UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended September 30, ~~2021~~2022


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

For the transition period from _______ to _______

Commission File Number 001-36722

TRIUMPH BANCORP, INC.

(Exact name of registrant as specified in its charter)


Texas						20-0477066
(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 filer	x	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

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

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

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

Common Stock — $0.01 par value, ~~25,123,978~~24,478,288 shares, as of October ~~18, 2021.~~17, 2022.

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading
Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.01 per share

TBK

NASDAQ 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 share

TBKCP

NASDAQ Global Select Market

Table of Contents

TRIUMPH BANCORP, INC.

FORM 10-Q

September 30, ~~2021~~2022

TABLE OF CONTENTS

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1

FINANCIAL STATEMENTS

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

September 30, ~~2021~~2022 and December 31, ~~2020~~2021

(Dollar amounts in thousands)


		September 30, 2021		December 31, 2020			September 30, 2022		December 31, 2021
		(Unaudited)					(Unaudited)
ASSETS	ASSETS					ASSETS
Cash and due from banks	Cash and due from banks	$	66,672	$	85,525	Cash and due from banks	$	139,937	$	122,929
Interest bearing deposits with other banks	Interest bearing deposits with other banks	466,092		228,868		Interest bearing deposits with other banks	281,792		260,249
Total cash and cash equivalents	Total cash and cash equivalents	532,764		314,393		Total cash and cash equivalents	421,729		383,178
Securities - equity investments		5,623		5,826
Securities - equity investments with readily determinable fair values						Securities - equity investments with readily determinable fair values	4,916		5,504
Securities - available for sale	Securities - available for sale	164,816		224,310		Securities - available for sale	238,434		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, respectively		5,488		5,919
Securities - held to maturity, net of allowance for credit losses of $2,430 and $2,082, respectively, fair value of $5,603 and $5,447, respectively						Securities - held to maturity, net of allowance for credit losses of $2,430 and $2,082, respectively, fair value of $5,603 and $5,447, respectively	4,149		4,947
Loans held for sale	Loans held for sale	26,437		24,546		Loans held for sale	78		7,330
Loans, net of allowance for credit losses of $41,017 and $95,739, respectively		4,741,713		4,901,037
Federal Home Loan Bank and other restricted stock, at cost		4,901		6,751
Loans, net of allowance for credit losses of $44,111 and $42,213, respectively						Loans, net of allowance for credit losses of $44,111 and $42,213, respectively	4,389,193		4,825,359
Federal Home Loan Bank and other restricted stock						Federal Home Loan Bank and other restricted stock	6,213		10,146
Premises and equipment, net	Premises and equipment, net	104,311		103,404		Premises and equipment, net	104,272		105,729
Other real estate owned, net	Other real estate owned, net	893		1,432		Other real estate owned, net	—		524
Goodwill	Goodwill	233,727		163,209		Goodwill	233,709		233,727
Intangible assets, net	Intangible assets, net	46,328		26,713		Intangible assets, net	34,895		43,129
Bank-owned life insurance	Bank-owned life insurance	41,540		41,608		Bank-owned life insurance	41,390		40,993
Deferred tax asset, net	Deferred tax asset, net	—		6,427		Deferred tax asset, net	14,663		10,023
Indemnification asset	Indemnification asset	4,786		36,225		Indemnification asset	4,173		4,786
Other assets	Other assets	111,208		73,991		Other assets	144,636		98,449
Total assets	Total assets	$	6,024,535	$	5,935,791	Total assets	$	5,642,450	$	5,956,250
LIABILITIES AND STOCKHOLDERS' EQUITY	LIABILITIES AND STOCKHOLDERS' EQUITY					LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities	Liabilities					Liabilities
Deposits	Deposits					Deposits
Noninterest bearing	Noninterest bearing	$	2,020,984	$	1,352,785	Noninterest bearing	$	1,897,309	$	1,925,370
Interest bearing	Interest bearing	2,801,591		3,363,815		Interest bearing	2,544,045		2,721,309
Total deposits	Total deposits	4,822,575		4,716,600		Total deposits	4,441,354		4,646,679
Customer repurchase agreements	Customer repurchase agreements	11,990		3,099		Customer repurchase agreements	13,463		2,103
Federal Home Loan Bank advances	Federal Home Loan Bank advances	30,000		105,000		Federal Home Loan Bank advances	30,000		180,000
Paycheck Protection Program Liquidity Facility	Paycheck Protection Program Liquidity Facility	97,554		191,860		Paycheck Protection Program Liquidity Facility	—		27,144
Subordinated notes	Subordinated notes	106,755		87,509		Subordinated notes	107,587		106,957
Junior subordinated debentures	Junior subordinated debentures	40,467		40,072		Junior subordinated debentures	41,016		40,602
Deferred tax liability, net		982		—
Other liabilities	Other liabilities	93,538		64,870		Other liabilities	117,857		93,901
Total liabilities	Total liabilities	5,203,861		5,209,010		Total liabilities	4,751,277		5,097,386
Commitments and contingencies - See Note 9 and Note 10	Commitments and contingencies - See Note 9 and Note 10	0		0		Commitments and contingencies - See Note 9 and Note 10
Stockholders' equity - See Note 13	Stockholders' equity - See Note 13					Stockholders' equity - See Note 13
Preferred stock	Preferred stock	45,000		45,000		Preferred stock	45,000		45,000
Common stock, 25,123,342 and 24,868,218 shares outstanding, respectively		282		280
Common stock, 24,478,288 and 25,158,879 shares outstanding, respectively						Common stock, 24,478,288 and 25,158,879 shares outstanding, respectively	283		283
Additional paid-in-capital	Additional paid-in-capital	499,282		489,151		Additional paid-in-capital	529,804		510,939
Treasury stock, at cost	Treasury stock, at cost	(104,600)		(103,052)		Treasury stock, at cost	(156,949)		(104,743)
Retained earnings	Retained earnings	373,512		289,583		Retained earnings	481,697		399,351
Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)	7,198		5,819		Accumulated other comprehensive income (loss)	(8,662)		8,034
Total stockholders’ equity	Total stockholders’ equity	820,674		726,781		Total stockholders’ equity	891,173		858,864
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	6,024,535	$	5,935,791	Total liabilities and stockholders' equity	$	5,642,450	$	5,956,250

See accompanying condensed notes to consolidated financial statements.

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

For the Three and Nine Months Ended September 30, ~~2021~~2022 and ~~2020~~2021

(Dollar amounts in thousands, except per share amounts)

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Interest and dividend income:	Interest and dividend income:									Interest and dividend income:
Loans, including fees	Loans, including fees	$	44,882	$	48,774	$	139,576	$	147,491	Loans, including fees	$	44,928	$	44,882	$	129,906	$	139,576
Factored receivables, including fees	Factored receivables, including fees	50,516		31,468		135,639		76,861		Factored receivables, including fees	53,317		50,516		174,549		135,639
Securities	Securities	1,126		1,927		3,963		6,710		Securities	2,308		1,126		4,815		3,963
FHLB and other restricted stock	FHLB and other restricted stock	28		122		131		474		FHLB and other restricted stock	65		28		175		131
Cash deposits	Cash deposits	183		73		467		640		Cash deposits	2,607		183		3,522		467
Total interest income	Total interest income	96,735		82,364		279,776		232,176		Total interest income	103,225		96,735		312,967		279,776
Interest expense:	Interest expense:									Interest expense:
Deposits	Deposits	1,948		5,834		7,790		23,095		Deposits	2,743		1,948		7,010		7,790
Subordinated notes	Subordinated notes	2,449		1,348		5,148		4,016		Subordinated notes	1,304		2,449		3,905		5,148
Junior subordinated debentures	Junior subordinated debentures	443		462		1,331		1,662		Junior subordinated debentures	726		443		1,736		1,331
Other borrowings	Other borrowings	124		341		434		2,273		Other borrowings	182		124		539		434
Total interest expense	Total interest expense	4,964		7,985		14,703		31,046		Total interest expense	4,955		4,964		13,190		14,703
Net interest income	Net interest income	91,771		74,379		265,073		201,130		Net interest income	98,270		91,771		299,777		265,073
Credit loss expense (benefit)	Credit loss expense (benefit)	(1,187)		(258)		(10,838)		33,649		Credit loss expense (benefit)	2,646		(1,187)		6,048		(10,838)
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)	95,624		92,958		293,729		275,911
Noninterest income:	Noninterest income:									Noninterest income:
Service charges on deposits	Service charges on deposits	2,030		1,470		5,674		3,631		Service charges on deposits	1,558		2,030		5,185		5,674
Card income	Card income	2,144		2,091		6,341		5,832		Card income	2,034		2,144		6,125		6,341
Net OREO gains (losses) and valuation adjustments	Net OREO gains (losses) and valuation adjustments	(9)		(41)		(376)		(399)		Net OREO gains (losses) and valuation adjustments	(19)		(9)		(133)		(376)
Net gains (losses) on sale or call of securities	Net gains (losses) on sale or call of securities	4		3,109		5		3,210		Net gains (losses) on sale or call of securities	—		4		2,514		5
Net gains (losses) on sale of loans										Net gains (losses) on sale of loans	1,107		377		18,310		2,965
Fee income	Fee income	5,198		1,402		11,917		4,392		Fee income	6,120		5,198		18,096		11,917
Insurance commissions	Insurance commissions	1,231		990		3,989		2,905		Insurance commissions	1,191		1,231		4,209		3,989
Gain on sale of subsidiary or division		—		—		—		9,758
Other	Other	1,457		1,472		12,692		8,670		Other	677		1,080		17,643		9,727
Total noninterest income	Total noninterest income	12,055		10,493		40,242		37,999		Total noninterest income	12,668		12,055		71,949		40,242
Noninterest expense:	Noninterest expense:									Noninterest expense:
Salaries and employee benefits	Salaries and employee benefits	43,769		31,651		121,407		93,177		Salaries and employee benefits	49,307		43,769		149,848		121,407
Occupancy, furniture and equipment	Occupancy, furniture and equipment	6,388		5,574		18,279		15,720		Occupancy, furniture and equipment	6,826		6,388		19,769		18,279
FDIC insurance and other regulatory assessments	FDIC insurance and other regulatory assessments	353		360		1,830		1,170		FDIC insurance and other regulatory assessments	386		353		1,179		1,830
Professional fees	Professional fees	2,362		3,265		9,959		7,023		Professional fees	4,263		2,362		11,529		9,959
Amortization of intangible assets	Amortization of intangible assets	3,274		2,141		7,677		6,265		Amortization of intangible assets	2,913		3,274		9,085		7,677
Advertising and promotion	Advertising and promotion	1,403		1,105		3,534		3,548		Advertising and promotion	1,929		1,403		4,916		3,534
Communications and technology	Communications and technology	7,090		5,569		19,018		16,514		Communications and technology	11,935		7,090		30,867		19,018
Other	Other	8,174		5,632		22,799		19,359		Other	9,130		8,174		26,667		22,799
Total noninterest expense	Total noninterest expense	72,813		55,297		204,503		162,776		Total noninterest expense	86,689		72,813		253,860		204,503
Net income before income tax expense	Net income before income tax expense	32,200		29,833		111,650		42,704		Net income before income tax expense	21,603		32,200		111,818		111,650
Income tax expense	Income tax expense	7,771		6,929		25,316		10,810		Income tax expense	5,374		7,771		27,068		25,316
Net income	Net income	$	24,429	$	22,904	$	86,334	$	31,894	Net income	$	16,229	$	24,429	$	84,750	$	86,334
Dividends on preferred stock	Dividends on preferred stock	(802)		(899)		(2,405)		(899)		Dividends on preferred stock	(801)		(802)		(2,404)		(2,405)
Net income available to common stockholders	Net income available to common stockholders	$	23,627	$	22,005	$	83,929	$	30,995	Net income available to common stockholders	$	15,428	$	23,627	$	82,346	$	83,929
Earnings per common share	Earnings per common share									Earnings per common share
Basic	Basic	$	0.95	$	0.89	$	3.40	$	1.28	Basic	$	0.64	$	0.95	$	3.36	$	3.40
Diluted	Diluted	$	0.94	$	0.89	$	3.33	$	1.27	Diluted	$	0.62	$	0.94	$	3.28	$	3.33

See accompanying condensed notes to consolidated financial statements.

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Three and Nine Months Ended September 30, ~~2021~~2022 and ~~2020~~2021

(Dollar amounts in thousands)

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Net income	Net income	$	24,429	$	22,904	$	86,334	$	31,894	Net income	$	16,229	$	24,429	$	84,750	$	86,334
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 period	Unrealized holding gains (losses) arising during the period	(378)		2,443		(1,303)		8,589		Unrealized holding gains (losses) arising during the period	(4,806)		(378)		(13,164)		(1,303)
Tax effect	Tax effect	89		(637)		300		(2,144)		Tax effect	1,127		89		3,067		300
Unrealized holding gains (losses) arising during the period, net of taxes	Unrealized 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	(3,679)		(289)		(10,097)		(1,003)
Reclassification of amount realized through sale or call of securities	Reclassification 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	—		(4)		(2,514)		(5)
Tax effect	Tax effect	1		761		1		805		Tax effect	—		1		620		1
Reclassification of amount realized through sale or call of securities, net of taxes	Reclassification 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	—		(3)		(1,894)		(4)
Change in unrealized gains (losses) on securities, net of tax	Change 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	(3,679)		(292)		(11,991)		(1,007)

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 period	Unrealized holding gains (losses) arising during the period	(9)		357		3,062		32		Unrealized holding gains (losses) arising during the period	—		(9)		3,152		3,062
Tax effect	Tax effect	2		(88)		(729)		(9)		Tax effect	—		2		(754)		(729)
Unrealized holding gains (losses) arising during the period, net of taxes	Unrealized 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	—		(7)		2,398		2,333
Reclassification of amount of gains (losses) recognized into income		18		(16)		70		(16)
Reclassification of amount of (gains) losses recognized into income										Reclassification of amount of (gains) losses recognized into income	—		18		(9,316)		70
Tax effect	Tax effect	(4)		4		(17)		4		Tax effect	—		(4)		2,213		(17)
Reclassification of amount of gains (losses) recognized into income, net of taxes		14		(12)		53		(12)
Reclassification of amount of (gains) losses recognized into income, net of taxes										Reclassification of amount of (gains) losses recognized into income, net of taxes	—		14		(7,103)		53
Change in unrealized gains (losses) on derivative financial instruments	Change in unrealized gains (losses) on derivative financial instruments	7		257		2,386		11		Change in unrealized gains (losses) on derivative financial instruments	—		7		(4,705)		2,386

Total other comprehensive income (loss)	Total other comprehensive income (loss)	(285)		(285)		1,379		4,051		Total other comprehensive income (loss)	(3,679)		(285)		(16,696)		1,379
Comprehensive income	Comprehensive income	$	24,144	$	22,619	$	87,713	$	35,945	Comprehensive income	$	12,550	$	24,144	$	68,054	$	87,713

See accompanying condensed notes to consolidated financial statements.

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~~2022 and ~~2020~~2021

(Dollar amounts in thousands)

(Unaudited)


		Preferred Stock		Common Stock			Additional Paid-in- Capital				Treasury Stock						Retained Earnings				Accumulated				Total Stockholders' Equity					Preferred Stock		Common Stock					Additional Paid-in- Capital			Treasury Stock						Retained Earnings			Accumulated			Total Stockholders' Equity
		Liquidation Preference Amount		Shares Outstanding	Par Amount				Shares Outstanding			Cost							Other Comprehensive Income (Loss)								Liquidation Preference Amount				Shares Outstanding		Par Amount			Shares Outstanding				Cost					Other 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, 2022																											Balance, 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 awards	Issuance of restricted stock awards	—		4,613	—		—				—		—				—				—				—		Issuance of restricted stock awards			—		5,502		—			—			—		—				—			—			—
Stock option exercises, net																											Stock option exercises, net			—		2,021		—			(74)			—		—				—			—			(74)
Issuance of common stock pursuant to the Employee Stock Purchase Plan																											Issuance of common stock pursuant to the Employee Stock Purchase Plan			—		10,585		—			688			—		—				—			—			688
Stock based compensation																											Stock based compensation			—		—		—			4,952			—		—				—			—			4,952
Forfeiture of restricted stock awards																											Forfeiture of restricted stock awards			—		(487)		—			46			487		(46)				—			—			—
Purchase of treasury stock																											Purchase of treasury stock			—		(14,810)		—			—			14,810		(1,316)				—			—			(1,316)
Dividends on preferred stock																											Dividends on preferred stock			—		—		—			—			—		—				(801)			—			(801)
Net income																											Net income			—		—		—			—			—		—				24,329			—			24,329
Other comprehensive income (loss)																											Other comprehensive income (loss)			—		—		—			—			—		—				—			23			23
Balance, March 31, 2022																											Balance, March 31, 2022			$	45,000	25,161,690		$	283		$	516,551		3,118,098		$	(106,105)			$	422,879		$	8,057		886,665

Vesting of performance stock units																											Vesting of performance stock units			—		20,996		—			—			—		—				—			—			—
Stock option exercises, net	Stock option exercises, net	—		10,205	—		191				—		—				—				—				191		Stock option exercises, net			—		32		—			—			—		—				—			—			—
Stock based compensation	Stock based compensation	—		—	—		1,350				—		—				—				—				1,350		Stock based compensation			—		—		—			7,880			—		—				—			—			7,880
Forfeiture of restricted stock awards	Forfeiture of restricted stock awards	—		(107)	—		7				107		(7)				—				—				—		Forfeiture of restricted stock awards			—		(2,417)		—			205			2,417		(205)				—			—			—
Purchase of treasury stock	Purchase 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		(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 stock																											Dividends on preferred stock			—		—		—			—			—		—				(802)			—			(802)
Net income	Net 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
Balance, June 30, 2022																											Balance, June 30, 2022			$	45,000	24,457,777		$	283		$	524,636		3,843,039		$	(156,924)			$	466,269		$	(4,983)		874,281
Issuance of restricted stock awards	Issuance of restricted stock awards	—		3,651	—		—				—		—				—				—				—		Issuance of restricted stock awards			—		6,969		—			—			—		—				—			—			—
Stock option exercises, net		—		2,409	—		50				—		—				—				—				50

Stock based compensation	Stock based compensation	—		—	—		4,445				—		—				—				—				4,445		Stock based compensation			—		—		—			4,296			—		—				—			—			4,296
Forfeiture of restricted stock awards	Forfeiture of restricted stock awards	—		(1,522)	—		114				1,522		(114)				—				—				—		Forfeiture of restricted stock awards			—		(194)		—			12			194		(12)				—			—			—
Issuance of common stock pursuant to the employee stock purchase plan	Issuance of common stock pursuant to the employee stock purchase plan	—		9,101	—		449				—		—				—				—				449		Issuance of common stock pursuant to the employee stock purchase plan			—		13,931		—			860			—		—				—			—			860
Purchase of treasury stock	Purchase of treasury stock	—		—	—		—				—		—				—				—				—		Purchase of treasury stock			—		(195)		—			—			195		(13)				—			—			(13)
Dividends declared	Dividends declared	—		—	—		—				—		—				(802)				—				(802)		Dividends declared			—		—		—			—			—		—				(801)			—			(801)
Net income	Net income	—		—	—		—				—		—				24,429				—				24,429		Net income			—		—		—			—			—		—				16,229			—			16,229
Other comprehensive income (loss)	Other comprehensive income (loss)	—		—	—		—				—		—				—				(285)				(285)		Other comprehensive income (loss)			—		—		—			—			—		—				—			(3,679)			(3,679)
Balance, September 30, 2021		$	45,000	25,123,342	$	282	$	499,282			3,101,579		$	(104,600)			$	373,512			$	7,198			$	820,674
Balance, September 30, 2022																											Balance, September 30, 2022			$	45,000	24,478,288		$	283		$	529,804		3,843,428		$	(156,949)			$	481,697		$	(8,662)		$	891,173

