TBK Bank, SSB$741,811 13.2%$224,791 4.0%$280,989 5.0%
As of December 31, 2020
As of December 31, 2021As of December 31, 2021
Total capital (to risk weighted assets)Total capital (to risk weighted assets)Total capital (to risk weighted assets)
Triumph Bancorp, Inc.Triumph Bancorp, Inc.$715,142 13.0%$440,087 8.0% N/AN/ATriumph Bancorp, Inc.$769,475 14.1%$436,582 8.0%N/AN/A
TBK Bank, SSBTBK Bank, SSB$653,359 12.1%$431,973 8.0%$539,966 10.0%TBK Bank, SSB$698,286 12.9%$433,046 8.0%$541,307 10.0%
Tier 1 capital (to risk weighted assets)Tier 1 capital (to risk weighted assets)Tier 1 capital (to risk weighted assets)
Triumph Bancorp, Inc.Triumph Bancorp, Inc.$581,580 10.6%$329,196 6.0% N/AN/ATriumph Bancorp, Inc.$628,094 11.5%$327,701 6.0%N/AN/A
TBK Bank, SSBTBK Bank, SSB$608,737 11.3%$323,223 6.0%$430,964 8.0%TBK Bank, SSB$665,336 12.3%$324,554 6.0%$432,739 8.0%
Common equity Tier 1 capital (to risk weighted assets)Common equity Tier 1 capital (to risk weighted assets)Common equity Tier 1 capital (to risk weighted assets)
Triumph Bancorp, Inc.Triumph Bancorp, Inc.$496,508 9.0%$248,254 4.5% N/AN/ATriumph Bancorp, Inc.$542,492 9.9%$246,587 4.5%N/AN/A
TBK Bank, SSBTBK Bank, SSB$608,737 11.3%$242,417 4.5%$350,158 6.5%TBK Bank, SSB$665,336 12.3%$243,416 4.5%$351,600 6.5%
Tier 1 capital (to average assets)Tier 1 capital (to average assets)Tier 1 capital (to average assets)
Triumph Bancorp, Inc.Triumph Bancorp, Inc.$581,580 10.8%$215,400 4.0% N/AN/ATriumph Bancorp, Inc.$628,094 11.1%$226,340 4.0%N/AN/A
TBK Bank, SSBTBK Bank, SSB$608,737 11.3%$215,482 4.0%$269,353 5.0%TBK Bank, SSB$665,336 11.8%$225,538 4.0%$281,922 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 the 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 will be phased out of the regulatory capital calculations evenly over a three year period, with 75% recognized in year three, 50% recognized in year four, and 25% recognized in year five. After five years, the temporary regulatory capital benefits will be fully reversed.
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.
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(Unaudited)
The capital conservation buffer set forth by the Basel III regulatory capital framework was 2.5% at SeptemberJune 30, 20212022 and December 31, 2020.2021. 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 SeptemberJune 30, 20212022 and December 31, 2020,2021, the Company’s and TBK Bank’s risk based capital exceeded the required capital conservation buffer.
NOTE 13 – STOCKHOLDERS’— STOCKHOLDERS' EQUITY
The following summarizes the capital structure of Triumph Bancorp, Inc.
Preferred Stock Series C
(Dollars in thousands, except per share amounts)(Dollars in thousands, except per share amounts)September 30, 2021December 31, 2020(Dollars in thousands, except per share amounts)June 30, 2022December 31, 2021
Shares authorizedShares authorized51,750 51,750 Shares authorized51,750 51,750 
Shares issuedShares issued45,000 45,000 Shares issued45,000 45,000 
Shares outstandingShares outstanding45,000 45,000 Shares outstanding45,000 45,000 
Par value per sharePar value per share$0.01 $0.01 Par value per share$0.01 $0.01 
Liquidation preference per shareLiquidation preference per share$1,000 $1,000 Liquidation preference per share$1,000 $1,000 
Liquidation preference amountLiquidation preference amount$45,000 $45,000 Liquidation preference amount$45,000 $45,000 
Dividend rateDividend rate7.125 %7.125 %Dividend rate7.125 %7.125 %
Dividend payment datesDividend payment dates QuarterlyQuarterlyDividend payment dates QuarterlyQuarterly
Common Stock
September 30, 2021December 31, 2020June 30, 2022December 31, 2021
Shares authorizedShares authorized50,000,000 50,000,000 Shares authorized50,000,000 50,000,000 
Shares issuedShares issued28,224,921 27,951,721 Shares issued28,300,816 28,261,680 
Treasury sharesTreasury shares(3,101,579)(3,083,503)Treasury shares(3,843,039)(3,102,801)
Shares outstandingShares outstanding25,123,342 24,868,218 Shares outstanding24,457,777 25,158,879 
Par value per sharePar value per share$0.01 $0.01 Par value per share$0.01 $0.01 
Preferred Stock Offering
On June 19, 2020, the Company issued 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 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 from the preferred stock offering were $45,000,000. Net proceeds after underwriting discounts and offering expenses were $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 rate per annum of 7.125% beginning September 30, 2020, applied to 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 declaration 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 Series C Preferred stock may be redeemed in whole 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 regulatory approval.
Stock Repurchase Programs
DuringOn February 7, 2022, the Company announced that its board of directors had authorized the Company to repurchase up to $50,000,000 of its outstanding common stock. This program was completed during the three months ended March 31, 2020,June 30, 2022, and on May 23, 2022, the Company repurchased 871,319 shares into treasury stock under the Company’s stock repurchase program at an average price of $40.81, for a total of $35,600,000, effectively completing the $50,000,000 stock repurchase program authorized by the Company’sannounced that its board of directors had authorized the Company to repurchase up to an additional $75,000,000 of its outstanding common stock in open market transactions or through privately negotiated transactions at the Company’s discretion. The amount, timing and nature of any share repurchases will be based on October 16, 2019. No sharesa variety of factors, including the trading price of the Company’s common stock, applicable securities laws restrictions, regulatory limitations and market and economic factors. The repurchase program is authorized for a period of up to one year and does not require the Company to repurchase any specific number of shares. The repurchase program may be modified, suspended or discontinued at any time, at the Company’s discretion.
The following repurchases were repurchased during the nine months ended September 30, 2021made under a stock repurchase program.these programs:
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Shares repurchased into treasury stock694,985 — 709,795 — 
Average price of shares repurchased into treasury stock$70.02 $— $70.41 $— 
Total cost of shares repurchased into treasury stock$48,684,000 $— $50,000,000 $— 
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(Unaudited)
NOTE 14 STOCK BASED COMPENSATION
Stock based compensation expense that has been charged against income was $4,445,000$7,880,000 and $1,309,000$3,386,000 for the three months ended SeptemberJune 30, 20212022 and 2020,2021, respectively, and $9,181,000$12,832,000 and $3,443,000$4,736,000 for the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, 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 maximum number of shares of common stock available for issuance under the Omnibus Incentive Plan is 2,450,000 shares.
Restricted Stock Awards
A summary of changes in the Company’s nonvested Restricted Stock Awards (“RSAs”) under the Omnibus Incentive Plan for the ninesix months ended SeptemberJune 30, 20212022 were as follows:
Nonvested RSAsNonvested RSAsSharesWeighted-Average
Grant-Date
Fair Value
Nonvested RSAsSharesWeighted-Average
Grant-Date
Fair Value
Nonvested at January 1, 2021205,536 29.17 
Nonvested at January 1, 2022Nonvested at January 1, 2022363,404 67.56 
GrantedGranted232,551 87.60 Granted5,502 87.63 
VestedVested(78,017)34.08 Vested(119,234)61.61 
ForfeitedForfeited(3,907)50.51 Forfeited(2,904)45.68 
Nonvested at September 30, 2021356,163 66.01 
Nonvested at June 30, 2022Nonvested at June 30, 2022246,768 71.15 
RSAs granted to employees under the Omnibus Incentive Plan typically vest overthree to four years. Compensation expense for the RSAs will be recognized over the vesting period of the awards based on the fair value of the stock at the issue date. As of SeptemberJune 30, 2021,2022, there was $15,794,000$9,011,000 of unrecognized compensation cost related to the nonvested RSAs. The cost is expected to be recognized over a remaining period of 3.422.76 years.
Restricted Stock Units
A summary of changes in the Company’s nonvested Restricted Stock Units (“RSUs”) under the Omnibus Incentive Plan for the ninesix months ended SeptemberJune 30, 20212022 were as follows:
Nonvested RSUsNonvested RSUsSharesWeighted-Average
Grant-Date
Fair Value
Nonvested RSUsSharesWeighted-Average
Grant-Date
Fair Value
Nonvested at January 1, 202189,713 33.34 
Nonvested at January 1, 2022Nonvested at January 1, 2022122,470 52.07 
GrantedGranted17,757 84.47 Granted91,849 69.44 
VestedVested— — Vested— — 
ForfeitedForfeited— — Forfeited(535)38.75 
Nonvested at September 30, 2021107,470 41.79 
Nonvested at June 30, 2022Nonvested at June 30, 2022213,784 59.57 
RSUs granted to employees under the Omnibus Incentive Plan typically vest afterover 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 SeptemberJune 30, 2021,2022, there was $2,519,000$9,049,000 of unrecognized compensation cost related to the nonvested RSUs. The cost is expected to be recognized over a remaining period of 2.673.37 years.
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(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 ninesix months ended SeptemberJune 30, 20212022 were as follows:
Nonvested Market Based PSUsNonvested Market Based PSUsSharesWeighted-Average
Grant-Date
Fair Value
Nonvested Market Based PSUsSharesWeighted-Average
Grant-Date
Fair Value
Nonvested at Nonvested at January 1, 202185,611 $35.65 
Nonvested at January 1, 2022Nonvested at January 1, 202294,984 $43.68 
GrantedGranted13,520 98.03 Granted33,276 84.22 
Incremental shares earnedIncremental shares earned8,997 N/A
VestedVested— — Vested(20,996)33.91 
ForfeitedForfeited(4,147)55.02 Forfeited(535)38.57 
Nonvested at September 30, 202194,984 $43.68 
Nonvested at June 30, 2022Nonvested at June 30, 2022115,726 $56.38 
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,Six Months Ended June 30,
2021202020222021
Grant dateGrant dateMay 1, 2021May 1, 2020Grant dateMay 1, 2022May 1, 2021
Performance periodPerformance period3.00 years3.00 yearsPerformance period3.00 years3.00 years
Stock priceStock price$88.63 $26.25 Stock price$69.44 $88.63 
Triumph stock price volatilityTriumph stock price volatility51.71 %43.02 %Triumph stock price volatility55.17 %51.71 %
Risk-free rateRisk-free rate0.35 %0.25 %Risk-free rate2.84 %0.35 %
As of SeptemberJune 30, 2021,2022, there was $1,962,000$3,813,000 of unrecognized compensation cost related to the nonvested Market Based PSUs. The cost is expected to be recognized over a remaining period of 2.062.41 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 ninesix months ended SeptemberJune 30, 20212022 were as follows:
Nonvested Performance Based PSUsNonvested Performance Based PSUsSharesWeighted Average
Grant Date
Fair Value
Nonvested Performance Based PSUsSharesWeighted Average
Grant Date
Fair Value
Nonvested at January 1, 2021256,625 $37.56 
Nonvested at January 1, 2022Nonvested at January 1, 2022259,383 $39.32 
GrantedGranted9,000 88.63 Granted3,000 69.44 
VestedVested— — Vested— — 
ForfeitedForfeited(6,242)38.02 Forfeited(7,551)42.43 
Nonvested at September 30, 2021259,383 $39.32 
Nonvested at June 30, 2022Nonvested at June 30, 2022254,832 $39.58 
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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During the three and six months ended June 30, 2022, the Company recognized $4,328,000 and $5,135,000, respectively, of stock based compensation expense related to Performance based PSUs. As of June 30, 2022, the maximum unrecognized compensation cost related to the nonvested Performance Based PSUs was $7,631,000, and the remaining performance period over which the cost could be recognized was 0.50 years. No compensation cost was recorded during the three and six months ended June 30, 2021.
Stock Options
A summary of the changes in the Company’s stock options under the Omnibus Incentive Plan for the ninesix months ended SeptemberJune 30, 20212022 were as follows:
Stock OptionsStock OptionsSharesWeighted-Average
Exercise Price
Weighted-Average
Remaining
Contractual Term
(In Years)
Aggregate
Intrinsic Value
(In Thousands)
Stock OptionsSharesWeighted-Average
Exercise Price
Weighted-Average
Remaining
Contractual Term
(In Years)
Aggregate
Intrinsic Value
(In Thousands)
Outstanding at January 1, 2021227,986 $25.16 
Outstanding at January 1, 2022Outstanding at January 1, 2022166,755 $33.34 
GrantedGranted16,939 88.63 Granted35,939 69.44 
ExercisedExercised(48,541)24.30 Exercised(3,797)26.12 
Forfeited or expiredForfeited or expired— — Forfeited or expired— — 
Outstanding at September 30, 2021196,384 $31.11 6.41$13,554 
Outstanding at June 30, 2022Outstanding at June 30, 2022198,897 $40.00 6.66$5,175 
Fully vested shares and shares expected to vest at September 30, 2021196,384 $31.11 6.41$13,554 
Fully vested shares and shares expected to vest at June 30, 2022Fully vested shares and shares expected to vest at June 30, 2022198,897 $40.00 6.66$5,175 
Shares exercisable at September 30, 2021136,032 $24.02 5.51$10,163 
Shares exercisable at June 30, 2022Shares exercisable at June 30, 2022128,958 $29.10 5.40$4,425 
Information related to the stock options for the ninesix months ended SeptemberJune 30, 20212022 and 20202021 was as follows:
Nine Months Ended September 30,Six Months Ended June 30,
(Dollars in thousands, except per share amounts)(Dollars in thousands, except per share amounts)20212020(Dollars in thousands, except per share amounts)20222021
Aggregate intrinsic value of options exercisedAggregate intrinsic value of options exercised$2,407 $10 Aggregate intrinsic value of options exercised$280 $2,249 
Cash received from option exercisesCash received from option exercises196 — Cash received from option exercises— 146 
Tax benefit realized from option exercisesTax benefit realized from option exercises506 Tax benefit realized from option exercises59 472 
Weighted average fair value per share of options grantedWeighted average fair value per share of options granted$35.37 $8.85 Weighted average fair value per share of options granted$32.15 $35.37 
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. ExpectedBeginning in 2022, expected volatilities are determined based on the Company’s historical volatility. Prior to 2022, 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 wasis 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 wasis derived from the Treasury constant maturity yield curve on the valuation date.
The fair value of the stock options granted was determined using the following weighted-average assumptions:
Nine Months Ended September 30,Six Months Ended June 30,
2021202020222021
Risk-free interest rateRisk-free interest rate1.16 %0.46 %Risk-free interest rate2.77 %1.16 %
Expected termExpected term6.25 years6.25 yearsExpected term6.25 years6.25 years
Expected stock price volatilityExpected stock price volatility39.26 %33.83 %Expected stock price volatility43.33 %39.26 %
Dividend yieldDividend yield— — Dividend yield— — 
As of SeptemberJune 30, 2021,2022, there was $512,000$1,278,000 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 2.943.44 years.
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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 during2021. During the three and ninesix months ended SeptemberJune 30, 2021, 9,1012022, 10,585 shares were issued under the plan. No shares were issued during the six months ended June 30, 2021.
NOTE 15 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 June 30,Six Months Ended June 30,
(Dollars in thousands)(Dollars in thousands)2021202020212020(Dollars in thousands)2022202120222021
BasicBasicBasic
Net income to common stockholdersNet income to common stockholders$23,627 $22,005 $83,929 $30,995 Net income to common stockholders$43,390 $27,180 $66,918 $60,302 
Weighted average common shares outstandingWeighted average common shares outstanding24,759,419 24,592,092 24,719,861 24,298,897 Weighted average common shares outstanding24,427,270 24,724,128 24,612,988 24,699,754 
Basic earnings per common shareBasic earnings per common share$0.95 $0.89 $3.40 $1.28 Basic earnings per common share$1.78 $1.10 $2.72 $2.44 
DilutedDilutedDiluted
Net income to common stockholdersNet income to common stockholders$23,627 $22,005 $83,929 $30,995 Net income to common stockholders$43,390 $27,180 $66,918 $60,302 
Weighted average common shares outstandingWeighted average common shares outstanding24,759,419 24,592,092 24,719,861 24,298,897 Weighted average common shares outstanding24,427,270 24,724,128 24,612,988 24,699,754 
Dilutive effects of:Dilutive effects of:Dilutive effects of:
Assumed exercises of stock optionsAssumed exercises of stock options121,110 48,102 129,149 53,232 Assumed exercises of stock options89,443 134,358 99,402 133,219 
Restricted stock awardsRestricted stock awards141,204 67,907 146,172 65,893 Restricted stock awards144,526 139,345 189,492 156,029 
Restricted stock unitsRestricted stock units74,268 18,192 71,620 15,198 Restricted stock units85,934 73,155 91,236 70,236 
Performance stock units - market basedPerformance stock units - market based131,346 76,095 131,275 30,995 Performance stock units - market based115,825 134,313 127,694 131,240 
Performance stock units - performance basedPerformance stock units - performance based— — — — Performance stock units - performance based— — — — 
Employee stock purchase programEmployee stock purchase program616 — 1,914 — Employee stock purchase program3,575 3,708 2,173 2,563 
Average shares and dilutive potential common sharesAverage shares and dilutive potential common shares25,227,963 24,802,388 25,199,991 24,464,215 Average shares and dilutive potential common shares24,866,573 25,209,007 25,122,985 25,193,041 
Diluted earnings per common shareDiluted earnings per common share$0.94 $0.89 $3.33 $1.27 Diluted earnings per common share$1.74 $1.08 $2.66 $2.39 
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,Three Months Ended June 30,Six Months Ended June 30,
20212020202120202022202120222021
Stock optionsStock options16,939 98,513 16,939 98,513 Stock options52,878 16,939 52,878 16,939 
Restricted stock awardsRestricted stock awards— — 195,640 — Restricted stock awards6,348 — 6,348 209,040 
Restricted stock unitsRestricted stock units— — 17,757 — Restricted stock units15,000 — 15,000 17,757 
Performance stock units - market basedPerformance stock units - market based12,020 — 12,020 — Performance stock units - market based45,296 13,520 45,296 13,520 
Performance stock units - performance basedPerformance stock units - performance based259,383 261,125 259,383 261,125 Performance stock units - performance based254,832 265,625 254,832 265,625 
Employee stock purchase programEmployee stock purchase program— — — — Employee stock purchase program— — — — 
NOTE 16 — REVENUE FROM CONTRACTS WITH CUSTOMERS
The Company records revenue from contracts with customers in accordance with Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (“Topic 606”). Under Topic 606, the Company must identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) the Company satisfies a performance obligation. The Company generally fully satisfies its performance obligations on its contracts with customers as services are rendered and the transaction prices are typically fixed; charged either on a periodic basis or based on activity. The Company presents disaggregated revenue from contracts with customers in the consolidated statements of income.
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TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Descriptions of the Company's significant revenue-generating activities within the scope of Topic 606, which are included in non-interest income in the Company's consolidated statements of income, are as follows:
Service charges on deposits. Service charges on deposits primarily consists of fees from the Company's deposit customers for account maintenance, account analysis, and overdraft services. Account maintenance fees and analysis fees are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs.
Card income. Card income primarily consists of interchange fees. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized when the transaction processing services are provided to the cardholder.
Net OREO gains (losses) and valuation adjustments. The Company records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer.
Fee income. Fee income for the Banking and Factoring segments primarily consists of transaction-based fees, including wire transfer fees, ACH and check fees, early termination fees, and other fees, earned from the Company's banking and factoring customers. Transaction based fees are recognized at the time the transaction is executed as that is the point in time the Company satisfies its performance obligations.
Fee income for the Payments segment includes TriumphPay payment and audit fees. These fees totaled $3,381,000 and $1,075,000 for the three months ended June 30, 2022 and 2021, respectively, and $6,610,000 and $1,156,000 for the six months ended June 30, 2022 and 2021, respectively. These fees are transaction based and are recognized at the time the transaction is executed as that is the point in time that the Company satisfies its performance obligations.
Insurance commissions. Insurance commissions are earned for brokering insurance policies. The Company's primary performance obligations for insurance commissions are satisfied and revenue is recognized when the brokered insurance policies are executed.
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TRIUMPH BANCORP, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 16 –17 — BUSINESS SEGMENT INFORMATION
The following table presents the Company’s operating segments. The accounting policy forpolicies of the reportable segments is previously disclosedsubstantially the same as those described in the "Summary of Significant Accounting Policies" in Note 1.1 of the Company's 2021 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 allowance for credit losses determination. Noninterest income and expense directly attributable to a segment are assigned to it. The majority of salaries and benefits expense for the Company's executive leadership team as well as certain other selling, general, and administrative shared services costs are allocated to the Banking segment. Taxes are paid on a consolidated basis and are not allocated for segment purposes. The Factoring segment includes only factoring originated by TBC.
(Dollars in thousands)(Dollars in thousands)(Dollars in thousands)
Three months ended September 30, 2021BankingFactoringPaymentsCorporateConsolidated
Three months ended June 30, 2022Three months ended June 30, 2022BankingFactoringPaymentsCorporateConsolidated
Total interest incomeTotal interest income$46,175 $47,222 $3,295 $43 $96,735 Total interest income$46,239 $55,854 $4,172 $42 $106,307 
Intersegment interest allocationsIntersegment interest allocations2,452 (2,341)(111)— — Intersegment interest allocations2,188 (2,079)(109)— — 
Total interest expenseTotal interest expense2,073 — — 2,891 4,964 Total interest expense3,020 — — 1,859 4,879 
Net interest income (expense)Net interest income (expense)46,554 44,881 3,184 (2,848)91,771 Net interest income (expense)45,407 53,775 4,063 (1,817)101,428 
Credit loss expense (benefit)Credit loss expense (benefit)(2,399)1,164 38 10 (1,187)Credit loss expense (benefit)3,120 64 (184)(99)2,901 
Net interest income after credit loss expenseNet interest income after credit loss expense48,953 43,717 3,146 (2,858)92,958 Net interest income after credit loss expense42,287 53,711 4,247 (1,718)98,527 
Noninterest incomeNoninterest income7,371 1,557 3,086 41 12,055 Noninterest income22,312 15,521 10,309 18 48,160 
Noninterest expenseNoninterest expense41,183 19,106 11,416 1,108 72,813 Noninterest expense48,385 22,123 17,663 436 88,607 
Operating income (loss)$15,141 $26,168 $(5,184)$(3,925)$32,200 
Net income (loss) before income tax expenseNet income (loss) before income tax expense$16,214 $47,109 $(3,107)$(2,136)$58,080 
(Dollars in thousands)(Dollars in thousands)(Dollars in thousands)
Three months ended September 30, 2020BankingFactoringPaymentsCorporateConsolidated
Three months ended June 30, 2021Three months ended June 30, 2021BankingFactoringPaymentsCorporateConsolidated
Total interest incomeTotal interest income$50,927 $30,068 $1,361 $$82,364 Total interest income$47,356 $44,653 $2,675 $$94,688 
Intersegment interest allocationsIntersegment interest allocations3,459 (3,312)(147)— — Intersegment interest allocations2,723 (2,584)(139)— — 
Total interest expenseTotal interest expense6,176 — — 1,809 7,985 Total interest expense2,610 — — 1,796 4,406 
Net interest income (expense)Net interest income (expense)48,210 26,756 1,214 (1,801)74,379 Net interest income (expense)47,469 42,069 2,536 (1,792)90,282 
Credit loss expense (benefit)Credit loss expense (benefit)(3,419)3,053 106 (258)Credit loss expense (benefit)(4,335)2,444 218 (133)(1,806)
Net interest income after credit loss expenseNet interest income after credit loss expense51,629 23,703 1,212 (1,907)74,637 Net interest income after credit loss expense51,804 39,625 2,318 (1,659)92,088 
Noninterest incomeNoninterest income7,443 3,157 47 (154)10,493 Noninterest income10,018 2,742 1,083 53 13,896 
Noninterest expenseNoninterest expense37,389 13,665 3,195 1,048 55,297 Noninterest expense41,860 17,174 10,842 922 70,798 
Operating income (loss)$21,683 $13,195 $(1,936)$(3,109)$29,833 
Net income (loss) before income tax expenseNet income (loss) before income tax expense$19,962 $25,193 $(7,441)$(2,528)$35,186 

(Dollars in thousands)(Dollars in thousands)(Dollars in thousands)
Nine months ended September 30, 2021BankingFactoringPaymentsCorporateConsolidated
Six months ended June 30, 2022Six months ended June 30, 2022BankingFactoringPaymentsCorporateConsolidated
Total interest incomeTotal interest income$144,087 $127,699 $7,939 $51 $279,776 Total interest income$88,422 $112,228 $9,004 $88 $209,742 
Intersegment interest allocationsIntersegment interest allocations8,117 (7,700)(417)— — Intersegment interest allocations4,045 (3,854)(191)— — 
Total interest expenseTotal interest expense8,225 — — 6,478 14,703 Total interest expense4,623 — — 3,612 8,235 
Net interest income (expense)Net interest income (expense)143,979 119,999 7,522 (6,427)265,073 Net interest income (expense)87,844 108,374 8,813 (3,524)201,507 
Credit loss expense (benefit)Credit loss expense (benefit)(19,187)8,091 548 (290)(10,838)Credit loss expense (benefit)250 2,013 170 969 3,402 
Net interest income after credit loss expenseNet interest income after credit loss expense163,166 111,908 6,974 (6,137)275,911 Net interest income after credit loss expense87,594 106,361 8,643 (4,493)198,105 
Noninterest incomeNoninterest income25,139 10,710 4,242 151 40,242 Noninterest income28,307 17,392 13,551 31 59,281 
Noninterest expenseNoninterest expense122,497 52,433 26,393 3,180 204,503 Noninterest expense90,093 43,512 31,996 1,570 167,171 
Operating income (loss)$65,808 $70,185 $(15,177)$(9,166)$111,650 
Net income (loss) before income tax expenseNet income (loss) before income tax expense$25,808 $80,241 $(9,802)$(6,032)$90,215 

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)(Dollars in thousands)(Dollars in thousands)
Nine months ended September 30, 2020BankingFactoringPaymentsCorporateConsolidated
Six months ended June 30, 2021Six months ended June 30, 2021BankingFactoringPaymentsCorporateConsolidated
Total interest incomeTotal interest income$155,517 $73,952 $2,440 $267 $232,176 Total interest income$97,912 $80,477 $4,644 $$183,041 
Intersegment interest allocationsIntersegment interest allocations9,139 (8,873)(266)— — Intersegment interest allocations5,665 (5,359)(306)— — 
Total interest expenseTotal interest expense25,368 — — 5,678 31,046 Total interest expense6,152 — — 3,587 9,739 
Net interest income (expense)Net interest income (expense)139,288 65,079 2,174 (5,411)201,130 Net interest income (expense)97,425 75,118 4,338 (3,579)173,302 
Credit loss expense (benefit)Credit loss expense (benefit)27,211 4,437 167 1,834 33,649 Credit loss expense (benefit)(16,788)6,927 510 (300)(9,651)
Net interest income after credit loss expenseNet interest income after credit loss expense112,077 60,642 2,007 (7,245)167,481 Net interest income after credit loss expense114,213 68,191 3,828 (3,279)182,953 
Gain on sale of subsidiary or division9,758 — — — 9,758 
Other noninterest income22,512 5,524 74 131 28,241 
Noninterest incomeNoninterest income17,768 9,153 1,156 110 28,187 
Noninterest expenseNoninterest expense113,047 37,695 8,954 3,080 162,776 Noninterest expense81,314 33,327 14,977 2,072 131,690 
Operating income (loss)$31,300 $28,471 $(6,873)$(10,194)$42,704 
Net income (loss) before income tax expenseNet income (loss) before income tax expense$50,667 $44,017 $(9,993)$(5,241)$79,450 
Total assets and gross loans below include intersegment loans, which eliminate in consolidation.
(Dollars in thousands)(Dollars in thousands)(Dollars in thousands)
September 30, 2021BankingFactoringPaymentsCorporateEliminationsConsolidated
June 30, 2022June 30, 2022BankingFactoringPaymentsCorporateEliminationsConsolidated
Total assetsTotal assets$5,686,761 $1,559,378 $242,446 $975,939 $(2,439,989)$6,024,535 Total assets$5,620,770 $1,614,369 $340,357 $1,024,081 $(2,644,070)$5,955,507 
Gross loansGross loans$4,390,659 $1,479,989 $127,039 $700 $(1,215,657)$4,782,730 Gross loans$3,990,481 $1,450,447 $145,835 $— $(1,151,397)$4,435,366 
(Dollars in thousands)(Dollars in thousands)(Dollars in thousands)
December 31, 2020BankingFactoringPaymentsCorporateEliminationsConsolidated
December 31, 2021December 31, 2021BankingFactoringPaymentsCorporateEliminationsConsolidated
Total assetsTotal assets$5,791,537 $1,121,704 $115,836 $861,967 $(1,955,253)$5,935,791 Total assets$5,568,826 $1,679,495 $293,212 $1,009,998 $(2,595,281)$5,956,250 
Gross loansGross loans$4,788,093 $1,036,548 $84,222 $800 $(912,887)$4,996,776 Gross loans$4,444,136 $1,546,361 $153,176 $700 $(1,276,801)$4,867,572 
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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, 2020.2021. 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.Act, offering a diversified line of payments, factoring and banking services. As of SeptemberJune 30, 2021,2022, we had consolidated total assets of $6.025$5.956 billion, total loans held for investment of $4.783$4.435  billion, total deposits of $4.823$4.781 billion and total stockholders’ equity of $820.7$874.3 million.
Through our wholly owned bank subsidiary, TBK Bank, we offer traditional banking services, commercial financelending product lines focused on businesses that require specialized financial solutions and national lending product lines that further diversify our lending operations. TraditionalOur banking operations commenced in 2010 and include a branch network developed through organic growth and acquisition, including concentrations the front range of Colorado, the Quad Cities market in Iowa and Illinois and a full service branch in Dallas, Texas. Our traditional banking offerings include a full suite of lending and deposit products and services. These activities are focused on our local market areas 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 asset-based lending and equipment lending products are offered on a nationwide basis.basis and generate attractive returns. Additionally, we offer mortgage warehouse and liquid credit lending products on a nationwide basis to provide further asset base diversification and stable deposits.
Year to date, our aggregate outstanding balances for these banking products has decreased $700.3 million, or 18.1%, to $3.176 billion as of September 30, 2021. 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. Our
In addition to our traditional banking operations, we also operate a factoring business focused primarily on serving the over-the-road trucking industry. This business involves the provision of working capital to the trucking industry through the purchase of invoices generated by small to medium sized trucking fleets ("Carriers") at a discount to provide immediate working capital to such Carriers. We commenced these operations in 2012 through the acquisition of our factoring subsidiary, Triumph Business Capital. 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. Thisproducts described above. Given its acquisition, this business also has a legacy and structure as a standalone company.
Our payments business, TriumphPay, is a division of our wholly owned bank subsidiary, TBK Bank, and is a payments network for the over-the-road trucking industry. TriumphPay was originally designed as a platform to manage Carrier payments for third party logistics companies, or 3PLs ("Brokers") and the manufacturers and other businesses that contract directly for the shipment of goods (“Shippers”), with a focus on increasing on-balance sheet factored receivable transactions through the offering of quickpay transactions for Carriers receiving such payments through the TriumphPay platform. During 2021, TriumphPay acquired HubTran, Inc., a software platform that offers workflow solutions for the processing and approval of Carrier Invoices for approval by Brokers or purchase by the factoring businesses providing working capital to Carriers ("Factors"). Following such acquisition, the TriumphPay strategy shifted from a capital-intensive on-balance sheet product with a greater focus on interest income to a payments network for the trucking industry with a focus on fee revenue. TriumphPay connects Brokers, Shippers, Factors and Carriers through forward-thinking solutions that help each party successfully manage the life cycle of invoice presentment for services provided by Carrier through the processing and audit of such invoice to its ultimate payment to the Carrier or the Factor providing working capital to such Carrier. TriumphPay offers supply chain finance to Brokers, allowing them to pay their Carriers faster and drive Carrier loyalty. TriumphPay provides tools and services to increase automation, mitigate fraud, create back-office efficiency and improve the payment experience. TriumphPay also operates in a highly specialized niche with unique processes and key performance indicators.
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At June 30, 2022, our business is primarily focused on providing financial services to participants in the for-hire trucking ecosystem in the United States, including Brokers, Shippers, Factors and Carriers. Within such ecosystem, we operate our TriumphPay payments platform, which connects such parties to streamline and optimize the presentment, audit and payment of transportation invoices. We also act as capital provider to the Carrier industry through our factoring subsidiary, Triumph Business Capital. Our traditional banking operations provide stable, low cost deposits to support our operations, a diversified lending portfolio to add stability to our balance sheet, and a suite of traditional banking products and services to participants in the for-hire trucking ecosystem to deepen our relationship with such clients.
We have determined our reportable segments are Banking, Factoring, Payments and Corporate. For the ninesix months ended SeptemberJune 30, 2021,2022, our Banking segment generated 53%43% of our total revenue (comprised of interest and noninterest income), our Factoring segment generated 43%48% of our total revenue, our Payments segment generated 4%8% of our total revenue, and our Corporate segment generated less than 1% of our total revenue.
ThirdSecond Quarter 20212022 Overview
Net income available to common stockholders for the three months ended SeptemberJune 30, 20212022 was $23.6$43.4 million, or $0.94$1.74 per diluted share, compared to net income to common stockholders for the three months ended SeptemberJune 30, 20202021 of $22.0$27.2 million, or $0.89$1.08 per diluted share. Excluding material gains and expenses related to merger and acquisition related activities, including divestitures, adjusted net income to common stockholders was $22.6$29.5 million, or $0.91$1.17 per diluted share, for the three months ended SeptemberJune 30, 2020.2021. For the three months ended SeptemberJune 30, 2021,2022, our return on average common equity was 12.13%20.78% and our return on average assets was 1.61%3.02%.
Net income available to common stockholders for the ninesix months ended SeptemberJune 30, 20212022 was $83.9$66.9 million, or $3.33$2.66 per diluted share, compared to net income available to common stockholders for the ninesix months ended SeptemberJune 30, 20202021 of $31.0$60.3 million, or $1.27$2.39 per diluted share. Excluding material gains and expenses related to merger and acquisition related activities, including divestitures, adjusted net income to common stockholders was $86.2$62.6 million, or $3.42$2.48 per diluted share, for the ninesix months ended SeptemberJune 30, 2021 and $24.3 million, or $0.99 per diluted share, for2021. For the ninesix months ended SeptemberJune 30, 2020. For the nine months ended September 30, 2021,2022, our return on average common equity was 15.18%16.13% and our return on average assets was 1.91%2.36%.
At SeptemberJune 30, 2021,2022, we had total assets of $6.025$5.956 billion, including gross loans held for investment of $4.783$4.435 billion, compared to $5.936$5.956 billion of total assets and $4.997$4.868 billion of gross loans held for investment at December 31, 2020.2021. Total loans held for investment decreased $214.0$432.2 million during the ninesix months ended SeptemberJune 30, 2021.2022. Our Banking loans, which constitute 66%64% of our total loan portfolio at SeptemberJune 30, 2021,2022, decreased from $3.876$3.168 billion in aggregate as of December 31, 20202021 to $3.176$2.839 billion as of SeptemberJune 30, 2021,2022, a decrease of 18.1%10.4%. Our Factoring factored receivables, which constitute 31%33% of our total loan portfolio at SeptemberJune 30, 2021, increased2022, decreased from $1.037$1.546 billion in aggregate as of December 31, 20202021 to $1.480$1.450 billion as of SeptemberJune 30, 2021, an increase2022, a decrease of 42.8%6.2%. The period end balance of Factoring factored receivables was impacted by our decision to sell certain factored receivables (discussed in 2022 Items of Note) during the period. Our Payments factored receivables, which constitute 3.0%3% of our total loan portfolio at SeptemberJune 30, 2021, increased2022, decreased from $84.2$153.2 million in aggregate as of December 31, 20202021 to $127.0$145.8 million as of SeptemberJune 30, 2021, an increase2022, a decrease of 50.8%4.8%.
At SeptemberJune 30, 2021,2022, we had total liabilities of $5.204$5.081 billion, including total deposits of $4.823$4.781 billion, compared to $5.209$5.097 billion of total liabilities and $4.717$4.647 billion of total deposits at December 31, 2020.2021. Deposits increased $106.0$134.2 million during the ninesix months ended SeptemberJune 30, 2021.2022.
At SeptemberJune 30, 2021,2022, we had total stockholders' equity of $820.7$874.3 million. During the ninesix months ended SeptemberJune 30, 2021,2022, total stockholders’ equity increased $93.9$15.4 million, primarily due to our net income during the period.period, offset in part by our treasury stock purchases made under our share repurchase program. Capital ratios remained strong with Tier 1 capital and total capital to risk weighted assets ratios of 11.06%13.04% and 13.69%15.91%, respectively, at June 30, 2022.
The total dollar value of invoices purchased by Triumph Business Capital during the three months ended June 30, 2022 was $4.024 billion with an average invoice size of $2,332. The average transportation invoice size for the three months ended June 30, 2022 was $2,176. This compares to invoice purchase volume of $3.068 billion with an average invoice size of $2,189 and average transportation invoice size of $2,090 during the same period a year ago.
TriumphPay processed 4.4 million invoices paying Carriers a total of $6.034 billion during the three months ended June 30, 2022. This compares to processed volume of 3.2 million invoices for a total of $3.427 billion during the same period a year ago.
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2022 Items of Note
Equipment Loan Sale
During the quarter ended June 30, 2022, we made the decision to sell and closed on the sale of a portfolio of equipment loans. Equipment loans totaling $191.2 million were sold resulting in a gain on sale of loans of $3.9 million.
The gain on sale, net of transaction costs, was included in net gains (losses) on sale of loans in the Company’s Consolidated Statements of Income and was allocated to the Banking segment.
Factored Receivable Disposal Group
During the quarter ended March 31, 2022, we made the decision to sell a portfolio of non-transportation factored receivables, net of customer reserves, (the "Factored Receivable Disposal Group"). As a result, the Factored Receivable Disposal Group was classified as assets and deposits held for sale on the unaudited March 31, 2022 Consolidated Balance Sheet. As the fair value of the Factored Receivable Disposal Group exceeded the corresponding cost basis, the Factored Receivable Disposal Group was classified as held for sale at cost with no impact to earnings except for the reversal of the allowance for credit loss associated with the factored receivables. Factored receivables totaling $80.8 million and customer reserves totaling $10.4 million were transferred to assets held for sale and deposits held for sale, respectively, during the three months ended March 31, 2022. During the three months ended June 30, 2022, Factored Receivable Disposal Group factored receivables totaling $67.9 million and customer reserves totaling $9.7 million were sold resulting in a gain on sale of loans of $13.2 million. Factored receivables totaling $24.4 million and customer reserves totaling $1.4 million remain classified as assets held for sale and deposits held for sale, respectively, at June 30, 2022.
The gain on sale, net of transaction costs, was included in net gains (losses) on sale of loans in the Company’s Consolidated Statements of Income and was allocated to the Factoring segment.
Branch Disposal Group
During the quarter ended March 31, 2022, we made the decision to sell 15 branches primarily located in rural eastern Colorado and western Kansas (the “Branch Disposal Group”). The gross assets and deposits of the Branch Disposal Group were classified as held for sale on the unaudited March 31, 2022 Consolidated Balance Sheet. During the quarter ended June 30, 2022, there was a change in circumstances and we made the decision to terminate the sale process completely (including all marketing activities) and retain the branches indefinitely. The gross assets and deposits of the Branch Disposal Group were returned to held for investment at their carrying amounts less depreciation and amortization expense that would have been recognized had the disposal group been continuously classified as held for investment.
For further information on the above transactions, see Note 2 – Acquisitions and Divestitures in the accompanying condensed notes to the consolidated financial statements included elsewhere in this report.
Interest rate swap termination
During the three months ended March 31, 2022, we terminated our single derivative with a notional value totaling $200.0 million, resulting in a termination value of $9.3 million. On May 4, 2022, we terminated the associated hedged funding, incurring a termination fee of $0.7 million which was recognized through interest expense in the consolidated statements of income, and reclassified the remaining $8.9 million unrealized gain on the terminated derivative into earnings through other noninterest income in the consolidated statements of income.
The gains and losses associated with this transaction were allocated to the Banking segment.
For further information on the above transaction, see Note 7 – Derivative Financial Instruments in the accompanying condensed notes to the consolidated financial statements included elsewhere in this report.
Equity Method Investment
On October 17, 2019, we made a minority equity investment of $8.0 million in Warehouse Solutions Inc. (“WSI”), purchasing 8% of the common stock of WSI and receiving warrants to purchase an additional 10% of the common stock of WSI upon exercise of the warrants at a later date. WSI provides technology solutions to help reduce supply chain costs for a global client base across multiple industries.
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Although we held less than 20% of the voting stock of WSI, the investment in common stock was initially accounted for using the equity method as our representation on WSI’s board of directors, which was disproportionately larger in size than the common stock investment held, demonstrated that we had significant influence over the investee.
On June 10, 2022, we entered into two separate agreements with WSI. First, we entered into an Affiliate Agreement. The Affiliate Agreement canceled our outstanding warrants in exchange for cancellation of an exclusivity clause included in the original investment agreement executed during 2019. By cancelling the exclusivity clause, our Payments segment operations now have greater ability to operate in the freight shipper audit space. As a result of the Affiliate Agreement, we recognized a total loss on impairment of the warrants of $3.2 million, which represented the full book balance of the warrants on the date the Affiliate Agreement was executed. The impairment loss was included in other noninterest income in the consolidated statements of income during the three and six months ended June 30, 2022.
Separately, we also entered into an Amended and Restated Investor Rights Agreement (the “Investor Rights Agreement”). The Investor Rights Agreement eliminated our representation on WSI’s board of directors making us a completely passive investor. The Investor Rights Agreement also provided for our purchase of an additional 10% of WSI’s common stock for $23.0 million raising our ownership of WSI’s common stock to 18%. As a passive investor, we no longer hold significant influence over the investee and the investment in WSI’s common stock no longer qualifies for equity method accounting. The investment in WSI’s common stock is now accounted for as an equity investment without a readily determinable fair value measured under the measurement alternative. The measurement alternative requires us to remeasure our investment in the common stock of WSI only upon the execution of an orderly and observable transaction in an identical or similar instrument.
Our additional investment in WSI under the Investor Rights Agreement resulted in us discontinuing the equity method of accounting and qualified as an orderly and observable transaction for an identical investment in WSI, therefore the fair value of our original 8% common stock investment was required to be adjusted from $4.9 million at March 31, 2022 to $15.1 million, resulting in a gain of $10.2 million that was recorded in other noninterest income in the consolidated statements of income during the three and six months ended June 30, 2022.
The gains and losses associated with this transaction were allocated to the Payments segment.
For further information on the above transactions, see Note 6 – Equity Method Investment in the accompanying condensed notes to the consolidated financial statements included elsewhere in this report.
Stock Repurchase Programs
On February 7, 2022, we announced that our board of directors had authorized us to repurchase up to $50.0 million of our outstanding common stock in open market transactions or through privately negotiated transactions at our discretion. During the three and six months ended June 30, 2022, we repurchased into treasury stock under the stock repurchase program 694,985 shares at an average price of $70.02 for a total of $48.7 million and 709,795 shares at an average price of $70.41 for a total of $50.0 million, respectively, completing this stock repurchase program.
On May 23, 2022, we announced that our board of directors had authorized us to repurchase up to an additional $75.0 million of our outstanding common stock in open market transactions or through privately negotiated transactions at our discretion. The amount, timing and nature of any share repurchases will be based on a variety of factors, including the trading price of our common stock, applicable securities laws restrictions, regulatory limitations and market and economic factors. The repurchase program is authorized for a period of up to one year and does not require us to repurchase any specific number of shares. The repurchase program may be modified, suspended or discontinued at any time, at our discretion. As of June 30, 2022, no share repurchases had been made under the May 23, 2022 plan.
Items related to our July 2020 acquisition of TFS
As disclosed on our SEC Forms 8-K filed on July 8, 2020 and September 23, 2020, we acquired the transportation factoring assets of TFS, a wholly owned subsidiary of Covenant Logistics Group, Inc. ("CVLG"), and subsequently amended the terms of that transaction. There were no material developments related to that transaction that impacted our operating results for the three months ended June 30, 2021.2022.
At June 30, 2022, the carrying value of the acquired over-formula advances was $9.2 million, the total reserve on acquired over-formula advances was $9.2 million and the balance of our indemnification asset, the value of the payment that would be due to us from CVLG in the event that these over-advances are charged off, was $4.4 million.
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As of June 30, 2022 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. We have commenced litigation in the United States Court of Federal Claims against the USPS seeking a ruling that the USPS was obligated to make the payments represented by this receivable directly to us. 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 June 30, 2022. The full amount of such receivable is reflected in non-performing and past due factored receivables as of June 30, 2022 in accordance with our policy. As of June 30, 2022, the entire $19.4 million Misdirected Payments amount was greater than 90 days past due.
2021 Items of Note
HubTran, Inc.
On June 1, 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 trucking 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 CombinationsAcquisitions 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 theTrucking 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 valued 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 of Company common stock, which will be accomplished through the sale of such shares by CVLG 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 $62.2 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 underThe second quarter saw a slight decline in over the Agreementroad trucks utilization as slowing of the economy was reflected in the trucking industry. In what is seasonally a strong demand quarter, volumes were secured bysteady instead of the uptick usually seen. Spot rates continued 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,slow decline, 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 termsimputed fuel surcharge related to the managementrecord diesel prices kept average invoice values fairly even with little downward movement in most of the Over-Formula Advance Portfolio,May and the terms by which Covenant may provide assistanceJune.

While shipping rates are declining, there remains near record volumes of ships waiting at U.S. ports, not limited to maximize recoveryCalifornia ports. The railroads have been metering capacity on the Over-Formula Advance Portfolio.
Pursuantcertain lanes in an attempt 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,decongest their networks. This has benefited long-haul trucking segments with prejudice, the declaratory judgment action filedcross country volumes still strong in the 95th Judicial District Courtsecond quarter. The potential for California port worker and national railroad worker strikes in early third quarter could have a material impact on trucking; however, warehouses are at capacity and, for example, Mexican plants were asked to slow production at the end of Dallas County, Texas (removedJune.

The shipping rate decline has been muted by rising diesel prices. The spot market is a real time indicator that re-prices daily and thus, automatically adjusts for fuel costs. With fuel prices remaining elevated for the foreseeable future, we expect average invoice sizes to stay close to current levels, but we could see volumes decrease if 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 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 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 from the preferred stock offering were $45.0 million. Net proceeds after underwriting discounts and offering expenses were $42.4 million. The net proceeds will be used for general corporate purposes.
Stock Repurchase Program
During the three months ended March 31, 2020, we repurchased 871,319 shares into treasury stock under our stock repurchase program at an average 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.environment becomes more recessionary.
Recent Developments: COVID-19 and the Legislative Action
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. 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 (“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 Main Street Lending Program (“MSLP”). During December 2020, many provisions of the CARES 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 a 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 its employees and customers to conduct banking and other financial transactions.  While it appears that epidemiological and macroeconomic conditions are trending in a positive direction as of SeptemberJune 30, 2021,2022, 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
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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.
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Allowance for credit losses
Financial position and results of operations
Improving conditions around COVID-19 had an impact on our allowance for credit losses ("ACL") throughout the prior year as we experienced a decline in required reserves over that period. Pertaining to our SeptemberJune 30, 20212022 financial condition and year to date results of operations, improving conditions around COVID-19 had a materiallittle direct impact on our allowance for credit losses (“ACL”).required ACL levels. We have not yet experienced material charge-offs related to COVID-19. Our ACL calculation, and resulting provision for credit losses, are significantly impacted by changes in forecasted 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, 2021. Refer to our discussion of the 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 SeptemberJune 30, 2021,2022, 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-dipan economic recession brought about by a resurgence in COVID-19 and/or resulting impacts of efforts used to curtail its spread, 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 more expensive sources of funding.
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 is deferring either the full loan payment or the principal component of the loan payment for a stated 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 balances 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 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 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 earn interest at 1%. The Company believes that 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 $87.4 million. The Company recognized $1.6 million and $4.5 million in fees from the SBA on PPP loans during the three and nine months ended September 30, 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 experienceexperienced adverse impacts as a result of COVID-19 virus, we had exposures (on balance sheet loans and commitmentsno material exposure to lend) in the following loan categories that management considered to be “at-risk”"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.March 31, 2022.