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 Stock		Common Stock			Additional Paid-in- Capital				Treasury Stock						Retained Earnings		Accumulated Other Comprehensive Income (Loss)				Total Stockholders' Equity					Preferred Stock			Common Stock			Additional Paid-in- Capital				Treasury Stock					Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders' Equity
		Liquidation Preference Amount		Shares Outstanding	Par Amount				Shares Outstanding			Cost										Liquidation Preference Amount					Shares Outstanding			Par Amount			Shares Outstanding				Cost
Balance, January 1, 2020		$	—	24,964,961	$	271			$	473,251		2,198,681			$	(67,068)					$	229,030			$	1,106		$	636,590
Impact of adoption of ASU 2016-13		—		—	—		—				—		—				(1,771)		—				(1,771)
Issuance of restricted stock awards		—		8,079	1		(1)				—		—				—		—				—
Stock based compensation		—		—	—		1,168				—		—				—		—				1,168
Forfeiture of restricted stock awards		—		(601)	—		23				601		(23)				—		—				—
Purchase of treasury stock		—		(871,319)	—		—				871,319		(35,586)				—		—				(35,586)
Net income (loss)		—		—	—		—				—		—				(4,450)		—				(4,450)
Other comprehensive income (loss)		—		—	—		—				—		—				—		(6,604)				(6,604)
Balance, March 31, 2020		$	—	24,101,120	$	272	$	474,441			3,070,601		$	(102,677)			$	222,809	$	(5,498)			$	589,347
Issuance of preferred stock, net of issuance costs		45,000		—	—		(2,636)				—		—				—		—				42,364
Issuance of restricted stock awards		—		110,035	1		(1)				—		—				—		—				—
Stock based compensation		—		—	—		966				—		—				—		—				966
Forfeiture of restricted stock awards		—		(1,033)	—		25				1,033		(25)				—		—				—
Purchase of treasury stock		—		(7,436)	—		—				7,436		(186)				—		—				(186)
Net income		—		—	—		—				—		—				13,440		—				13,440
Other comprehensive income (loss)		—		—	—		—				—		—				—		10,940				10,940
Balance, June 30, 2020		$	45,000	24,202,686	$	273	$	472,795			3,079,070		$	(102,888)			$	236,249	$	5,442			$	656,871
Issuance of common stock		—		630,268	7		13,935				—		—				—		—				13,942
Balance, January 1, 2021																										Balance, January 1, 2021		$	45,000		24,868,218	$	280		$	489,151			3,083,503		$	(103,052)		$	289,583		$	5,819		$	726,781
Issuance of restricted stock awards	Issuance of restricted stock awards	—		20,303	(1)		1				—		—				—		—				—			Issuance of restricted stock awards		—			4,613	—		—				—		—			—			—			—
Stock option exercises, net	Stock option exercises, net	—		344	—		—				—		—				—		—				—			Stock option exercises, net		—			10,205	—		191				—		—			—			—			191
Stock based compensation	Stock based compensation	—		—	—		1,309				—		—				—		—				1,309			Stock based compensation		—			—	—		1,350				—		—			—			—			1,350
Forfeiture of restricted stock awards	Forfeiture of restricted stock awards	—		(2,000)	—		54				2,000		(54)				—		—				—			Forfeiture of restricted stock awards		—			(107)	—		7				107		(7)			—			—			—
Dividends on preferred stock																										Dividends on preferred stock		—			—	—		—				—		—			(801)			—			(801)
Net income																										Net income		—			—	—		—				—		—			33,923			—			33,923
Other comprehensive income (loss)																										Other comprehensive income (loss)		—			—	—		—				—		—			—			2,560			2,560
Balance, March 31, 2021																										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																										Issuance of restricted stock awards		—			224,287	2		(2)				—		—			—			—			—
Stock option exercises, net																										Stock option exercises, net		—			18,934	—		(45)				—		—			—			—			(45)
Stock based compensation																										Stock based compensation		—			—	—		3,386				—		—			—			—			3,386
Forfeiture of restricted stock awards																										Forfeiture of restricted stock awards		—			(2,278)	—		186				2,278		(186)			—			—			—
Purchase of treasury stock																										Purchase of treasury stock		—			(14,169)	—		—				14,169		(1,241)			—			—			(1,241)
Dividends on preferred stock																										Dividends on preferred stock		—			—	—		—				—		—			(802)			—			(802)
Net income																										Net income		—			—	—		—				—		—			27,982			—			27,982
Other comprehensive income (loss)																										Other comprehensive income (loss)		—			—	—		—				—		—			—			(896)			(896)
Balance, June 30, 2021																										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																										Issuance of restricted stock awards		—			3,651	—		—				—		—			—			—			—
Stock option exercises, net																										Stock option exercises, net		—			2,409	—		50				—		—			—			—			50
Stock based compensation																										Stock based compensation		—			—	—		4,445				—		—			—			—			4,445
Forfeiture of restricted stock awards																										Forfeiture of restricted stock awards		—			(1,522)	—		114				1,522		(114)			—			—			—
Issuance of common stock pursuant to the ESPP																										Issuance of common stock pursuant to the ESPP		—			9,101	—		449				—		—			—			—			449
Dividends declared	Dividends declared	—		—	—		—				—		—				(899)		—				(899)			Dividends declared		—			—	—		—				—		—			(802)			—			(802)
Net income	Net income	—		—	—		—				—		—				22,904		—				22,904			Net income		—			—	—		—				—		—			24,429			—			24,429
Other comprehensive income (loss)	Other comprehensive income (loss)	—		—	—		—				—		—				—		(285)				(285)			Other comprehensive income (loss)		—			—	—		—				—		—			—			(285)			(285)
Balance, September 30, 2020		$	45,000	24,851,601	$	279	$	488,094			3,081,070		$	(102,942)			$	258,254	$	5,157			$	693,842
Balance, September 30, 2021																										Balance, September 30, 2021		$	45,000		25,123,342	$	282	$	499,282			3,101,579		$	(104,600)		$	373,512		$	7,198		$	820,674

See accompanying condensed notes to consolidated financial statements.

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended September 30, ~~2021~~2022 and ~~2020~~2021

(Dollar amounts in thousands)

(Unaudited)


		Nine Months Ended September 30,					Nine Months Ended September 30,
		2021		2020			2022		2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	86,334	$	31,894	Net income	$	84,750	$	86,334
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:
Depreciation	Depreciation	8,992		7,378		Depreciation	9,979		8,992
Net accretion on loans	Net accretion on loans	(7,615)		(8,377)		Net accretion on loans	(6,631)		(7,615)
Amortization of subordinated notes issuance costs	Amortization of subordinated notes issuance costs	1,022		128		Amortization of subordinated notes issuance costs	630		1,022
Amortization of junior subordinated debentures	Amortization of junior subordinated debentures	395		378		Amortization of junior subordinated debentures	414		395
Net amortization on securities		(465)		(104)
Net (accretion) amortization on securities						Net (accretion) amortization on securities	(609)		(465)
Amortization of intangible assets	Amortization of intangible assets	7,677		6,265		Amortization of intangible assets	9,085		7,677
Deferred taxes	Deferred taxes	5,432		(3,320)		Deferred taxes	524		5,432
Credit Loss Expense (benefit)		(10,838)		33,649
Credit loss expense (benefit)						Credit loss expense (benefit)	6,048		(10,838)
Stock based compensation	Stock based compensation	9,181		3,443		Stock based compensation	17,128		9,181
Net (gains) losses on sale or call of debt securities	Net (gains) losses on sale or call of debt securities	(5)		(3,210)		Net (gains) losses on sale or call of debt securities	(2,514)		(5)
Net (gains) losses on equity securities	Net (gains) losses on equity securities	203		(603)		Net (gains) losses on equity securities	(9,575)		203
Net OREO (gains) losses and valuation adjustments	Net OREO (gains) losses and valuation adjustments	376		399		Net OREO (gains) losses and valuation adjustments	133		376
Gain on sale of subsidiary or division		—		(9,758)
Origination of loans held for sale	Origination of loans held for sale	(32,645)		(45,220)		Origination of loans held for sale	(10,402)		(32,645)
Purchases of loans held for sale	Purchases of loans held for sale	(19,001)		(33,811)		Purchases of loans held for sale	(6,913)		(19,001)
Proceeds from sale of loans originated or purchased for sale	Proceeds from sale of loans originated or purchased for sale	50,931		71,782		Proceeds from sale of loans originated or purchased for sale	17,673		50,931
Net (gains) losses on sale of loans	Net (gains) losses on sale of loans	(1,289)		(2,323)		Net (gains) losses on sale of loans	(18,310)		(2,965)
Net (gains) losses on transfer of loans to loans held for sale		(1,676)		466
Net change in operating leases	Net change in operating leases	468		92		Net change in operating leases	272		468
(Increase) decrease in other assets	(Increase) decrease in other assets	(19,275)		(4,206)		(Increase) decrease in other assets	(37,308)		(19,275)
Increase (decrease) in other liabilities	Increase (decrease) in other liabilities	11,071		15,387		Increase (decrease) in other liabilities	9,107		11,071
Net cash provided by (used in) operating activities	Net cash provided by (used in) operating activities	89,273		60,329		Net cash provided by (used in) operating activities	63,481		89,273
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchases of securities available for sale	Purchases of securities available for sale	(18,250)		(128,970)		Purchases of securities available for sale	(117,440)		(18,250)
Proceeds from sales of securities available for sale	Proceeds from sales of securities available for sale	—		65,184		Proceeds from sales of securities available for sale	40,163		—
Proceeds from maturities, calls, and pay downs of securities available for sale	Proceeds from maturities, calls, and pay downs of securities available for sale	76,864		78,276		Proceeds from maturities, calls, and pay downs of securities available for sale	23,562		76,864
Proceeds from maturities, calls, and pay downs of securities held to maturity	Proceeds from maturities, calls, and pay downs of securities held to maturity	762		581		Proceeds from maturities, calls, and pay downs of securities held to maturity	578		762
Purchases of loans held for investment	Purchases of loans held for investment	(77,571)		(277,333)		Purchases of loans held for investment	(133,674)		(77,571)
Proceeds from sale of loans	Proceeds from sale of loans	63,028		145,513		Proceeds from sale of loans	207,406		63,028
Net change in loans	Net change in loans	227,650		(524,820)		Net change in loans	285,854		227,650
Purchases of premises and equipment, net	Purchases of premises and equipment, net	(9,899)		(16,283)		Purchases of premises and equipment, net	(8,522)		(9,899)
Net proceeds from sale of OREO	Net proceeds from sale of OREO	807		1,918		Net proceeds from sale of OREO	438		807
(Purchases) redemptions of FHLB and other restricted stock, net	(Purchases) redemptions of FHLB and other restricted stock, net	1,850		1,396		(Purchases) redemptions of FHLB and other restricted stock, net	3,933		1,850
Net cash (paid for) received in acquisitions	Net 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 group						Proceeds from sale of disposal group	85,923		—
Net cash provided by (used in) investing activities	Net cash provided by (used in) investing activities	168,315		(669,078)		Net cash provided by (used in) investing activities	388,221		168,315
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Net increase (decrease) in deposits	Net increase (decrease) in deposits	105,975		452,582		Net increase (decrease) in deposits	(194,494)		105,975
Increase (decrease) in customer repurchase agreements	Increase (decrease) in customer repurchase agreements	8,891		12,159		Increase (decrease) in customer repurchase agreements	11,360		8,891
Increase (decrease) in Federal Home Loan Bank advances	Increase (decrease) in Federal Home Loan Bank advances	(75,000)		5,000		Increase (decrease) in Federal Home Loan Bank advances	(150,000)		(75,000)
Proceeds from Paycheck Protection Program Liquidity Facility borrowings		226,630		231,370
Repayment of Paycheck Protection Program Liquidity Facility borrowings		(320,936)		(7,657)
Proceeds from issuance of subordinated notes, net		68,224		—
Repayment of subordinated notes		(50,000)		—
Issuance of preferred stock, net of issuance costs		—		42,364
Proceeds from other borrowings, net						Proceeds from other borrowings, net	—		294,854
Repayment of other borrowings						Repayment of other borrowings	(27,144)		(370,936)
Preferred dividends	Preferred dividends	(2,405)		(899)		Preferred dividends	(2,404)		(2,405)
Stock option exercises		196		—
Stock option exercises, net						Stock option exercises, net	(74)		196
Proceeds from employee stock purchase plan common stock issuance	Proceeds from employee stock purchase plan common stock issuance	449		—		Proceeds from employee stock purchase plan common stock issuance	1,548		449
Purchase of treasury stock	Purchase of treasury stock	(1,241)		(35,772)		Purchase of treasury stock	(51,943)		(1,241)
Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	(39,217)		699,147		Net cash provided by (used in) financing activities	(413,151)		(39,217)
Net increase (decrease) in cash and cash equivalents	Net increase (decrease) in cash and cash equivalents	218,371		90,398		Net increase (decrease) in cash and cash equivalents	38,551		218,371
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	314,393		197,880		Cash and cash equivalents at beginning of period	383,178		314,393
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	532,764		288,278		Cash and cash equivalents at end of period	421,729		532,764

See accompanying condensed notes to consolidated financial statements.

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended September 30, ~~2021~~2022 and ~~2020~~2021

(Dollar amounts in thousands)

(Unaudited)


		Nine Months Ended September 30,					Nine Months Ended September 30,
		2021		2020			2022		2021
Supplemental cash flow information:	Supplemental cash flow information:					Supplemental cash flow information:
Interest paid	Interest paid	$	15,551	$	33,868	Interest paid	$	11,416	$	15,551
Income taxes paid, net	Income taxes paid, net	$	36,353	$	4,572	Income taxes paid, net	$	45,035	$	36,353
Cash paid for operating lease liabilities	Cash paid for operating lease liabilities	$	3,440	$	3,183	Cash paid for operating lease liabilities	$	2,691	$	3,440
Supplemental noncash disclosures:	Supplemental noncash disclosures:					Supplemental noncash disclosures:
Loans transferred to OREO	Loans transferred to OREO	$	644	$	1,012	Loans transferred to OREO	$	47	$	644
Loans held for investment transferred to loans held for sale	Loans 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	$	76,976
Assets transferred to assets held for sale	Assets transferred to assets held for sale	$	—	$	84,077	Assets transferred to assets held for sale	$	80,819	$	—
Deposits transferred to deposits held for sale						Deposits transferred to deposits held for sale	$	10,434	$	—
Lease liabilities arising from obtaining right-of-use assets	Lease liabilities arising from obtaining right-of-use assets	$	19,404	$	1,777	Lease liabilities arising from obtaining right-of-use assets	$	5,267	$	19,404
Securities available for sale purchased, not settled	Securities available for sale purchased, not settled	$	—	$	—	Securities available for sale purchased, not settled	$	14,976	$	—
Indemnification recognized		$	35,633	$	—
Indemnification reduction						Indemnification reduction	$	—	$	35,633
Non-cash consideration received from sale of loan portfolio or disposal group						Non-cash consideration received from sale of loan portfolio or disposal group	$	5,529	$	—

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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 nine months ended September 30, ~~2021~~2022 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 4four 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 ~~QuickPay~~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.

The ~~corporate~~Corporate 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~~Newly Issued, But Not Yet Effective Accounting Standards

In March 2022, the Financial 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 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 ~~had 3 reportable segments consisting of Banking, Factoring, and Corporate, and~~for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. The Company is evaluating 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 Combinations 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 increase automation, mitigate fraud, create back-office efficiency and improve the payment experience. Through the acquisition of HubTran, TriumphPay created additional value through the enhancement of its presentment, audit, and payment capabilities for shippers, third party logistics companies (i.e., freight brokers) and their carriers, and factors. The acquisition of HubTran was a meaningful inflection point in the operations of TriumphPay as the TriumphPay strategy has shifted from a capital-intensive on-balance sheet product with a focus on interest income to a payments network for the trucking industry with a focus on fee revenue. In terms of total revenue, operating income (loss), and total assets, TriumphPay is currently, and has historically been, quantitatively immaterial; however, given the shift in strategy brought on by the acquisition of HubTran as well as significant management and chief operating decision maker focus on TriumphPay operations, management believes disclosing TriumphPay's operations through the Payments segment is qualitatively useful for readers of these financial statements. This change also brings the Company's reportable segments in line with its reporting units used for goodwill impairment evaluation. Prior to the acquisition of HubTran, the Payments reporting unit carried no goodwill. Prior period business segment disclosures have been revised as appropriate to reflect the current period change in reportable segments.

~~Risks and Uncertainties~~

Significant progress has been made to combat the outbreak of COVID-19; however, the global pandemic has adversely impacted a broad range of industries in which the Company's customers operate and could still impair their ability to fulfill their financial obligations to the Company. The Company’s business is dependent upon the willingness and ability of its employees and customers to conduct banking and other financial transactions. While it appearseffect that the epidemiological and macroeconomic conditions are trending in a positive direction as of September 30, 2021, if there is a resurgence in the virus, the Company could experience further adverse effects on its business, financial condition, results of operations and cash flows. While it is not possible to know the full universe or extent that the impact of COVID-19, and any potential resulting measures to curtail its spread,ASU 2022-02 will have on its consolidated financial statements and related disclosures.

NOTE 2 — ACQUISITIONS AND DIVESTITURES

Equipment Loan Sale

During the quarter ended June 30, 2022, the Company made the decision to sell 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 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. 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 ~~future operations, the Company~~Consolidated Balance Sheet and is ~~disclosing potentially material items of which it is aware.~~

~~Financial position and results of operations~~marked to fair value through earnings at each reporting period.

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 lossesgain on ~~these deferred payments emerge, the related~~sale, net of transaction costs, was included in net gains (losses) on sale of 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.

~~Capital and liquidity~~

The Company's reported and regulatory capital ratios could be adversely impacted by further credit loss expense. The Company relies on cash on hand as well as dividends from its subsidiary bank to service its debt. If the Company's capital deteriorates such that its subsidiary bank is unable to pay dividends to the Company for an extended period of time, the Company may not be able to service its debt. The Company maintains access to multiple sources of liquidity. Wholesale funding markets have remained open to the Company, but rates for short-term funding can be volatile. If funding costs are elevated for an extended period of time, it could have an adverse effect on the Company's net interest margin. If an extended recession caused large numbers of the Company's deposit customers to withdraw their funds, the Company might become more reliant on volatile or more expensive sources of funding.

~~Intangible asset valuation~~

~~The lingering effects COVID-19 could cause a decline~~ in the Company’s ~~stock price or~~Consolidated Statements of Income and was allocated to the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause us to perform a goodwill impairment test and result in an impairment charge being recorded for that period. In the event that the Company concludes that all or a portion of its goodwill is impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital.Banking segment.

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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 testFactored Receivable Disposal Group

On June 30, 2022 and ~~result in an impairment charge being recorded for that period. In the event that~~September 6, 2022, the Company ~~concludes that all or a portion~~entered into and closed two separate agreements to sell two separate portfolios 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~~factored receivables. A summary 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~~carrying amounts of the ~~client,~~assets and liabilities sold and 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 deferralsgains on ~~outstanding loan balances of $32,220,000. In accordance with the CARES Act and March 2020 interagency guidance, these deferrals~~sale 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.as follows:

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 required to establish an allowance for credit loss through additional credit loss expense charged to earnings.

~~Credit~~


(Dollars in thousands)	September 6, 2022		June 30, 2022		Total
Factored receivables	$	20,131	$	67,888	$	88,019
Accrued interest and fee income	17		—		17
Assets held for sale	$	20,148	$	67,888	$	88,036

Customer reserve noninterest bearing deposits	$	1,149	$	9,682	$	10,831
Liabilities held for sale	$	1,149	$	9,682	$	10,831
Net assets sold	$	18,999	$	58,206	$	77,205
Cash consideration	$	19,054	$	66,292	$	85,346
Revenue share asset	1,027		5,210		6,237
Total consideration	$	20,081	$	71,502	$	91,583
Transaction costs	49		82		131
Gain on sale, net of transaction costs	$	1,033	$	13,214	$	14,247

The ~~Company is working with customers directly affected by COVID-19. The Company is prepared to offer assistance in accordance with regulator guidelines. As~~June 30, 2022 agreement contains a ~~result of the current economic environment caused by the COVID-19 virus, the Company is engaging in communication with borrowers to understand their situation and the challenges faced, allowing~~revenue share provision that entitles the Company to ~~respond proactively~~an amount equal to fifteen percent of the future gross monthly revenue of the clients associated with the sold factored receivable portfolio. As this transaction qualified as ~~needs~~a sale of a group of entire financial assets, management recognized, as proceeds, the assets obtained and ~~issues arise. Should~~liabilities incurred. Thus, management recorded a $5,210,000 asset for the ~~economy experience~~contractual right to receive future cash flows from a ~~prolonged period~~third party measured at fair value as of ~~poor economic conditions or should economic conditions worsen,~~the date of close. This is a financial asset for which management elected the fair value option. It is recorded in other assets in the Company's Consolidated Balance Sheet and is marked to fair value through earnings at each reporting period.

The September 6, 2022 agreement contains a revenue share provision that entitles the Company ~~could experience increases in its required allowance~~to an amount equal to a range of fifteen to twenty percent, depending on client, 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 recognized, as proceeds, the assets obtained and liabilities incurred. Thus, management recorded a $1,027,000 asset for ~~credit losses (“ACL”) and record additional credit loss expense.~~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 that~~recorded in other assets in the Company's Consolidated Balance Sheet and will be marked to fair value through earnings at each reporting period.

The gains on sale, net of transaction costs, were included in net gains (losses) on sale of loans in the Company’s ~~asset quality measures could worsen at future measurement periods if~~Consolidated Statements of Income and were allocated to the ~~effects of COVID-19 are prolonged.~~

~~NOTE 2 – BUSINESS COMBINATIONS AND DIVESTITURES~~Factoring segment.

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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(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 Values		Measurement Period Adjustments		Adjusted Values		(Dollars in thousands)	Initial Values		Measurement Period Adjustments		Adjusted Values
Assets acquired:	Assets acquired:							Assets acquired:
Cash	Cash	$	170	$	—	$	170	Cash	$	170	$	—	$	170
Intangible assets - capitalized software	Intangible assets - capitalized software	16,932		—		16,932		Intangible assets - capitalized software	16,932		—		16,932
Intangible assets - customer relationship	Intangible assets - customer relationship	10,360		—		10,360		Intangible assets - customer relationship	10,360		—		10,360
Other assets	Other assets	1,546		24		1,570		Other assets	1,546		24		1,570
		29,008		24		29,032			29,008		24		29,032
Liabilities assumed:	Liabilities assumed:							Liabilities assumed:
Deferred income taxes	Deferred income taxes	4,703		(3,230)		1,473		Deferred income taxes	4,703		(3,248)		1,455
Other liabilities	Other liabilities	906		16		922		Other liabilities	906		16		922
		5,609		(3,214)		2,395			5,609		(3,232)		2,377
Fair value of net assets acquired	Fair 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 paid	Cash paid	$	97,096	$	—	$	97,096	Cash paid	$	97,096	$	—	$	97,096
Goodwill	Goodwill	$	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. 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 ~~asset~~assets 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 3three 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.

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.

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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~~TRIUMPH BANCORP, INC. AND SUBSIDIARIES~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

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

(Dollars in thousands) Initial Values Recorded at Acquisition Date Measurement Period Adjustments Adjusted Values
Assets acquired:
Factored receivables $107,524 $— $107,524
Allowance for credit losses (37,415) — (37,415)
Factored receivables, net of ACL 70,109 — 70,109
Intangible assets 3,500 — 3,500
Indemnification asset 30,959 — 30,959
Deferred income taxes 1,448 (59) 1,389
106,016 (59) 105,957
Liabilities assumed:
Deposits 5,361 — 5,361
5,361 — 5,361
Fair value of net assets acquired $100,655 $ (59) $100,596
Consideration:
Cash paid $108,375 — $108,375
Stock consideration 13,942 — 13,942
Cash due from seller subsequent to liquidation of stock consideration (17,196) — (17,196)
Total consideration $105,121 $— $105,121
Goodwill $4,466 $59 $4,525

The Company recognized goodwill of $4,525,000, which included measurement period adjustments related to the finalization of the tax basis of Covenant’s customer intangibles and its impact on the deferred tax liability associated with these intangibles. Goodwill was calculated as the excess of the fair value of consideration exchanged as compared to the fair value of identifiable net assets acquired and was allocated to the Company’s Factoring segment. The goodwill in this acquisition resulted from expected synergies and expansion 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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~~(Unaudited)~~

The indemnification asset ~~was~~created 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 ~~$4,786,000~~$4,173,000 and ~~$36,225,000~~$4,786,000 at September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

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(Unaudited)

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 September 30, ~~2021.~~2022. At September 30, ~~2021,~~2022, Covenant had remaining availability of $9,361,000 on its TBK line of credit available to cover our undiscounted indemnification balance of ~~up to $5,038,000.~~$4,393,000.

During the ~~three~~nine months ended September 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 were~~balances. One of the remaining Over-Formula Advance clients has made ~~to the corresponding ACL balances or the indemnification asset during that period.~~

~~The contractually required~~ payments and the fair value at acquisition of factored receivables purchased for which there was not, at acquisition, evidence of more than insignificant deterioration of credit quality since origination (non-PCD loans) totaled $45,228,000 and $44,962,000, respectively.

~~Management determined that the~~ ~~$62,200,000~~ in Over-Formula Advances obtained through the TFS Acquisition had experienced more than insignificant credit deterioration since origination 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 acquisition~~			~~37,415~~
~~Non-credit discount/(premium) at acquisition~~			~~941~~
~~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~~$1,291,000 during the ~~three~~nine months ended September 30, ~~2020.~~

~~Table~~2022, which resulted in a dollar-for-dollar reduction in the required ACL as well as a write-off of ~~Contents~~

~~TRIUMPH BANCORP, INC. AND SUBSIDIARIES~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~Triumph Premium Finance~~

~~On April 20, 2020,~~a portion of the ~~Company entered into an agreement~~corresponding indemnification asset. The impact of the payment to ~~sell~~net income available to common stockholders for 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~~nine months ended ~~March 31, 2020, and at March 31, 2020, the carrying amount of the Disposal Group~~September 30, 2022 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)~~not significant.
~~Carrying amount of assets in the disposal group:~~
~~Loans~~	$	~~84,504~~
~~Premises and equipment, net~~	45
~~Other assets~~	11
	~~84,560~~
~~Carrying amount of liabilities in the disposal group:~~
~~Other liabilities~~	~~479~~
~~Total carrying amount~~	$	~~84,081~~
~~Total consideration received~~	~~94,531~~
~~Gain on sale of division~~	~~10,450~~
~~Transaction costs~~	~~692~~
~~Gain on sale of division, net of transaction costs~~	$	~~9,758~~

~~The Disposal Group was included in the Banking segment, and the loans in the Disposal Group were previously included in the commercial loan portfolio.~~

NOTE 3 -— SECURITIES

Equity Securities ~~with~~With Readily Determinable Fair Values

The Company held equity securities with readily determinable fair values of ~~$5,623,000~~$4,916,000 and ~~$5,826,000~~$5,504,000 at September 30, ~~2021~~2022 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 September 30,				Nine Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2021		2020		2021		2020		(Dollars in thousands)	2022		2021		2022		2021
Unrealized gains (losses) on equity securities held at the reporting date	Unrealized 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	$	(134)	$	(231)	$	(588)	$	(203)
Realized gains (losses) on equity securities sold during the period	Realized gains (losses) on equity securities sold during the period	—		—		—		—		Realized gains (losses) on equity securities sold during the period	—		—		—		—
		$	(231)	$	(371)	$	(203)	$	603		$	(134)	$	(231)	$	(588)	$	(203)

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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)	September 30, 2022		December 31, 2021
Equity Securities without readily determinable fair value, at cost	$	38,846	$	14,671
Upward adjustments based on observable price changes, cumulative	10,163		—
Equity Securities without readily determinable fair value, carrying value	$	49,009	$	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 September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2022		2021		2022		2021
Unrealized gains (losses) on equity securities still held at the reporting date	$	—	$	—	$	10,163	$	—
Realized gains (losses) on equity securities sold during the period	—		—		—		—
	$	—	$	—	$	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)	(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value		(Dollars in thousands)	Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses				Allowance for Credit Losses				Fair Value
September 30, 2021
September 30, 2022												September 30, 2022	Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses				Allowance for Credit Losses				Fair Value
Available for sale securities:	Available for sale securities:																					Available for sale securities:
U.S. Government agency obligations		$	4,999	$	2	$	—	$	—	$	5,001
Mortgage-backed securities, residential	Mortgage-backed securities, residential	17,308		860		(1)		—		18,167		Mortgage-backed securities, residential		$	49,962		$	—		$	(5,287)				$	—			$	44,675
Asset-backed securities	Asset-backed securities	6,860		5		(1)		—		6,864		Asset-backed securities	6,501			—			(25)					—				6,476
State and municipal	State and municipal	28,513		662		—		—		29,175		State and municipal	14,485			2			(225)				—				14,262
CLO securities	CLO securities	96,928		3,806		(15)		—		100,719		CLO securities	175,386			25			(5,703)				—				169,708
Corporate bonds	Corporate bonds	1,990		71		—		—		2,061		Corporate bonds	1,270			1			(22)				—				1,249
SBA pooled securities	SBA pooled securities	2,735		94		—		—		2,829		SBA pooled securities	2,146			45			(127)				—				2,064
Total available for sale securities	Total available for sale securities	$	159,333	$	5,500	$	(17)	$	—	$	164,816	Total available for sale securities	$	249,750		$	73		$	(11,389)			$	—			$	238,434

(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 Losses Fair
Value
December 31, 2020
Available for sale securities:
U.S. Government agency obligations $ 14,942 $ 146 $ — $ — $ 15,088
Mortgage-backed securities, residential 26,547 1,139 (2) — 27,684
Asset-backed securities 7,091 — (52) — 7,039
State and municipal 36,238 1,157 — — 37,395
CLO Securities 118,128 4,335 (259) — 122,204
Corporate bonds 11,373 205 (5) — 11,573
SBA pooled securities 3,200 133 (6) — 3,327
Total available for sale securities $ 217,519 $ 7,115 $ (324) $ — $ 224,310


(Dollars in thousands)	(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrecognized Losses		Fair Value		(Dollars in thousands)	Amortized Cost			Gross Unrealized Gains			Gross Unrecognized Losses				Fair Value
December 31, 2020
September 30, 2022										September 30, 2022	Amortized Cost			Gross Unrealized Gains			Gross Unrecognized Losses				Fair Value
Held to maturity securities:	Held to maturity securities:																			Held to maturity securities:
CLO securities	CLO securities	$	7,945	$	—	$	(2,095)	$	5,850	CLO securities		$	6,579		$	455		$	(1,431)			$	5,603
Allowance for credit losses	Allowance for credit losses	(2,026)								Allowance for credit losses	(2,430)
Total held to maturity securities, net of ACL	Total held to maturity securities, net of ACL	$	5,919							Total held to maturity securities, net of ACL	$	4,149

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(Unaudited)


(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
December 31, 2021
Available for sale securities:
Mortgage-backed securities, residential	$	36,885	$	720	$	(156)	$	—	$	37,449
Asset-backed securities	6,763		2		(1)		—		6,764
State and municipal	26,309		516		—		—		26,825
CLO Securities	103,579		3,109		(54)		—		106,634
Corporate bonds	1,992		64		—		—		2,056
SBA pooled securities	2,536		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 September 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 Securities				Held to Maturity Securities					Available for Sale Securities				Held 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 less	Due in one year or less	$	14,984	$	15,046	$	—	$	—	Due in one year or less	$	1,527	$	1,525	$	—	$	—
Due from one year to five years	Due from one year to five years	3,697		3,770		—		—		Due from one year to five years	3,122		3,067		—		—
Due from five years to ten years	Due from five years to ten years	72,591		75,497		7,225		5,534		Due from five years to ten years	53,433		51,539		6,579		5,603
Due after ten years	Due after ten years	41,158		42,643		—		—		Due after ten years	133,059		129,088		—		—
		132,430		136,956		7,225		5,534			191,141		185,219		6,579		5,603
Mortgage-backed securities, residential	Mortgage-backed securities, residential	17,308		18,167		—		—		Mortgage-backed securities, residential	49,962		44,675		—		—
Asset-backed securities	Asset-backed securities	6,860		6,864		—		—		Asset-backed securities	6,501		6,476		—		—
SBA pooled securities	SBA pooled securities	2,735		2,829		—		—		SBA pooled securities	2,146		2,064		—		—
		$	159,333	$	164,816	$	7,225	$	5,534		$	249,750	$	238,434	$	6,579	$	5,603

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 September 30,				Nine Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2021		2020		2021		2020		(Dollars in thousands)	2022		2021		2022		2021
Proceeds	Proceeds	$	—	$	65,184	$	—	$	65,184	Proceeds	$	—	$	—	$	40,163	$	—
Gross gains	Gross gains	—		3,217		—		3,217		Gross gains	—		—		2,512		—
Gross losses	Gross losses	—		(140)		—		(140)		Gross losses	—		—		—		—
Net gains and losses from calls of securities	Net gains and losses from calls of securities	4		32		5		133		Net gains and losses from calls of securities	—		4		2		5

Debt securities with a carrying amount of approximately ~~$88,968,000~~$96,198,000 and ~~$73,056,000~~$72,805,000 at September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively, were pledged to secure public deposits, customer repurchase agreements, and for other purposes required or permitted by law.

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Accrued interest on available for sale securities totaled ~~$776,000~~$1,764,000 and ~~$1,233,000~~$802,000 at September 30, ~~2021~~2022 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 nine months ended September 30, ~~2021~~2022 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 Months				12 Months or More				Total					Less than 12 Months						12 Months or More						Total
(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
September 30, 2022														September 30, 2022	Fair 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, residential	Mortgage-backed securities, residential	—		—		18		(1)		18		(1)		Mortgage-backed securities, residential		$	44,500		$	(5,287)		$	3		$	—		$	44,503				$	(5,287)
Asset-backed securities	Asset-backed securities	—		—		5,060		(1)		5,060		(1)		Asset-backed securities	1,479			(21)			4,996			(4)			6,475					(25)
State and municipal	State and municipal	—		—		—		—		—		—		State and municipal	12,981			(225)			—			—			12,981				(225)
CLO securities	CLO securities	9,972		(9)		2,766		(6)		12,738		(15)		CLO securities	140,066			(5,119)			9,666			(584)			149,732				(5,703)
Corporate bonds	Corporate bonds	—		—		—		—		—		—		Corporate bonds	748			(22)			—			—			748				(22)
SBA pooled securities	SBA pooled securities	—		—		—		—		—		—		SBA pooled securities	1,380			(127)			—			—			1,380				(127)
		$	9,972	$	(9)	$	7,844	$	(8)	$	17,816	$	(17)		$	201,154		$	(10,801)		$	14,665		$	(588)		$	215,819			$	(11,389)

~~Table of Contents~~

~~TRIUMPH BANCORP, INC. AND SUBSIDIARIES~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~


		Less than 12 Months				12 Months or More				Total					Less than 12 Months						12 Months or More						Total
(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, 2021														December 31, 2021	Fair 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, residential	Mortgage-backed securities, residential	100		(1)		215		(1)		315		(2)		Mortgage-backed securities, residential		$	20,386		$	(155)		$	6		$	(1)		$	20,392				$	(156)
Asset-backed securities	Asset-backed securities	129		—		6,911		(52)		7,040		(52)		Asset-backed securities	37			—			4,999			(1)			5,036					(1)
State and municipal	State and municipal	—		—		—		—		—		—		State and municipal	30			—			—			—			30				—
CLO Securities	CLO Securities	12,083		(93)		29,785		(166)		41,868		(259)		CLO Securities	22,707			(54)			—			—			22,707				(54)
Corporate bonds	Corporate bonds	498		(5)		150		—		648		(5)		Corporate bonds	—			—			—			—			—				—
SBA pooled securities	SBA pooled securities	889		(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.

At September 30, ~~2021,~~2022, the Company had 12140 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 September 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.

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TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 September 30,				Nine Months Ended September 30,
Held to Maturity CLO Securities	Held to Maturity CLO Securities	2021		2020		2021		2020		Held to Maturity CLO Securities	2022		2021		2022		2021
Allowance for credit losses:	Allowance for credit losses:									Allowance for credit losses:
Beginning balance	Beginning balance	$	1,727	$	1,855	$	2,026	$	—	Beginning balance	$	2,355	$	1,727	$	2,082	$	2,026
Impact of adopting ASC 326		—		—		—		126
Credit loss expense	Credit loss expense	10		106		(289)		1,835		Credit loss expense	75		10		348		(289)
Allowance for credit losses ending balance	Allowance for credit losses ending balance	$	1,737	$	1,961	$	1,737	$	1,961	Allowance for credit losses ending balance	$	2,430	$	1,737	$	2,430	$	1,737

The Company’s held to maturity securities are investments in the unrated subordinated notes of collateralized loan obligation funds. These securities are the junior-most in securitization capital structures, and are subject to suspension of distributions if the credit of the underlying loan portfolios deteriorates materially. The ACL on held to maturity securities is estimated at each measurement date on a collective basis by major security type. At September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company’s held to maturity securities consisted of 3three 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~~At September 30, ~~2021, $5,810,000~~2022, $5,130,000 of the Company’s held to maturity securities were classified as nonaccrual.