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 on 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,Three Months Ended June 30,Six Months Ended June 30,
(Dollars in thousands, except per share amounts)(Dollars in thousands, except per share amounts)2021202020212020(Dollars in thousands, except per share amounts)2022202120222021
Income Statement Data:Income Statement Data:Income Statement Data:
Interest incomeInterest income$96,735 $82,364 $279,776 $232,176 Interest income$106,307 $94,688 $209,742 $183,041 
Interest expenseInterest expense4,964 7,985 14,703 31,046 Interest expense4,879 4,406 8,235 9,739 
Net interest incomeNet interest income91,771 74,379 265,073 201,130 Net interest income101,428 90,282 201,507 173,302 
Credit loss expense (benefit)Credit loss expense (benefit)(1,187)(258)(10,838)33,649 Credit loss expense (benefit)2,901 (1,806)3,402 (9,651)
Net interest income after credit loss expense (benefit)Net interest income after credit loss expense (benefit)92,958 74,637 275,911 167,481 Net interest income after credit loss expense (benefit)98,527 92,088 198,105 182,953 
Gain on sale of subsidiary or division— — — 9,758 
Other noninterest income12,055 10,493 40,242 28,241 
Noninterest incomeNoninterest income12,055 10,493 40,242 37,999 Noninterest income48,160 13,896 59,281 28,187 
Noninterest expenseNoninterest expense72,813 55,297 204,503 162,776 Noninterest expense88,607 70,798 167,171 131,690 
Net income (loss) before income taxesNet income (loss) before income taxes32,200 29,833 111,650 42,704 Net income (loss) before income taxes58,080 35,186 90,215 79,450 
Income tax expense (benefit)Income tax expense (benefit)7,771 6,929 25,316 10,810 Income tax expense (benefit)13,888 7,204 21,694 17,545 
Net income (loss)Net income (loss)$24,429 $22,904 $86,334 $31,894 Net income (loss)$44,192 $27,982 $68,521 $61,905 
Dividends on preferred stockDividends on preferred stock(802)(899)(2,405)(899)Dividends on preferred stock(802)(802)(1,603)(1,603)
Net income available (loss) to common stockholdersNet income available (loss) to common stockholders$23,627 $22,005 $83,929 $30,995 Net income available (loss) to common stockholders$43,390 $27,180 $66,918 $60,302 
Per Share Data:Per Share Data:Per Share Data:
Basic earnings (loss) per common shareBasic earnings (loss) per common share$0.95 $0.89 $3.40 $1.28 Basic earnings (loss) per common share$1.78 $1.10 $2.72 $2.44 
Diluted earnings (loss) per common shareDiluted earnings (loss) per common share$0.94 $0.89 $3.33 $1.27 Diluted earnings (loss) per common share$1.74 $1.08 $2.66 $2.39 
Weighted average shares outstanding - basicWeighted average shares outstanding - basic24,759,419 24,592,092 24,719,861 24,298,897 Weighted average shares outstanding - basic24,427,270 24,724,128 24,612,988 24,699,754 
Weighted average shares outstanding - dilutedWeighted average shares outstanding - diluted25,227,963 24,802,388 25,199,991 24,464,215 Weighted average shares outstanding - diluted24,866,573 25,209,007 25,122,985 25,193,041 
Adjusted Per Share Data(1):
Adjusted Per Share Data(1):
Adjusted Per Share Data(1):
Adjusted diluted earnings per common shareAdjusted diluted earnings per common share$0.94 $0.91 $3.42 $0.99 Adjusted diluted earnings per common share$1.74 $1.17 $2.66 $2.48 
Adjusted weighted average shares outstanding - dilutedAdjusted weighted average shares outstanding - diluted25,227,963 24,802,388 25,199,991 24,464,215 Adjusted weighted average shares outstanding - diluted24,866,573 25,209,007 25,122,985 25,193,041 
Performance ratios - Annualized:Performance ratios - Annualized:Performance ratios - Annualized:
Return on average assetsReturn on average assets1.61 %1.65 %1.91 %0.80 %Return on average assets3.02 %1.84 %2.36 %2.06 %
Return on average total equityReturn on average total equity11.85 %13.24 %14.72 %6.63 %Return on average total equity20.08 %14.27 %15.67 %16.28 %
Return on average common equityReturn on average common equity12.13 %13.61 %15.18 %6.62 %Return on average common equity20.78 %14.70 %16.13 %16.85 %
Return on average tangible common equity (1)
Return on average tangible common equity (1)
19.21 %19.43 %22.12 %9.51 %
Return on average tangible common equity (1)
30.63 %20.92 %23.91 %23.52 %
Yield on loans(2)
Yield on loans(2)
7.92 %7.05 %7.65 %6.92 %
Yield on loans(2)
8.79 %7.77 %8.69 %7.51 %
Cost of interest bearing depositsCost of interest bearing deposits0.27 %0.79 %0.33 %1.07 %Cost of interest bearing deposits0.41 %0.31 %0.32 %0.36 %
Cost of total depositsCost of total deposits0.16 %0.56 %0.21 %0.79 %Cost of total deposits0.23 %0.20 %0.19 %0.24 %
Cost of total fundsCost of total funds0.38 %0.67 %0.38 %0.90 %Cost of total funds0.40 %0.34 %0.34 %0.38 %
Net interest margin(2)
Net interest margin(2)
6.69 %5.83 %6.41 %5.52 %
Net interest margin(2)
7.68 %6.47 %7.68 %6.27 %
Efficiency ratioEfficiency ratio70.13 %65.15 %66.98 %68.07 %Efficiency ratio59.23 %67.96 %64.10 %65.36 %
Adjusted efficiency ratio (1)
Adjusted efficiency ratio (1)
70.13 %64.18 %66.00 %70.61 %
Adjusted efficiency ratio (1)
59.23 %65.09 %64.10 %63.87 %
Net noninterest expense to average assetsNet noninterest expense to average assets4.00 %3.23 %3.63 %3.14 %Net noninterest expense to average assets2.76 %3.75 %3.71 %3.45 %
Adjusted net noninterest expense to average assets (1)
Adjusted net noninterest expense to average assets (1)
4.00 %3.17 %3.57 %3.37 %
Adjusted net noninterest expense to average assets (1)
2.76 %3.55 %3.71 %3.35 %
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(Dollars in thousands, except per share amounts)(Dollars in thousands, except per share amounts)September 30,
2021
December 31,
2020
(Dollars in thousands, except per share amounts)June 30,
2022
December 31,
2021
Balance Sheet Data:Balance Sheet Data:Balance Sheet Data:
Total assetsTotal assets$6,024,535 $5,935,791 Total assets$5,955,507 $5,956,250 
Cash and cash equivalentsCash and cash equivalents532,764 314,393 Cash and cash equivalents724,237 383,178 
Investment securitiesInvestment securities175,927 236,055 Investment securities225,294 192,877 
Loans held for investment, netLoans held for investment, net4,741,713 4,901,037 Loans held for investment, net4,391,959 4,825,359 
Total liabilitiesTotal liabilities5,203,861 5,209,010 Total liabilities5,081,226 5,097,386 
Noninterest bearing depositsNoninterest bearing deposits2,020,984 1,352,785 Noninterest bearing deposits2,085,249 1,925,370 
Interest bearing depositsInterest bearing deposits2,801,591 3,363,815 Interest bearing deposits2,695,675 2,721,309 
FHLB advancesFHLB advances30,000 105,000 FHLB advances30,000 180,000 
Paycheck Protection Program Liquidity FacilityPaycheck Protection Program Liquidity Facility97,554 191,860 Paycheck Protection Program Liquidity Facility— 27,144 
Subordinated notesSubordinated notes106,755 87,509 Subordinated notes107,377 106,957 
Junior subordinated debenturesJunior subordinated debentures40,467 40,072 Junior subordinated debentures40,876 40,602 
Total stockholders’ equityTotal stockholders’ equity820,674 726,781 Total stockholders’ equity874,281 858,864 
Preferred stockholders' equityPreferred stockholders' equity45,000 45,000 Preferred stockholders' equity45,000 45,000 
Common stockholders' equityCommon stockholders' equity775,674 681,781 Common stockholders' equity829,281 813,864 
Per Share Data:Per Share Data:Per Share Data:
Book value per shareBook value per share$30.87 $27.42 Book value per share$33.91 $32.35 
Tangible book value per share (1)
Tangible book value per share (1)
$19.73 $19.78 
Tangible book value per share (1)
$22.84 $21.34 
Shares outstanding end of periodShares outstanding end of period25,123,342 24,868,218 Shares outstanding end of period24,457,777 25,158,879 
Asset Quality ratios(3):
Asset Quality ratios(3):
Asset Quality ratios(3):
Past due to total loansPast due to total loans2.31 %3.22 %Past due to total loans2.47 %2.86 %
Nonperforming loans to total loansNonperforming loans to total loans0.90 %1.16 %Nonperforming loans to total loans0.95 %0.95 %
Nonperforming assets to total assetsNonperforming assets to total assets0.86 %1.15 %Nonperforming assets to total assets0.83 %0.92 %
ACL to nonperforming loansACL to nonperforming loans95.75 %164.98 %ACL to nonperforming loans103.51 %91.20 %
ACL to total loansACL to total loans0.86 %1.92 %ACL to total loans0.98 %0.87 %
Net charge-offs to average loans(4)
Net charge-offs to average loans(4)
0.94 %0.10 %
Net charge-offs to average loans(4)
0.04 %0.95 %
Capital ratios:Capital ratios:Capital ratios:
Tier 1 capital to average assetsTier 1 capital to average assets10.43 %10.80 %Tier 1 capital to average assets11.76 %11.11 %
Tier 1 capital to risk-weighted assetsTier 1 capital to risk-weighted assets11.06 %10.60 %Tier 1 capital to risk-weighted assets13.04 %11.51 %
Common equity Tier 1 capital to risk-weighted assetsCommon equity Tier 1 capital to risk-weighted assets9.45 %9.05 %Common equity Tier 1 capital to risk-weighted assets11.35 %9.94 %
Total capital to risk-weighted assetsTotal capital to risk-weighted assets13.69 %13.03 %Total capital to risk-weighted assets15.91 %14.10 %
Total stockholders' equity to total assetsTotal stockholders' equity to total assets13.62 %12.24 %Total stockholders' equity to total assets14.68 %14.42 %
Tangible common stockholders' equity ratio (1)
Tangible common stockholders' equity ratio (1)
8.63 %8.56 %
Tangible common stockholders' equity ratio (1)
9.83 %9.46 %
(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.
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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.
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.
(2)Performance ratios include discount accretion on purchased loans for the periods presented as follows:
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended June 30,Six Months Ended June 30,
(Dollars in thousands, except per share amounts)(Dollars in thousands, except per share amounts)2021202020212020(Dollars in thousands, except per share amounts)2022202120222021
Loan discount accretionLoan discount accretion$1,953 $4,104 $7,615 $8,377 Loan discount accretion$3,556 $2,161 $5,092 $5,662 
(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 ninesix months ended SeptemberJune 30, 20212022 and the year ended December 31, 2020.2021.
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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,Three Months Ended June 30,Six Months Ended June 30,
(Dollars in thousands, except per share amounts)(Dollars in thousands, except per share amounts)2021202020212020(Dollars in thousands, except per share amounts)2022202120222021
Net income available to common stockholdersNet income available to common stockholders$23,627 $22,005 $83,929 $30,995 Net income available to common stockholders$43,390 $27,180 $66,918 $60,302 
Transaction costsTransaction costs— 827 2,992 827 Transaction costs— 2,992 — 2,992 
Gain on sale of subsidiary or division— — — (9,758)
Tax effect of adjustmentsTax effect of adjustments— (197)(715)2,254 Tax effect of adjustments— (715)— (715)
Adjusted net income available to common stockholdersAdjusted net income available to common stockholders$23,627 $22,635 $86,206 $24,318 Adjusted net income available to common stockholders$43,390 $29,457 $66,918 $62,579 
Weighted average shares outstanding - dilutedWeighted average shares outstanding - diluted25,227,963 24,802,388 25,199,991 24,464,215 Weighted average shares outstanding - diluted24,866,573 25,209,007 25,122,985 25,193,041 
Adjusted diluted earnings per common shareAdjusted diluted earnings per common share$0.94 $0.91 $3.42 $0.99 Adjusted diluted earnings per common share$1.74 $1.17 $2.66 $2.48 
Average total stockholders' equityAverage total stockholders' equity$818,022 $688,327 $784,019 $642,151 Average total stockholders' equity$882,505 $786,404 $881,732 $766,736 
Average preferred stock liquidation preferenceAverage preferred stock liquidation preference(45,000)(45,000)(45,000)(17,080)Average preferred stock liquidation preference(45,000)(45,000)(45,000)(45,000)
Average total common stockholders' equityAverage total common stockholders' equity773,022 643,327 739,019 625,071 Average total common stockholders' equity837,505 741,404 836,732 721,736 
Average goodwill and other intangiblesAverage goodwill and other intangibles(284,970)(192,682)(231,751)(189,776)Average goodwill and other intangibles(269,319)(220,310)(272,332)(204,732)
Average tangible common equityAverage tangible common equity$488,052 $450,645 $507,268 $435,295 Average tangible common equity$568,186 $521,094 $564,400 $517,004 
Net income available to common stockholdersNet income available to common stockholders$23,627 $22,005 $83,929 $30,995 Net income available to common stockholders$43,390 $27,180 $66,918 $60,302 
Average tangible common equityAverage tangible common equity488,052 450,645 507,268 435,295 Average tangible common equity568,186 521,094 564,400 517,004 
Return on average tangible common equityReturn on average tangible common equity19.21 %19.43 %22.12 %9.51 %Return on average tangible common equity30.63 %20.92 %23.91 %23.52 %
Adjusted efficiency ratio:
Efficiency ratio:Efficiency ratio:
Net interest incomeNet interest income$91,771 $74,379 $265,073 $201,130 Net interest income$101,428 $90,282 $201,507 $173,302 
Noninterest incomeNoninterest income12,055 10,493 40,242 37,999 Noninterest income48,160 13,896 59,281 28,187 
Operating revenueOperating revenue103,826 84,872 305,315 239,129 Operating revenue149,588 104,178 260,788 201,489 
Gain on sale of subsidiary or division— — — (9,758)
Adjusted operating revenue$103,826 $84,872 $305,315 $229,371 
Total noninterest expenseTotal noninterest expense$72,813 $55,297 $204,503 $162,776 Total noninterest expense$88,607 $70,798 $167,171 $131,690 
Transaction costsTransaction costs— (827)(2,992)(827)Transaction costs— (2,992)— (2,992)
Adjusted noninterest expenseAdjusted noninterest expense$72,813 $54,470 $201,511 $161,949 Adjusted noninterest expense$88,607 $67,806 $167,171 $128,698 
Adjusted efficiency ratio70.13 %64.18 %66.00 %70.61 %
Efficiency ratioEfficiency ratio59.23 %65.09 %64.10 %63.87 %
Adjusted net noninterest expense to average assets ratio:
Net noninterest expense to average assets ratio:Net noninterest expense to average assets ratio:
Total noninterest expenseTotal noninterest expense$72,813 $55,297 $204,503 $162,776 Total noninterest expense$88,607 $70,798 $167,171 $131,690 
Transaction costsTransaction costs— (827)(2,992)(827)Transaction costs— (2,992)— (2,992)
Adjusted noninterest expenseAdjusted noninterest expense72,813 54,470 201,511 161,949 Adjusted noninterest expense88,607 67,806 167,171 128,698 
Total noninterest incomeTotal noninterest income12,055 10,493 40,242 37,999 Total noninterest income48,160 13,896 59,281 28,187 
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 
Net noninterest expensesNet noninterest expenses$40,447 $53,910 $107,890 $100,511 
Average total assetsAverage total assets6,020,631 5,518,708 6,042,677 5,304,903 Average total assets$5,878,320 $6,093,805 $5,860,916 $6,053,826 
Adjusted net noninterest expense to average assets ratio4.00 %3.17 %3.57 %3.37 %
Net noninterest expense to average assets ratioNet noninterest expense to average assets ratio2.76 %3.55 %3.71 %3.35 %
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(Dollars in thousands, except per share amounts)(Dollars in thousands, except per share amounts)September 30,
2021
December 31,
2020
(Dollars in thousands, except per share amounts)June 30,
2022
December 31,
2021
Total stockholders' equityTotal stockholders' equity$820,674 $726,781 Total stockholders' equity$874,281 $858,864 
Preferred stockPreferred stock(45,000)(45,000)Preferred stock(45,000)(45,000)
Total common stockholders' equityTotal common stockholders' equity775,674 681,781 Total common stockholders' equity829,281 813,864 
Goodwill and other intangiblesGoodwill and other intangibles(280,055)(189,922)Goodwill and other intangibles(270,666)(276,856)
Tangible common stockholders' equityTangible common stockholders' equity$495,619 $491,859 Tangible common stockholders' equity$558,615 $537,008 
Common shares outstandingCommon shares outstanding25,123,342 24,868,218 Common shares outstanding24,457,777 25,158,879 
Tangible book value per shareTangible book value per share$19.73 $19.78 Tangible book value per share$22.84 $21.34 
Total assets at end of periodTotal assets at end of period$6,024,535 $5,935,791 Total assets at end of period$5,955,507 $5,956,250 
Goodwill and other intangiblesGoodwill and other intangibles(280,055)(189,922)Goodwill and other intangibles(270,666)(276,856)
Tangible assets at period endTangible assets at period end$5,744,480 $5,745,869 Tangible assets at period end$5,684,841 $5,679,394 
Tangible common stockholders' equity ratioTangible common stockholders' equity ratio8.63 %8.56 %Tangible common stockholders' equity ratio9.83 %9.46 %
Results of Operations
Three months ended SeptemberJune 30, 20212022 compared with three months ended September 30, 2020.
Net Income
We earned net income of $24.4 million for the three months ended September 30, 2021 compared to net income of $22.9 million for the three months ended September 30, 2020, an increase of $1.5 million.
The results for the three months ended September 30, 2020 were impacted by $0.8 million of transaction costs related to the TFS Acquisition reported as noninterest expense. Excluding the transaction costs, net of taxes, we earned adjusted net income to common stock holders of $22.6 million for the three months ended September 30, 2020. There were no merger and acquisition related activities during the three months ended September 30, 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 $1.0 million year over year. The adjusted increase was primarily the result of a $17.4 million increase in net interest income, a $0.9 million decrease in credit loss expense, and a $1.6 million increase in noninterest income offset by an $18.3 million increase in adjusted noninterest expense, a $0.5 million increase in adjusted income tax expense, and a $0.1 million decrease 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 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.”
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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:
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 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 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 $91.8 million for the three months ended September 30, 2021 compared to $74.4 million for the three months ended September 30, 2020, an increase of $17.4 million, or 23.4%, primarily driven by the following factors.
Interest income increased $14.4 million, or 17.4%, reflecting an increase in average interest earning assets of $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 $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, 2021 compared to $786.3 million for the three months ended September 30, 2020. Further, included in our Banking loans were PPP loans with a carrying amounts of $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 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%. Average noninterest bearing demand deposits grew $698.9 million. The decrease in interest expense was the result of 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 three 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 6.69% for the three months ended September 30, 2021 from 5.83% for the three months ended September 30, 2020, an increase of 86 basis points or 14.8%.
The increase in our net interest margin was impacted by an increase in our yield on interest earning assets of 59 basis points to 7.05% for the three months ended September 30, 2021. This increase was primarily driven by higher yields on loans which increased 87 basis points to 7.92% 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 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, 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 was also impacted by a decrease in our average cost of interest bearing liabilities of 29 basis points. This decrease in average cost was caused by generally 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:
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 securities(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)
Savings31 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)(19)
Other borrowings(10)(86)(96)
Total interest expense(3,170)149 (3,021)
Change in net interest income$13,201 $4,191 $17,392 
Credit Loss Expense
Credit loss expense is the amount of expense that, based on our judgment, is required to maintain the allowances for credit losses (“ACL”) at an appropriate level under the current expected credit loss model. The determination of the amount of the allowance is complex and involves a high degree of judgment and subjectivity. Refer to Note 1 of the Company’s 2020 Form 10-K for detailed discussion regarding ACL methodologies for available for sale debt securities, held to maturity securities and loans held for investment.
The following table presents the major categories of credit loss expense:
Three Months Ended September 30,
(Dollars in thousands)20212020$ 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 %
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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 September 30, 2021 and June 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 three months ended September 30, 2021. The same was true for the same 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 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 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 these 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 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 $0.6 million, or 169.4%, for the three months ended September 30, 2021 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 at September 30, 2021 which resulted in a benefit to credit loss expense of $0.2 million for the three months ended September 30, 2021. 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, 2021 and approximately $3.2 million of the gross charge-off balance had been reserved in a prior period. Net charge-offs were $0.7 million for the three months ended September 30, 2020 and approximately $0.8 million of the gross charge-off 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 credit loss expense of $0.1 million during the three months ended September 30, 2021 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 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 adjustments were made to the corresponding 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 the $10.1 million balance at September 30, 2021 was fully reserved. During the three months ended September 30, 2020, 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 $0.2 million, primarily due to the changes in the assumptions used to project the loss rates previously discussed partially offset by increased outstanding commitments to fund period over period.
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Noninterest Income
The following table presents our major categories of noninterest income:
Three Months Ended September 30,
(Dollars in thousands)20212020$ 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 securities3,109 (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 increased $1.6 million, or 14.9%. Changes in selected components of noninterest income in the above table are discussed below.
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.
Fee income. Fee income increased $3.8 million due to $2.9 million of payment fees earned by TriumphPay during the three months ended September 30, 2021. The fees were a result of the acquired operations of HubTran during the year. There were no other significant changes within the components of fee income.
Noninterest Expense
The following table presents our major categories of noninterest expense:
Three Months Ended September 30,
(Dollars in thousands)20212020$ 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 %
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Noninterest expense increased $17.5 million, or 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, 2020, resulting in an adjusted increase in noninterest expense of $18.3 million, or 33.6%, 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 increased $12.1 million, or 38.3%, which is primarily due to merit increases for existing employees, higher health insurance benefit costs, incentive compensation, and 401(k) expense. 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 1,123.5 for the three months ended September 30, 2021 and 2020, respectively. Given improved 2021 performance compared to 2020, our bonus expense increased $2.6 million 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 increased $0.8 million, or 14.6%, primarily due to growth 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 TFS acquisition recognized in the prior period.
Amortization of Intangible Assets. Amortization of intangible assets increased $1.1 million, or 52.9%, primarily due to the additional intangibles recorded through the HubTran acquisition during the current 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 develop efficiency in our operations and improve the functionality of the TriumphPay platform period over period.
Travel and Entertainment. Travel and entertainment expense increased $1.0 million, or 330.6%, primarily due to the impact of the 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 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.
Income tax expense increased $0.9 million, from $6.9 million for the three months ended September 30, 2020 to $7.8 million for the three months ended September 30, 2021. The effective tax rate was 24% for the three months ended September 30, 2021, compared to 23% for the three months ended September 30, 2020.
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.
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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.
The following tables present our primary operating results for our operating segments:
(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 $$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)3,053 106 (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)$4,996,776 
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Banking
(Dollars in thousands)Three Months Ended September 30,
Banking20212020$ 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)%
Our Banking segment’s operating income decreased $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, 2021 compared to a benefit to credit loss expense of $3.4 million for the three months ended September 30, 2020. The decreased benefit to credit loss expense was primarily the result of changes in the volume and mix of our Banking loan portfolio which drove benefits to credit loss expense of $0.9 million and $3.7 million for the three months ended September 30, 2021 and 2020, respectively. For the three months ended September 30, 2021, we released specific reserves of $1.4 million compared to 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, 2021. This is primarily due to the changes in the assumptions used to project the loss rates previously discussed partially offset by increased outstanding commitments to fund period over period.

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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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, 2020 to $2,300 for the three months ended September 30, 2021, and the number of invoices purchased increased 49.4% period over period.
Overall average net funds employed (“NFE”) increased 78.0% during the three months ended September 30, 2021 compared to the same period in 2020. The increase in average NFE was the 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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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, 2021 and 2020, respectively. The decrease in credit loss expense was also due to net new specific reserves at our Factoring segment which were insignificant for the three months ended September 30, 2021 compared to net new specific reserves of $0.9 million for the same period a year ago. Net charge-offs at our Factoring segment were $3.3 million for the three months ended September 30, 2021 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 $1,934 142.1 %
Intersegment interest allocations(111)(147)36 24.5 %
Total interest expense— — — — %
Net interest income (expense)3,184 1,214 1,970 162.3 %
Credit loss expense (benefit)38 36 1800.0 %
Net interest income after credit loss expense3,146 1,212 1,934 159.6 %
Noninterest income3,086 47 3,039 6466.0 %
Noninterest expense11,416 3,195 8,221 257.3 %
Operating income (loss)$(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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(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 $$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, 2020. This was primarily due to increased interest 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 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 three months ended September 30, 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$44.2 million for the ninethree months ended SeptemberJune 30, 20212022 compared to $31.9net income of $28.0 million for the ninethree months ended SeptemberJune 30, 2020,2021, an increase of $54.4$16.2 million.
The results for the ninethree months ended SeptemberJune 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$30.3 million for the ninethree months ended SeptemberJune 30, 2021 compared to $24.3 million for2021. There were no such adjustments during the ninethree months ended SeptemberJune 30, 2020, an increase of $61.9 million.2022. The adjusted increase in net income for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 totaled $13.9 million and was primarily the result ofdriven by a $63.9$34.4 million increase in noninterest income and an $11.1 million increase in net interest income a $44.5 million decrease in credit loss expense, and a $12.0offset by an adjusted $20.8 million increase in noninterest expense, an adjusted noninterest income offset by a $39.6$6.1 million increase in adjusted noninterest expense, a $17.4 million increase in adjusted income tax expense and a $1.5an increase of $4.7 million increase in dividends on preferred stock.credit loss expense.
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.”
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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:liabilities. Average balances and interest are inclusive of assets and deposits classified as held for sale.
Nine Months Ended September 30,Three Months Ended June 30,
2021202020222021
(Dollars in thousands)(Dollars in thousands)Average
Balance
Interest
Average
Rate(4)
Average
Balance
Interest
Average
Rate(4)
(Dollars in thousands)Average
Balance
Interest
Average
Rate(4)
Average
Balance
Interest
Average
Rate(4)
Interest earning assets:Interest earning assets:Interest earning assets:
Cash and cash equivalentsCash and cash equivalents$508,279 $467 0.12 %$209,621 $640 0.41 %Cash and cash equivalents343,210 787 0.92 %572,485 158 0.11 %
Taxable securitiesTaxable securities169,607 3,343 2.64 %263,978 6,029 3.05 %Taxable securities174,489 1,237 2.84 %165,786 967 2.34 %
Tax-exempt securitiesTax-exempt securities31,977 620 2.59 %36,535 681 2.49 %Tax-exempt securities14,378 92 2.57 %33,451 220 2.64 %
FHLB and other restricted stockFHLB and other restricted stock8,094 131 2.16 %26,515 474 2.39 %FHLB and other restricted stock12,526 34 1.09 %9,518 27 1.14 %
Loans (1)
Loans (1)
4,812,985 275,215 7.65 %4,327,919 224,352 6.92 %
Loans (1)
4,753,893 104,157 8.79 %4,814,050 93,316 7.77 %
Total interest earning assetsTotal interest earning assets5,530,942 279,776 6.76 %4,864,568 232,176 6.38 %Total interest earning assets5,298,496 106,307 8.05 %5,595,290 94,688 6.79 %
Noninterest earning assets:Noninterest earning assets:Noninterest earning assets:
Cash and cash equivalentsCash and cash equivalents81,419 58,942 Cash and cash equivalents91,882 78,132 
Other noninterest earning assetsOther noninterest earning assets430,316 381,393 Other noninterest earning assets487,942 420,383 
Total assetsTotal assets$6,042,677 $5,304,903 Total assets5,878,320 6,093,805 
Interest bearing liabilities:Interest bearing liabilities:Interest bearing liabilities:
Deposits:Deposits:Deposits:
Interest bearing demandInterest bearing demand$746,590 $1,288 0.23 %$617,392 $838 0.18 %Interest bearing demand874,503 536 0.25 %757,529 469 0.25 %
Individual retirement accountsIndividual retirement accounts88,579 455 0.69 %99,827 1,061 1.42 %Individual retirement accounts81,678 106 0.52 %88,142 143 0.65 %
Money marketMoney market404,651 670 0.22 %408,487 1,657 0.54 %Money market545,508 280 0.21 %398,290 216 0.22 %
SavingsSavings465,041 530 0.15 %382,236 419 0.15 %Savings516,924 201 0.16 %468,517 178 0.15 %
Certificates of depositCertificates of deposit674,284 3,838 0.76 %993,590 14,844 2.00 %Certificates of deposit461,280 550 0.48 %664,478 1,157 0.70 %
Brokered time depositsBrokered time deposits134,781 259 0.26 %297,829 4,085 1.83 %Brokered time deposits101,270 302 1.20 %138,102 51 0.15 %
Other brokered depositsOther brokered deposits641,959 750 0.16 %86,064 191 0.30 %Other brokered deposits89,714 731 3.27 %685,397 256 0.15 %
Total interest bearing depositsTotal interest bearing deposits3,155,885 7,790 0.33 %2,885,425 23,095 1.07 %Total interest bearing deposits2,670,877 2,706 0.41 %3,200,455 2,470 0.31 %
Federal Home Loan Bank advancesFederal Home Loan Bank advances37,234 67 0.24 %430,250 1,959 0.61 %Federal Home Loan Bank advances155,549 316 0.81 %39,341 22 0.22 %
Subordinated notesSubordinated notes96,495 5,148 7.13 %87,372 4,016 6.14 %Subordinated notes107,263 1,302 4.87 %87,590 1,350 6.18 %
Junior subordinated debenturesJunior subordinated debentures40,256 1,331 4.42 %39,743 1,662 5.59 %Junior subordinated debentures40,802 556 5.47 %40,251 446 4.44 %
Other borrowingsOther borrowings146,005 367 0.34 %125,756 314 0.33 %Other borrowings5,844 (1)(0.07)%138,649 118 0.34 %
Total interest bearing liabilitiesTotal interest bearing liabilities3,475,875 14,703 0.57 %3,568,546 31,046 1.16 %Total interest bearing liabilities2,980,335 4,879 0.66 %3,506,286 4,406 0.50 %
Noninterest bearing liabilities and equity:Noninterest bearing liabilities and equity:Noninterest bearing liabilities and equity:
Noninterest bearing demand depositsNoninterest bearing demand deposits1,720,213 1,021,745 Noninterest bearing demand deposits1,951,725 1,749,858 
Other liabilitiesOther liabilities62,570 72,461 Other liabilities63,755 51,257 
Total equityTotal equity784,019 642,151 Total equity882,505 786,404 
Total liabilities and equityTotal liabilities and equity$6,042,677 $5,304,903 Total liabilities and equity5,878,320 6,093,805 
Net interest incomeNet interest income$265,073 $201,130 Net interest income101,428 90,282 
Interest spread (2)
Interest spread (2)
6.19 %5.22 %
Interest spread (2)
7.39 %6.29 %
Net interest margin (3)
Net interest margin (3)
6.41 %5.52 %
Net interest margin (3)
7.68 %6.47 %
(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,Three Months Ended June 30,
(Dollars in thousands)(Dollars in thousands)20212020(Dollars in thousands)20222021
Average Banking loansAverage Banking loans$3,511,379 $3,661,573 Average Banking loans$3,014,573 $3,516,747 
Average Factoring receivablesAverage Factoring receivables1,203,494 636,107 Average Factoring receivables1,576,208 1,195,209 
Average Payments receivablesAverage Payments receivables98,112 30,239 Average Payments receivables163,112 102,094 
Average total loansAverage total loans$4,812,985 $4,327,919 Average total loans$4,753,893 $4,814,050 
Banking yieldBanking yield5.31 %5.38 %Banking yield5.87 %5.25 %
Factoring yieldFactoring yield14.19 %15.63 %Factoring yield14.21 %14.99 %
Payments Yield10.82 %10.78 %
Payments yieldPayments yield10.26 %10.51 %
Total loan yieldTotal loan yield7.65 %6.92 %Total loan yield8.79 %7.77 %
We earned net interest income of $265.1$101.4 million for the ninethree months ended SeptemberJune 30, 20212022 compared to $201.1$90.3 million for the ninethree months ended SeptemberJune 30, 2020,2021, an increase of $64.0$11.1 million, or 31.8%12.3%, primarily driven by the following factors.
Interest income increased $47.6$11.6 million, or 20.5%12.3%, reflecting an increase in totalspite of a decrease in average interest earning assets of $666.4$296.8 million, or 13.7%5.3%, and an increasea decrease in average total loans of $485.1$60.2 million, or 11.2%1.2%. The average balance of our higher yielding Factoring factored receivables increased $567.4$381.0 million, or 89.2%31.9%, 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$502.2 million, or 4.1%.14.3% due to decreases in the average balances of all Banking loan types except for general commercial and asset based lending. 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$651.4 million for the ninethree months ended SeptemberJune 30, 20212022 compared to $672.4$789.0 million for the ninethree months ended SeptemberJune 30, 2020.2021. Further, included in our Banking loans were PPP loans with a carrying amounts of $4.5 million and $135.3 million at June 30, 2022 and June 30, 2021, respectively. A component of interest income consists of discount accretion on acquired loan portfolios.portfolios and acquired liquid credit. We recognized discount accretion on purchased loans of $7.6$3.6 million and $8.4$2.2 million for the ninethree months ended SeptemberJune 30, 20212022 and 2020,2021, respectively.
Interest expense decreased $16.3increased $0.5 million, or 52.6%10.7%, anddespite a decrease in average interest bearing liabilities decreased $92.7 million, or 2.6%. Whileinterest-bearing liabilities. More specifically, average total interest bearing deposits increased $270.5decreased $529.6 million, or 9.4%, the16.5%. Average noninterest bearing demand deposits grew $201.9 million. The increase in average balanceinterest expense was offsetdriven by lowerhigher 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%7.68% for the ninethree months ended SeptemberJune 30, 20212022 from 5.52%6.47% for the ninethree months ended SeptemberJune 30, 2020,2021, an increase of 89121 basis points or 16.1%18.7%.
OurThe increase in our net interest margin was impacted by an increase in our yield on our interest earning assets of 38126 basis points to 6.76%8.05% for the ninethree months ended SeptemberJune 30, 2021.2022. This increase was primarily driven by higher yields on loans which increased 73102 basis points to 7.65%8.79% for the same period. While Factoring yield decreased period over period, itsperiod; however, average Factoring factored receivables as a percentage of the total loan portfolio increased significantly havingwhich had 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 percentagewere 95% and 91% of the overall factoringour Factoring portfolio to 91% at SeptemberJune 30, 2022 and 2021, compared to 88% at September 30, 2020.respectively. Banking and Payments yields were relatively flatalso increased period over period and non-loanwhile Payments yields decreased. Non-loan yields had little impact on our yield on interest earning assets.
The increase in our net interest margin was also impacted by a decreasean increase in our average cost of interest bearing liabilities of 5916 basis points. This decreaseincrease in average cost was caused by lowergenerally higher interest rates paid on our interest bearinginterest-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:bearing:
Nine Months EndedThree Months Ended
September 30, 2021 vs. 2020June 30, 2022 vs. 2021
Increase (Decrease) Due to:Net IncreaseIncrease (Decrease) Due to:
(Dollars in thousands)(Dollars in thousands)RateVolume(Dollars in thousands)RateVolumeNet Increase
Interest earning assets:Interest earning assets:Interest earning assets:
Cash and cash equivalentsCash and cash equivalents$(447)$274 $(173)Cash and cash equivalents$1,155 $(526)$629 
Taxable securitiesTaxable securities(826)(1,860)(2,686)Taxable securities208 62 270 
Tax-exempt securitiesTax-exempt securities27 (88)(61)Tax-exempt securities(6)(122)(128)
FHLB and other restricted stockFHLB and other restricted stock(45)(298)(343)FHLB and other restricted stock(1)
LoansLoans23,126 27,737 50,863 Loans12,159 (1,318)10,841 
Total interest incomeTotal interest income21,835 25,765 47,600 Total interest income13,515 (1,896)11,619 
Interest bearing liabilities:Interest bearing liabilities:Interest bearing liabilities:
Interest bearing demandInterest bearing demand227 223 450 Interest bearing demand(5)72 67 
Individual retirement accountsIndividual retirement accounts(548)(58)(606)Individual retirement accounts(29)(8)(37)
Money marketMoney market(981)(6)(987)Money market(12)76 64 
SavingsSavings17 94 111 Savings19 23 
Certificates of depositCertificates of deposit(9,189)(1,817)(11,006)Certificates of deposit(365)(242)(607)
Brokered time depositsBrokered time deposits(3,513)(313)(3,826)Brokered time deposits361 (110)251 
Other brokered depositsOther brokered deposits(90)649 559 Other brokered deposits5,329 (4,854)475 
Total interest bearing depositsTotal interest bearing deposits(14,077)(1,228)(15,305)Total interest bearing deposits5,283 (5,047)236 
Federal Home Loan Bank advancesFederal Home Loan Bank advances(1,185)(707)(1,892)Federal Home Loan Bank advances58 236 294 
Subordinated notesSubordinated notes645 487 1,132 Subordinated notes(287)239 (48)
Junior subordinated debenturesJunior subordinated debentures(348)17 (331)Junior subordinated debentures102 110 
Other borrowingsOther borrowings51 53 Other borrowings(142)23 (119)
Total interest expenseTotal interest expense(14,963)(1,380)(16,343)Total interest expense5,014 (4,541)473 
Change in net interest incomeChange in net interest income$36,798 $27,145 $63,943 Change in net interest income$8,501 $2,645 $11,146 
Credit Loss Expense
Credit loss expense is the amount of expense that, based on our judgment, is required to maintain the allowances for credit losses (“ACL”) at an appropriate level under the current expected credit loss model. The determination of the amount of the allowance is complex and involves a high degree of judgment and subjectivity. Refer to Note 1 of the Company’s 20202021 Form 10-K for detailed discussion regarding ACL methodologies for available for sale debt securities, held to maturity securities and loans held for investment.
The following table presents the major categories of credit loss expense:
Nine Months Ended September 30,
(Dollars in thousands)20212020$ 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 $(44,487)(132.2)%
Three Months Ended June 30,
(Dollars in thousands)20222021$ Change% Change
Credit loss expense (benefit) on loans$2,069 $(1,967)$4,036 205.2 %
Credit loss expense (benefit) on off balance sheet credit exposures932 293 639 218.1 %
Credit loss expense (benefit) on held to maturity securities(100)(132)32 24.2 %
Credit loss expense on available for sale securities— — — — 
Total credit loss expense (benefit)$2,901 $(1,806)$4,707 260.6 %
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Upon and subsequent to adoption of ASC 326, forFor 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 DecemberJune 30, 2022 and March 31, 2020 and September 30, 2021,2022, 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 ninethree months ended SeptemberJune 30, 2021.2022. The same was true for the same period in the prior year.
Upon and subsequent to adoption of ASC 326, theThe ACL on held to maturity ("HTM") securities is estimated at each measurement date on a collective basis by major security type. At SeptemberJune 30, 20212022 and December 31, 2020,2021, 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 SeptemberJune 30, 20212022 and DecemberMarch 31, 2020,2022, the Company carried $7.2$6.7 million and $7.9$6.9 million of these HTM securities at amortized cost, respectively. The required ACL on these balances was $1.7$2.4 million at SeptemberJune 30, 20212022 and $2.0$2.5 million at DecemberMarch 31, 2020 and we recognized2022 resulting in a benefit to credit loss expense of $0.3$0.1 million during the ninecurrent quarter. Credit loss expense during the three months ended SeptemberJune 30, 2021.2021 was a benefit of $0.1 million. None of the overcollateralization triggers tied to the CLO securities were tripped as of SeptemberJune 30, 2021.2022. 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 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$43.4 million as of SeptemberJune 30, 2021,2022, compared to $95.7$42.2 million as of December 31, 2020,2021, representing an ACL to total loans ratio of 0.86%0.98% and 1.92%0.87% respectively.
Our credit loss expense on loans decreased $37.4increased $4.0 million, or 133.6%205.2%, for the ninethree months ended SeptemberJune 30, 20212022 compared to the ninethree months ended SeptemberJune 30, 2020.2021.
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 duringDuring the ninethree months ended SeptemberJune 30, 2021. During that time, new adverse developments with the largest of the three2022, we decreased our reserve on Over-Formula Advance clients caused us to charge-offreflecting payment made during the entire Over-Formula Advance amount due from that client.quarter. This resulted in a net charge-off of $41.3 million; however, this net charge-off had no impact onbenefit to credit loss expense forof $0.4 million. We continue to reserve the nine months ended September 30, 2021 as the entire amount had been reserved in a prior period. In 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 thefull 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 Septemberat June 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 asset2022 which was recorded through non-interest income during the nine months ended September 30, 2021.totals $9.2 million.
The decreasedincreased 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 SeptemberJune 30, 2021 which resulted in a benefit to credit loss expense of $10.3$1.8 million for the ninethree months ended SeptemberJune 30, 2021. During the ninethree months ended SeptemberJune 30, 20202022 the Company forecasted some deterioration in the loss factors driven by the projected economic impact of COVID-19as well as slower prepayment speeds which resulted in credit loss expense of $23.3$2.6 million. See further discussion in the allowance for credit loss section below.
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The decrease inincreased credit loss expense was furtheralso driven by changes in net new specific reserves. Includingreserves (including reserves on Over-Formula Advances) which resulted in $1.4 million and $0.7 million of credit loss expense for the aforementioned $2.8 million additional specific reserve on PCD assets, we recorded net new specific reserves of $1.1 million during the ninethree months ended SeptemberJune 30, 2022 and 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.

respectively.
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$1.6 million during the ninethree months ended SeptemberJune 30, 20212022 compared to a benefit of $2.7 million$0.7 during the ninesame period a year prior.
Net charge-offs were $0.2 million for the three months ended SeptemberJune 30, 2020.2022 and approximately $0.5 million of the gross charge-off balance had been reserved in a prior period. Net charge-offs were $0.4 million for the three months ended June 30, 2021 and approximately $0.5 million of the gross charge-off balance had been reserved in a prior period.
Credit loss expense for off balance sheet credit exposures decreased $5.0increased $0.6 million, primarily due to the changes in the assumptions used to project the loss rates previously discussed.discussed and changes to outstanding commitments to fund period over period.
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Noninterest Income
The following table presents our major categories of noninterest income:
Nine Months Ended September 30,Three Months Ended June 30,
(Dollars in thousands)(Dollars in thousands)20212020$ Change% Change(Dollars in thousands)20222021$ Change% Change
Service charges on depositsService charges on deposits$5,674 $3,631 $2,043 56.3 %Service charges on deposits$1,664 $1,857 $(193)(10.4)%
Card incomeCard income6,341 5,832 509 8.7 %Card income2,080 2,225 (145)(6.5)%
Net OREO gains (losses) and valuation adjustmentsNet OREO gains (losses) and valuation adjustments(376)(399)23 5.8 %Net OREO gains (losses) and valuation adjustments18 (287)305 106.3 %
Net gains (losses) on sale or call of securitiesNet gains (losses) on sale or call of securities3,210 (3,205)99.8 %Net gains (losses) on sale or call of securities2,514 2,513 N/M
Net gains (losses) on sale of loansNet gains (losses) on sale of loans17,269 1,019 16,250 1,594.7 %
Fee incomeFee income11,917 4,392 7,525 171.3 %Fee income6,273 4,470 1,803 40.3 %
Insurance commissionsInsurance commissions3,989 2,905 1,084 37.3 %Insurance commissions1,346 1,272 74 5.8 %
Gain on sale of subsidiary or division— 9,758 (9,758)(100.0 %)
OtherOther12,692 8,670 4,022 46.4 %Other16,996 3,339 13,657 409.0 %
Total noninterest incomeTotal noninterest income$40,242 $37,999 $2,243 5.9 %Total noninterest income$48,160 $13,896 $34,264 246.6 %
Noninterest income increased $2.2$34.3 million, or 5.9%246.6%. 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 $3.2increased $2.5 million due to decreased sales activitygains on the sale of certain available for sale CLOs during the current period.three months ended June 30, 2022.
Net gains (losses) on sale of loans. Net gains (losses) on sale of loans increased $16.3 million due to the aforementioned gain on sale of factored receivables of $13.2 million and gain on sale of equipment loans of $3.9 million during the three months ended June 30, 2022.
Fee income. Fee income increased $7.5$1.8 million, or 171.3%40.3%, due to a $2.3 million increase in payment fees earned by TriumphPay during the three months ended June 30, 2022 compared to the same period a year ago. The fees were primarily due toa result of the acquired operations of HubTran during June of the prior year. Additionally, wire fees increased $0.5 million period over period. These increases were partially offset by a combined $1.2 million of early termination fees charged to two customers during the ninethree months ended SeptemberJune 30, 2021. We also recognized $3.9 million in Payments fees related to the acquired operations of HubTran2021 that did not repeat during the same period.current year. There were no other significant changes within the components of fee income.
Insurance commissionsOther.. 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$13.7 million, or 46.4%409.0%, primarily due to a $4.2gain of $8.9 million gain on the Company's indemnification assetaforementioned termination of an interest rate swap recognized during the ninethree months ended SeptemberJune 30, 2021. We also2022. During that same period, we recognized a net gain of $7.0 million on the aforementioned termination of WSI warrants and additional investment in WSI common stock. These increases were partially offset by a $1.5 million recovery during the ninethree months ended SeptemberJune 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 $0.7 million loss recognized on the donation of a branch to a local municipality during the nine months ended September 30, 2020. There were no other significant changes within the components of other noninterest income.
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Noninterest Expense
The following table presents our major categories of noninterest expense:
Nine Months Ended September 30,
(Dollars in thousands)20212020$ 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 %

Three Months Ended June 30,
(Dollars in thousands)20222021$ Change% Change
Salaries and employee benefits$54,257 $41,658 $12,599 30.2 %
Occupancy, furniture and equipment6,507 6,112 395 6.5 %
FDIC insurance and other regulatory assessments382 500 (118)(23.6)%
Professional fees3,607 5,052 (1,445)(28.6)%
Amortization of intangible assets3,064 2,428 636 26.2 %
Advertising and promotion1,785 1,241 544 43.8 %
Communications and technology9,820 6,028 3,792 62.9 %
Travel and entertainment1,423 960 463 48.2 %
Other7,762 6,819 943 13.8 %
Total noninterest expense$88,607 $70,798 $17,809 25.2 %
Noninterest expense increased $41.7$17.8 million, or 25.6%25.2%. Noninterest expense for the ninethree months ended SeptemberJune 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$67.8 million for the ninethree months ended SeptemberJune 30, 2021, and 2020, respectively, resulting in an adjusted increase in noninterest expense of $39.6$20.8 million, or 24.5%30.7%, 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$12.6 million, or 30.3%30.2%, which is primarily due to merit increases for existing employees, higher health insurance benefit costs, incentive compensation, and 401(k) expense. The size of our workforce increased period over period due in part due to the acquisition of HubTran, as well asbut also organic growth within the Company. Our average full-time equivalent employees were 1,181.81,365.3 and 1,122.61,190.5 for the ninethree months ended SeptemberJune 30, 2022 and 2021, respectively. Further, accruals for bonus expense were $2.0 million higher period over period reflecting strong operating results through the first half of 2022 and 2020, respectively. Given improved 2021 performance compared to 2020, our annual bonus accrualstock based compensation expense increased $6.5$4.5 million period over period. Further, salesAdditionally, compensation paid to temporary contract labor increased $1.6 million period over period. Sales commissions, primarily related to our operations at Triumph Business Capital and TriumphPay, increased $3.5decreased $0.8 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 $2.9decreased $1.4 million, or 41.8%28.6%, primarily due to a $3.0 million of transaction costs associated with the acquisition of HubTran acquisition slightlyduring 2021 offset by $0.8 million of transaction costs associated with the TFS acquisition.professional fees paid on the equipment loan and factored receivable sales during the three months ended June 30, 2022.
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Amortization of intangible assetsIntangible Assets. Amortization of intangible assets increased $1.4$0.6 million, or 22.5%26.2%, primarily due to the additional intangibles recorded through the acquisition of HubTran acquisition during the current year.June 2021.
CommunicationsAdvertising and Technology.Promotion Communications. Advertising and promotion increased $0.5 million, or 43.8%, primarily due increased activity in this area period over period.
Communication and Technology. Communication and technology expenses increased $2.5$3.8 million, or 15.2%62.9%, primarily as a result of increased spending on IT consulting and IT license and software maintenance 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 includes loan-related expenses, software amortization, training and recruiting, postage, insurance, and subscription services. Other noninterest expense increased $2.2$0.9 million, or 12.4%.13.8% despite a $0.8 million decrease in other loan related expenses period over period. There were no other 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.
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Income tax expense increased $14.5$6.7 million, or 134.2%, from $10.8$7.2 million for the ninethree months ended SeptemberJune 30, 20202021 to $25.3$13.9 million for the ninethree months ended SeptemberJune 30, 2021.2022. The effective tax rate was 23%24% for the ninethree months ended SeptemberJune 30, 2021 and 25%2022, compared to 20% for the ninethree months ended SeptemberJune 30, 2020.2021. The decrease in theprior period effective tax rate period over period is principally due to an adjustment to state taxes during the prior year.was impacted by restricted stock and stock option activity as well as amended return benefit.