~~Table of Contents~~

~~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, 2021		December 31, 2020		(Dollars in thousands)	September 30, 2022		December 31, 2021
Commercial real estate		$	19,519	$	—
1-4 family residential	1-4 family residential	1,554		6,319		1-4 family residential	$	68	$	712
Commercial	Commercial	5,364		18,227		Commercial	10		6,618
Total loans held for sale	Total loans held for sale	$	26,437	$	24,546	Total loans held for sale	$	78	$	7,330

Loans Held for Investment

Loans

The following table presents the amortized cost and unpaid principal balance of loans held for investment:


		September 30, 2021						December 31, 2020							September 30, 2022						December 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Amortized Cost		Unpaid Principal		Difference		Amortized Cost		Unpaid Principal		Difference		(Dollars in thousands)	Amortized Cost		Unpaid Principal		Difference		Amortized Cost		Unpaid Principal		Difference
Commercial real estate	Commercial real estate	$	630,106	$	632,182	$	(2,076)	$	779,158	$	782,614	$	(3,456)	Commercial real estate	$	669,742	$	670,980	$	(1,238)	$	632,775	$	634,319	$	(1,544)
Construction, land development, land	Construction, land development, land	171,814		171,998		(184)		219,647		220,021		(374)		Construction, land development, land	75,527		75,606		(79)		123,464		123,643		(179)
1-4 family residential	1-4 family residential	127,073		127,446		(373)		157,147		157,731		(584)		1-4 family residential	122,594		122,804		(210)		123,115		123,443		(328)
Farmland	Farmland	82,990		83,549		(559)		103,685		104,522		(837)		Farmland	66,595		66,838		(243)		77,394		77,905		(511)
Commercial	Commercial	1,398,497		1,410,739		(12,242)		1,562,957		1,579,841		(16,884)		Commercial	1,282,199		1,295,015		(12,816)		1,430,429		1,440,542		(10,113)
Factored receivables	Factored receivables	1,607,028		1,611,525		(4,497)		1,120,770		1,122,008		(1,238)		Factored receivables	1,449,080		1,453,591		(4,511)		1,699,537		1,703,936		(4,399)
Consumer	Consumer	12,677		12,689		(12)		15,838		15,863		(25)		Consumer	9,506		9,509		(3)		10,885		10,883		2
Mortgage warehouse	Mortgage warehouse	752,545		752,545		—		1,037,574		1,037,574		—		Mortgage warehouse	758,061		758,061		—		769,973		769,973		—
Total loans held for investment	Total loans held for investment	4,782,730		$	4,802,673	$	(19,943)	4,996,776		$	5,020,174	$	(23,398)	Total loans held for investment	4,433,304		$	4,452,404	$	(19,100)	4,867,572		$	4,884,644	$	(17,072)
Allowance for credit losses	Allowance for credit losses	(41,017)						(95,739)						Allowance for credit losses	(44,111)						(42,213)
		$	4,741,713					$	4,901,037						$	4,389,193					$	4,825,359

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TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The difference between the amortized cost and the unpaid principal is ~~primarily~~due to (1) premiums and discounts associated with acquired loans totaling ~~$12,119,000~~$14,263,000 and ~~$18,511,000~~$11,723,000 at September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively, and (2) net deferred origination and factoring fees totaling ~~$7,824,000~~$4,837,000 and ~~$4,887,000~~$5,349,000 at September 30, ~~2021~~2022 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~~$16,159,000 and ~~$18,198,000~~$14,513,000 at September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively, and was included in other assets inon the Company's consolidated balance sheets.

At September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company had ~~$189,565,000~~$249,729,000 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 September 30, ~~2021~~2022 and December 31, ~~2020~~2021 the balance of the Over-Formula Advance Portfolio included in factored receivables was $8,785,000 and $10,077,000, ~~and $62,100,000,~~ respectively. These balances were fully reserved as of those respective dates.

~~Table of Contents~~

~~TRIUMPH BANCORP, INC. AND SUBSIDIARIES~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~As of~~At September 30, ~~2021~~2022 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~~We are a party to ~~commencing~~ litigation ~~against such customer, 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. During the third quarter of 2021 we, together with the USPS, entered into a stipulation of dismissal without prejudice for our initial action with respect to this matter in United States Federal District Court and filed a new action seeking recourse from the USPS in the United States Court of Federal Claims.Based on our legal analysis and discussions with our counsel advising us on this matter, we continue to believe it is probable that we will prevail in such action and that the USPS will have the capacity to make payment on such receivable. Consequently, ~~the Company has~~we have not reserved for such balance as of September 30, ~~2021.~~2022.

Loans with carrying amounts of ~~$1,652,900,000~~$1,416,089,000 and ~~$2,255,441,000~~$1,733,917,000 at September 30, ~~2021~~2022 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 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.

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.

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-offs Recoveries Ending
Balance
Three months ended September 30, 2021
Commercial real estate $ 4,404 $ (453) $ (17) $ 2 $ 3,936
Construction, land development, land 1,490 (434) — 1 1,057
1-4 family residential 545 (64) (1) 5 485
Farmland 669 (59) — — 610
Commercial 15,674 (1,187) (211) — 14,276
Factored receivables 21,823 1,186 (3,597) 239 19,651
Consumer 236 153 (139) — 250
Mortgage warehouse 853 (101) — — 752
$ 45,694 $ (959) $ (3,965) $ 247 $ 41,017


(Dollars in thousands)	Beginning Balance		Credit Loss Expense		Charge-offs		Recoveries		Ending Balance
Three months ended September 30, 2022
Commercial real estate	$	5,167	$	(373)	$	—	$	—	$	4,794
Construction, land development, land	1,192		(198)		—		1		995
1-4 family residential	757		(16)		—		1		742
Farmland	490		(23)		—		—		467
Commercial	12,738		3,431		(208)		59		16,020
Factored receivables	22,212		183		(2,433)		172		20,134
Consumer	197		62		(106)		49		202
Mortgage warehouse	654		103		—		—		757
	$	43,407	$	3,169	$	(2,747)	$	282	$	44,111

2119

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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 Deterioration Credit Loss
Expense Charge-offs Recoveries Ending
Balance
Three months ended September 30, 2020
Commercial real estate $ 15,539 $ — $ (2,440) $ — $ 53 $ 13,152
Construction, land development, land 5,917 — (319) — 2 5,600
1-4 family residential 2,027 — (56) (6) 7 1,972
Farmland 958 — (95) — — 863
Commercial 23,283 — (657) (528) 615 22,713
Factored receivables 5,244 37,415 3,059 (773) 40 44,985
Consumer 768 — 29 (118) 31 710
Mortgage warehouse 877 — 123 — — 1,000
$ 54,613 $ 37,415 $ (356) $ (1,425) $ 748 $ 90,995

(Dollars in thousands) Beginning
Balance Credit Loss
Expense Charge-offs Recoveries Ending
Balance
Nine Months Ended September 30, 2021
Commercial real estate $ 10,182 $ (6,239) $ (17) $ 10 $ 3,936
Construction, land development, land 3,418 (2,352) (12) 3 1,057
1-4 family residential 1,225 (804) (26) 90 485
Farmland 832 (222) — — 610
Commercial 22,040 (7,936) (426) 598 14,276
Factored receivables 56,463 8,547 (45,683) 324 19,651
Consumer 542 (99) (285) 92 250
Mortgage warehouse 1,037 (285) — — 752
$ 95,739 $ (9,390) $ (46,449) $ 1,117 $ 41,017


(Dollars in thousands)	(Dollars in thousands)	Beginning Balance				Impact of Adopting ASC 326		Initial ACL on Loans Purchased with Credit Deterioration				Credit Loss Expense		Charge-offs				Recoveries		Reclassification to Held For Sale				Ending Balance			(Dollars in thousands)	Beginning Balance				Credit Loss Expense		Charge-offs				Recoveries		Ending Balance
Nine months ended September 30, 2020
Three months ended September 30, 2021																											Three months ended September 30, 2021	Beginning Balance				Credit Loss Expense		Charge-offs				Recoveries		Ending Balance
Commercial real estate	Commercial real estate			$	5,353					$	1,372					$	—					$	6,366			$	—			$	61					$	—					$	13,152	Commercial real estate
Construction, land development, land	Construction, land development, land	1,382				(187)		—				4,400		—				5		—				5,600			Construction, land development, land	1,490				(434)		—				1		1,057
1-4 family residential	1-4 family residential	308				513		—				1,138		(27)				40		—				1,972			1-4 family residential	545				(64)		(1)				5		485
Farmland	Farmland	670				437		—				(324)		—				80		—				863			Farmland	669				(59)		—				—		610
Commercial	Commercial	12,566				(184)		—				11,004		(1,173)				949		(449)				22,713			Commercial	15,674				(1,187)		(211)				—		14,276
Factored receivables	Factored receivables	7,657				(1,630)		37,415				4,475		(3,027)				95		—				44,985			Factored receivables	21,823				1,186		(3,597)				239		19,651
Consumer	Consumer	488				(52)		—				583		(410)				101		—				710			Consumer	236				153		(139)				—		250
Mortgage warehouse	Mortgage warehouse	668				—		—				332		—				—		—				1,000			Mortgage warehouse	853				(101)		—				—		752
		$	29,092			$	269	$	37,415			$	27,974	$	(4,637)			$	1,331	$	(449)			$	90,995			$	45,694			$	(959)	$	(3,965)			$	247	$	41,017

(Dollars in thousands)																											(Dollars in thousands)	Beginning Balance				Credit Loss Expense		Charge-offs				Recoveries		Ending Balance
Nine Months Ended September 30, 2022																											Nine Months Ended September 30, 2022
Commercial real estate																											Commercial real estate			$	3,961			$	881			$	(108)	$	60			$	4,794
Construction, land development, land																											Construction, land development, land	827				165		—				3		995
1-4 family residential																											1-4 family residential	468				268		—				6		742
Farmland																											Farmland	562				(95)		—				—		467
Commercial																											Commercial	14,485				2,417		(1,192)				310		16,020
Factored receivables																											Factored receivables	20,915				2,298		(3,853)				774		20,134
Consumer																											Consumer	226				180		(313)				109		202
Mortgage warehouse																											Mortgage warehouse	769				(12)		—				—		757
																												$	42,213			$	6,102	$	(5,466)			$	1,262	$	44,111

(Dollars in thousands)																											(Dollars in thousands)	Beginning Balance				Credit Loss Expense		Charge-offs				Recoveries		Ending Balance
Nine months ended September 30, 2021																											Nine months ended September 30, 2021
Commercial real estate																											Commercial real estate			$	10,182			$	(6,239)			$	(17)	$	10			$	3,936
Construction, land development, land																											Construction, land development, land	3,418				(2,352)		(12)				3		1,057
1-4 family residential																											1-4 family residential	1,225				(804)		(26)				90		485
Farmland																											Farmland	832				(222)		—				—		610
Commercial																											Commercial	22,040				(7,936)		(426)				598		14,276
Factored receivables																											Factored receivables	56,463				8,547		(45,683)				324		19,651
Consumer																											Consumer	542				(99)		(285)				92		250
Mortgage warehouse																											Mortgage warehouse	1,037				(285)		—				—		752
																												$	95,739			$	(9,390)	$	(46,449)			$	1,117	$	41,017

The increase in required ACL ~~was estimated using~~during the ~~current expected~~three months ended September 30, 2022 is a function of net charge-offs of $2,465,000 and credit loss ~~model.~~expense of $3,169,000. The ~~primary reasons for the decrease~~increase in required ACL during the nine months ended September 30, ~~2021 are~~2022 is a function of net charge-offs ~~on PCD Over-Formula Advances (classified as factored receivables)~~of $4,204,000 and ~~improvement~~credit loss expense of ~~the loss drivers that the Company forecasts to calculate expected losses during the period.~~

~~The primary reason for the decrease in required ACL during the three months ended September 30, 2021 is a decrease in specific reserves commensurate with a decrease in nonperforming loans.~~$6,102,000.

2220

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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 insignificant credit deterioration since origination and thus deemed those Over-Formula Advances to be purchased credit deteriorated ("PCD"). The total remaining ACL on all acquired PCD Over-Formula Advances was approximately $10,077,000 at September 30, 2021 compared to $48,485,000 at December 31, 2020. The primary driver of the decrease in required ACL during the nine months ended September 30, 2021 was a net charge-off of $41,265,000 due from the largest acquired Over-Formula Advance client. This was partially offset by an additional $2,844,000 million of reserve required across the two remaining Over-Formula Advance clients. As of September 30, 2021, the entire remaining acquired PCD Over-Formula Advance balance was fully reserved. See Note 2 – Business Combinations and Divestitures for further discussion of Over-Formula Advance activity.

The Company uses the discounted cash flow (DCF) method to estimate ACL for the commercial real estate, construction, land development, land, 1-4 family residential, commercial (excluding liquid ~~credit)~~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 September 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 September 30, ~~2021,~~2022 as compared to December 31, ~~2020,~~2021, the Company forecasted ~~a significant decrease in~~increasing national unemployment, ~~an increase~~a steeper decrease in one-year percentage change in national retail sales, ~~an increase~~a steeper decrease in one-year percentage change in the national home price index, and ~~an increase~~a steeper decrease in one-year percentage change in national gross domestic product. At September 30, ~~2021,~~2022 for national unemployment, the Company projected a low percentage ~~changes~~in the first quarter followed by a gradual rise in the following three quarters. For percentage change in national retail sales, the Company projected a sustained level in the first projected quarter followed by a decline to near-zero or negative levels over the last three 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 for~~declines over the last three projected quarters ~~resembling something closer~~ to ~~pre-COVID-19~~negative levels ~~albeit slightly more modest. Projected unemployment rates used by~~below recent actual periods. At September 30, 2022, the Company ~~are relatively stable over~~slowed 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 three months ended September 30, 2022, changes in projected loss drivers and prepayment assumptions over the reasonable and supportable forecast period did not have a significant impact on the ACL. Changes in net new required specific reserves increased the required ACL at September 30, 2022. Changes in loan volume and mix during the three months ended September 30, 2022 decreased the ACL during the period. Net charge-offs during the period were $2,465,000.

For the three months ended September 30, 2021, changes in projected loss drivers and prepayment 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. Changes in loan volume and mix during the three months ended September 30, 2021 did not have a significant impact on the ACL during the period. Non-PCD-related net charge-offs reduced the ACL by $3,718,000 during the three months ended September 30, 2021.

For the nine months ended September 30, 2022, changes in projected loss drivers and prepayment assumptions over the reasonable and supportable forecast period increased the required ACL by $1,487,000. Changes in net new required specific reserves also increased the required ACL at September 30, 2022. Changes in loan volume and mix during the nine months ended September 30, 2022 decreased the ACL during the period. Net charge-offs during the period were $4,204,000.

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

For the nine months ended September 30, 2021, in addition to the impact of changes to the ACL on acquired PCD Over-Formula Advances previously discussed, changes in projected loss drivers and prepayment assumptions over the reasonable and supportable forecast period decreased the required ACL by $10,319,000. Further, the Company experienced a net reserve release of specific reserves on non-PCD loans. Changes in loan volume and mix during the nine months ended September 30, 2021 also decreased the ACL during the period. Non-PCD-related ~~net~~ charge-offs reduced the ACL by $4,067,000 during the nine months ended September 30, 2021.

For the three months ended September 30, 2021, changes in projected loss drivers and assumptions over the reasonable and supportable forecast period decreased the required ACL by $177,000. Further, the Company experienced a net reserve release of specific reserves on non-PCD loans. Changes in loan volume and mix during the three months ended September 30, 2021 did not have a significant impact the ACL during the period. Non-PCD-related net charge-offs reduced the ACL by $3,718,000 during the three months ended September 30, 2021.

~~Table of Contents~~

~~TRIUMPH BANCORP, INC. AND SUBSIDIARIES~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

The following table presents the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses, and the related ACL allocated to these loans:


(Dollars in thousands)	(Dollars in thousands)	Real Estate				Accounts Receivable		Equipment				Other		Total				ACL Allocation		(Dollars in thousands)			Real Estate		Accounts Receivable				Equipment		Other				Total			ACL Allocation
September 30, 2021
September 30, 2022																				September 30, 2022			Real Estate		Accounts Receivable				Equipment		Other				Total			ACL Allocation
Commercial real estate	Commercial real estate			$	3,544					$	—					$	—				$	142					$	3,686					$	267			Commercial real estate
Construction, land development, land	Construction, land development, land	1,008				—		—				—		1,008				—		Construction, land development, land			151			—				—		—				151				—
1-4 family residential	1-4 family residential	1,260				—		—				168		1,428				10		1-4 family residential			1,663		—				—		47				1,710				80
Farmland	Farmland	1,916				—		130				—		2,046				—		Farmland			196		—				112		106				414			—
Commercial	Commercial	569				—		4,266				3,062		7,897				2,187		Commercial			208		—				3,256		14,403				17,867			4,330
Factored receivables	Factored receivables	—				45,524		—				—		45,524				11,650		Factored receivables			—		47,628				—		—				47,628			13,024
Consumer	Consumer	—				—		—				251		251				—		Consumer			—		—				—		154				154			13
Mortgage warehouse	Mortgage warehouse	—				—		—				—		—				—		Mortgage warehouse			—		—				—		—				—			—
Total	Total	$	8,297			$	45,524	$	4,396			$	3,623	$	61,840			$	14,114	Total			$	3,458	$	47,628			$	3,368	$	14,852			$	69,306		$	17,730

At September 30, ~~2021~~2022 the balance of the Over-Formula Advance Portfolio included in factored receivables ~~$10,077,000~~was $8,785,000 and was fully reserved. At September 30, ~~2021~~2022 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 Estate				Accounts Receivable		Equipment				Other		Total				ACL Allocation		(Dollars in thousands)			Real Estate		Accounts Receivable				Equipment		Other				Total			ACL Allocation
December 31, 2020
December 31, 2021																				December 31, 2021			Real Estate		Accounts Receivable				Equipment		Other				Total			ACL Allocation
Commercial real estate	Commercial real estate			$	12,454					$	—					$	—				$	162					$	12,616					$	1,334			Commercial real estate
Construction, land development, land	Construction, land development, land	2,317				—		—				—		2,317				271		Construction, land development, land			987			—				—		—				987				—
1-4 family residential	1-4 family residential	1,948				—		—				248		2,196				34		1-4 family residential			1,583		—				—		116				1,699				39
Farmland	Farmland	2,189				—		143				198		2,530				—		Farmland			1,803		—				126		116				2,045			—
Commercial	Commercial	1,813				—		5,842				9,352		17,007				5,163		Commercial			254		—				5,598		3,017				8,869			1,733
Factored receivables	Factored receivables	—				92,437		—				—		92,437				51,371		Factored receivables			—		42,863				—		—				42,863			12,640
Consumer	Consumer	—				—		—				253		253				37		Consumer			—		—				—		240				240			21
Mortgage warehouse	Mortgage warehouse	—				—		—				—		—				—		Mortgage warehouse			—		—				—		—				—			—
Total	Total	$	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

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

At December 31, ~~2020~~2021 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, ~~2020~~2021 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				Current		Total				Past 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				Current			Total			Past Due 90 Days or More and Accruing
September 30, 2021
September 30, 2022																								September 30, 2022			Past Due 30-59 Days		Past Due 60-90 Days				Past Due 90 Days or More		Total Past Due				Current			Total			Past Due 90 Days or More and Accruing
Commercial real estate	Commercial real estate			$	376					$	—			$	16					$	392				$	629,714					$	630,106					$	—			Commercial real estate
Construction, land development, land	Construction, land development, land	—				—		977				977				170,837		171,814				—		Construction, land development, land			9			—				145		154				75,373				75,527			—
1-4 family residential	1-4 family residential	680				437		720				1,837				125,236		127,073				—		1-4 family residential			984		461				819		2,264				120,330				122,594			—
Farmland	Farmland	—				—		550				550				82,440		82,990				—		Farmland			—		—				—		—				66,595			66,595			—
Commercial	Commercial	1,541				141		3,843				5,525				1,392,972		1,398,497				84		Commercial			288		178				3,097		3,563				1,278,636			1,282,199			48
Factored receivables	Factored receivables	49,084				14,643		36,936				100,663				1,506,365		1,607,028				36,936		Factored receivables			42,637		13,455				38,969		95,061				1,354,019			1,449,080			38,969
Consumer	Consumer	300				41		85				426				12,251		12,677				—		Consumer			144		28				62		234				9,272			9,506			—
Mortgage warehouse	Mortgage warehouse	—				—		—				—				752,545		752,545				—		Mortgage warehouse			—		—				—		—				758,061			758,061			—
Total	Total	$	51,981			$	15,262	$	43,127			$	110,370			$	4,672,360	$	4,782,730			$	37,020	Total			$	45,527	$	14,122			$	43,513	$	103,162			$	4,330,142		$	4,433,304		$	39,017

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~~TRIUMPH BANCORP, INC. AND SUBSIDIARIES~~

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~~(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				Current		Total				Past 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				Current			Total			Past Due 90 Days or More and Accruing
December 31, 2020
December 31, 2021																								December 31, 2021			Past Due 30-59 Days		Past Due 60-90 Days				Past Due 90 Days or More		Total Past Due				Current			Total			Past Due 90 Days or More and Accruing
Commercial real estate	Commercial real estate			$	1,512					$	147			$	7,623					$	9,282				$	769,876					$	779,158					$	—			Commercial real estate
Construction, land development, land	Construction, land development, land	185				1,001		323				1,509				218,138		219,647				22		Construction, land development, land			30			—				145		175				123,289				123,464			—
1-4 family residential	1-4 family residential	1,978				448		952				3,378				153,769		157,147				—		1-4 family residential			730		332				1,114		2,176				120,939				123,115			134
Farmland	Farmland	407				1,000		300				1,707				101,978		103,685				—		Farmland			378		154				977		1,509				75,885			77,394			—
Commercial	Commercial	2,084				1,765		5,770				9,619				1,553,338		1,562,957				35		Commercial			996		346				4,948		6,290				1,424,139			1,430,429			—
Factored receivables	Factored receivables	33,377				28,506		72,717				134,600				986,170		1,120,770				72,717		Factored receivables			70,109		18,302				39,134		127,545				1,571,992			1,699,537			39,134
Consumer	Consumer	385				116		81				582				15,256		15,838				—		Consumer			255		48				99		402				10,483			10,885			—
Mortgage warehouse	Mortgage warehouse	—				—		—				—				1,037,574		1,037,574				—		Mortgage warehouse			—		—				—		—				769,973			769,973			—
Total	Total	$	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 September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, total past due Over-Formula Advances recorded in factored receivables was ~~$10,077,000~~$8,785,000 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 September 30, ~~2021~~2022 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 balance~~all of ~~the Misdirected Payments was considered past due 90 days or more, and at December 31, 2020 approximately $6,000,000~~which was considered past due 90 days or more. Given the nature of factored receivables, these assets are disclosed as past due 90 days or more still accruing; however, the Company is not recognizing income on the ~~assets at September 30, 2021.~~assets. Historically, any income recognized on factored receivables that are past due 90 days or more has not been material.

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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, 2021				December 31, 2020					September 30, 2022				December 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Nonaccrual		Nonaccrual With No ACL		Nonaccrual		Nonaccrual With No ACL		(Dollars in thousands)	Total Nonaccrual		Nonaccrual With No ACL		Total Nonaccrual		Nonaccrual With No ACL
Commercial real estate	Commercial real estate	$	2,113	$	1,438	$	9,945	$	3,461	Commercial real estate	$	1,108	$	541	$	2,025	$	1,375
Construction, land development, land	Construction, land development, land	986		986		2,294		1,199		Construction, land development, land	151		151		964		964
1-4 family residential	1-4 family residential	1,310		1,262		1,848		1,651		1-4 family residential	1,710		1,604		1,683		1,582
Farmland	Farmland	2,046		2,046		2,531		2,531		Farmland	414		414		2,044		2,044
Commercial	Commercial	7,828		4,262		17,202		4,891		Commercial	17,291		3,015		8,078		3,910
Factored receivables	Factored receivables	—		—		—		—		Factored receivables	—		—		—		—
Consumer	Consumer	251		251		253		188		Consumer	154		112		240		159
Mortgage warehouse	Mortgage warehouse	—		—		—		—		Mortgage warehouse	—		—		—		—
		$	14,534	$	10,245	$	34,073	$	13,921		$	20,828	$	5,837	$	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) 2021 2020 2021 2020
Commercial real estate $ — $ 371 $ 8 $ 435
Construction, land development, land — 1 — 1
1-4 family residential — 21 1 31
Farmland — 36 6 36
Commercial — 37 23 76
Factored receivables — — — —
Consumer 3 — 3 2
Mortgage warehouse — — — —
$ 3 $ 466 $ 41 $ 581

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~~TRIUMPH BANCORP, INC. AND SUBSIDIARIES~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2022		2021		2022		2021
Commercial real estate	$	—	$	—	$	—	$	8
Construction, land development, land	—		—		2		—
1-4 family residential	1		—		1		1
Farmland	—		—		—		6
Commercial	—		—		4		23
Factored receivables	—		—		—		—
Consumer	—		3		—		3
Mortgage warehouse	—		—		—		—
	$	1	$	3	$	7	$	41

There was no interest earned on nonaccrual loans during the three and nine months ended September 30, ~~2021~~2022 and ~~2020.~~2021.

The following table presents information regarding nonperforming loans:


(Dollars in thousands)	(Dollars in thousands)	September 30, 2021		December 31, 2020		(Dollars in thousands)	September 30, 2022		December 31, 2021
Nonaccrual loans(1)	Nonaccrual loans(1)	$	14,534	$	34,073	Nonaccrual loans(1)	$	20,828	$	15,034
Factored receivables greater than 90 days past due	Factored receivables greater than 90 days past due	26,859		13,927		Factored receivables greater than 90 days past due	30,184		29,057
Other nonperforming factored receivables(2)	Other nonperforming factored receivables(2)	1,428		10,029		Other nonperforming factored receivables(2)	4,331		1,428
Troubled debt restructurings accruing interest	Troubled debt restructurings accruing interest	17		3		Troubled debt restructurings accruing interest	577		765
		$	42,838	$	58,032		$	55,920	$	46,284

(1)Includes troubled debt restructurings of ~~$5,048,000~~$2,034,000 and ~~$13,321,000~~$3,912,000 at September 30, ~~2021~~2022 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.~~indemnification as well as other nonperforming factored receivables less than 90 days past due. This amount is also considered Classified from a risk rating perspective.

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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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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 September 30, ~~2021~~2022 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				Total																							Revolving 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, 2021		2021		2020		2019		2018		2017		Prior
September 30, 2022																								September 30, 2022			2022			2021			2020			2019			2018			Prior				Revolving Loans			Revolving Loans Converted To Term Loans				Total
Commercial real estate	Commercial real estate																											Commercial real estate
Pass	Pass	$	161,022	$	254,852	$	48,186	$	33,865	$	56,081	$	46,685			$	25,243			$	—				$	625,934	Pass		$	209,979		$	162,141		$	201,656		$	27,482		$	18,640		$	38,969
Classified	Classified	690		3,425		41		—		16		—		—				—				4,172		Classified			2,634			779			1,883			39			—			1,098			—					—					6,433
Total commercial real estate	Total commercial real estate	$	161,712	$	258,277	$	48,227	$	33,865	$	56,097	$	46,685	$	25,243			$	—			$	630,106	Total commercial real estate			$	212,613		$	162,920		$	203,539		$	27,521		$	18,640		$	40,067		$		4,442			$	—			$	669,742

Construction, land development, land	Construction, land development, land																							Construction, land development, land
Pass	Pass	$	76,239	$	57,943	$	12,580	$	21,680	$	1,214	$	1,159	$	9			$	—			$	170,824	Pass			$	46,466		$	16,185		$	7,115		$	4,368		$	654		$	578		$	10		$	—			$	75,376
Classified	Classified	—		845		—		—		—		145		—				—				990		Classified			—			—			6			—			—			145			—			—				151
Total construction, land development, land	Total construction, land development, land	$	76,239	$	58,788	$	12,580	$	21,680	$	1,214	$	1,304	$	9			$	—			$	171,814	Total construction, land development, land			$	46,466		$	16,185		$	7,121		$	4,368		$	654		$	723		$	10		$	—			$	75,527

1-4 family residential	1-4 family residential																							1-4 family residential
Pass	Pass	$	21,915	$	18,191	$	9,961	$	7,170	$	10,068	$	25,998	$	32,018			$	327			$	125,648	Pass			$	19,058		$	23,089		$	11,450		$	3,046		$	3,787		$	22,067		$	38,002		$	308			$	120,807
Classified	Classified	219		240		53		7		8		816		82				—				1,425		Classified			29			420			156			52			3			1,059			68			—				1,787
Total 1-4 family residential	Total 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			$	19,087		$	23,509		$	11,606		$	3,098		$	3,790		$	23,126		$	38,070		$	308			$	122,594

Farmland	Farmland																							Farmland
Pass	Pass	$	11,922	$	14,111	$	11,021	$	8,749	$	10,212	$	22,761	$	1,283			$	130			$	80,189	Pass			$	10,092		$	12,736		$	10,381		$	2,738		$	6,790		$	21,707		$	1,370		$	218			$	66,032
Classified	Classified	699		524		650		336		128		307		157				—				2,801		Classified			199			11			131			112			—			110			—			—				563
Total farmland	Total farmland	$	12,621	$	14,635	$	11,671	$	9,085	$	10,340	$	23,068	$	1,440			$	130			$	82,990	Total farmland			$	10,291		$	12,747		$	10,512		$	2,850		$	6,790		$	21,817		$	1,370		$	218			$	66,595

Commercial	Commercial																							Commercial
Pass	Pass	$	419,788	$	401,324	$	92,389	$	25,544	$	17,534	$	7,485	$	413,973			$	436			$	1,378,473	Pass			$	300,479		$	220,970		$	181,171		$	45,579		$	7,594		$	13,283		$	473,205		$	269			$	1,242,550
Classified	Classified	1,422		7,995		5,493		571		66		464		4,013				—				20,024		Classified			14,656			10,681			3,701			2,148			110			115			8,238			—				39,649
Total commercial	Total commercial	$	421,210	$	409,319	$	97,882	$	26,115	$	17,600	$	7,949	$	417,986			$	436			$	1,398,497	Total commercial			$	315,135		$	231,651		$	184,872		$	47,727		$	7,704		$	13,398		$	481,443		$	269			$	1,282,199

Factored receivables	Factored receivables																							Factored receivables
Pass	Pass	$	1,575,756	$	—	$	—	$	—	$	—	$	—	$	—			$	—			$	1,575,756	Pass			$	1,411,243		$	—		$	—		$	—		$	—		$	—		$	—		$	—			$	1,411,243
Classified	Classified	10,594		20,678		—		—		—		—		—				—				31,272		Classified			17,693			—			20,144			—			—			—			—			—				37,837
Total factored receivables	Total factored receivables	$	1,586,350	$	20,678	$	—	$	—	$	—	$	—	$	—			$	—			$	1,607,028	Total factored receivables			$	1,428,936		$	—		$	20,144		$	—		$	—		$	—		$	—		$	—			$	1,449,080

Consumer	Consumer																							Consumer
Pass	Pass	$	2,173	$	2,072	$	805	$	689	$	2,739	$	3,881	$	68			$	—			$	12,427	Pass			$	3,112		$	1,590		$	1,033		$	361		$	355		$	2,760		$	141		$	—			$	9,352
Classified	Classified	5		—		—		1		123		121		—				—				250		Classified			—			2			2			—			—			150			—			—				154
Total consumer	Total consumer	$	2,178	$	2,072	$	805	$	690	$	2,862	$	4,002	$	68			$	—			$	12,677	Total consumer			$	3,112		$	1,592		$	1,035		$	361		$	355		$	2,910		$	141		$	—			$	9,506

Mortgage warehouse	Mortgage warehouse																							Mortgage warehouse
Pass	Pass	$	752,545	$	—	$	—	$	—	$	—	$	—	$	—			$	—			$	752,545	Pass			$	758,061		$	—		$	—		$	—		$	—		$	—		$	—		$	—			$	758,061
Classified	Classified	—		—		—		—		—		—		—				—				—		Classified			—			—			—			—			—			—			—			—				—
Total mortgage warehouse	Total mortgage warehouse	$	752,545	$	—	$	—	$	—	$	—	$	—	$	—			$	—			$	752,545	Total mortgage warehouse			$	758,061		$	—		$	—		$	—		$	—		$	—		$	—		$	—			$	758,061

Total loans	Total loans																							Total loans
Pass	Pass	$	3,021,360	$	748,493	$	174,942	$	97,697	$	97,848	$	107,969	$	472,594			$	893			$	4,721,796	Pass			$	2,758,490		$	436,711		$	412,806		$	83,574		$	37,820		$	99,364		$	517,170		$	795			$	4,346,730
Classified	Classified	13,629		33,707		6,237		915		341		1,853		4,252				—				60,934		Classified			35,211			11,893			26,023			2,351			113			2,677			8,306			—				86,574
Total loans	Total loans	$	3,034,989	$	782,200	$	181,179	$	98,612	$	98,189	$	109,822	$	476,846			$	893			$	4,782,730	Total loans			$	2,793,701		$	448,604		$	438,829		$	85,925		$	37,933		$	102,041		$	525,476		$	795			$	4,433,304

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(Unaudited)


														Revolving Loans				Revolving Loans Converted To Term Loans				Total																							Revolving 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, 2020		2020		2019		2018		2017		2016		Prior
December 31, 2021																								December 31, 2021			2021			2020			2019			2018			2017			Prior				Revolving Loans			Revolving Loans Converted To Term Loans				Total
Commercial real estate	Commercial real estate																											Commercial real estate
Pass	Pass	$	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
Classified	Classified	10,298		2,239		133		1,367		664		550		—				—				15,251		Classified			2,879			3,358			41			—			16			—			256					—					6,550
Total commercial real estate	Total 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, land	Construction, land development, land																							Construction, land development, land
Pass	Pass	$	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		$	8		$	—			$	121,161
Classified	Classified	2,031		34		—		—		—		252		—				—				2,317		Classified			2,150			8			—			—			—			145			—			—				2,303
Total construction, land development, land	Total 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		$	8		$	—			$	123,464

1-4 family residential	1-4 family residential																							1-4 family residential
Pass	Pass	$	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
Classified	Classified	1,473		149		137		23		11		49		105				—				1,947		Classified			273			233			53			6			64			1,089			81			—				1,799
Total 1-4 family residential	Total 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

Farmland	Farmland																							Farmland
Pass	Pass	$	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
Classified	Classified	994		407		403		—		22		590		925				—				3,341		Classified			199			612			593			333			128			298			126			—				2,289
Total farmland	Total 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

Commercial	Commercial																							Commercial
Pass	Pass	$	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
Classified	Classified	8,128		2,390		983		190		4,470		2,787		10,296				—				29,244		Classified			9,317			6,858			5,088			558			56			456			202			—				22,535
Total commercial	Total 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 receivables	Factored receivables																							Factored receivables
Pass	Pass	$	1,081,316	$	—	$	—	$	—	$	—	$	—	$	—			$	—			$	1,081,316	Pass			$	1,667,922		$	—		$	—		$	—		$	—		$	—		$	—		$	—			$	1,667,922
Classified	Classified	39,454		—		—		—		—		—		—				—				39,454		Classified			10,826			20,789			—			—			—			—			—			—				31,615
Total factored receivables	Total factored receivables	$	1,120,770	$	—	$	—	$	—	$	—	$	—	$	—			$	—			$	1,120,770	Total factored receivables			$	1,678,748		$	20,789		$	—		$	—		$	—		$	—		$	—		$	—			$	1,699,537

Consumer	Consumer																							Consumer
Pass	Pass	$	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
Classified	Classified	146		28		18		36		11		16		—				—				255		Classified			5			—			—			12			119			105			—			—				241
Total consumer	Total 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 warehouse	Mortgage warehouse																							Mortgage warehouse
Pass	Pass	$	1,037,574	$	—	$	—	$	—	$	—	$	—	$	—			$	—			$	1,037,574	Pass			$	769,973		$	—		$	—		$	—		$	—		$	—		$	—		$	—			$	769,973
Classified	Classified	—		—		—		—		—		—		—				—				—		Classified			—			—			—			—			—			—			—			—				—
Total mortgage warehouse	Total mortgage warehouse	$	1,037,574	$	—	$	—	$	—	$	—	$	—	$	—			$	—			$	1,037,574	Total mortgage warehouse			$	769,973		$	—		$	—		$	—		$	—		$	—		$	—		$	—			$	769,973

Total loans	Total loans																							Total loans
Pass	Pass	$	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
Classified	Classified	62,524		5,247		1,674		1,616		5,178		4,244		11,326				—				91,809		Classified			25,649			31,858			5,775			909			383			2,093			665			—				67,332
Total loans	Total 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~~$2,611,000 and ~~$13,324,000~~$4,677,000 as of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. The Company had allocated ~~$1,292,000~~$1,104,000 and ~~$2,469,000~~$1,068,000 of allowance for those loans at September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively, and had not committed to lend additional amounts.

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(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)	(Dollars in thousands)	Extended Amortization Period		Payment Deferrals		Protective Advances		Total Modifications		Number of Loans	(Dollars in thousands)	Extended Amortization Period		Payment Deferrals		Protective Advances		Total Modifications		Number of Loans
Three months ended September 30, 2022											Three months ended September 30, 2022

Commercial											Commercial	$	45	$	—	$	—	$	45	1
												$	45	$	—	$	—	$	45	1

Nine months ended September 30, 2022											Nine months ended September 30, 2022

Commercial											Commercial	$	45	$	—	$	—	$	45	1
												$	45	$	—	$	—	$	45	1

Nine months ended September 30, 2021	Nine months ended September 30, 2021										Nine months ended September 30, 2021
Commercial real estate	Commercial real estate	$	—	$	—	$	741	$	741	1	Commercial real estate	$	—			$	741	$	741	1

												$	—	$	—	$	741	$	741	1

Three months ended September 30, 2020
Commercial		123		3,503		—		3,626		14

Nine months ended September 30, 2020
Commercial real estate		$	—	$	246	$	—	$	246	2
Construction, land development, land		$	8	$	—	$	—	$	8	1
Farmland		3,486		—		—		3,486		1
Commercial		4,714		9,296		—		14,010		19
		$	8,208	$	9,542	$	—	$	17,750	23

There were no loans modified as troubled debt restructurings during the three months ended September 30, 2021.

During the nine months ended September 30, ~~2021,~~2022, the Company had 3two loans modified as troubled debt restructurings with a recorded investment of ~~$1,681,000~~$546,000 for which there were payment defaults within twelve months following the modification. During the nine months ended September 30, ~~2020,~~2021, the Company had 2three loans modified as troubled debt restructurings with a recorded investment of ~~$18,000~~$1,681,000 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 September 30,		Nine Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2021	2020	2021	2020	(Dollars in thousands)	2022	2021	2022	2021
Total modifications	Total modifications	—	12,625	10,459	617,976	Total 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. There were no loans in deferral at September 30, 2022. 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 December 31, 2021:


(Dollars in thousands)	Total Loans		Balance of Loans Currently in Deferral		Percentage of Portfolio		Accrued Interest Receivable

December 31, 2021
Commercial real estate	$	632,775	$	30,212	4.8	%	$	116
Construction, land development, land	123,464		1,340		1.1	%	5
1-4 family residential	123,115		—		—	%	—
Farmland	77,394		338		0.4	%	3
Commercial	1,430,429		—		—	%	—
Factored receivables	1,699,537		—		—	%	—
Consumer	10,885		6		0.1	%	—
Mortgage warehouse	769,973		—		—	%	—
Total	$	4,867,572	$	31,896	0.7	%	$	124

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(Unaudited)

Residential Real Estate Loans In Process of Foreclosure

At September 30, ~~2021~~2022 and December 31, ~~2020:~~2021, the Company had $129,000 and $301,000, respectively, in 1-4 family residential real estate loans for which formal foreclosure proceedings were in process.