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,Shipper, Broker, and factorFactor 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 carrierCarrier a QuickPayquickpay 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 brokersBrokers the ability to settle their invoices with us on an extended term following our payment to their carriersCarriers as an additional liquidity option for such freight brokers.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 20202021 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.to it. The majority of salaries and benefits expense for our executive leadership team as well as other selling, general, and administrative shared services costs are allocated to the Banking segment. 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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The following tables present our primary operating results for our operating segments:
(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)$4,996,776 
Banking
(Dollars in thousands)(Dollars in thousands)Nine Months Ended September 30,% Change(Dollars in thousands)
Banking20212020$ Change
Three Months Ended June 30, 2022Three Months Ended June 30, 2022BankingFactoringPaymentsCorporateConsolidated
Total interest incomeTotal interest income$144,087 $155,517 $(11,430)(7.3 %)Total interest income$46,239 $55,854 $4,172 $42 $106,307 
Intersegment interest allocationsIntersegment interest allocations8,117 9,139 (1,022)(11.2 %)Intersegment interest allocations2,188 (2,079)(109)— — 
Total interest expenseTotal interest expense8,225 25,368 (17,143)(67.6 %)Total interest expense3,020 — — 1,859 4,879 
Net interest income143,979 139,288 4,691 3.4 %
Net interest income (expense)Net interest income (expense)45,407 53,775 4,063 (1,817)101,428 
Credit loss expense (benefit)Credit loss expense (benefit)(19,187)27,211 (46,398)(170.5 %)Credit loss expense (benefit)3,120 64 (184)(99)2,901 
Net interest income after credit loss expenseNet interest income after credit loss expense163,166 112,077 51,089 45.6 %Net interest income after credit loss expense42,287 53,711 4,247 (1,718)98,527 
Gain on sale of subsidiary or division— 9,758 (9,758)(100.0 %)
Other noninterest income25,139 22,512 2,627 11.7 %
Noninterest incomeNoninterest income22,312 15,521 10,309 18 48,160 
Noninterest expenseNoninterest expense122,497 113,047 9,450 8.4 %Noninterest expense48,385 22,123 17,663 436 88,607 
Operating income (loss)$65,808 $31,300 $34,508 110.2 %
Net income (loss) before income tax expenseNet income (loss) before income tax expense$16,214 $47,109 $(3,107)$(2,136)$58,080 
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(Dollars in thousands)
Three Months Ended June 30, 2021BankingFactoringPaymentsCorporateConsolidated
Total interest income$47,356 $44,653 $2,675 $$94,688 
Intersegment interest allocations2,723 (2,584)(139)— — 
Total interest expense2,610 — — 1,796 4,406 
Net interest income (expense)47,469 42,069 2,536 (1,792)90,282 
Credit loss expense (benefit)(4,335)2,444 218 (133)(1,806)
Net interest income after credit loss expense51,804 39,625 2,318 (1,659)92,088 
Noninterest income10,018 2,742 1,083 53 13,896 
Noninterest expense41,860 17,174 10,842 922 70,798 
Net income (loss) before income tax expense$19,962 $25,193 $(7,441)$(2,528)$35,186 
(Dollars in thousands)
June 30, 2022BankingFactoringPaymentsCorporateEliminationsConsolidated
Total assets$5,620,770 $1,614,369 $340,357 $1,024,081 $(2,644,070)$5,955,507 
Gross loans$3,990,481 $1,450,447 $145,835 $— $(1,151,397)$4,435,366 
(Dollars in thousands)
December 31, 2021BankingFactoringPaymentsCorporateEliminationsConsolidated
Total assets$5,568,826 $1,679,495 $293,212 $1,009,998 $(2,595,281)$5,956,250 
Gross loans$4,444,136 $1,546,361 $153,176 $700 $(1,276,801)$4,867,572 
Banking
(Dollars in thousands)Three Months Ended June 30,
Banking20222021$ Change% Change
Total interest income$46,239 $47,356 $(1,117)(2.4)%
Intersegment interest allocations2,188 2,723 (535)(19.6)%
Total interest expense3,020 2,610 410 15.7 %
Net interest income (expense)45,407 47,469 (2,062)(4.3)%
Credit loss expense (benefit)3,120 (4,335)7,455 172.0 %
Net interest income after credit loss expense42,287 51,804 (9,517)(18.4)%
Other noninterest income22,312 10,018 12,294 122.7 %
Noninterest expense48,385 41,860 6,525 15.6 %
Operating income (loss)$16,214 $19,962 $(3,748)(18.8)%
Our Banking segment’s operating income increased $34.5decreased $3.7 million, or 110.2%18.8%. Our Banking segment’s operating 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, our Banking segment’s adjusted operating income was $24.8 million for the nine months ended September 30, 2020, resulting in an adjusted increase in operating income of $41.0 million period over period.
Total interest income decreased $11.4$1.1 million, or 7.3%2.4%, 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 4.1%14.3% from $3.662$3.517 billion for the ninethree months ended SeptemberJune 30, 20202021 to $3.511$3.015 billion for the ninethree months ended SeptemberJune 30, 2021.2022. The decrease in average loan balances reflects decreases in average commercial real estate, construction, 1-4 family residential, farmland, paycheck protection program, agriculture, equipment, liquid credit, consumer and mortgage warehouse loans. The decrease in interest income was also drivenpartially offset by a decreasean increase in yields on interest earning assets.assets at our Banking segment.
Interest expense decreased period over period. While theincreased despite a decrease in average balance of interest bearinginterest-bearing liabilities at our Banking segment decreased overall,including a decrease in average total interest bearing deposits increased $270.5 million, or 9.4%. The decrease inperiod over period. This increase was driven by higher interest expense was the result of a decrease inrates paid on our average cost of interest bearinginterest-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 $2.2 million for the three months ended June 30, 2022 compared to a benefit to credit loss expense on loans of $18.0$4.6 million for the ninethree months ended SeptemberJune 30, 2021 compared to credit loss expense of $23.4 million for the nine months ended September 30, 2020.2021. The decreasedincrease in credit loss expense was primarily the result of slower projected improvementprepayment speeds and deterioration of the loss driversdriver assumptions that the Company forecasted over the reasonable and supportable forecast periodperiods to calculate expected losses at our Banking segment assegment.
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Table of September 30, 2021 which resultedContents
Changes in a benefitvolume and rate also contributed to credit lossthe increase in provision expense of $10.2 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 $23.2 million at our Banking segment. The decrease in credit loss expense was further driven by the impact ofperiod over period. We also recorded more 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 $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 ninethree months ended SeptemberJune 30, 20212022 compared to net charge-offs of $0.4 million during the same period a year ago. Said charge-offs carriedCharge-off activity did not have a reserve balance of $0.2 million established during a prior period. Changes in loan volume and mix at our Banking segment partially offsetsignificant impact on the decreaseincrease 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.over period.
Credit loss expense for off balance sheet credit exposures decreased $5.0increased $0.6 million from $3.8$0.3 million for the ninethree months ended SeptemberJune 30, 20202021 to a benefit of $1.2$0.9 million for the ninethree months ended SeptemberJune 30, 2021. The decrease was 2022, primarily due to the changes in the assumptions used to project the loss rates previously discussed.discussed and changes to outstanding commitments to fund period over period.
Noninterest income at our Banking segment increased due to a $2.0$2.5 million increase in service chargesof gains 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 customersthe sales of certain available for sale CLOs as well as the $3.9 million gain on sale of equipment loans during the second quarterthree months ended June 30, 2022. Further, we recognized a gain of 2020 to waive fees from a variety$8.9 million on the termination 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 activityan interest rate swap during the nine months ended September 30, 2021. Further, insurance commissions at our Banking segment increased $1.1 million due to higher policy volumes processedsame period. These increases were partially offset by Triumph Insurance group. The Banking segment also recognized a $1.5 million recovery during the ninethree months ended SeptemberJune 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 also 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 a gain of $1.9 million during 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, 2020 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.income at our Banking 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 Banking segment were insignificant period over period. It should be noted that the majority of our executive leadership team's salary and employee benefits expense as well as other selling, general, and administrative shared services costs are allocated to the Banking segment.
During the three months ended June 30, 2022, the aggregate outstanding balances of our banking products decreased $329.0 million, or 10.4%, to $2.839 billion as of June 30, 2022. See the Financial Condition section below for further discussion of changes in loan balances:
(Dollars in thousands)June 30,
2022
December 31,
2021
Banking
Commercial real estate$649,280 $632,775 
Construction, land development, land103,377 123,464 
1-4 family residential126,362 123,115 
Farmland70,272 77,394 
Commercial - General319,660 295,662 
Commercial - Paycheck Protection Program4,538 27,197 
Commercial - Agriculture60,150 70,127 
Commercial - Equipment431,366 621,437 
Commercial - Asset-based lending239,505 281,659 
Commercial - Liquid Credit170,260 134,347 
Consumer9,709 10,885 
Mortgage Warehouse654,605 769,973 
Total banking loans$2,839,084 $3,168,035 
Factoring
(Dollars in thousands)Three Months Ended June 30,
Factoring20222021$ Change% Change
Total interest income$55,854 $44,653 $11,201 25.1 %
Intersegment interest allocations(2,079)(2,584)505 19.5 %
Total interest expense— — — — 
Net interest income (expense)53,775 42,069 11,706 27.8 %
Credit loss expense (benefit)64 2,444 (2,380)(97.4)%
Net interest income (expense) after credit loss expense53,711 39,625 14,086 35.5 %
Noninterest income15,521 2,742 12,779 466.0 %
Noninterest expense22,123 17,174 4,949 28.8 %
Net income (loss) before income tax expense$47,109 $25,193 $21,916 87.0 %
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Factoring
Three Months Ended June 30,
20222021
Factored receivable period end balance$1,474,852,000 $1,284,314,000 
Yield on average receivable balance14.21 %14.99 %
Current quarter charge-off rate— %0.04 %
Factored receivables - transportation concentration94 %91 %
Interest income, including fees$55,854,000 $44,653,000 
Non-interest income(1)
15,521,000 2,742,000 
Factored receivable total revenue71,375,000 47,395,000 
Average net funds employed1,409,312,000 1,072,405,000 
Yield on average net funds employed20.31 %17.73 %
Accounts receivable purchased$4,023,569,000 $3,068,262,000 
Number of invoices purchased1,725,721 1,401,695 
Average invoice size$2,332 $2,189 
Average invoice size - transportation$2,176 $2,090 
Average invoice size - non-transportation$6,469 $4,701 
(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 
Metrics above include assets and deposits held for sale.
(1) Net charge-offs for the nine months ended September 30, 2021 includes a $45.3 million charge-off related to the TFS acquisition, which contributed approximately 3.43% to the net charge-off rate for the period.
(2) Non-interest income for the ninethree months ended SeptemberJune 30, 2021 excludes $4.72022 includes a $13.2 million gain on sale of income recognizeda portfolio of factored receivables, which contributed 3.76% to the yield on our indemnification asset resulting fromaverage net funds employed for the amended TFS acquisition agreement.quarter.
Our Factoring segment’s operating income increased $41.7$21.9 million, or 146.5%87.0%.
Our average invoice size increased 28.2%6.5% from $1,719$2,189 for the ninethree months ended SeptemberJune 30, 20202021 to $2,204$2,332 for the ninethree months ended SeptemberJune 30, 20212022, and the number of invoices purchased increased 51.7%23.1% period over period.
Net interest income at our Factoring segment increased period over period. Overall average net funds employed (“NFE”) increased 90.0%31.4% during the ninethree months ended SeptemberJune 30, 20212022 compared to the same period in 2020.2021. The increase in average NFE was the 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 ActTrucking Transportation 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 increasedhigh concentration in transportation factoring balances, which typically generate a higher yield than our non-transportation factoring balances. This concentration, calculated based on receivables held for investment and held for sale, was up 2%at 91% at June 30, 2021 and 94% at June 30, 2022.
The period over period from 88% at September 30, 2020 to 90% at September 30, 2021.
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The increasedecrease in credit loss expense was primarily due to the $2.8 million increase 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. Growthis primarily due to a decrease driven by changes in volume and mix during the underlyingcomparative periods. Additionally, increases in required specific reserves on factored receivable portfolioreceivables at our Factoring segment resultedwere lesser in $2.6 million and $2.1 million of credit loss expensemagnitude 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 the 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 meaningfulmaterial impact on the change in credit loss expense period over period. Net charge-offs at our Factoring segment during the ninethree months ended SeptemberJune 30, 2021 or 2020.2022 were less than $0.1 million compared to $0.5 million during the same period a year ago.
The increase in noninterest income at our Factoring segment was primarily due to a $4.2the aforementioned $13.2 million gain on the Company's indemnification assetsale of factored receivables during the ninethree months ended SeptemberJune 30, 2021. Additionally, we recognized2022. The increase was partially offset by a combined $1.2 million of early termination fees charged to two customers during the ninethree months ended SeptemberJune 30, 2021. These increases were partially offset by the recognition of $2.0 million of income2021 that did not repeat 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.current year. 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)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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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 
Payments
(Dollars in thousands)Three Months Ended June 30,
Payments20222021$ Change% Change
Total interest income$4,172 $2,675 $1,497 56.0 %
Intersegment interest allocations(109)(139)30 21.6 %
Total interest expense— — — — %
Net interest income (expense)4,063 2,536 1,527 60.2 %
Credit loss expense (benefit)(184)218 (402)(184.4)%
Net interest income after credit loss expense4,247 2,318 1,929 83.2 %
Noninterest income10,309 1,083 9,226 851.9 %
Noninterest expense17,663 10,842 6,821 62.9 %
Net income (loss) before income tax expense$(3,107)$(7,441)$4,334 58.2 %
Three Months Ended June 30,
20222021
Factored receivable period end balance$145,835,000 $113,985,000 
Interest income$4,172,000 $2,675,000 
Noninterest income(1)
10,309,000 1,083,000 
Total revenue$14,481,000 $3,758,000 
Operating income (loss)$(3,107,000)$(7,441,000)
Interest expense109,000 139,000 
Depreciation and software amortization expense103,000 68,000 
Intangible amortization expense1,477,000 497,000 
Earnings (losses) before interest, taxes, depreciation, and amortization$(1,418,000)$(6,737,000)
Transaction costs$— $2,992,000 
Adjusted earnings (losses) before interest, taxes, depreciation, and amortization(2)
$(1,418,000)$(3,745,000)
Number of invoices processed4,388,711 3,165,119 
Amount of payments processed$6,033,898,000 $3,426,808,000 
Conforming invoice volume118,580 — 
Conforming payment volume$253,312,000 $— 
(1)Adjusted earningsJune 30, 2022 non-interest income includes a $10.2 million gain on an equity investment and a $3.2 million loss on impairment of warrants.
(2)Earnings (losses) before interest, taxes, depreciation, and amortization ("EBITDA") is a non-GAAP financial measure used as a supplemental measure to evaluate the performance of our Payments segment. Adjusted EBITDA 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 $8.3decreased $4.3 million, or 120.8%58.2%.
The number of invoices processed by our Payments segment increased 252.9%38.7% from 2,679,6623,165,119 for the ninethree months ended SeptemberJune 30, 20202021 to 9,455,7404,388,711 for the ninethree months ended SeptemberJune 30, 2021,2022, and the amount of payments processed increased 310.0%76.1% from $2.420$3.427 billion for the ninethree months ended SeptemberJune 30, 20202021 to $9.920$6.034 billion for the ninethree months ended SeptemberJune 30, 2021.2022.
Interest
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We began processing conforming transactions during the first quarter of 2022. When a fully integrated TriumphPay payor receives an invoice from a fully integrated TriumphPay payee, we call that a “conforming transaction.” All conforming transactions are included in our payment processing volume above. These transactions are facilitated through TriumphPay APIs with parties on both sides of the transaction using structured data; similar to how a credit card works at a point-of-sale terminal. The integrations largely automate the process and make it cheaper, faster and safer. In recognition of these benefits, we will charge a network fee tied to conforming transactions. During the three months ended June 30, 2022, we processed 118,580 conforming invoices representing a conforming payment volume of $253.3 million.
Net interest income increased due to increased factoring activity at our Payments segment and increasedslightly offset by decreased yields period over period. Noninterest income increased primarily due to $3.9a $2.3 million increase in Paymentspayment fees relatedearned by TriumphPay during the three months ended June 30, 2022 compared to the same period a year ago. The fees were primarily a result of the acquired operations of HubTran operations during June of the nine months ended September 30, 2021.prior year. Additionally, we recognized a net gain of $7.0 million on the aforementioned termination of WSI warrants and additional investment in WSI common stock.
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 increased headcount, merit increases for existing employees, higher health insurance benefit costs, incentive compensation, stock based compensation and 401(k) expense. Our average full-time equivalent employeesAdditionally at our Payments segment, were 87.1IT expense increased $0.9 million, amortization of the intangible assets acquired in the HubTran acquisition increased $1.0 million, and 40.8 for the nine months ended September 30, 2021 and 2020, respectively.professional fees decreased $2.1 million. We continue to invest heavily in the operations of TriumphPay.
The acquisition of HubTran during the ninethree months ended SeptemberJune 30, 2021 allows TriumphPay to create a fully integrated payments network for transportation;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.
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Corporate
(Dollars in thousands)(Dollars in thousands)Nine Months Ended September 30,% Change(Dollars in thousands)Three Months Ended June 30,
CorporateCorporate20212020$ ChangeCorporate20222021$ Change% Change
Total interest incomeTotal interest income$51 $267 $(216)(80.9 %)Total interest income$42 $$38 950.0 %
Intersegment interest allocationsIntersegment interest allocations— — — — Intersegment interest allocations— — — — 
Total interest expenseTotal interest expense6,478 5,678 800 14.1 %Total interest expense1,859 1,796 63 3.5 %
Net interest income (expense)Net interest income (expense)(6,427)(5,411)(1,016)(18.8 %)Net interest income (expense)(1,817)(1,792)(25)(1.4)%
Credit loss expense (benefit)Credit loss expense (benefit)(290)1,834 (2,124)(115.8 %)Credit loss expense (benefit)(99)(133)34 25.6 %
Net interest income (expense) after credit loss expenseNet interest income (expense) after credit loss expense(6,137)(7,245)1,108 15.3 %Net interest income (expense) after credit loss expense(1,718)(1,659)(59)(3.6)%
Noninterest income151 131 20 15.3 %
Other noninterest incomeOther noninterest income18 53 (35)(66.0)%
Noninterest expenseNoninterest expense3,180 3,080 100 3.2 %Noninterest expense436 922 (486)(52.7)%
Operating income (loss)$(9,166)$(10,194)$1,028 10.1 %
Net income (loss) before income tax expenseNet income (loss) before income tax expense$(2,136)$(2,528)$392 15.5 %
The Corporate segment reported an operating loss of $9.2$2.1 million for the ninethree months ended SeptemberJune 30, 20212022 compared to an operating loss of $10.2$2.5 million for the ninethree months ended SeptemberJune 30, 2020.2021. There were no material fluctuations in the operating results of our Corporate segment period over period.
Results of Operations
Six months ended June 30, 2022 compared with six months ended June 30, 2021
Net Income
We earned net income of $68.5 million for the six months ended June 30, 2022 compared to $61.9 million for the six months ended June 30, 2021, an increase of $6.6 million.
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The results for the six months ended June 30, 2021 were impacted by $3.0 million of transaction costs associated with the HubTran acquisition reported as noninterest expense. Excluding the transaction costs and gain on sale, net of taxes, we earned adjusted net income of $64.2 million for the six months ended June 30, 2021. There were no such adjustments during the six months ended June 30, 2022. The adjusted increase in net income for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 totaled $4.3 million and was driven by a $31.1 million increase in noninterest income and a $28.2 million increase in net interest income offset by a $38.5 million increase in adjusted noninterest expense, a $13.1 million increase in credit loss expense, and a $3.4 million increase in adjusted income tax expense.
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.”
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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. Average balances and interest are inclusive of assets and deposits classified as held for sale.
Six Months Ended June 30,
20222021
(Dollars in thousands)Average
Balance
Interest
Average
Rate(4)
Average
Balance
Interest
Average
Rate(4)
Interest earning assets:
Cash and cash equivalents$308,668 $915 0.60 %$525,641 $284 0.11 %
Taxable securities172,282 2,320 2.72 %177,531 2,395 2.72 %
Tax-exempt securities14,582 187 2.59 %34,081 442 2.62 %
FHLB and other restricted stock11,267 110 1.97 %8,163 103 2.54 %
Loans (1)
4,783,709 206,210 8.69 %4,831,068 179,817 7.51 %
Total interest earning assets5,290,508 209,742 7.99 %5,576,484 183,041 6.62 %
Noninterest earning assets:
Cash and cash equivalents80,583 84,491 
Other noninterest earning assets489,825 392,851 
Total assets$5,860,916 $6,053,826 
Interest bearing liabilities:
Deposits:
Interest bearing demand$852,554 $979 0.23 %$729,798 $853 0.24 %
Individual retirement accounts82,182 210 0.52 %89,600 329 0.74 %
Money market542,050 561 0.21 %398,153 445 0.23 %
Savings513,346 393 0.15 %457,481 345 0.15 %
Certificates of deposit489,682 1,134 0.47 %714,583 3,112 0.88 %
Brokered time deposits60,065 305 1.02 %152,910 230 0.30 %
Other brokered deposits151,835 685 0.91 %743,878 528 0.14 %
Total interest bearing deposits2,691,714 4,267 0.32 %3,286,403 5,842 0.36 %
Federal Home Loan Bank advances109,972 354 0.65 %37,597 45 0.24 %
Subordinated notes107,151 2,601 4.90 %87,561 2,699 6.22 %
Junior subordinated debentures40,732 1,010 5.00 %40,188 888 4.46 %
Other borrowings5,469 0.11 %155,184 265 0.34 %
Total interest bearing liabilities2,955,038 8,235 0.56 %3,606,933 9,739 0.54 %
Noninterest bearing liabilities and equity:
Noninterest bearing demand deposits1,944,606 1,622,528 
Other liabilities79,540 57,629 
Total equity881,732 766,736 
Total liabilities and equity$5,860,916 $6,053,826 
Net interest income$201,507 $173,302 
Interest spread (2)
7.43 %6.08 %
Net interest margin (3)
7.68 %6.27 %
(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 loan portfolios:
Six Months Ended June 30,
(Dollars in thousands)20222021
Average Banking loans$3,023,608 $3,619,252 
Average Factoring receivables1,595,230 1,122,492 
Average Payments receivables164,871 89,324 
Average total loans$4,783,709 $4,831,068 
Banking yield5.67 %5.28 %
Factoring yield14.19 %14.46 %
Payments Yield11.01 %10.48 %
Total loan yield8.69 %7.51 %
We earned net interest income of $201.5 million for the six months ended June 30, 2022 compared to $173.3 million for the six months ended June 30, 2021, an increase of $28.2 million, or 16.3%, primarily driven by the following factors.
Interest income increased $26.7 million, or 14.6%, in spite of a decrease in total average interest earning assets of $286.0 million, or 5.1%, and a decrease in average total loans of $47.4 million, or 1.0%. The average balance of our higher yielding Factoring factored receivables increased $472.7 million, or 42.1%, 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 $595.6 million, or 16.5% due to decreases in average commercial real estate, construction, 1-4 family residential, farmland, paycheck protection program, agriculture, liquid credit, consumer and mortgage warehouse loans. Interest income from our Banking loans is impacted by our lower yielding mortgage warehouse lending product. The average mortgage warehouse lending balance was $644.1 million for the six months ended June 30, 2022 compared to $855.0 million for the six months ended June 30, 2021. A component of interest income consists of discount accretion on acquired loan portfolios. We recognized discount accretion on purchased loans of $5.1 million and $5.7 million for the six months ended June 30, 2022 and 2021, respectively.
Interest expense decreased $1.5 million, or 15.4%, and average interest bearing liabilities decreased $651.9 million, or 18.1%. More specifically, average total interest bearing deposits decreased $594.7 million, or 18.1%. Average noninterest bearing deposits grew $322.1 million. Average rates on interest bearing liabilities were relatively flat period over period.
Net interest margin increased to 7.68% for the six months ended June 30, 2022 from 6.27% for the six months ended June 30, 2021, an increase of 141 basis points, or 22.5%.
Our net interest margin was impacted by an increase in yield on our interest earning assets of 137 basis points to 7.99% for the six months ended June 30, 2022. This increase was primarily driven by higher yields on loans which increased 118 basis points to 8.69% for the same period. Factoring yield decreased period over period; however, average Factoring factored receivables as a percentage of the total loan portfolio increased significantly which had 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 95% at June 30, 2022 compared to 91% at June 30, 2021. Banking and Payments yields also increased period over period and non-loan yields had little impact on our yield on interest earning assets.
The increase in our net interest margin was minimally impacted by an increase in our average cost of interest bearing liabilities of 2 basis points.
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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:
Six Months Ended
June 30, 2022 vs. 2021
Increase (Decrease) Due to:Net Increase
(Dollars in thousands)RateVolume
Interest earning assets:
Cash and cash equivalents$1,274 $(643)$631 
Taxable securities(4)(71)(75)
Tax-exempt securities(5)(250)(255)
FHLB and other restricted stock(23)30 
Loans28,434 (2,041)26,393 
Total interest income29,676 (2,975)26,701 
Interest bearing liabilities:
Interest bearing demand(15)141 126 
Individual retirement accounts(100)(19)(119)
Money market(33)149 116 
Savings43 48 
Certificates of deposit(1,457)(521)(1,978)
Brokered time deposits546 (471)75 
Other brokered deposits2,828 (2,671)157 
Total interest bearing deposits1,774 (3,349)(1,575)
Federal Home Loan Bank advances76 233 309 
Subordinated notes(574)476 (98)
Junior subordinated debentures109 13 122 
Other borrowings(180)(82)(262)
Total interest expense1,205 (2,709)(1,504)
Change in net interest income$28,471 $(266)$28,205 
Credit Loss Expense
Credit loss expense is the amount of expense that, based on our judgment, is required to maintain the allowances for credit losses (“ACL”) at an appropriate level under the current expected credit loss model. The determination of the amount of the allowance is complex and involves a high degree of judgment and subjectivity. Refer to Note 1 of the Company’s 2021 Form 10-K for detailed discussion regarding ACL methodologies for available for sale debt securities, held to maturity securities and loans held for investment.
The following table presents the major categories of credit loss expense:
Six Months Ended June 30,
(Dollars in thousands)20222021$ Change% Change
Credit loss expense on loans$2,933 $(8,431)$11,364 134.8 %
Credit loss expense on off balance sheet credit exposures196 (921)1,117 121.3 %
Credit loss expense on held to maturity securities273 (299)572 191.3 %
Credit loss expense on available for sale securities— — — — 
Total credit loss expense$3,402 $(9,651)$13,053 (135.3)%
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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, 2021 and June 30, 2022, 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 six months ended June 30, 2022. The same was true for the same period in the prior year.
The ACL on held to maturity securities is estimated at each measurement date on a collective basis by major security type. At June 30, 2022 and December 31, 2021, 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 June 30, 2022 and December 31, 2021, the Company carried $6.7 million and $7.0 million of these HTM securities at amortized cost, respectively. The ACL on these balances was $2.4 million at June 30, 2022 and $2.1 million at December 31, 2021 and we recognized credit loss expense of $0.3 million during the six months ended June 30, 2022. None of the overcollateralization triggers tied to the CLO securities were tripped as of June 30, 2022. 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, 2021 and December 31, 2020, the Company carried $7.4 million and $7.9 million of these HTM securities at amortized cost, respectively. The ACL on these balances was $1.7 million at June 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 six months ended June 30, 2021.
Our ACL on loans was $43.4 million as of June 30, 2022, compared to $42.2 million as of December 31, 2021, representing an ACL to total loans ratio of 0.98% and 0.87% respectively.
Our credit loss expense on loans increased $11.4 million, or 134.8%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021.
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 six months ended June 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 six months ended June 30, 2021 as the entire amount had been reserved in a prior period. In 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 which has been paid in full as of June 30, 2022. Given separate developments with the other two Over-Formula Advance clients, we reserved an additional $2.9 million reflected in credit loss expense during the six months ended June 30, 2021.
During the six months ended June 30, 2022, we decreased our reserve on Over-Formula Advance clients reflecting payment made during the quarter. This resulted in a benefit to credit loss expense of $0.9 million. We continue to reserve the full balance of the Over-Formula Advance clients at June 30, 2022 which totals $9.2 million.
The increased 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 June 30, 2021 which resulted in a benefit to credit loss expense of $10.1 million for the six months ended June 30, 2021. During the six months ended June 30, 2022 the Company forecasted some deterioration in the loss factors as well as slower prepayment speeds which resulted in credit loss expense of $1.5 million. See further discussion in the allowance for credit loss section below.
Increased credit loss expense was also driven by charge-off activity. Net charge-offs were $1.7 million for the six months ended June 30, 2022 and approximately $0.7 million of the gross charge-off balance had been reserved in a prior period. Net charge-offs were $41.6 million for the six months ended June 30, 2021 and approximately $41.9 million of the gross charge-off balance had been reserved in a prior period.
Changes in loan volume and mix resulted in a benefit to credit loss expense of $2.1 million during the six months ended June 30, 2022 compared to a benefit of $0.5 during the same period a year prior.
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Specific reserve activity, including reserves on Over-Formula Advance clients, did not have a material impact on the change in credit loss expense period over period.
Credit loss expense for off balance sheet credit exposures increased $1.1 million, primarily due to the changes in the assumptions used to project the loss rates previously discussed and changes to outstanding commitments to fund period over period.
Noninterest Income
The following table presents our major categories of noninterest income:
Six Months Ended June 30,
(Dollars in thousands)20222021$ Change% Change
Service charges on deposits$3,627 $3,644 $(17)(0.5 %)
Card income4,091 4,197 (106)(2.5 %)
Net OREO gains (losses) and valuation adjustments(114)(367)253 68.9 %
Net gains (losses) on sale or call of securities2,514 2,513 N/M
Net gains (losses) on sale of loans17,203 2,588 14,615 564.7 %
Fee income11,976 6,719 5,257 78.2 %
Insurance commissions3,018 2,758 260 9.4 %
Other16,966 8,647 8,319 96.2 %
Total noninterest income$59,281 $28,187 $31,094 110.3 %
Noninterest income increased $31.1 million, or 110.3%. Changes in selected components of noninterest income in the above table are discussed below.
Net gains (losses) on sale or call of securities. Net gains (losses) on sale or call of securities increased $2.5 million due to gains on the sale of certain available for sale CLOs during the six months ended June 30, 2022.
Net gains (losses) on sale of loans. Net gains (losses) on sale of loans increased $14.6 million, due to the aforementioned gain on sale of factored receivables of $13.2 million and gain on sale of equipment loans of $3.9 million during the six months ended June 30, 2022.
Fee income. Fee income increased $5.3 million, or 78.2% primarily due to a $5.4 million increase in payment fees earned by TriumphPay during the six months ended June 30, 2022 compared to the same period a year ago. The fees were primarily a result of the acquired operations of HubTran during June of the prior year. Additionally, wire fees increased $1.0 million period over period. These increases were partially offset by a combined $1.2 million of early termination fees charged to two customers during the six months ended June 30, 2021 that did not repeat during the current year. There were no other significant changes within the components of fee income.
Other. Other noninterest income increased $8.3 million, or 96.2% primarily due to a gain of $8.9 million on the aforementioned termination of an interest rate swap recognized during the six months ended June 30, 2022. During that same period, we recognized a net gain of $7.0 million on the aforementioned termination of WSI warrants and additional investment in WSI common stock. These increases were partially offset by a $1.5 million recovery during the six months ended June 30, 2021 on an acquired loan that was charged off prior to our acquisition of the originating bank. Also offsetting the increases was a $4.7 million gain on our indemnification asset recognized during the six months ended June 30, 2021 compared to a write off of the indemnification asset of $0.4 million during the same period of the current year. There were no other significant changes within the components of other noninterest income.
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Noninterest Expense
The following table presents our major categories of noninterest expense:
Six Months Ended June 30,
(Dollars in thousands)20222021$ Change% Change
Salaries and employee benefits$100,541 $77,638 $22,903 29.5 %
Occupancy, furniture and equipment12,943 11,891 1,052 8.8 %
FDIC insurance and other regulatory assessments793 1,477 (684)(46.3 %)
Professional fees7,266 7,597 (331)(4.4 %)
Amortization of intangible assets6,172 4,403 1,769 40.2 %
Advertising and promotion2,987 2,131 856 40.2 %
Communications and technology18,932 11,928 7,004 58.7 %
Travel and entertainment2,524 1,373 1,151 83.8 %
Other15,013 13,252 1,761 13.3 %
Total noninterest expense$167,171 $131,690 $35,481 26.9 %
Noninterest expense increased $35.5 million, or 26.9%. Noninterest expense for the six months ended June 30, 2021 was impacted by $3.0 million of transaction costs associated with the HubTran acquisition. Excluding the HubTran acquisition costs, we incurred adjusted noninterest expense of $128.7 million for the six months ended June 30, 2021, resulting in an adjusted increase in noninterest expense of $38.5 million, or 29.9%, 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 $22.9 million, or 29.5%, which is primarily due to merit increases for existing employees, higher health insurance benefit costs, incentive compensation, and 401(k) expense. The size of our workforce increased period over period in part due to the acquisition of HubTran as well as organic growth within the Company. Our average full-time equivalent employees were 1,328.2 and 1,164.9 for the six months ended June 30, 2022 and 2021, respectively. Further, accruals for bonus expense were $1.2 million higher period over period reflecting strong operating results through the first half of 2022 and stock based compensation expense increased $8.1 million period over period. Additionally, compensation paid to temporary contract labor increased $2.2 million period over period. Sales commissions, primarily related to our operations at Triumph Business Capital and TriumphPay, increased $0.7 million period over period.
Occupancy, Furniture and Equipment. Occupancy, furniture and equipment expenses increased $1.1 million, or 8.8%, primarily due to growth in our operations period over period.
FDIC Insurance and Other Regulatory Assessments. FDIC insurance and other regulatory assessments decreased $0.7 million, or 46.3%, primarily due to decreased assessments period over period.
Amortization of intangible assets. Amortization of intangible assets increased $1.8 million, or 40.2%, primarily due to the additional intangibles recorded through the HubTran acquisition during the prior year.
Advertising and Promotion. Advertising and promotion increased $0.9 million, or 40.2%, primarily due increased activity in this area period over period.
Communications and Technology. Communications and technology expenses increased $7.0 million, or 58.7%, primarily as a result of increased spending on IT consulting and IT license and software maintenance 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 83.8%, primarily due to increased business development activity in this area period over period.
Other. Other noninterest expense increased $1.8 million or 13.3%. despite a $1.0 million decrease in other loan related expenses period over period. There were no other significant increases or decreases in the individual components of other noninterest expense period over period
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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 $4.1 million, or 23.6%, from $17.5 million for the six months ended June 30, 2021 to $21.7 million for the six months ended June 30, 2022. The effective tax rate was 24% for the six months ended June 30, 2022 and 22% for the six months ended June 30, 2021. The prior period effective tax rate was impacted by restricted stock and stock option activity as well as amended return benefit.
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 2021 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. The majority of salaries and benefits expense for our executive leadership team as well as other selling, general, and administrative shared services costs are allocated to the Banking segment. Taxes are paid on a consolidated basis and are not allocated for segment purposes. The Factoring segment includes only factoring originated by TBC.
The following tables present our primary operating results for our operating segments:
(Dollars in thousands)
Six Months Ended June 30, 2022BankingFactoringPaymentsCorporateConsolidated
Total interest income$88,422 $112,228 $9,004 $88 $209,742 
Intersegment interest allocations4,045 (3,854)(191)— — 
Total interest expense4,623 — — 3,612 8,235 
Net interest income (expense)87,844 108,374 8,813 (3,524)201,507 
Credit loss expense (benefit)250 2,013 170 969 3,402 
Net interest income after credit loss expense87,594 106,361 8,643 (4,493)198,105 
Noninterest income28,307 17,392 13,551 31 59,281 
Noninterest expense90,093 43,512 31,996 1,570 167,171 
Net income (loss) before income tax expense$25,808 $80,241 $(9,802)$(6,032)$90,215 
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(Dollars in thousands)
Six Months Ended June 30, 2021BankingFactoringPaymentsCorporateConsolidated
Total interest income$97,912 $80,477 $4,644 $$183,041 
Intersegment interest allocations5,665 (5,359)(306)— — 
Total interest expense6,152 — — 3,587 9,739 
Net interest income (expense)97,425 75,118 4,338 (3,579)173,302 
Credit loss expense (benefit)(16,788)6,927 510 (300)(9,651)
Net interest income after credit loss expense114,213 68,191 3,828 (3,279)182,953 
Noninterest income17,768 9,153 1,156 110 28,187 
Noninterest expense81,314 33,327 14,977 2,072 131,690 
Net income (loss) before income tax expense$50,667 $44,017 $(9,993)$(5,241)$79,450 
(Dollars in thousands)
June 30, 2022BankingFactoringPaymentsCorporateEliminationsConsolidated
Total assets$5,620,770 $1,614,369 $340,357 $1,024,081 $(2,644,070)$5,955,507 
Gross loans$3,990,481 $1,450,447 $145,835 $— $(1,151,397)$4,435,366 
(Dollars in thousands)
December 31, 2021BankingFactoringPaymentsCorporateEliminationsConsolidated
Total assets$5,568,826 $1,679,495 $293,212 $1,009,998 $(2,595,281)$5,956,250 
Gross loans$4,444,136 $1,546,361 $153,176 $700 $(1,276,801)$4,867,572 
Banking
(Dollars in thousands)Six Months Ended June 30,% Change
Banking20222021$ Change
Total interest income$88,422 $97,912 $(9,490)(9.7 %)
Intersegment interest allocations4,045 5,665 (1,620)(28.6 %)
Total interest expense4,623 6,152 (1,529)(24.9 %)
Net interest income87,844 97,425 (9,581)(9.8 %)
Credit loss expense (benefit)250 (16,788)17,038 101.5 %
Net interest income after credit loss expense87,594 114,213 (26,619)(23.3 %)
Noninterest income28,307 17,768 10,539 59.3 %
Noninterest expense90,093 81,314 8,779 10.8 %
Net income (loss) before income tax expense$25,808 $50,667 $(24,859)(49.1 %)
Our Banking segment’s operating income decreased $24.9 million, or 49.1%.
Total interest income decreased $9.5 million, or 9.7%, primarily as a result of decreases in the balances of our interest earning assets, primarily loans. Average loans in our Banking segment, excluding intersegment loans, decreased 16.5% from $3.619 billion for the six months ended June 30, 2021 to $3.024 billion for the six months ended June 30, 2022. The decrease in interest income was also driven by a decrease in yields on interest earning assets at our Banking segment.
Interest expense decreased $1.5 million, or 24.9%. Average balance of interest bearing liabilities at our Banking segment decreased overall, and average total interest bearing deposits decreased $594.7 million, or 18.1%. Average rates on interest bearing liabilities at our Banking segment were relatively flat period over period.
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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 $0.1 million for the six months ended June 30, 2022 compared to a benefit to credit loss expense on loans of $15.9 million for the six months ended June 30, 2021. The increase in credit loss expense was primarily the result of slower projected prepayment speeds and deterioration of the loss driver assumptions that the Company forecasted over the reasonable and supportable forecast periods to calculate expected losses at our Banking segment. Changes in volume and mix also contributed to the increase in provision expense period over period. We also recorded more specific reserves at our Banking segment during the six months ended June 30, 2022 compared to the same period a year ago. We recorded $0.2 million of net charge-offs at our Banking segment during the six months ended June 30, 2022 compared to a net recovery of $0.4 million during the same period a year ago.
Credit loss expense for off balance sheet credit exposures increased $1.1 million from a benefit of $0.9 million for the six months ended June 30, 2021 to $0.2 million for the six months ended June 30, 2022, primarily due to the changes in the assumptions used to project the loss rates previously discussed and changes to outstanding commitments to fund period over period.
Noninterest income at our Banking segment increased due to $2.5 million of gains on the sales of certain available for sale CLOs as well as the $3.9 million gain on sale of equipment loans during the six months ended June 30, 2022. Further, we recognized a gain of $8.9 million on the termination of an interest rate swap during the same period. These increases were partially offset by a $1.5 million recovery during the six months ended June 30, 2021 on an acquired loan that was charged off prior to our acquisition of the originating bank. There were no other significant changes within the components of other noninterest income at our Banking 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 Banking segment were insignificant period over period. It should be noted that the majority of our executive leadership team's salary and employee benefits expense as well as other selling, general, and administrative shared services costs are allocated to the Banking segment.
Factoring
(Dollars in thousands)Six Months Ended June 30,
Factoring20222021$ Change% Change
Total interest income$112,228 $80,477 $31,751 39.5 %
Intersegment interest allocations(3,854)(5,359)1,505 28.1 %
Total interest expense— — — — 
Net interest income108,374 75,118 33,256 44.3 %
Credit loss expense (benefit)2,013 6,927 (4,914)(70.9 %)
Net interest income after credit loss expense106,361 68,191 38,170 56.0 %
Noninterest income17,392 9,153 8,239 90.0 %
Noninterest expense43,512 33,327 10,185 30.6 %
Net income (loss) before income tax expense$80,241 $44,017 $36,224 82.3 %
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Six Months Ended June 30,
20222021
Factored receivable period end balance$1,474,852,000 $1,284,314,000 
Yield on average receivable balance14.19 %14.46 %
Year to date charge-off rate(1)
0.05 %3.73 %
Factored receivables - transportation concentration94 %91 %
Interest income, including fees$112,228,000 $80,477,000 
Non-interest income(2)
17,392,000 4,499,000 
Factored receivable total revenue129,620,000 84,976,000 
Average net funds employed1,430,530,000 1,004,842,000 
Yield on average net funds employed18.27 %17.05 %
Accounts receivable purchased$8,065,452,000 $5,560,730,000 
Number of invoices purchased3,329,733 2,590,373 
Average invoice size$2,422 $2,147 
Average invoice size - transportation$2,284 $2,037 
Average invoice size - non-transportation$5,984 $4,738 
(1) Net charge-offs for the six months ended June 30, 2021 includes a $41.3 million charge-off related to the TFS acquisition, which contributed approximately 3.67% to the net charge-off rate for the period.
(2) Non-interest income for the six months ended June 30, 2022 includes a $13.2 million gain on sale of a portfolio of factored receivables, which contributed 1.86% to the yield on average net funds employed for the period.
Non-interest income for the six months ended June 30, 2021 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 $36.2 million, or 82.3%.
Our average invoice size increased 12.8% from $2,147 for the six months ended June 30, 2021 to $2,422 for the six months ended June 30, 2022 and the number of invoices purchased increased 28.5% period over period.
Net interest income at our Factoring segment increased period over period. Overall average net funds employed (“NFE”) increased 42.4% during the six months ended June 30, 2022 compared to the same period in 2021. The increase in average NFE was the 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: Trucking Transportation 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 high concentration in transportation factoring balances, which typically generate a higher yield than our non-transportation factoring balances. This concentration, calculated based on receivables held for investment and held for sale, was at 91% at June 30, 2021 and 94% at June 30, 2022.
The period over period decrease in credit loss expense at our Factoring segment is primarily due to a decrease in net new specific reserves required on our factoring portfolio period over period. Such increase in specific reserves for the six months ended June 30, 2021 was impacted by an additional $2.9 million reserve on our Over-Formula Advances during that period. The period over period decrease in credit loss expense at our Factoring segment was also driven by a decreased impact of changes in volume during the comparative periods. Changes in loss assumptions did not have a material impact on the change in credit loss expense period over period. Net charge-offs at our Factoring segment during the six months ended June 30, 2022 were $0.7 million compared to $41.9 million during the same period a year ago. Net charge-offs during the six months ended June 30, 2021 reflect the aforementioned $41.3 million net charge-off of Over-Formula Advances which was fully reserved in a period prior to charge-off.
The increase in noninterest income at our Factoring segment was primarily due to the aforementioned $13.2 million gain on sale of factored receivables during the six months ended June 30, 2022. The increase was partially offset by a combined $1.2 million of early termination fees charged to two customers during the six months ended June 30, 2021 that did not repeat during the current year. Also offsetting the increase was a $4.7 million gain on our indemnification asset recognized during the six months ended June 30, 2021 compared to a write off of the indemnification asset of $0.4 million during the same period of the current year. There were no other material fluctuations in noninterest income at our Factoring segment.
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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)Six Months Ended June 30,
Payments20222021$ Change% Change
Total interest income$9,004 $4,644 $4,360 93.9 %
Intersegment interest allocations(191)(306)115 37.6 %
Total interest expense— — — — %
Net interest income8,813 4,338 4,475 103.2 %
Credit loss expense (benefit)170 510 (340)(66.7)%
Net interest income after credit loss expense8,643 3,828 4,815 125.8 %
Noninterest income13,551 1,156 12,395 1072.2 %
Noninterest expense31,996 14,977 17,019 113.6 %
Net income (loss) before income tax expense$(9,802)$(9,993)$191 1.9 %
Six Months Ended
20222021
Factored receivable period end balance$145,835,000 $113,985,000 
Interest income$9,004,000 $4,644,000 
Noninterest income13,551,000 1,156,000 
Total revenue$22,555,000 $5,800,000 
Operating income (loss)$(9,802,000)$(9,993,000)
Interest expense191,000 306,000 
Depreciation and software amortization expense211,000 133,000 
Intangible amortization expense2,967,000 497,000 
Earnings (losses) before interest, taxes, depreciation, and amortization$(6,433,000)$(9,057,000)
Transaction costs$— $2,992,000 
Adjusted earnings (losses) before interest, taxes, depreciation, and amortization(1)
$(6,433,000)$(6,065,000)
Number of invoices processed8,366,885 5,694,792 
Amount of payments processed$11,734,747,000 $5,728,440,000 
Conforming invoice volume170,762 — 
Conforming payment volume$382,881,000 $— 
(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 continues to pursue large factors and brokers with positive traction. Many payments companies begin with a long-term goal of capturing a level of their total addressable market that is less than what we already facilitate in ours. While growth will be non-linear due to the timing nuances and larger volumes of any new large brokers, we see a path to facilitating over 40% of the brokered freight industry’s payment volume exiting 2024. We continue to capture share with a product that lifts an entire industry. Brokers, factors and carriers alike all benefit from improvements in efficiencies, transparency, security, and accuracy.
Our Payments segment's operating loss decreased $0.2 million, or 1.9%.
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The number of invoices processed by our Payments segment increased 46.9% from 5,694,792 for the six months ended June 30, 2021 to 8,366,885 for the six months ended June 30, 2022, and the amount of payments processed increased 104.9% from $5.728 billion for the six months ended June 30, 2021 to $11.735 billion for the six months ended June 30, 2022.
We began processing conforming transactions during the first quarter of 2022. When a fully integrated TriumphPay payor receives an invoice from a fully integrated TriumphPay payee, we call that a “conforming transaction.” All conforming transactions are included in our payment processing volume above. These transactions are facilitated through TriumphPay APIs with parties on both sides of the transaction using structured data; similar to how a credit card works at a point-of-sale terminal. The integrations largely automate the process and make it cheaper, faster and safer. In recognition of these benefits, we will charge a network fee tied to conforming transactions. During the six months ended June 30, 2022, we processed 170,762 conforming invoices representing a conforming payment volume of $382.9 million.
Net interest income increased due to increased factoring activity at our Payments segment and increased yields period over period. Noninterest income increased due to a $5.4 million increase in payment fees earned by TriumphPay during the six months ended June 30, 2022 compared to the same period a year ago. The fees were primarily a result of the acquired operations of HubTran during June of the prior year. Additionally, we recognized a net gain of $7.0 million on the aforementioned termination of WSI warrants and additional investment in WSI common stock.
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. Additionally at our Payments segment, IT expense increased $2.3 million and amortization of the intangible assets acquired in the HubTran acquisition increased $2.5 million. Further, travel and entertainment expenses increased $0.5 million reflecting our emphasis of client growth and business development. These increases were partially offset by a decrease in professional fees of $1.3 million resulting from the acquisition of HubTran in the prior period. We continue to invest heavily in the operations of TriumphPay.
The acquisition of HubTran during the six 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)Six Months Ended June 30,% Change
Corporate20222021$ Change
Total interest income$88 $$80 1,000.0 %
Intersegment interest allocations— — — — 
Total interest expense3,612 3,587 25 0.7 %
Net interest income (expense)(3,524)(3,579)55 1.5 %
Credit loss expense (benefit)969 (300)1,269 423.0 %
Net interest income (expense) after credit loss expense(4,493)(3,279)(1,214)(37.0 %)
Noninterest income31 110 (79)(71.8 %)
Noninterest expense1,570 2,072 (502)(24.2 %)
Net income (loss) before income tax expense$(6,032)$(5,241)$(791)(15.1 %)
The Corporate segment reported an operating loss of $6.0 million for the six months ended June 30, 2022 compared to an operating loss of $5.2 million for the six months ended June 30, 2021. This was primarily due to decreasedincreased credit loss expense on our HTM CLOs previously discussed in the Credit Loss Expense section. Operating incomeAdditionally, during the ninesix months ended SeptemberJune 30, 2021 was also impacted by increased credit loss expense. During the nine months ended September 30, 2021,2022, management issuedcharged off a new subordinated debt facility and used the majority of the proceeds to redeem the 2016 subordinated debt facility in whole. The 2016 subordinated debt facility$0.7 million community reinvestment act loan that carried no reserve from 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, 2021.prior period. There were no other significant fluctuations in accounts in our Corporate segment period over period.
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Financial Condition
Assets
Total assets were $6.025$5.956 billion at SeptemberJune 30, 2021,2022, compared to $5.936$5.956 billion at December 31, 2020, an increase2021, a decrease of $88.7$0.7 million, the components of which are discussed below.