(Dollars in thousands) Total
Loans Balance of
Loans Currently
in Deferral Percentage
of Portfolio Accrued
Interest
Receivable
September 30, 2021
Commercial real estate $ 630,106 $ 30,389 4.8 % $ 105
Construction, land development, land 171,814 1,340 0.8 % 5
1-4 family residential 127,073 491 0.4 % 11
Farmland 82,990 — — % —
Commercial 1,398,497 — — % —
Factored receivables 1,607,028 — — % —
Consumer 12,677 — — % —
Mortgage warehouse 752,545 — — % —
Total $ 4,782,730 $ 32,220 0.7 % $ 121

NOTE 5 — GOODWILL AND INTANGIBLE ASSETS

Goodwill and intangible assets consist of the following:


(Dollars in thousands)	September 30, 2022		December 31, 2021
Goodwill	$	233,709	$	233,727


	September 30, 2022						December 31, 2021
(Dollars in thousands)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Core deposit intangibles	$	43,578	$	(34,536)	$	9,042	$	43,578	$	(31,800)	$	11,778
Software intangible assets	16,932		(5,644)		11,288		16,932		(2,469)		14,463
Other intangible assets	30,410		(15,845)		14,565		29,560		(12,672)		16,888
	$	90,920	$	(56,025)	$	34,895	$	90,070	$	(46,941)	$	43,129

The changes in goodwill and intangible assets during the three and nine months ended September 30, 2022 and 2021 are as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2022		2021		2022		2021
Beginning balance	$	270,666	$	286,567	$	276,856	$	189,922
Acquired goodwill	—		—		—		73,697
Acquired intangible assets	851		—		851		27,292
Acquired goodwill - measurement period adjustment	—		(3,238)		(18)		(3,179)




Amortization of intangibles	(2,913)		(3,274)		(9,085)		(7,677)
Ending balance	$	268,604	$	280,055	$	268,604	$	280,055

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 two 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 months ended June 30, 2022.

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(Unaudited)

(Dollars in thousands) Total
Loans Balance of
Loans Currently
in Deferral Percentage
of Portfolio Accrued
Interest
Receivable
December 31, 2020
Commercial real estate $ 779,158 $ 69,980 9.0 % $ 357
Construction, land development, land 219,647 18,821 8.6 % 183
1-4 family residential 157,147 1,129 0.7 % 15
Farmland 103,685 — — % —
Commercial 1,562,957 14,561 0.9 % 166
Factored receivables 1,120,770 — — % —
Consumer 15,838 106 0.7 % 5
Mortgage warehouse 1,037,574 — — % —
Total $ 4,996,776 $ 104,597 2.1 % $ 726

~~Residential Real Estate Loans In Process of Foreclosure~~

~~At September 30, 2021 and December 31, 2020,~~Separately, the Company ~~had $375,000~~also entered into an Amended and ~~$251,000, respectively,~~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 ~~1-4 family residential real estate loans~~WSI’s common stock no longer qualifies for ~~which formal foreclosure proceedings were~~equity method accounting. The investment in ~~process.~~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 months ended June 30, 2022.

The following table presents the Company’s investment in WSI:


(Dollars in thousands)	September 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 has been allocated to the Payments segment. All gains and losses related to the investment are included in the Payment segment’s operating results.

NOTE ~~5 - GOODWILL AND INTANGIBLE ASSETS~~

~~Goodwill and intangible assets consist of the following:~~

(Dollars in thousands) September 30, 2021 December 31, 2020
Goodwill $ 233,727 $ 163,209

September 30, 2021 December 31, 2020
(Dollars in thousands) Gross Carrying
Amount Accumulated
Amortization Net Carrying
Amount Gross Carrying
Amount Accumulated
Amortization Net Carrying
Amount
Core deposit intangibles $ 43,578 $ (30,784) $ 12,794 $ 43,578 $ (27,436) $ 16,142
Software intangible assets 16,932 (1,411) 15,521 — — —
Other intangible assets 29,560 (11,547) 18,013 19,200 (8,629) 10,571
$ 90,070 $ (43,742) $ 46,328 $ 62,778 $ (36,065) $ 26,713

~~The changes in goodwill and intangible assets during the three and nine months ended September 30, 2021 and 2020 are as follows:~~

Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in thousands) 2021 2020 2021 2020
Beginning balance $ 286,567 $ 186,162 $ 189,922 $ 190,286
Acquired goodwill — 4,520 73,697 4,520
Acquired intangible assets — 3,500 27,292 3,500
Acquired goodwill - measurement period adjustment (3,238) — (3,179) —
Amortization of intangibles (3,274) (2,141) (7,677) (6,265)
Ending balance $ 280,055 $ 192,041 $ 280,055 $ 192,041

~~Table of Contents~~

~~TRIUMPH BANCORP, INC. AND SUBSIDIARIES~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~NOTE 6 –~~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 and~~The 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 ~~recorded~~no longer effective in ~~Accumulated Other Comprehensive Income and subsequently~~offsetting 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 nine months ended September 30, 2022, the Company reclassified $465,000 into earnings through interest expense in the ~~same period(s) during which~~consolidated 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 to~~funding, incurring a termination fee of $732,000, which was recognized through interest expense ~~as interest payments are made~~in 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 ~~Company estimates that an additional $58,000 will be reclassified as an increase in interest expense.~~

~~The table below presents the fair value~~consolidated statements of ~~the Company’s derivative financial instruments as well as their classification on the Balance Sheet:~~

Derivative Assets
As of September 30, 2021 As of December 31, 2020
(Dollars in thousands) Notional
Amount Balance
Sheet Location Fair Value
Total Notional
Amount Balance
Sheet Location Fair Value
Total
Derivatives designated as hedging instruments:
Interest rate swaps $ 200,000 Other Assets $ 3,948 $ 200,000 Other Assets $ 816
income.

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(Unaudited)

The following table presents the pre-tax impact of the terminated cash flow hedge on AOCI:


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2022		2021		2022		2021
Unrealized gains on terminated hedges
Beginning Balance	$	—	$	—	$	—	$	—
Unrealized gains arising during the period	—		—		9,316		—
Reclassification adjustments for amortization of unrealized (gains) into net income	—		—		(9,316)		—
Ending Balance	$	—	$	—	$	—	$	—

The Company did not have any derivative financial instruments at September 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 as of December 31, 2021:

Derivative Assets

As of December 31, 2021

(Dollars in thousands)

Notional
Amount

Balance
Sheet Location

Fair Value
Total

Derivatives designated as hedging instruments:

Interest rate swaps

200,000

Other Assets

6,164

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			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)	(Dollars in thousands)						(Dollars in thousands)
Three Months Ended September 30, 2022												Three Months Ended September 30, 2022
Derivatives in cash flow hedging relationships:												Derivatives in cash flow hedging relationships:
Interest rate swaps												Interest rate swaps	$	—	$	—	Interest Expense, Noninterest Income	$	—	$	—

Three Months Ended September 30, 2021	Three Months Ended September 30, 2021															Three Months Ended September 30, 2021
Derivatives in cash flow hedging relationships:	Derivatives in cash flow hedging relationships:											Derivatives in cash flow hedging relationships:
Interest rate swaps	Interest rate swaps	$	7	$	7	Interest Expense		$	18	$	18	Interest rate swaps	$	7	$	7	Interest Expense	$	14	$	14

Three Months Ended September 30, 2020
Nine Months Ended September 30, 2022												Nine Months Ended September 30, 2022
Derivatives in cash flow hedging relationships:	Derivatives in cash flow hedging relationships:											Derivatives in cash flow hedging relationships:
Interest rate swaps	Interest rate swaps	$	257	$	257	Interest Expense		$	(16)	$	(16)	Interest rate swaps	$	(4,705)	$	(4,705)	Interest Expense, Noninterest Income	$	(7,103)	$	(7,103)

Nine Months Ended September 30, 2021	Nine Months Ended September 30, 2021											Nine Months Ended September 30, 2021
Derivatives in cash flow hedging relationships:	Derivatives in cash flow hedging relationships:											Derivatives in cash flow hedging relationships:
Interest rate swaps	Interest rate swaps	$	2,386	$	2,386	Interest Expense		$	70	$	70	Interest rate swaps	$	2,386	$	2,386	Interest Expense	$	53	$	53

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~~

Table 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.~~Contents

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.TRIUMPH BANCORP, INC. AND SUBSIDIARIES

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.CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

~~Table of Contents~~

~~TRIUMPH BANCORP, INC. AND SUBSIDIARIES~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

The net carrying amounts of the Company’s investments in the subordinated notes of the CLO funds, which represent the Company’s maximum exposure to loss as a result of its involvement with the CLO funds, totaled ~~$5,488,000~~$4,149,000 and ~~$5,919,000~~$4,947,000 at September 30, ~~2021~~2022 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 - BORROWINGS~~

~~Subordinated Notes~~

On September 30, 2016, the Company issued $50,000,000 of Fixed-to-Floating Rate Subordinated Notes due 2026 (the “2016 Notes”). The 2016 Notes initially bear interest at 6.50% per annum, payable semi-annually in arrears, to, but excluding, September 30, 2021, and, thereafter and to, but excluding, the maturity date or earlier redemption, interest shall be payable quarterly in arrears, at an annual floating rate equal to three-month LIBOR as determined for the applicable quarterly period, plus 5.345%. The Company redeemed the 2016 Notes in whole on September 30, 2021 at which time $755,000 in remaining deferred costs were recognized through interest expense.

On November 27, 2019, the Company issued $39,500,000 of Fixed-to-Floating Rate Subordinated Notes due 2029 (the “2019 Notes”). The 2019 Notes initially bear interest at 4.875% per annum, payable semi-annually in arrears, to, but excluding, November 27, 2024, and, thereafter and to, but excluding, the maturity date or earlier redemption, interest shall be payable quarterly in arrears, at an annual floating rate equal to a benchmark rate, initially three-month LIBOR, as determined for the applicable quarterly period, plus 3.330%. The Company may, at its option, beginning on November 27, 2024 and on any scheduled interest payment date thereafter, redeem the 2019 Notes, in whole or in part, at a redemption price equal to the outstanding principal amount of the 2019 Notes to be redeemed plus accrued and unpaid interest to, but excluding, the date of redemption.

The 2019 Notes are included on the consolidated balance sheets as liabilities at their carrying values of $38,479,000 and $38,356,000 at September 30, 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.~~

~~Table of Contents~~

~~TRIUMPH BANCORP, INC. AND SUBSIDIARIES~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(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 as of September 30, 2022, 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, 2021						December 31, 2020							September 30, 2022						December 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Fixed Rate		Variable Rate		Total		Fixed Rate		Variable Rate		Total		(Dollars in thousands)	Fixed Rate		Variable Rate		Total		Fixed Rate		Variable Rate		Total
Unused lines of credit	Unused lines of credit	$	25,574	$	381,584	$	407,158	$	43,406	$	547,430	$	590,836	Unused lines of credit	$	3,994	$	442,809	$	446,803	$	26,029	$	523,483	$	549,512
Standby letters of credit	Standby letters of credit	$	7,819	$	5,782	$	13,601	$	5,464	$	8,429	$	13,893	Standby letters of credit	$	13,711	$	4,920	$	18,631	$	11,090	$	5,409	$	16,499
Commitments to purchase loans	Commitments to purchase loans	$	—	$	88,620	$	88,620	$	—	$	66,373	$	66,373	Commitments to purchase loans	$	—	$	79,030	$	79,030	$	—	$	108,423	$	108,423
Mortgage warehouse commitments	Mortgage warehouse commitments	$	—	$	844,903	$	844,903	$	—	$	417,722	$	417,722	Mortgage warehouse commitments	$	—	$	851,939	$	851,939	$	—	$	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.

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TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Commitments to purchase loans represent loans purchased by the Company that have not yet settled.

Mortgage warehouse commitments are unconditionally cancellable and represent the unused capacity on mortgage warehouse facilities the Company has approved. The Company reserves the right to refuse to buy any mortgage loans offered for sale by a customer, for any reason, at the Company’s sole and absolute discretion.

The Company records an allowance for credit losses on off-balance sheet credit exposures through a charge to credit loss expense on the Company’s consolidated statements of income. At September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the allowance for credit losses on off-balance sheet credit exposures totaled ~~$3,846,000~~$3,680,000 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 September 30,				Nine Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2021		2020		2021		2020		(Dollars in thousands)	2022		2021		2022		2021
Credit loss expense (benefit)	Credit loss expense (benefit)	$	(238)	$	(8)	$	(1,159)	$	3,840	Credit loss expense (benefit)	$	(598)	$	(238)	$	(402)	$	(1,159)

~~Table of Contents~~

~~TRIUMPH BANCORP, INC. AND SUBSIDIARIES~~

~~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.

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 ~~2020~~2021 Form 10-K.

~~Assets and liabilities measured at fair value on a recurring basis are summarized in the table below.~~

(Dollars in thousands) Fair Value Measurements Using Total
Fair Value
September 30, 2021 Level 1 Level 2 Level 3
Assets measured at fair value on a recurring basis
Securities available for sale
U.S. Government agency obligations $ — $ 5,001 $ — $ 5,001
Mortgage-backed securities, residential — 18,167 — 18,167
Asset-backed securities — 6,864 — 6,864
State and municipal — 29,175 — 29,175
CLO securities — 100,719 — 100,719
Corporate bonds — 2,061 — 2,061
SBA pooled securities — 2,829 — 2,829
$ — $ 164,816 $ — $ 164,816
Equity securities
Mutual fund $ 5,623 $ — $ — $ 5,623
Loans held for sale $ — $ 26,437 $ — $ 26,437
Derivative financial instruments (cash flow hedges)
Interest rate swap $ — $ 3,948 $ — $ 3,948
Indemnification asset $ — $ — $ 4,786 $ 4,786

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands) Fair Value Measurements Using Total
Fair Value
December 31, 2020 Level 1 Level 2 Level 3
Assets measured at fair value on a recurring basis
Securities available for sale
U.S. Government agency obligations $ — $ 15,088 $ — $ 15,088
Mortgage-backed securities, residential — 27,684 — 27,684
Asset-backed securities — 7,039 — 7,039
State and municipal — 37,395 — 37,395
CLO Securities — 122,204 — 122,204
Corporate bonds — 11,573 — 11,573
SBA pooled securities — 3,327 — 3,327
$ — $ 224,310 $ — $ 224,310
Equity securities
Mutual fund $ 5,826 $ — $ — $ 5,826
Loans held for sale $ — $ 24,546 $ — $ 24,546
Derivative financial instruments (cash flow hedges)
Interest rate swap $ — $ 816 $ — $ 816
Indemnification asset $ — $ — $ 36,225 $ 36,225
Assets and liabilities measured at fair value on a recurring basis are summarized in the table below.


(Dollars in thousands)	Fair Value Measurements Using						Total Fair Value
September 30, 2022	Level 1		Level 2		Level 3
Assets measured at fair value on a recurring basis
Securities available for sale
Mortgage-backed securities, residential	$	—	$	44,675	$	—	$	44,675
Asset-backed securities	—		6,476		—		6,476
State and municipal	—		14,262		—		14,262
CLO securities	—		169,708		—		169,708
Corporate bonds	—		1,249		—		1,249
SBA pooled securities	—		2,064		—		2,064
	$	—	$	238,434	$	—	$	238,434

Equity securities with readily determinable fair values
Mutual fund	$	4,916	$	—	$	—	$	4,916

Loans held for sale	$	—	$	78	$	—	$	78

Indemnification asset	$	—	$	—	$	4,173	$	4,173

Revenue share asset	$	—	$	—	$	6,178	$	6,178

Liabilities measured at fair value on a recurring basis
Return of premium liability	$	—	$	—	$	570	$	570


(Dollars in thousands)	Fair Value Measurements Using						Total Fair Value
December 31, 2021	Level 1		Level 2		Level 3
Assets measured at fair value on a recurring basis
Securities available for sale
Mortgage-backed securities, residential	$	—	$	37,449	$	—	$	37,449
Asset-backed securities	—		6,764		—		6,764
State and municipal	—		26,825		—		26,825
CLO Securities	—		106,634		—		106,634
Corporate bonds	—		2,056		—		2,056
SBA pooled securities	—		2,698		—		2,698
	$	—	$	182,426	$	—	$	182,426

Equity securities with readily determinable fair values
Mutual fund	$	5,504	$	—	$	—	$	5,504

Loans held for sale	$	—	$	7,330	$	—	$	7,330

Derivative financial instruments (cash flow hedges)
Interest rate swap	$	—	$	6,164	$	—	$	6,164

Indemnification asset	$	—	$	—	$	4,786	$	4,786

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TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

There were no transfers between levels during ~~2021~~2022 or ~~2020.~~2021.

Indemnification Asset

The fair value of the indemnification asset is calculated as the present value of the estimated cash payments expected to be received from Covenant for probable losses on the covered Over-Formula Advance Portfolio. The cash flows are discounted at a rate to reflect the uncertainty of the timing and receipt of the payments from Covenant. The indemnification asset is reviewed quarterly and changes to the asset are recorded as adjustments to other noninterest income or expense, as appropriate, within the Consolidated Statements of Income. The indemnification asset fair value is considered a Level 3 classification. At September 30, ~~2021~~2022 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~~$4,393,000 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 September 30,				Nine Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2021		2020		2021		2020		(Dollars in thousands)	2022		2021		2022		2021
Beginning balance	Beginning balance	$	5,246	$	—	$	36,225	$	—	Beginning balance	$	4,377	$	5,246	$	4,786	$	36,225
Indemnification asset recognized in business combination	Indemnification asset recognized in business combination	—		30,959		—		30,959		Indemnification asset recognized in business combination	—		—		—		—
Change in fair value of indemnification asset recognized in earnings	Change in fair value of indemnification asset recognized in earnings	(460)		—		4,194		—		Change in fair value of indemnification asset recognized in earnings	(204)		(460)		(613)		4,194
Indemnification recognized		—		—		(35,633)		—
Indemnification reduction										Indemnification reduction	—		—		—		(35,633)
Ending balance	Ending balance	$	4,786	$	30,959	$	4,786	$	30,959	Ending balance	$	4,173	$	4,786	$	4,173	$	4,786

Revenue Share Asset

On June 30, 2022 and September 6, 2022, the Company entered into and closed two separate agreements to sell two separate portfolios of factored receivables. The June 30, 2022 agreement contains revenue share provisions that entitles the Company to an amount equal to fifteen percent of the future gross monthly revenue of the clients associated with the sold factored receivable portfolio. The September 6, 2022 agreement contains revenue share provisions that entitles the Company to an amount ranging from fifteen to twenty percent, depending on the client, of the future gross monthly revenue of the clients associated with the sold factored receivable portfolio. The fair value of the revenue share assets is calculated each reporting period, and changes in the fair value of the revenue share assets are recorded in noninterest income in the consolidated statements of income. The revenue share asset fair value is considered a Level 3 classification.