Loan Portfolio
Loans held for investment were $4.783$4.435 billion at SeptemberJune 30, 2021,2022, compared with $4.997$4.868 billion at December 31, 2020.2021.
The following table shows our total loan portfolio by portfolio segments:
September 30, 2021December 31, 2020$ Change% ChangeJune 30, 2022December 31, 2021$ Change% Change
(Dollars in thousands)(Dollars in thousands)% of Total% of Total(Dollars in thousands)% of Total% of Total
Commercial real estateCommercial real estate$630,106 13 %$779,158 16 %$(149,052)(19.1 %)Commercial real estate$649,280 15 %$632,775 13 %$16,505 2.6 %
Construction, land development, landConstruction, land development, land171,814 %219,647 %(47,833)(21.8 %)Construction, land development, land103,377 %123,464 %(20,087)(16.3 %)
1-4 family residential1-4 family residential127,073 %157,147 %(30,074)(19.1 %)1-4 family residential126,362 %123,115 %3,247 2.6 %
FarmlandFarmland82,990 %103,685 %(20,695)(20.0 %)Farmland70,272 %77,394 %(7,122)(9.2 %)
CommercialCommercial1,398,497 29 %1,562,957 32 %(164,460)(10.5 %)Commercial1,225,479 28 %1,430,429 29 %(204,950)(14.3 %)
Factored receivablesFactored receivables1,607,028 33 %1,120,770 22 %486,258 43.4 %Factored receivables1,596,282 35 %1,699,537 34 %(103,255)(6.1 %)
ConsumerConsumer12,677 — %15,838 — %(3,161)(20.0 %)Consumer9,709 — %10,885 — %(1,176)(10.8 %)
Mortgage warehouseMortgage warehouse752,545 16 %1,037,574 21 %(285,029)(27.5 %)Mortgage warehouse654,605 15 %769,973 16 %(115,368)(15.0 %)
Total LoansTotal Loans$4,782,730 100 %$4,996,776 100 %$(214,046)(4.3 %)Total Loans$4,435,366 100 %$4,867,572 100 %$(432,206)(8.9 %)
Commercial Real Estate Loans. Our commercial real estate loans decreased $149.1increased $16.5 million, or 19.1%2.6%, due to paydowns for the periodnew origination activity that outpaced new loan origination activity.paydowns.
Construction and Development Loans. Our construction and development loans decreased $47.8$20.1 million, or 21.8%16.3%, due primarily to paydowns and conversions to term loans that were offset by modest origination and draw activity.
Residential Real Estate Loans. Our one-to-four family residential loans decreased $30.1increased $3.2 million, or 19.1%2.6%, due primarily to paydownsnew origination activity that were offset by modest origination and draw activity.outpaced paydowns.
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Farmland Loans. Our farmland loans decreased $20.7$7.1 million, or 20.0%9.2%, due to paydowns for the period that outpaced new loanmodest origination activity.
Commercial Loans. Our commercial loans held for investment decreased $164.5$205.0 million, or 10.5%14.3%, due to decreases in liquid credit, PPP, agriculture and other commercial loans. The decline in commercialthe sale of $191.2 million of equipment loans was offset by increases in equipment finance and asset-based lending.during the period. Our other commercial lending products, comprised primarily of general commercial loans originated in our community banking markets, decreased $51.6increased $24.0 million, or 15.1%8.1%.
The following table shows our commercial loans:
(Dollars in thousands)(Dollars in thousands)September 30, 2021December 31, 2020$ Change% Change(Dollars in thousands)June 30, 2022December 31, 2021$ Change% Change
CommercialCommercialCommercial
EquipmentEquipment$588,105 $573,163 $14,942 2.6 %Equipment$431,366 $621,437 $(190,071)(30.6 %)
Asset-based lendingAsset-based lending213,927 180,488 33,439 18.5 %Asset-based lending239,505 281,659 (42,154)(15.0 %)
Liquid creditLiquid credit142,547 184,027 (41,480)(22.5 %)Liquid credit170,260 134,347 35,913 26.7 %
Paycheck Protection Program loansPaycheck Protection Program loans87,413 189,857 (102,444)(54.0 %)Paycheck Protection Program loans4,538 27,197 (22,659)(83.3 %)
AgricultureAgriculture77,263 94,572 (17,309)(18.3 %)Agriculture60,150 70,127 (9,977)(14.2 %)
Other commercial lendingOther commercial lending289,242 340,850 (51,608)(15.1 %)Other commercial lending319,660 295,662 23,998 8.1 %
Total commercial loansTotal commercial loans$1,398,497 $1,562,957 $(164,460)(10.5 %)Total commercial loans$1,225,479 $1,430,429 $(204,950)(14.3 %)
Factored Receivables. Our factored receivables increased $486.3decreased $103.3 million, or 43.4%.6.1% due to the sale of $67.9 million of factored receivables during the period. At SeptemberJune 30, 2021,2022, the balance of the Over-Formula Advance Portfolio included in factored receivables was $10.1$9.2 million. At SeptemberJune 30, 2021,2022, the balance of Misdirected Payments included in factored receivables was $19.4 million. See discussion of our factoring subsidiary in the Operating Segment Results for analysis of the key drivers impacting the change in the ending factored receivables balance during the period.
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Consumer Loans. Our consumer loans decreased $3.2$1.2 million, or 20.0%10.8%, due to paydowns in excess of new loanthat outpaced modest origination activity during the period.activity.
Mortgage Warehouse. Our mortgage warehouse facilities decreased $285.0115.4 million, or 27.5%15.0%, due to decreased utilization.utilization in a rising interest rate environment. 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$651.4 million for the three months ended SeptemberJune 30, 20212022 compared to $786.3$789.0 million for the three months ended SeptemberJune 30, 20202021 and $827.1$644.1 million for the ninesix months ended SeptemberJune 30, 20212022 compared to $672.4$855.0 million for the ninesix months ended SeptemberJune 30, 2020.2021.
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:
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 
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June 30, 2022
(Dollars in thousands)One Year or
Less
After One
but within
Five Years
After Five but within Fifteen
Years
After Fifteen
Years
Total
Commercial real estate$89,049 $475,448 $79,260 $5,523 $649,280 
Construction, land development, land46,161 48,154 8,073 989 103,377 
1-4 family residential8,761 30,783 17,070 69,748 126,362 
Farmland14,546 20,194 30,905 4,627 70,272 
Commercial391,459 733,609 100,101 310 1,225,479 
Factored receivables1,596,282 — — — 1,596,282 
Consumer1,187 7,044 1,469 9,709 
Mortgage warehouse654,605 — — — 654,605 
$2,802,050 $1,315,232 $236,878 $81,206 $4,435,366 
Sensitivity of loans to changes in interest rates:
Predetermined (fixed) interest rates$838,393 $32,619 $6,568 
Floating interest rates476,839 204,259 74,638 
Total$1,315,232 $236,878 $81,206 
As of SeptemberJune 30, 2021,2022, most of the Company’s non-factoring business activity is with customers located within certain states. The states of Colorado (16%), Texas (20%(23%), Illinois (11%), Colorado (14%), and Iowa (6%) make up 56%54% 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, 2020,2021, the states of Colorado (17%), Texas (22%(21%), Illinois (12%(15%), Colorado (15%), and Iowa (6%) made up 57% of the Company’s gross loans, excluding factored receivables.
Further, a majority (91%(95%) of our factored receivables, including factored receivables held for sale, representing approximately 31%34% of our total loan portfolio as of SeptemberJune 30, 2021,2022, 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, 2020, 90%2021, 91% of our factored receivables, representing approximately 20%32% 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 senior management review of proposed extensions of credit exceeding certain thresholds. When delinquencies exist, we monitor them for any negative or adverse trends. Our loan review procedures include approval of lending policies and underwriting guidelines by the board of directors 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.
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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.
(Dollars in thousands)September 30, 2021December 31, 2020
Nonperforming loans:
Commercial real estate$2,113 $9,945 
Construction, land development, land986 2,294 
1-4 family residential1,312 1,851 
Farmland2,046 2,531 
Commercial7,844 17,202 
Factored receivables28,287 23,956 
Consumer251 253 
Mortgage warehouse— — 
Total nonperforming loans42,839 58,032 
Held to maturity securities5,810 7,945 
Other real estate owned, net893 1,432 
Other repossessed assets2,444 1,069 
Total nonperforming assets$51,986 $68,478 
Nonperforming assets to total assets0.86 %1.15 %
Nonperforming loans to total loans held for investment0.90 %1.16 %
Total past due loans to total loans held for investment2.31 %3.22 %
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(Dollars in thousands)June 30, 2022December 31, 2021
Nonperforming loans:
Commercial real estate$1,906 $2,025 
Construction, land development, land152 964 
1-4 family residential1,494 1,684 
Farmland1,215 2,044 
Commercial6,524 8,842 
Factored receivables30,460 30,485 
Consumer183 240 
Mortgage warehouse— — 
Total nonperforming loans41,934 46,284 
Held to maturity securities5,258 5,612 
Assets held for sale164 — 
Other real estate owned, net168 524 
Other repossessed assets1,874 2,368 
Total nonperforming assets$49,398 $54,788 
Nonperforming assets to total assets0.83 %0.92 %
Nonperforming loans to total loans held for investment0.95 %0.95 %
Total past due loans to total loans held for investment2.47 %2.86 %
Nonperforming loans decreased $15.2$4.4 million, or 26.2%9.4%, primarily due to the payoff of a $5.7 milliondecreases in nonperforming commercial real estateloans across all loan the payoff of $5.0 million nonperforming general commercial loan, the payoff of a $2.3 million nonperforming commercial relationship, and the payoff of a $1.0 million nonperforming construction loan during the year. Additionally, thetypes. The portion of the factoring Over-Formula Advances not covered by Covenant's indemnification decreased by $8.6 million from $10.0and thus, considered nonperforming, is $1.0 million at December 31, 2020 to $1.4 million at SeptemberJune 30, 2021 primarily as a result of the aforementioned charge-off activity. These decreases were partially offset by $13.3 million of the total2022. The entire $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 also impacted by additions and removals of smaller credits to and from nonperforming loans.
OREO decreased $0.5$0.4 million, or 37.6%67.9%, due to the removal of individually insignificant OREO properties as well as insignificant valuation adjustments made throughout the period.
As a result of the activity previously described and changes in our period end total loans held for investment, the ratio of nonperforming loans to total loans held for investment decreased to 0.90%was flat at September0.95% at June 30, 20212022 from 1.16%0.95% December 31, 2020.2021.
Our ratio of nonperforming assets to total assets decreased to 0.86%0.83% at SeptemberJune 30, 20212022 from 1.15%0.92% December 31, 2020.2021. This is due to the aforementioned loan activity and changes in our period end total assets. Additionally, the amortized cost basis of our HTM CLO securities considered to be nonaccrual decreased $2.1$0.4 million during the year.
Past due loans to total loans held for investment decreased to 2.31%2.47% at SeptemberJune 30, 20212022 from 3.22%2.86% at December 31, 2020, as a result of above activity. Additionally, past due loans associated with the acquired Over-Formula Advances decreased $52.1 million during the year primarily2021, as a result of the aforementioned charge-off activity. The remaining $10.1loan activity and a decrease in past due factored receivables. Both the $9.2 million acquired factoring Over-Formula Advance balance isand the $19.4 million Misdirected Payments balance are considered greater than 90 days past due at SeptemberJune 30, 2021. Aging of the Over-Formula Advances is based upon the service month on which the advances were made by TFS prior to 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, 2021, we had $18.1 million in loans of this type which are not included in any of the nonperforming loan categories. Refer to previous discussion of loans currently in deferral in accordance with the CARES Act and March 2020 interagency guidance.2022.
Allowance for Credit Losses on Loans
The ACL is a valuation allowance estimated at each balance sheet date in accordance with US GAAP that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. When the Company deems all or a portion of a loan to be uncollectible the appropriate amount is written off and the ACL is reduced by the same amount. Subsequent recoveries, if any, are credited to the ACL when received. See Note 1 of the Company’s 20202021 Form 10-K and notes to the consolidated financial statements included elsewhere in this report for discussion of our ACL methodology on loans. Allocations of the ACL may be made for specific loans, but the entire allowance is available for any loan that, in the Company’s judgment, should be charged-off.
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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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The following table sets forth the ACL by category of loan:
September 30, 2021December 31, 2020June 30, 2022December 31, 2021
(Dollars in thousands)(Dollars in thousands)Allocated
Allowance
% of Loan
Portfolio
ACL to
Loans
Allocated
Allowance
% of Loan
Portfolio
ACL to
Loans
(Dollars in thousands)Allocated
Allowance
% of Loan
Portfolio
ACL to
Loans
Allocated
Allowance
% of Loan
Portfolio
ACL to
Loans
Commercial real estateCommercial real estate$3,936 13 %0.62 %$10,182 16 %1.31 %Commercial real estate$5,167 15 %0.80 %$3,961 13 %0.63 %
Construction, land development, landConstruction, land development, land1,057 %0.62 %3,418 %1.56 %Construction, land development, land1,192 %1.15 %827 %0.67 %
1-4 family residential1-4 family residential485 %0.38 %1,225 %0.78 %1-4 family residential757 %0.60 %468 %0.38 %
FarmlandFarmland610 %0.74 %832 %0.80 %Farmland490 %0.70 %562 %0.73 %
CommercialCommercial14,276 29 %1.02 %22,040 32 %1.41 %Commercial12,738 28 %1.04 %14,485 29 %1.01 %
Factored receivablesFactored receivables19,651 33 %1.22 %56,463 22 %5.04 %Factored receivables22,212 35 %1.39 %20,915 34 %1.23 %
ConsumerConsumer250 — %1.97 %542 — %3.42 %Consumer197 — %2.03 %226 — %2.08 %
Mortgage warehouseMortgage warehouse752 16 %0.10 %1,037 21 %0.10 %Mortgage warehouse654 15 %0.10 %769 16 %0.10 %
Total LoansTotal Loans$41,017 100 %0.86 %$95,739 100 %1.92 %Total Loans$43,407 100 %0.98 %$42,213 100 %0.87 %
The ACL decreased $54.7increased $1.2 million, or 57.2%2.8%. This decrease was primarily driven byincrease reflects net charge-offs of $1.7 million and credit loss expense of $2.9 million. Refer to the aforementioned charge-offResults 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 theOperations: Credit Loss Expense section for discussion of Management's Discussionmaterial charge-offs and Analysis.credit loss expense. At quarter end, our entire remaining Over-Formula Advance position was down from $62.1$10.1 million at December 31, 20202021 to $10.1$9.2 million at SeptemberJune 30, 20212022 and the entire balance at SeptemberJune 30, 20212022 was fully reserved. At June 30, 2022, the Misdirected Payments amount was $19.4 million. 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 June 30, 2022.
AnotherA driver of the decreasechange in required ACL is projected improvementdeterioration of the loss drivers that the Company forecasted to calculate expected losses at SeptemberJune 30, 20212022 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, 2020.2021. It had a positivenegative impact on the Company’s loss drivers and assumptions over the reasonable and supportable forecast period and resulted in a releasean increase of $10.3$1.5 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)credit and PPP), 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. The Company also forecasts prepayments speeds for use in the DCF models with higher prepayment speeds resulting in lower required ACL levels and vice versa for shorter prepayment speeds. These assumed prepayment speeds are based upon our historical prepayment speeds by loan type adjusted for the expected impact of the current interest rate environment. Generally, the impact of these assumed prepayment speeds is lesser in magnitude than the aforementioned loss driver assumptions.
For all DCF models at SeptemberJune 30, 2021,2022, 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 SeptemberJune 30, 20212022 as compared to December 31, 2020,2021, the Company forecasted a significant decreasean increase in national unemployment, an increasea directionally consistent trend in one-year percentage change in national retail sales, an increasea decrease in one-year percentage change in the national home price index, and an increasea decrease in one-year percentage change in national gross domestic product. At June 30, 2022 for national unemployment, the Company projected a low percentage in the first quarter followed by a gradual rise in the following three quarters. For percentage change in national retail sales, the Company projected sustained levels in the first two projected quarters followed by a decline over the last two projected quarters to a level below recent actual periods. 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 fordeclines over the last three projected quarters resembling something closer to pre-COVID-19 levels albeit slightly more modest. Projected unemployment rates used bybelow recent actual periods. At June 30, 2022, the Company are relatively stable overslowed its historical prepayment speeds in response to the four projected quarters at levels somewhat higher than pre-COVID-19 conditions.rising interest rate environment in the macro economy.
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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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The decrease in required ACL was also driven by a net reversal of specific reserves on non-PCD loans of $1.7 million during the nine months ended September 30, 2021. Excluding the aforementioned PCD charge-off, net charge-offs were $4.1 million for the nine months ended September 30, 2021. Changes in loan volume and mix during the nine months ended September 30, 2021 decreased the required ACL by $0.4 million during the period.
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 SeptemberJune 30, 2021,2022, the Company carried $87.4$4.5 million of PPP 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 not entered into separately and apart from the loans. 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 SeptemberJune 30, 2021.2022.
The following table presents the unpaid principaltables show our credit ratios and recorded investment for loans at September 30, 2021. The difference between the unpaid principal balance and recorded investment is principally (1) premiums and discounts associated with acquisition date fair value adjustments on acquired loans totaling $12.1 million at September 30, 2021, and (2) net deferred origination costs and fees totaling $7.8 million at September 30, 2021. The net difference can provide protection froman analysis of our credit loss expense:
(Dollars in thousands)June 30, 2022December 31, 2021
Allowance for credit losses on loans$43,407 $42,213 
Total loans held for investment$4,435,366 $4,867,572 
Allowance to total loans held for investment0.98 %0.87 %
Nonaccrual loans$10,831 $15,034 
Total loans held for investment$4,435,366 $4,867,572 
Nonaccrual loans to total loans held for investment0.24 %0.31 %
Allowance for credit losses on loans$43,407 $42,213 
Nonaccrual loans$10,831 $15,034 
Allowance for credit losses to nonaccrual loans400.77 %280.78 %
Three Months Ended June 30,
20222021
(Dollars in thousands)Net
Charge-Offs
Average Loans HFINet Charge-Off RatioNet
Charge-Offs
Average Loans HFINet Charge-Off Ratio
Commercial real estate$(46)$645,321 (0.01)%$(3)$753,355 — %
Construction, land development, land(1)120,633 — %(1)204,688 — %
1-4 family residential(2)128,222 — %24 137,108 0.02 %
Farmland— 71,971 — %— 96,174 — %
Commercial70 1,381,328 0.01 %(194)1,507,435 (0.01)%
Factored receivables139 1,739,320 0.01 %536 1,297,303 0.04 %
Consumer55 10,077 0.55 %13,698 0.01 %
Mortgage warehouse— 651,369 — %— 788,982 — %
Total Loans$215 $4,748,241 — %$363 $4,798,743 0.01 %
Quarter to date net loans charged off decreased $0.1 million with no individually significant charge-offs in addition to the ACL as future potential charge-offs for an individual loan is limited to the recorded investment plus unpaid accrued interest.
(Dollars in thousands)Recorded
Investment
Unpaid
Principal
Difference
September 30, 2021
Commercial real estate$630,106 $632,182 $(2,076)
Construction, land development, land171,814 171,998 (184)
1-4 family residential127,073 127,446 (373)
Farmland82,990 83,549 (559)
Commercial1,398,497 1,410,739 (12,242)
Factored receivables1,607,028 1,611,525 (4,497)
Consumer12,677 12,689 (12)
Mortgage warehouse752,545 752,545 — 
$4,782,730 $4,802,673 $(19,943)
At September 30, 2021 and December 31, 2020, we had on deposit $189.6 million and $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.either period.
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The following table provides an analysis of the provisions for loan losses, net charge-offs and recoveries, and the effects of those items on our ACL:
Three Months Ended September 30,Nine Months Ended September 30,
(Dollars in thousands)2021202020212020
Balance at beginning of period$45,694 $54,613 $95,739 $29,092 
Loans charged-off:
Commercial real estate(17)— (17)— 
Construction, land development, land— — (12)— 
1-4 family residential(1)(6)(26)(27)
Farmland— — — — 
Commercial(211)(528)(426)(1,173)
Factored receivables(3,597)(773)(45,683)(3,027)
Consumer(139)(118)(285)(410)
Mortgage warehouse— — — — 
Total loans charged-off$(3,965)$(1,425)$(46,449)$(4,637)
Recoveries of loans charged-off:
Commercial real estate53 10 61 
Construction, land development, land
1-4 family residential90 40 
Farmland— — — 80 
Commercial— 615 598 949 
Factored receivables239 40 324 95 
Consumer— 31 92 101 
Mortgage warehouse— — — — 
Total loans recoveries$247 $748 $1,117 $1,331 
Net loans charged-off$(3,718)$(677)$(45,332)$(3,306)
Credit loss expense on loans:
Commercial real estate(453)(2,440)(6,239)6,366 
Construction, land development, land(434)(319)(2,352)4,400 
1-4 family residential(64)(56)(804)1,138 
Farmland(59)(95)(222)(324)
Commercial(1,187)(657)(7,936)11,004 
Factored receivables1,186 3,059 8,547 4,475 
Consumer153 29 (99)583 
Mortgage warehouse(101)123 (285)332 
Total credit loss expense (benefit) on loans$(959)$(356)$(9,390)$27,974 
Impact of adopting ASU 2016-13— — — 269 
Initial allowance on loans purchased with credit deterioration— 37,415 — 37,415 
Reclassification to held for sale— — — (449)
Balance at end of period$41,017 $90,995 $41,017 $90,995 
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 investment0.08 %0.02 %0.94 %0.08 %
Allowance to total loans held for investment0.86 %1.88 %0.86 %1.88 %
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.
Six Months Ended June 30,
20222021
(Dollars in thousands)Net
Charge-Offs
Average Loans HFINet Charge-Off RatioNet
Charge-Offs
Average Loans HFINet Charge-Off Ratio
Commercial real estate$48 $639,379 0.01 %$(8)$760,289 — %
Construction, land development, land(2)122,481 — %10 212,960 — %
1-4 family residential(5)126,827 — %(60)143,943 (0.04)%
Farmland— 73,562 — %— 98,754 — %
Commercial733 1,399,872 0.05 %(383)1,519,230 (0.03)%
Factored receivables818 1,760,101 0.05 %42,001 1,211,816 3.47 %
Consumer147 10,388 1.42 %54 14,405 0.37 %
Mortgage warehouse— 644,080 — %— 855,017 — %
Total Loans$1,739 $4,776,690 0.04 %$41,614 $4,816,414 0.86 %
Year to date net loans charged off increased $42.0decreased $39.9 million due to the aforementioned charge-off of $41.3 million of PCD Over-Formula Advances classified as factored receivables. Remaining charge-off and recovery activity during the periods was insignificant individually and in the aggregate.
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Securities
As of SeptemberJune 30, 20212022 and December 31, 2020,2021, we held equity securities with areadily determinable fair valuevalues of $5.6$5.1 million and $5.8$5.5 million, respectively. These securities represent investments in a publicly traded Community Reinvestment Act mutual fund and are subject to market pricing volatility, with changes in fair value reflected in earnings.
As of SeptemberJune 30, 2021,2022, we held debt securities classified as available for sale with a fair value of $164.8$215.9 million, a decreasean increase of $59.5$33.5 million from $224.3$182.4 million at December 31, 2020.2021. The following table illustrates the changes in our available for sale debt securities:
Available For Sale Debt Securities:Available For Sale Debt Securities:
(Dollars in thousands)(Dollars in thousands)September 30, 2021December 31, 2020$ Change% Change(Dollars in thousands)June 30, 2022December 31, 2021$ Change% Change
U.S. Government agency obligations$5,001 $15,088 $(10,087)(66.9)%
Mortgage-backed securities, residentialMortgage-backed securities, residential18,167 27,684 (9,517)(34.4)%Mortgage-backed securities, residential$48,638 $37,449 $11,189 29.9 %
Asset-backed securitiesAsset-backed securities6,864 7,039 (175)(2.5)%Asset-backed securities6,551 6,764 (213)(3.1)%
State and municipalState and municipal29,175 37,395 (8,220)(22.0)%State and municipal15,023 26,825 (11,802)(44.0)%
CLO SecuritiesCLO Securities100,719 122,204 (21,485)(17.6)%CLO Securities142,251 106,634 35,617 33.4 %
Corporate bondsCorporate bonds2,061 11,573 (9,512)(82.2)%Corporate bonds1,268 2,056 (788)(38.3)%
SBA pooled securitiesSBA pooled securities2,829 3,327 (498)(15.0)%SBA pooled securities2,178 2,698 (520)(19.3)%
$164,816 $224,310 $(59,494)(26.5)%$215,909 $182,426 $33,483 18.4 %
Our available for sale CLO portfolio consists of investment grade positions in high ranking tranches within their respective securitization structures. As of SeptemberJune 30, 2021,2022, the Company determined that all impaired available for sale securities experienced a decline in fair value below their amortized cost basis due to noncredit-related factors. Therefore, the Company carried no ACL at SeptemberJune 30, 2021.2022. 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.
As of SeptemberJune 30, 2021,2022, we held investments classified as held to maturity with an amortized cost, net of ACL, of $5.5$4.3 million, a decrease of $0.4$0.6 million from $5.9$4.9 million at December 31, 2020.2021. See previous discussion of Credit Loss Expense related to our held to maturity securities for further details regarding the nature of these securities and the required ACL at SeptemberJune 30, 2021.2022.
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The following tables set forth the amortized cost and average yield of our debt securities, by type and contractual maturity:
Maturity as of September 30, 2021Maturity as of June 30, 2022
One Year or LessAfter One but within Five YearsAfter Five but within Ten YearsAfter Ten YearsTotalOne Year or LessAfter One but within Five YearsAfter Five but within Ten YearsAfter Ten YearsTotal
(Dollars in thousands)(Dollars in thousands)Amortized
Cost
Average
Yield
Amortized
Cost
Average
Yield
Amortized
Cost
Average
Yield
Amortized
Cost
Average
Yield
Amortized
Cost
Average
Yield
(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 securitiesMortgage-backed securities487 %2,022 1.84 %4,176 1.84 %10,623 3.07 %17,308 2.63 %Mortgage-backed securities$1,921 1.97 %$9,057 3.96 %$2,590 2.41 %$38,174 2.50 %$51,742 2.75 %
Asset-backed securitiesAsset-backed securities— — %61 0.27 %5,000 0.27 %1,799 1.28 %6,860 0.53 %Asset-backed securities— — %— — %5,000 1.32 %1,590 2.50 %6,590 1.61 %
State and municipalState and municipal9,267 2.63 %2,696 3.02 %2,414 2.80 %14,136 2.53 %28,513 2.63 %State and municipal1,372 2.71 %1,578 3.20 %2,319 2.70 %9,726 2.48 %14,995 2.61 %
CLO securitiesCLO securities— — %— — %70,177 4.02 %26,751 2.61 %96,928 3.63 %CLO securities— — %— — %47,580 3.93 %98,051 2.25 %145,631 2.80 %
Corporate bondsCorporate bonds718 3.17 %1,001 1.37 %— — %271 5.07 %1,990 2.50 %Corporate bonds500 2.47 %501 2.74 %— — %269 5.14 %1,270 3.11 %
SBA pooled securitiesSBA pooled securities— — %22 3.04 %— — %2,713 4.10 %2,735 4.09 %SBA pooled securities— — %3.62 %20 5.48 %2,168 4.01 %2,191 4.02 %
Total available for sale securitiesTotal available for sale securities$15,471 2.52 %$5,802 2.30 %$81,767 3.66 %$56,293 2.71 %$159,333 3.17 %Total available for sale securities$3,793 2.30 %$11,139 3.80 %$57,509 3.59 %$149,978 2.36 %$222,419 2.75 %
Held to maturity securities:Held to maturity securities:$— — %$— — %$7,225 — %$— — %$7,225 — %Held to maturity securities:$— — %$— — %$6,690 2.44 %$— — %$6,690 2.44 %
Liabilities
Total liabilities were $5.204$5.081 billion as of SeptemberJune 30, 2021,2022, compared to $5.209$5.097 billion at December 31, 2020,2021, a decrease of $5.1$16.2 million, the components of which are discussed below.

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Deposits
The following table summarizes our deposits:
(Dollars in thousands)(Dollars in thousands)September 30, 2021December 31, 2020$ Change% Change(Dollars in thousands)June 30, 2022December 31, 2021$ Change% Change
Noninterest bearing demandNoninterest bearing demand$2,020,984 $1,352,785 $668,199 49.4 %Noninterest bearing demand$2,085,249 $1,925,370 $159,879 8.3 %
Interest bearing demandInterest bearing demand795,234 688,680 106,554 15.5 %Interest bearing demand879,072 830,019 49,053 5.9 %
Individual retirement accountsIndividual retirement accounts86,012 92,584 (6,572)(7.1 %)Individual retirement accounts80,187 83,410 (3,223)(3.9 %)
Money marketMoney market472,242 393,325 78,917 20.1 %Money market538,966 520,358 18,608 3.6 %
SavingsSavings483,946 421,488 62,458 14.8 %Savings543,969 504,146 39,823 7.9 %
Certificates of depositCertificates of deposit574,539 790,844 (216,305)(27.4 %)Certificates of deposit437,766 533,206 (95,440)(17.9 %)
Brokered time depositsBrokered time deposits117,064 516,786 (399,722)(77.3 %)Brokered time deposits215,715 40,125 175,590 437.6 %
Other brokered depositsOther brokered deposits272,554 460,108 (187,554)(40.8 %)Other brokered deposits— 210,045 (210,045)(100.0 %)
Total DepositsTotal Deposits$4,822,575 $4,716,600 $105,975 2.2 %Total Deposits$4,780,924 $4,646,679 $134,245 2.9 %
Our total deposits increased $106.0$134.2 million, or 2.2%2.9%, primarily due to growthincreases in noninterest and interest bearing demand deposits partially offset by decreases in certificates of deposit,and brokered time deposits, and other brokered deposits. Other brokered deposits are non-maturity deposits obtained from wholesale sources.sources and these deposits were terminated in connection with the terminated interest rate swap during the six months ended June 30, 2022. As of SeptemberJune 30, 2021,2022, interest bearing demand deposits, noninterest bearing deposits, money market deposits, other brokered deposits, and savings deposits accounted for 84%85% of our total deposits, while individual retirement accounts, certificates of deposit, and brokered time deposits made up 16%15% of total deposits.
At June 30, 2022 we held $89.7 million of time deposits that meet or exceed the Federal Deposit Insurance Corporation ("FDIC") insurance limit. 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 moreexceeding the FDIC insurance limit as of SeptemberJune 30, 2021:2022:
(Dollars in thousands)$100,000 to
$250000
$250,000 and
Over
Total
Maturity
3 months or less$92,070 $40,259 $132,329 
Over 3 through 6 months97,148 19,042 116,190 
Over 6 through 12 months126,159 49,354 175,513 
Over 12 months33,113 15,949 49,062 
$348,490 $124,604 $473,094 
(Dollars in thousands)Over
$250,000
Maturity
3 months or less$25,840 
Over 3 through 6 months22,017 
Over 6 through 12 months23,511 
Over 12 months5,331 
$76,699 
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The following table summarizes our average deposit balances and weighted average rates:
Three Months Ended September 30, 2021Three Months Ended September 30, 2020
Average
(Dollars in thousands)Average
Balance
Weighted
Avg Yields
% of
Total
Average
Balance
Weighted
Avg Yields
% of
Total
Interest bearing demand$779,625 0.22 %16 %$635,287 0.13 %15 %
Individual retirement accounts86,571 0.58 %%95,962 1.24 %%
Money market417,435 0.21 %%385,620 0.27 %%
Savings479,915 0.15 %10 %400,102 0.15 %10 %
Certificates of deposit595,001 0.48 %12 %905,075 1.66 %23 %
Brokered time deposits99,116 0.12 %%247,928 1.51 %%
Other brokered deposits441,446 0.20 %%251,701 0.30 %%
Total interest bearing deposits2,899,109 0.27 %60 %2,921,675 0.79 %71 %
Noninterest bearing demand1,912,398 — 40 %1,213,494 — 29 %
Total deposits$4,811,507 0.16 %100 %$4,135,169 0.56 %100 %
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Three Months Ended June 30, 2022Three Months Ended June 30, 2021
Nine Months Ended September 30, 2021Nine Months Ended September 30, 2020
(Dollars in thousands)(Dollars in thousands)Average
Balance
Weighted
Avg Yields
% of
Total
Average
Balance
Weighted
Avg Yields
% of
Total
(Dollars in thousands)Average
Balance
Weighted
Avg Rates
% of
Total
Average
Balance
Weighted
Avg Rates
% of
Total
Interest bearing demandInterest bearing demand$746,590 0.23 %15 %$617,392 0.18 %16 %Interest bearing demand$874,503 0.25 %19 %$757,529 0.25 %15 %
Individual retirement accountsIndividual retirement accounts88,579 0.69 %%99,827 1.42 %%Individual retirement accounts81,678 0.52 %%88,142 0.65 %%
Money marketMoney market404,651 0.22 %%408,487 0.54 %10 %Money market545,508 0.21 %12 %398,290 0.22 %%
SavingsSavings465,041 0.15 %10 %382,236 0.15 %10 %Savings516,924 0.16 %11 %468,517 0.15 %%
Certificates of depositCertificates of deposit674,284 0.76 %14 %993,590 2.00 %25 %Certificates of deposit461,280 0.48 %10 %664,478 0.70 %13 %
Brokered time depositsBrokered time deposits134,781 0.26 %%297,829 1.83 %%Brokered time deposits101,270 1.20 %%138,102 0.15 %%
Other brokered depositsOther brokered deposits641,959 0.16 %13 %86,064 0.30 %%Other brokered deposits89,714 3.27 %%685,397 0.15 %14 %
Total interest bearing depositsTotal interest bearing deposits3,155,885 0.33 %65 %2,885,425 1.07 %74 %Total interest bearing deposits2,670,877 0.41 %58 %3,200,455 0.31 %64 %
Noninterest bearing demandNoninterest bearing demand1,720,213 — 35 %1,021,745 — 26 %Noninterest bearing demand1,951,725 — 42 %1,749,858 — 36 %
Total depositsTotal deposits$4,876,098 0.21 %100 %$3,907,170 0.79 %100 %Total deposits$4,622,602 0.23 %100 %$4,950,313 0.20 %100 %
Six Months Ended June 30, 2022Six Months Ended June 30, 2021
(Dollars in thousands)(Dollars in thousands)Average
Balance
Weighted
Avg Yields
% of
Total
Average
Balance
Weighted
Avg Yields
% of
Total
Interest bearing demandInterest bearing demand$852,554 0.23 %18 %$729,798 0.24 %15 %
Individual retirement accountsIndividual retirement accounts82,182 0.52 %%89,600 0.74 %%
Money marketMoney market542,050 0.21 %12 %398,153 0.23 %%
SavingsSavings513,346 0.15 %11 %457,481 0.15 %%
Certificates of depositCertificates of deposit489,682 0.47 %11 %714,583 0.88 %15 %
Brokered time depositsBrokered time deposits60,065 1.02 %%152,910 0.30 %%
Other brokered depositsOther brokered deposits151,835 0.91 %%743,878 0.14 %15 %
Total interest bearing depositsTotal interest bearing deposits2,691,714 0.32 %58 %3,286,403 0.36 %67 %
Noninterest bearing demandNoninterest bearing demand1,944,606 — 42 %1,622,528 — 33 %
Total depositsTotal deposits$4,636,320 0.19 %100 %$4,908,931 0.24 %100 %
Other Borrowings
Customer Repurchase Agreements
The following provides a summary of our customer repurchase agreements as of and for the ninesix months ended SeptemberJune 30, 20212022 and the year ended December 31, 2020:2021:
(Dollars in thousands)(Dollars in thousands)September 30, 2021December 31, 2020(Dollars in thousands)June 30, 2022December 31, 2021
Amount outstanding at end of periodAmount outstanding at end of period$11,990 $3,099 Amount outstanding at end of period$11,746 $2,103 
Weighted average interest rate at end of periodWeighted average interest rate at end of period0.03 %0.03 %Weighted average interest rate at end of period0.03 %0.03 %
Average daily balance during the periodAverage daily balance during the period$6,200 $6,716 Average daily balance during the period$4,117 $5,985 
Weighted average interest rate during the periodWeighted average interest rate during the period0.03 %0.03 %Weighted average interest rate during the period0.03 %0.03 %
Maximum month-end balance during the periodMaximum month-end balance during the period$12,405 $14,192 Maximum month-end balance during the period$11,746 $12,405 
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.
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FHLB Advances
The following provides a summary of our FHLB advances as of and for the ninesix months ended SeptemberJune 30, 20212022 and the year ended December 31, 2020:2021:
(Dollars in thousands)(Dollars in thousands)September 30, 2021December 31, 2020(Dollars in thousands)June 30, 2022December 31, 2021
Amount outstanding at end of periodAmount outstanding at end of period$30,000 $105,000 Amount outstanding at end of period$30,000 $180,000 
Weighted average interest rate at end of periodWeighted average interest rate at end of period0.27 %0.17 %Weighted average interest rate at end of period1.15 %0.15 %
Average amount outstanding during the periodAverage amount outstanding during the period37,234 342,264 Average amount outstanding during the period109,972 37,671 
Weighted average interest rate during the periodWeighted average interest rate during the period0.24 %0.58 %Weighted average interest rate during the period0.65 %0.24 %
Highest month end balance during the periodHighest month end balance during the period180,000 850,000 Highest month end balance during the period230,000 180,000 
Our FHLB advances are collateralized by assets, including a blanket pledge of certain loans. At SeptemberJune 30, 20212022 and December 31, 2020,2021, we had $995.3$730.4 million and $1.247 billion,$798.8 million, 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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Information concerning borrowings under the PPPLF is summarized as follows for the ninesix months ended SeptemberJune 30, 2021and2022 and the year ended December 31, 2020:2021:
(Dollars in thousands)(Dollars in thousands)September 30, 2021December 31, 2020(Dollars in thousands)June 30, 2022December 31, 2021
Amount outstanding at end of periodAmount outstanding at end of period$97,554 $191,860 Amount outstanding at end of period$— $27,144 
Weighted average interest rate at end of periodWeighted average interest rate at end of period0.35 %0.35 %Weighted average interest rate at end of period0.35 %0.35 %
Average amount outstanding during the periodAverage amount outstanding during the period116,134 143,608 Average amount outstanding during the period1,352 118,880 
Weighted average interest rate during the periodWeighted average interest rate during the period0.35 %0.35 %Weighted average interest rate during the period0.32 %0.35 %
Highest month end balance during the periodHighest month end balance during the period181,635 223,809 Highest month end balance during the period— 181,635 
At September 30, 2021, scheduled maturities ofWe did not have any 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 Septemberoutstanding at June 30, 2021 and2022. At December 31, 2020,2021, the PPPLF borrowings were secured by PPP Loans totaling $97.6$27.1 million and $191.9 million, respectively, and bearincurred interest at a fixed rate of 0.35% annually.
Subordinated Notes
On SeptemberThe following provides a summary of our subordinated notes as of June 30, 2016, we issued $50.0 million of Fixed-to-Floating2022:
(Dollars in thousands)Face ValueCarrying ValueMaturity DateCurrent Interest RateFirst Repricing DateVariable Interest Rate at Repricing DateInitial Issuance Costs
Subordinated Notes issued November 27, 2019$39,500 $38,702 20294.875%11/27/2024Three Month LIBOR plus 3.330%$1,218 
Subordinated Notes issued August 26, 202170,000 68,675 20313.500%9/01/2026
Three Month SOFR(1) plus 2.860%
$1,776 
$109,500 $107,377 
(1) Secured Overnight Financing Rate
The Subordinated Notes due 2026 (the “2016 Notes”). The 2016 Notes initially bear interest at 6.50% per annum, are payable semi-annually in arrears to, but excluding September 30, 2021,the first repricing date, 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%.rate. We may, at our option, beginning on November 27, 2024the respective first repricing date and on any scheduled interest payment date thereafter, redeem the 2019Subordinated Notes, in whole or in part, at a redemption price equal to the outstanding principal amount of the 2019Subordinated 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
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Table 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.Contents
The Subordinated Notes are included on ourthe consolidated balance sheetsheets as liabilities;liabilities at their carrying values; however, for regulatory purposes, the carrying value of these obligations iswere eligible for inclusion in Tier 2 regulatory capital.
Issuance costs related to the Subordinated Notes have been netted against the subordinated notes liability on the consolidated balance sheets andsheet. The debt issuance costs are being amortized using the effective interest method through the earliest respective redemption datematurity and recognized as a component of interest expense.
The carrying value of the Subordinated Notes totaled $106.8 million at September 30, 2021.
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Tableare subordinated in right of Contentspayment 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.
Junior Subordinated Debentures
The following provides a summary of our junior subordinated debentures as of SeptemberJune 30, 2021:2022:
(Dollars in thousands)(Dollars in thousands)Face ValueCarrying ValueMaturity DateInterest Rate(Dollars in thousands)Face ValueCarrying ValueMaturity DateInterest Rate
National Bancshares Capital Trust IINational Bancshares Capital Trust II$15,464 $13,316 September 2033LIBOR + 3.00%National Bancshares Capital Trust II$15,464 $13,418 September 2033LIBOR + 3.00%
National Bancshares Capital Trust IIINational Bancshares Capital Trust III17,526 13,134 July 2036LIBOR + 1.64%National Bancshares Capital Trust III17,526 13,297 July 2036LIBOR + 1.64%
ColoEast Capital Trust IColoEast Capital Trust I5,155 3,665 September 2035LIBOR + 1.60%ColoEast Capital Trust I5,155 3,720 September 2035LIBOR + 1.60%
ColoEast Capital Trust IIColoEast Capital Trust II6,700 4,763 March 2037LIBOR + 1.79%ColoEast Capital Trust II6,700 4,826 March 2037LIBOR + 1.79%
Valley Bancorp Statutory Trust IValley Bancorp Statutory Trust I3,093 2,889 September 2032LIBOR + 3.40%Valley Bancorp Statutory Trust I3,093 2,899 September 2032LIBOR + 3.40%
Valley Bancorp Statutory Trust IIValley Bancorp Statutory Trust II3,093 2,700 July 2034LIBOR + 2.75%Valley Bancorp Statutory Trust II3,093 2,716 July 2034LIBOR + 2.75%
$51,031 $40,467 $51,031 $40,876 
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 2.24%. As part of the purchase accounting adjustments made with the National Bancshares, Inc. acquisition on October 15, 2013, 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 $40.5$40.9 million was allowed in the calculation of Tier I capital as of SeptemberJune 30, 2021.2022.
Capital Resources and Liquidity Management
Capital Resources
Our stockholders’ equity totaled $820.7$874.3 million as of SeptemberJune 30, 2021,2022, compared to $726.8$858.9 million as of December 31, 2020,2021, an increase of $93.9$15.4 million. Stockholders’ equity increased during this period primarily due to our net income of $86.3$68.5 million, offset in part by shares purchased into treasury stock under our share repurchase program of $50.0 million.
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 is 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.
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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 SeptemberJune 30, 2021,2022, TBK Bank had $529.3$615.2 million of unused borrowing capacity from the Federal Reserve Bank discount window and unsecured federal funds lines of credit with seven unaffiliated banks totaling $227.5 million, with no amounts advanced against those lines.
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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. For further information regarding our regulatory capital requirements, see Note 12 – Regulatory Matters in the accompanying condensed notes to the consolidated financial statements included elsewhere in this report.
Contractual Obligations
The following table summarizes our contractual obligations and other commitments to make future payments as of SeptemberJune 30, 2021.2022. The amount of the obligations presented in the table reflectsreflect principal amounts only and excludesexclude 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, 2021Payments Due by Period - June 30, 2022
(Dollars in thousands)(Dollars in thousands)TotalOne 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 agreementsCustomer repurchase agreements$11,990 $11,990 $— $— $— Customer repurchase agreements$11,746 $11,746 $— $— $— 
Federal Home Loan Bank advancesFederal Home Loan Bank advances30,000 — — — 30,000 Federal Home Loan Bank advances30,000 — — 15,000 15,000 
Paycheck Protection Program Liquidity Facility97,554 24,796 — 72,758 — 
Subordinated notesSubordinated notes109,500 — — — 109,500 Subordinated notes109,500 — — — 109,500 
Junior subordinated debenturesJunior subordinated debentures51,031 — — — 51,031 Junior subordinated debentures51,031 — — — 51,031 
Operating lease agreementsOperating lease agreements40,282 5,101 9,616 9,025 16,540 Operating lease agreements43,745 5,937 11,289 10,476 16,043 
Time deposits with stated maturity datesTime deposits with stated maturity dates777,615 675,332 94,049 8,234 — Time deposits with stated maturity dates733,668 665,543 59,358 8,767 — 
Total contractual obligationsTotal contractual obligations$1,117,972 $717,219 $103,665 $90,017 $207,071 Total contractual obligations$979,690 $683,226 $70,647 $34,243 $191,574 
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. For further information regarding our regulatory capital requirements, see Note 12 – Regulatory Matters in the accompanying condensed notes to the consolidated financial statements included elsewhere in this report.
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. For further information, see Note 10 – Off-Balance Sheet Loan Commitments in the accompanying condensed notes to the consolidated financial statements included elsewhere in this report.
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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 policy which we believe to be the most critical in preparing our consolidated financial statements is the determination of the allowance for credit losses. Since December 31, 2020,2021, 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 20202021 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, 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:
business and economic conditions generally and in the bank and non-bank financial services industries, nationally and within our local market 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;
changes in management personnel;
interest rate risk;
concentration of our products 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;
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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;
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 board of directors 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.
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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 SeptemberJune 30, 20212022 and December 31, 2020:2021:
September 30, 2021December 31, 2020June 30, 2022December 31, 2021
Following 12 MonthsMonths
13-24
Following 12 MonthsMonths
13-24
Following 12 MonthsMonths
13-24
Following 12 MonthsMonths
13-24
+400 basis points+400 basis points23.2 %31.6 %18.4 %19.8 %+400 basis points20.0 %21.5 %17.5 %23.6 %
+300 basis points+300 basis points15.5 %19.7 %13.6 %15.3 %+300 basis points15.0 %15.9 %13.1 %18.1 %
+200 basis points+200 basis points10.4 %13.9 %8.7 %10.7 %+200 basis points9.9 %10.5 %8.7 %12.8 %
+100 basis points+100 basis points5.4 %8.1 %3.9 %6.0 %+100 basis points4.9 %5.2 %4.4 %7.5 %
Flat ratesFlat rates0.0 %0.0 %0.0 %0.0 %Flat rates0.0 %0.0 %0.0 %0.0 %
-100 basis points-100 basis points(2.8 %)(2.0 %)(3.6 %)(2.6 %)-100 basis points(5.0 %)(5.3 %)(2.7 %)(1.4 %)
The following table presents the change in our economic value of equity as of SeptemberJune 30, 20212022 and December 31, 2020,2021, assuming immediate parallel shifts in interest rates:
Economic Value of Equity at Risk (%)Economic Value of Equity at Risk (%)
September 30, 2021December 31, 2020June 30, 2022December 31, 2021
+400 basis points+400 basis points35.0 %36.5 %+400 basis points24.1 %31.1 %
+300 basis points+300 basis points27.5 %28.9 %+300 basis points18.9 %24.3 %
+200 basis points+200 basis points19.3 %20.3 %+200 basis points13.1 %16.9 %
+100 basis points+100 basis points10.1 %10.7 %+100 basis points6.9 %8.8 %
Flat ratesFlat rates0.0 %0.0 %Flat rates0.0 %0.0 %
-100 basis points-100 basis points(10.8 %)(11.4 %)-100 basis points(7.7 %)(9.5 %)
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.
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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 SeptemberJune 30, 2021,2022, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II – OTHER INFORMATION
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Item 1. Legal Proceedings
From time to time we are a party to various litigation matters incidental to the conduct of our business. Except 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 againstin the United States Court of Federal Claims seeking a ruling that the United States Postal Service (“USPS”) seeking damages relatedis obligated to make payment to us with respect 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..operations.
Item 1A. Risk Factors
There have been no 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, 2020.2021.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.On February 7, 2022, the Company announced that its board of directors had authorized the repurchase of up to $50.0 million of its outstanding common stock in open market transactions or through privately negotiated transactions for a period of one year. On May 23, 2022, the Company announced that it had completed the $50.0 million stock repurchase program and that its Board of Directors had authorized an additional share repurchase program of up to $75.0 million. The following repurchases were made under this program during the three months ended June 30, 2022:
Period(a)
Total number of shares (or units) purchased
(b)
Average price paid per share (or unit)
(c)
Total number of shares (or units) purchased as part of publicly announced plans or programs
(d)
Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs
April 1, 2022 — April 30, 2022240,601 $70.20 240,601 31,787,000 
May 1, 2022 — May 31, 2022454,384 $69.93 454,384 — 
June 1, 2022 — June 30, 2022— $— — 75,000,000 
Total694,985 $70.02 694,985 
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)
3.1
3.2
3.3
3.4
3.53.4
4.1
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4.2
10.1

10.2

10.3
10.4
31.1
31.2
32.1
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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).
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(a)(5) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished to the Securities and Exchange Commission upon 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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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:OctoberJuly 20, 20212022/s/ Aaron P. Graft
Aaron P. Graft
President and Chief Executive Officer
Date:OctoberJuly 20, 20212022/s/ W. Bradley Voss
W. Bradley Voss
Chief Financial Officer
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