At September 30, 2022, the estimated cash payments expected to be received from the purchaser for the Company's share of future gross monthly revenue as $8,653,000 and a discount rate of 10.0% was applied to calculate the present value of the revenue share asset. A reconciliation of the opening balance to the closing balance of the fair value of the revenue share asset is as follows:



(Dollars in thousands)	Three Months Ended September 30, 2022		Nine Months Ended September 30, 2022
Beginning balance	$	5,210	$	—
Revenue share asset recognized	1,027		6,237
Change in fair value of revenue share asset recognized in earnings	171		171
Revenue share payments received	(230)		(230)
Ending balance	$	6,178	$	6,178

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Return of Premium Liability

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 September 30, 2022, the fair value of the estimated premium expected to be returned to the purchaser for sold loans prepaid in full was 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 11.0% prepayment speed; consistent with management's expected prepayment speed. A reconciliation of the opening balance to the closing balance of the fair value of the return of premium liability is as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2022		2021		2022		2021
Beginning balance	$	708	$	—	$	—	$	—
Return of premium liability recognized in business combination	—		—		708		—
Change in fair value of return of premium liability recognized in earnings	(104)		—		(104)		—
Return of premium payments made	(34)		—		(34)		—
Ending balance	$	570	$	—	$	570	$	—

Assets measured at fair value on a non-recurring basis are summarized in the table below. There were no liabilities measured at fair value on a non-recurring basis at September 30, ~~2021~~2022 and December 31, ~~2020.~~2021.


(Dollars in thousands)	(Dollars in thousands)	Fair Value Measurements Using						Total Fair Value		(Dollars in thousands)	Fair Value Measurements Using						Total Fair Value
September 30, 2021		Level 1		Level 2		Level 3
September 30, 2022										September 30, 2022	Level 1		Level 2		Level 3		Total Fair Value
Collateral dependent loans	Collateral dependent loans									Collateral dependent loans
Commercial real estate	Commercial real estate	$	—	$	—	$	408	$	408	Commercial real estate	$	—	$	—	$	283	$	283
Construction, land development, land		—		—		—		—
1-4 family residential	1-4 family residential	—		—		38		38		1-4 family residential	—		—		25		25
Commercial	Commercial	—		—		1,379		1,379		Commercial	—		—		9,771		9,771
Factored receivables	Factored receivables	—		—		33,874		33,874		Factored receivables	—		—		34,604		34,604
Consumer	Consumer	—		—		—		—		Consumer	—		—		29		29
Other real estate owned (1)
Commercial real estate		—		—		18		18
1-4 family residential		—		—		65		65
Construction		—		—		167		167
		$	—	$	—	$	35,949	$	35,949

											$	—	$	—	$	44,712	$	44,712


(Dollars in thousands)	(Dollars in thousands)	Fair Value Measurements Using						Total Fair Value		(Dollars in thousands)	Fair Value Measurements Using						Total Fair Value
December 31, 2020		Level 1		Level 2		Level 3
December 31, 2021										December 31, 2021	Level 1		Level 2		Level 3		Total Fair Value
Collateral dependent loans	Collateral dependent loans									Collateral dependent loans
Commercial real estate	Commercial real estate	$	—	$	—	$	5,107	$	5,107	Commercial real estate	$	—	$	—	$	366	$	366
Construction, land development, land		—		—		824		824
1-4 family residential	1-4 family residential	—		—		—		—		1-4 family residential	—		—		61		61
Commercial	Commercial	—		—		2,355		2,355		Commercial	—		—		2,435		2,435
Factored receivables	Factored receivables	—		—		41,065		41,065		Factored receivables	—		—		30,224		30,224
Consumer	Consumer	—		—		3		3		Consumer	—		—		60		60
PCI		0		0		0		0
Other real estate owned (1)	Other real estate owned (1)									Other real estate owned (1)
Commercial real estate	Commercial real estate	—		—		273		273		Commercial real estate	—		—		7		7
1-4 family residential		—		—		114		114
Farmland		—		—		209		209
Construction, land development, land										Construction, 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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TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(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.

~~Table of Contents~~

~~TRIUMPH BANCORP, INC. AND SUBSIDIARIES~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

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

The estimated fair values of the Company’s financial instruments not measured at fair value on a recurring or non-recurring basis at September 30, ~~2021~~2022 and December 31, ~~2020~~2021 were as follows:


(Dollars in thousands)	(Dollars in thousands)	Carrying Amount			Fair Value Measurements Using								Total Fair Value		(Dollars in thousands)	Carrying Amount			Fair Value Measurements Using									Total Fair Value
September 30, 2021				Level 1			Level 2			Level 3
September 30, 2022															September 30, 2022			Carrying Amount			Level 1			Level 2			Level 3			Total Fair Value
Financial assets:	Financial assets:																Financial assets:
Cash and cash equivalents	Cash and cash equivalents	$	532,764		$	532,764		$	—		$	—	$	532,764	Cash and cash equivalents	$	421,729		$	421,729		$	—		$	—		$	421,729
Securities - held to maturity	Securities - held to maturity	5,488			—			—			5,534		5,534		Securities - held to maturity	4,149			—			—			5,603			5,603
Loans not previously presented, gross	Loans not previously presented, gross	4,747,031			142,996			—			4,611,706		4,754,702		Loans not previously presented, gross	4,388,592			228,971			—			4,080,885			4,309,856
FHLB and other restricted stock	FHLB and other restricted stock	4,901			N/A			N/A			N/A		N/A		FHLB and other restricted stock	6,213			N/A			N/A			N/A			N/A
Accrued interest receivable	Accrued interest receivable	16,031			16,031			—			—		16,031		Accrued interest receivable	18,214			18,214			—			—			18,214

Financial liabilities:	Financial liabilities:														Financial liabilities:
Deposits	Deposits	4,822,575			—			4,823,597			—		4,823,597		Deposits	4,441,354			—			4,429,225			—			4,429,225
Customer repurchase agreements	Customer repurchase agreements	11,990			—			11,990			—		11,990		Customer repurchase agreements	13,463			—			13,463			—			13,463
Federal Home Loan Bank advances	Federal Home Loan Bank advances	30,000			—			30,000			—		30,000		Federal Home Loan Bank advances	30,000			—			30,000			—			30,000
Paycheck Protection Program Liquidity Facility		97,554			—			97,554			—		97,554
Subordinated notes	Subordinated notes	106,755			—			107,536			—		107,536		Subordinated notes	107,587			—			106,327			—			106,327
Junior subordinated debentures	Junior subordinated debentures	40,467			—			41,085			—		41,085		Junior subordinated debentures	41,016			—			42,847			—			42,847
Accrued interest payable	Accrued interest payable	1,976			1,976			—			—		1,976		Accrued interest payable	2,538			2,538			—			—			2,538

(Dollars in thousands) Carrying
Amount Fair Value Measurements Using Total
Fair Value
December 31, 2020 Level 1 Level 2 Level 3
Financial assets:
Cash and cash equivalents $ 314,393 $ 314,393 $ — $ — $ 314,393
Securities - held to maturity 5,919 — — 5,850 5,850
Loans not previously presented, gross 4,953,399 195,739 — 4,783,143 4,978,882
FHLB and other restricted stock 6,751 N/A N/A N/A N/A
Accrued interest receivable 19,435 19,435 — — 19,435
Financial liabilities:
Deposits 4,716,600 — 4,719,625 — 4,719,625
Customer repurchase agreements 3,099 — 3,099 — 3,099
Federal Home Loan Bank advances 105,000 — 105,000 — 105,000
Paycheck Protection Program Liquidity Facility 191,860 — 191,860 — 191,860
Subordinated notes 87,509 — 89,413 — 89,413
Junior subordinated debentures 40,072 — 40,379 — 40,379
Accrued interest payable 4,270 4,270 — — 4,270

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(Dollars in thousands)	Carrying Amount		Fair Value Measurements Using						Total Fair Value
December 31, 2021			Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	383,178	$	383,178	$	—	$	—	$	383,178
Securities - held to maturity	4,947		—		—		5,447		5,447
Loans not previously presented, gross	4,834,426		142,962		—		4,685,058		4,828,020
FHLB and other restricted stock	10,146		N/A		N/A		N/A		N/A
Accrued interest receivable	15,319		15,319		—		—		15,319

Financial liabilities:
Deposits	4,646,679		—		4,646,552		—		4,646,552
Customer repurchase agreements	2,103		—		2,103		—		2,103
Federal Home Loan Bank advances	180,000		—		180,000		—		180,000
Paycheck Protection Program Liquidity Facility	27,144		—		27,144		—		27,144
Subordinated notes	106,957		—		110,045		—		110,045
Junior subordinated debentures	40,602		—		41,286		—		41,286
Accrued interest payable	1,951		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 September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company and TBK Bank meet all capital adequacy requirements to which they are subject.

As of September 30, ~~2021~~2022 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 September 30, ~~2021~~2022 that management believes have changed TBK Bank’s category.

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The actual capital amounts and ratios for the Company and TBK Bank are presented in the following table.


(Dollars in thousands)	(Dollars in thousands)	Actual			Minimum for Capital Adequacy Purposes			To Be Well Capitalized Under Prompt Corrective Action Provisions			(Dollars in thousands)	Actual			Minimum for Capital Adequacy Purposes			To Be Well Capitalized Under Prompt Corrective Action Provisions
September 30, 2021		Amount		Ratio	Amount		Ratio	Amount		Ratio
September 30, 2022											September 30, 2022	Amount		Ratio	Amount		Ratio	Amount		Ratio
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/A		N/A	Triumph Bancorp, Inc.	$	831,228	16.6%	$	400,592	8.0%	N/A		N/A
TBK Bank, SSB	TBK Bank, SSB	$	655,551	12.5%	$	419,553	8.0%	$	524,441	10.0%	TBK Bank, SSB	$	781,506	15.7%	$	398,220	8.0%	$	497,775	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/A		N/A	Triumph Bancorp, Inc.	$	685,113	13.6%	$	302,256	6.0%	N/A		N/A
TBK Bank, SSB	TBK Bank, SSB	$	623,674	11.9%	$	314,457	6.0%	$	419,277	8.0%	TBK Bank, SSB	$	744,948	15.0%	$	297,979	6.0%	$	397,306	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/A		N/A	Triumph Bancorp, Inc.	$	599,097	11.9%	$	226,549	4.5%	N/A		N/A
TBK Bank, SSB	TBK Bank, SSB	$	623,674	11.9%	$	235,843	4.5%	$	340,662	6.5%	TBK Bank, SSB	$	744,948	15.0%	$	223,484	4.5%	$	322,811	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/A		N/A	Triumph Bancorp, Inc.	$	685,113	12.6%	$	217,496	4.0%	N/A		N/A
TBK Bank, SSB	TBK Bank, SSB	$	623,674	11.1%	$	224,747	4.0%	$	280,934	5.0%	TBK Bank, SSB	$	744,948	13.7%	$	217,503	4.0%	$	271,879	5.0%
As of December 31, 2020

As of December 31, 2021											As 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/A		N/A	Triumph Bancorp, Inc.	$	769,475	14.1%	$	436,582	8.0%	N/A		N/A
TBK Bank, SSB	TBK 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/A		N/A	Triumph Bancorp, Inc.	$	628,094	11.5%	$	327,701	6.0%	N/A		N/A
TBK Bank, SSB	TBK 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/A		N/A	Triumph Bancorp, Inc.	$	542,492	9.9%	$	246,587	4.5%	N/A		N/A
TBK Bank, SSB	TBK 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/A		N/A	Triumph Bancorp, Inc.	$	628,094	11.1%	$	226,340	4.0%	N/A		N/A
TBK Bank, SSB	TBK 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~~was delayed for two years. After two years, the cumulative amount of the transition adjustments ~~will become~~became 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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The capital conservation buffer set forth by the Basel III regulatory capital framework was 2.5% at September 30, ~~2021~~2022 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 September 30, ~~2021~~2022 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, 2021			December 31, 2020			(Dollars in thousands, except per share amounts)	September 30, 2022			December 31, 2021
Shares authorized	Shares authorized	51,750			51,750			Shares authorized	51,750			51,750
Shares issued	Shares issued	45,000			45,000			Shares issued	45,000			45,000
Shares outstanding	Shares outstanding	45,000			45,000			Shares outstanding	45,000			45,000
Par value per share	Par value per share	$	0.01		$	0.01		Par value per share	$	0.01		$	0.01
Liquidation preference per share	Liquidation preference per share	$	1,000		$	1,000		Liquidation preference per share	$	1,000		$	1,000
Liquidation preference amount	Liquidation preference amount	$	45,000		$	45,000		Liquidation preference amount	$	45,000		$	45,000
Dividend rate	Dividend rate	7.125		%	7.125		%	Dividend rate	7.125		%	7.125		%
Dividend payment dates	Dividend payment dates	Quarterly			Quarterly			Dividend payment dates	Quarterly			Quarterly

Common Stock


		September 30, 2021		December 31, 2020			September 30, 2022		December 31, 2021
Shares authorized	Shares authorized	50,000,000		50,000,000		Shares authorized	50,000,000		50,000,000
Shares issued	Shares issued	28,224,921		27,951,721		Shares issued	28,321,716		28,261,680
Treasury shares	Treasury shares	(3,101,579)		(3,083,503)		Treasury shares	(3,843,428)		(3,102,801)
Shares outstanding	Shares outstanding	25,123,342		24,868,218		Shares outstanding	24,478,288		25,158,879
Par value per share	Par 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

~~During~~On 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.~~a 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 made under the February 7, 2022 program. No shares ~~were repurchased during~~have been purchased under the ~~nine months ended September 30, 2021 under a stock repurchase~~May 23, 2022 program.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Shares repurchased into treasury stock	—		—		709,795		—
Average price of shares repurchased into treasury stock	$	—	$	—	$	70.41	$	—
Total cost of shares repurchased into treasury stock	$	—	$	—	$	50,000,000	$	—

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NOTE 14 –— STOCK BASED COMPENSATION

Stock based compensation expense that has been charged against income was ~~$4,445,000~~$4,296,000 and ~~$1,309,000~~$4,445,000 for the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~$9,181,000~~$17,128,000 and ~~$3,443,000~~$9,181,000 for the nine months ended September 30, ~~2021~~2022 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 nine months ended September 30, ~~2021~~2022 were as follows:


Nonvested RSAs	Nonvested RSAs	Shares	Weighted-Average Grant-Date Fair Value	Nonvested RSAs	Shares	Weighted-Average Grant-Date Fair Value
Nonvested at January 1, 2021		205,536	29.17
Nonvested at January 1, 2022				Nonvested at January 1, 2022	363,404	67.56
Granted	Granted	232,551	87.60	Granted	12,471	74.42
Vested	Vested	(78,017)	34.08	Vested	(126,203)	61.74
Forfeited	Forfeited	(3,907)	50.51	Forfeited	(3,098)	45.60
Nonvested at September 30, 2021		356,163	66.01
Nonvested at September 30, 2022				Nonvested at September 30, 2022	246,574	71.17

RSAs granted to employees under the Omnibus Incentive Plan typically vest immediately or over~~three~~ 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 September 30, ~~2021,~~2022, there was ~~$15,794,000~~$7,552,000 of unrecognized compensation cost related to the nonvested RSAs. The cost is expected to be recognized over a remaining period of ~~3.42~~2.52 years.

Restricted Stock Units

A summary of changes in the Company’s nonvested Restricted Stock Units (“RSUs”) under the Omnibus Incentive Plan for the nine months ended September 30, ~~2021~~2022 were as follows:


Nonvested RSUs	Nonvested RSUs	Shares	Weighted-Average Grant-Date Fair Value	Nonvested RSUs	Shares	Weighted-Average Grant-Date Fair Value
Nonvested at January 1, 2021		89,713	33.34
Nonvested at January 1, 2022				Nonvested at January 1, 2022	122,470	52.07
Granted	Granted	17,757	84.47	Granted	91,849	69.44
Vested	Vested	—	—	Vested	—	—
Forfeited	Forfeited	—	—	Forfeited	(967)	52.46
Nonvested at September 30, 2021		107,470	41.79
Nonvested at September 30, 2022				Nonvested at September 30, 2022	213,352	59.55

RSUs granted to employees under the Omnibus Incentive Plan typically vest ~~after~~over four to five years. Compensation expense for the RSUs will be recognized over the vesting period of the awards based on the fair value of the stock at the issue date. As of September 30, ~~2021,~~2022, there was ~~$2,519,000~~$7,688,000 of unrecognized compensation cost related to the nonvested RSUs. The cost is expected to be recognized over a remaining period of ~~2.67~~3.19 years.

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Market Based Performance Stock Units

A summary of changes in the Company’s nonvested Market Based Performance Stock Units (“Market Based PSUs”) under the Omnibus Incentive Plan for the nine months ended September 30, ~~2021~~2022 were as follows:


Nonvested Market Based PSUs	Nonvested Market Based PSUs	Shares	Weighted-Average Grant-Date Fair Value		Nonvested Market Based PSUs	Shares	Weighted-Average Grant-Date Fair Value
Nonvested at Nonvested at January 1, 2021		85,611	$	35.65
Nonvested at January 1, 2022					Nonvested at January 1, 2022	94,984	$	43.68
Granted	Granted	13,520	98.03		Granted	33,276	84.22
Incremental shares earned					Incremental shares earned	8,997	N/A
Vested	Vested	—	—		Vested	(20,996)	33.91
Forfeited	Forfeited	(4,147)	55.02		Forfeited	(535)	38.57
Nonvested at September 30, 2021		94,984	$	43.68
Nonvested at September 30, 2022					Nonvested at September 30, 2022	115,726	$	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,							Nine Months Ended September 30,
		2021			2020				2022			2021
Grant date	Grant date	May 1, 2021			May 1, 2020			Grant date	May 1, 2022			May 1, 2021
Performance period	Performance period	3.00 years			3.00 years			Performance period	3.00 years			3.00 years
Stock price	Stock price	$	88.63		$	26.25		Stock price	$	69.44		$	88.63
Triumph stock price volatility	Triumph stock price volatility	51.71		%	43.02		%	Triumph stock price volatility	55.17		%	51.71		%
Risk-free rate	Risk-free rate	0.35		%	0.25		%	Risk-free rate	2.84		%	0.35		%

As of September 30, ~~2021,~~2022, there was ~~$1,962,000~~$3,343,000 of unrecognized compensation cost related to the nonvested Market Based PSUs. The cost is expected to be recognized over a remaining period of ~~2.06~~2.21 years.

Performance Based Performance Stock Units

A summary of changes in the Company’s nonvested Performance Based Performance Stock Units (“Performance Based PSUs”) under the Omnibus Incentive Plan for the nine months ended September 30, ~~2021~~2022 were as follows:


Nonvested Performance Based PSUs	Nonvested Performance Based PSUs	Shares	Weighted Average Grant Date Fair Value		Nonvested Performance Based PSUs	Shares	Weighted Average Grant Date Fair Value
Nonvested at January 1, 2021		256,625	$	37.56
Nonvested at January 1, 2022					Nonvested at January 1, 2022	259,383	$	39.32
Granted	Granted	9,000	88.63		Granted	3,000	69.44
Vested	Vested	—	—		Vested	—	—
Forfeited	Forfeited	(6,242)	38.02		Forfeited	(6,349)	43.26
Nonvested at September 30, 2021		259,383	$	39.32
Nonvested at September 30, 2022					Nonvested at September 30, 2022	256,034	$	39.57

Performance Based PSUs granted to employees under the Omnibus Incentive Plan vest after a three ~~years.~~year performance period. 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.

4342

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

During the three and nine months ended September 30, 2022, the Company recognized $298,000 and $5,433,000, respectively, of stock based compensation expense related to Performance Based PSUs. As of September 30, 2022, the maximum unrecognized compensation cost related to the nonvested Performance Based PSUs was $7,424,000, and the remaining performance period over which the cost could be recognized was 0.25 years. No compensation cost was recorded during the three and nine months ended September 30, 2021.

Stock Options

A summary of the changes in the Company’s stock options under the Omnibus Incentive Plan for the nine months ended September 30, ~~2021~~2022 were as follows:


Stock Options	Stock Options	Shares	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (In Years)	Aggregate Intrinsic Value (In Thousands)		Stock Options	Shares	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (In Years)	Aggregate Intrinsic Value (In Thousands)
Outstanding at January 1, 2021		227,986	$	25.16
Outstanding at January 1, 2022								Outstanding at January 1, 2022	166,755	$	33.34
Granted	Granted	16,939	88.63					Granted	35,939	69.44
Exercised	Exercised	(48,541)	24.30					Exercised	(3,797)	26.12
Forfeited or expired	Forfeited or expired	—	—					Forfeited or expired	—	—
Outstanding at September 30, 2021		196,384	$	31.11	6.41	$	13,554
Outstanding at September 30, 2022								Outstanding at September 30, 2022	198,897	$	40.00	6.41	$	3,976

Fully vested shares and shares expected to vest at September 30, 2021		196,384	$	31.11	6.41	$	13,554
Fully vested shares and shares expected to vest at September 30, 2022								Fully vested shares and shares expected to vest at September 30, 2022	198,897	$	40.00	6.41	$	3,976

Shares exercisable at September 30, 2021		136,032	$	24.02	5.51	$	10,163
Shares exercisable at September 30, 2022								Shares exercisable at September 30, 2022	128,958	$	29.10	5.15	$	3,401

Information related to the stock options for the nine months ended September 30, ~~2021~~2022 and ~~2020~~2021 was as follows:


		Nine Months Ended September 30,					Nine Months Ended September 30,
(Dollars in thousands, except per share amounts)	(Dollars in thousands, except per share amounts)	2021		2020		(Dollars in thousands, except per share amounts)	2022		2021
Aggregate intrinsic value of options exercised	Aggregate intrinsic value of options exercised	$	2,407	$	10	Aggregate intrinsic value of options exercised	$	280	$	2,249
Cash received from option exercises		196		—
Cash received from option exercises, net						Cash received from option exercises, net	(74)		196
Tax benefit realized from option exercises	Tax benefit realized from option exercises	506		2		Tax benefit realized from option exercises	59		472
Weighted average fair value per share of options granted	Weighted 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. ~~Expected~~Beginning 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 ~~was~~is determined based on the SEC simplified method, which calculates the expected term as the mid-point between the weighted average time to vesting and the contractual term. The risk-free interest rate for the expected term of the options ~~was~~is 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,					Nine Months Ended September 30,
		2021		2020			2022		2021
Risk-free interest rate	Risk-free interest rate	1.16	%	0.46	%	Risk-free interest rate	2.77	%	1.16	%
Expected term	Expected term	6.25 years		6.25 years		Expected term	6.25 years		6.25 years
Expected stock price volatility	Expected stock price volatility	39.26	%	33.83	%	Expected stock price volatility	43.33	%	39.26	%
Dividend yield	Dividend yield	—		—		Dividend yield	—		—

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TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As of September 30, ~~2021,~~2022, there was ~~$512,000~~$1,059,000 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 ~~2.94~~3.28 years.

~~Table of Contents~~

~~TRIUMPH BANCORP, INC. AND SUBSIDIARIES~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Employee Stock Purchase Plan

On April 1, 2019, the Company’s Board of Directors adopted the Triumph Bancorp, Inc. Employee Stock Purchase Plan (“ESPP”) and reserved 2,500,000 shares of common stock for issuance. ~~The ESPP was approved by the Company’s stockholders on May 16, 2019.~~ The ESPP enables eligible employees to purchase the Company’s common stock at a price per share equal to 85% of the lower of the fair market value of the common stock at the beginning or end of each six month offering period. The first offering period commenced on February 1, ~~2021 and during~~2021. During the ~~three and~~ nine months ended September 30, ~~2021, 9,101~~2022, 24,516 shares were issued under the plan. No shares were issued during the nine months ended September 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 September 30,				Nine Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2021		2020		2021		2020		(Dollars in thousands)	2022		2021		2022		2021
Basic	Basic									Basic
Net income to common stockholders	Net income to common stockholders	$	23,627	$	22,005	$	83,929	$	30,995	Net income to common stockholders	$	15,428	$	23,627	$	82,346	$	83,929
Weighted average common shares outstanding	Weighted average common shares outstanding	24,759,419		24,592,092		24,719,861		24,298,897		Weighted average common shares outstanding	24,227,020		24,759,419		24,483,054		24,719,861
Basic earnings per common share	Basic earnings per common share	$	0.95	$	0.89	$	3.40	$	1.28	Basic earnings per common share	$	0.64	$	0.95	$	3.36	$	3.40
Diluted	Diluted									Diluted
Net income to common stockholders	Net income to common stockholders	$	23,627	$	22,005	$	83,929	$	30,995	Net income to common stockholders	$	15,428	$	23,627	$	82,346	$	83,929
Weighted average common shares outstanding	Weighted average common shares outstanding	24,759,419		24,592,092		24,719,861		24,298,897		Weighted average common shares outstanding	24,227,020		24,759,419		24,483,054		24,719,861
Dilutive effects of:	Dilutive effects of:									Dilutive effects of:
Assumed exercises of stock options	Assumed exercises of stock options	121,110		48,102		129,149		53,232		Assumed exercises of stock options	85,239		121,110		95,252		129,149
Restricted stock awards	Restricted stock awards	141,204		67,907		146,172		65,893		Restricted stock awards	122,723		141,204		162,883		146,172
Restricted stock units	Restricted stock units	74,268		18,192		71,620		15,198		Restricted stock units	97,512		74,268		96,174		71,620
Performance stock units - market based	Performance stock units - market based	131,346		76,095		131,275		30,995		Performance stock units - market based	117,358		131,346		124,249		131,275
Performance stock units - performance based	Performance stock units - performance based	—		—		—		—		Performance stock units - performance based	327,016		—		109,005		—
Employee stock purchase program	Employee stock purchase program	616		—		1,914		—		Employee stock purchase program	2,389		616		2,245		1,914
Average shares and dilutive potential common shares	Average shares and dilutive potential common shares	25,227,963		24,802,388		25,199,991		24,464,215		Average shares and dilutive potential common shares	24,979,257		25,227,963		25,072,862		25,199,991
Diluted earnings per common share	Diluted earnings per common share	$	0.94	$	0.89	$	3.33	$	1.27	Diluted earnings per common share	$	0.62	$	0.94	$	3.28	$	3.33

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 September 30,		Nine Months Ended September 30,
		2021	2020	2021	2020		2022	2021	2022	2021
Stock options	Stock options	16,939	98,513	16,939	98,513	Stock options	52,878	16,939	52,878	16,939
Restricted stock awards	Restricted stock awards	—	—	195,640	—	Restricted stock awards	6,348	—	6,348	195,640
Restricted stock units	Restricted stock units	—	—	17,757	—	Restricted stock units	15,000	—	15,000	17,757
Performance stock units - market based	Performance stock units - market based	12,020	—	12,020	—	Performance stock units - market based	45,296	12,020	45,296	12,020
Performance stock units - performance based	Performance stock units - performance based	259,383	261,125	259,383	261,125	Performance stock units - performance based	—	259,383	—	259,383
Employee stock purchase program	Employee stock purchase program	—	—	—	—	Employee stock purchase program	—	—	—	—

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TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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.

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 primarily consists of TriumphPay payment and audit fees. These fees totaled $3,545,000 and $3,095,000 for the three months ended September 30, 2022 and 2021, respectively, and $10,156,000 and $4,251,000 for the nine months ended September 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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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 for~~policies of the reportable segments ~~is previously disclosed~~substantially 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, 2021		Banking		Factoring		Payments		Corporate		Consolidated
Three months ended September 30, 2022												Three months ended September 30, 2022	Banking		Factoring		Payments		Corporate		Consolidated
Total interest income	Total interest income	$	46,175	$	47,222	$	3,295	$	43	$	96,735	Total interest income	$	49,864	$	49,561	$	3,756	$	44	$	103,225
Intersegment interest allocations	Intersegment interest allocations	2,452		(2,341)		(111)		—		—		Intersegment interest allocations	2,606		(2,458)		(148)		—		—
Total interest expense	Total interest expense	2,073		—		—		2,891		4,964		Total interest expense	2,924		—		—		2,031		4,955
Net interest income (expense)	Net interest income (expense)	46,554		44,881		3,184		(2,848)		91,771		Net interest income (expense)	49,546		47,103		3,608		(1,987)		98,270
Credit loss expense (benefit)	Credit loss expense (benefit)	(2,399)		1,164		38		10		(1,187)		Credit loss expense (benefit)	2,388		(52)		235		75		2,646
Net interest income after credit loss expense	Net interest income after credit loss expense	48,953		43,717		3,146		(2,858)		92,958		Net interest income after credit loss expense	47,158		47,155		3,373		(2,062)		95,624
Noninterest income	Noninterest income	7,371		1,557		3,086		41		12,055		Noninterest income	6,189		2,941		3,518		20		12,668
Noninterest expense	Noninterest expense	41,183		19,106		11,416		1,108		72,813		Noninterest expense	48,648		22,896		14,066		1,079		86,689
Operating income (loss)		$	15,141	$	26,168	$	(5,184)	$	(3,925)	$	32,200
Net income (loss) before income tax expense												Net income (loss) before income tax expense	$	4,699	$	27,200	$	(7,175)	$	(3,121)	$	21,603


(Dollars in thousands)	(Dollars in thousands)											(Dollars in thousands)
Three months ended September 30, 2020		Banking		Factoring		Payments		Corporate		Consolidated
Three months ended September 30, 2021												Three months ended September 30, 2021	Banking		Factoring		Payments		Corporate		Consolidated
Total interest income	Total interest income	$	50,927	$	30,068	$	1,361	$	8	$	82,364	Total interest income	$	46,175	$	47,222	$	3,295	$	43	$	96,735
Intersegment interest allocations	Intersegment interest allocations	3,459		(3,312)		(147)		—		—		Intersegment interest allocations	2,452		(2,341)		(111)		—		—
Total interest expense	Total interest expense	6,176		—		—		1,809		7,985		Total interest expense	2,073		—		—		2,891		4,964
Net interest income (expense)	Net interest income (expense)	48,210		26,756		1,214		(1,801)		74,379		Net interest income (expense)	46,554		44,881		3,184		(2,848)		91,771
Credit loss expense (benefit)	Credit loss expense (benefit)	(3,419)		3,053		2		106		(258)		Credit loss expense (benefit)	(2,399)		1,164		38		10		(1,187)
Net interest income after credit loss expense	Net interest income after credit loss expense	51,629		23,703		1,212		(1,907)		74,637		Net interest income after credit loss expense	48,953		43,717		3,146		(2,858)		92,958
Noninterest income	Noninterest income	7,443		3,157		47		(154)		10,493		Noninterest income	7,371		1,557		3,086		41		12,055
Noninterest expense	Noninterest expense	37,389		13,665		3,195		1,048		55,297		Noninterest expense	41,183		19,106		11,416		1,108		72,813
Operating income (loss)		$	21,683	$	13,195	$	(1,936)	$	(3,109)	$	29,833
Net income (loss) before income tax expense												Net income (loss) before income tax expense	$	15,141	$	26,168	$	(5,184)	$	(3,925)	$	32,200


(Dollars in thousands)	(Dollars in thousands)											(Dollars in thousands)
Nine months ended September 30, 2021		Banking		Factoring		Payments		Corporate		Consolidated
Nine months ended September 30, 2022												Nine months ended September 30, 2022	Banking		Factoring		Payments		Corporate		Consolidated
Total interest income	Total interest income	$	144,087	$	127,699	$	7,939	$	51	$	279,776	Total interest income	$	138,286	$	161,789	$	12,760	$	132	$	312,967
Intersegment interest allocations	Intersegment interest allocations	8,117		(7,700)		(417)		—		—		Intersegment interest allocations	6,651		(6,312)		(339)		—		—
Total interest expense	Total interest expense	8,225		—		—		6,478		14,703		Total interest expense	7,547		—		—		5,643		13,190
Net interest income (expense)	Net interest income (expense)	143,979		119,999		7,522		(6,427)		265,073		Net interest income (expense)	137,390		155,477		12,421		(5,511)		299,777
Credit loss expense (benefit)	Credit loss expense (benefit)	(19,187)		8,091		548		(290)		(10,838)		Credit loss expense (benefit)	2,638		1,961		405		1,044		6,048
Net interest income after credit loss expense	Net interest income after credit loss expense	163,166		111,908		6,974		(6,137)		275,911		Net interest income after credit loss expense	134,752		153,516		12,016		(6,555)		293,729
Noninterest income	Noninterest income	25,139		10,710		4,242		151		40,242		Noninterest income	34,496		20,333		17,069		51		71,949
Noninterest expense	Noninterest expense	122,497		52,433		26,393		3,180		204,503		Noninterest expense	138,741		66,408		46,062		2,649		253,860
Operating income (loss)		$	65,808	$	70,185	$	(15,177)	$	(9,166)	$	111,650
Net income (loss) before income tax expense												Net income (loss) before income tax expense	$	30,507	$	107,441	$	(16,977)	$	(9,153)	$	111,818

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


(Dollars in thousands)	(Dollars in thousands)											(Dollars in thousands)
Nine months ended September 30, 2020		Banking		Factoring		Payments		Corporate		Consolidated
Nine months ended September 30, 2021												Nine months ended September 30, 2021	Banking		Factoring		Payments		Corporate		Consolidated
Total interest income	Total interest income	$	155,517	$	73,952	$	2,440	$	267	$	232,176	Total interest income	$	144,087	$	127,699	$	7,939	$	51	$	279,776
Intersegment interest allocations	Intersegment interest allocations	9,139		(8,873)		(266)		—		—		Intersegment interest allocations	8,117		(7,700)		(417)		—		—
Total interest expense	Total interest expense	25,368		—		—		5,678		31,046		Total interest expense	8,225		—		—		6,478		14,703
Net interest income (expense)	Net interest income (expense)	139,288		65,079		2,174		(5,411)		201,130		Net interest income (expense)	143,979		119,999		7,522		(6,427)		265,073
Credit loss expense (benefit)	Credit loss expense (benefit)	27,211		4,437		167		1,834		33,649		Credit loss expense (benefit)	(19,187)		8,091		548		(290)		(10,838)
Net interest income after credit loss expense	Net interest income after credit loss expense	112,077		60,642		2,007		(7,245)		167,481		Net interest income after credit loss expense	163,166		111,908		6,974		(6,137)		275,911
Gain on sale of subsidiary or division		9,758		—		—		—		9,758
Other noninterest income		22,512		5,524		74		131		28,241
Noninterest income												Noninterest income	25,139		10,710		4,242		151		40,242
Noninterest expense	Noninterest expense	113,047		37,695		8,954		3,080		162,776		Noninterest expense	122,497		52,433		26,393		3,180		204,503
Operating income (loss)		$	31,300	$	28,471	$	(6,873)	$	(10,194)	$	42,704
Net income (loss) before income tax expense												Net income (loss) before income tax expense	$	65,808	$	70,185	$	(15,177)	$	(9,166)	$	111,650

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


(Dollars in thousands)	(Dollars in thousands)													(Dollars in thousands)
September 30, 2021		Banking		Factoring		Payments		Corporate		Eliminations		Consolidated
September 30, 2022														September 30, 2022	Banking		Factoring		Payments		Corporate		Eliminations		Consolidated
Total assets	Total assets	$	5,686,761	$	1,559,378	$	242,446	$	975,939	$	(2,439,989)	$	6,024,535	Total assets	$	5,162,380	$	1,406,367	$	354,179	$	1,041,293	$	(2,321,769)	$	5,642,450
Gross loans	Gross loans	$	4,390,659	$	1,479,989	$	127,039	$	700	$	(1,215,657)	$	4,782,730	Gross loans	$	3,849,962	$	1,330,122	$	118,958	$	—	$	(865,738)	$	4,433,304


(Dollars in thousands)	(Dollars in thousands)													(Dollars in thousands)
December 31, 2020		Banking		Factoring		Payments		Corporate		Eliminations		Consolidated
December 31, 2021														December 31, 2021	Banking		Factoring		Payments		Corporate		Eliminations		Consolidated
Total assets	Total 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 loans	Gross 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 September 30, ~~2021,~~2022, we had consolidated total assets of ~~$6.025~~$5.642 billion, total loans held for investment of ~~$4.783~~$4.433 billion, total deposits of ~~$4.823~~$4.441 billion and total stockholders’ equity of ~~$820.7~~$891.2 million.

Through our wholly owned bank subsidiary, TBK Bank, we offer traditional banking services, commercial ~~finance~~lending product lines focused on businesses that require specialized financial solutions and national lending product lines that further diversify our lending operations. ~~Traditional~~Our 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, land 171,814 219,647
1-4 family residential 127,073 157,147
Farmland 82,990 103,685
Commercial - General 289,242 340,850
Commercial - Paycheck Protection Program 87,413 189,857
Commercial - Agriculture 77,263 94,572
Commercial - Equipment 588,105 573,163
Commercial - Asset-based lending 213,927 180,488
Commercial - Liquid Credit 142,547 184,027
Consumer 12,677 15,838
Mortgage Warehouse 752,545 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 medium to large 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. This~~products 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 September 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 nine months ended September 30, ~~2021,~~2022, our Banking segment generated ~~53%~~45% of our total revenue (comprised of interest and noninterest income), our Factoring segment generated ~~43%~~47% 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.

Third Quarter ~~2021~~2022 Overview

Net income available to common stockholders for the three months ended September 30, ~~2021~~2022 was ~~$23.6~~$15.4 million, or ~~$0.94~~$0.62 per diluted share, compared to net income to common stockholders for the three months ended September 30, ~~2020~~2021 of ~~$22.0~~$23.6 million, or ~~$0.89~~$0.94 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 million, or $0.91 per diluted share, for the three months ended September 30, 2020. For the three months ended September 30, ~~2021,~~2022, our return on average common equity was ~~12.13%~~7.17% and our return on average assets was ~~1.61%~~1.13%.

Net income available to common stockholders for the nine months ended September 30, ~~2021~~2022 was ~~$83.9~~$82.3 million, or ~~$3.33~~$3.28 per diluted share, compared to net income available to common stockholders for the nine months ended September 30, ~~2020~~2021 of ~~$31.0~~$83.9 million, or ~~$1.27~~$3.33 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 million, or $3.42 per diluted share, for the nine months ended September 30, ~~2021 and $24.3 million, or $0.99 per diluted share,~~2021. There were no such adjustment for the nine months ended September 30, ~~2020.~~2022. For the nine months ended September 30, ~~2021,~~2022, our return on average common equity was ~~15.18%~~13.07% and our return on average assets was ~~1.91%~~1.95%.

At September 30, ~~2021,~~2022, we had total assets of ~~$6.025~~$5.642 billion, including gross loans held for investment of ~~$4.783~~$4.433 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~~$434.3 million during the nine months ended September 30, ~~2021.~~2022. Our Banking loans, which constitute ~~66%~~67% of our total loan portfolio at September 30, ~~2021,~~2022, decreased from ~~$3.876~~$3.168 billion in aggregate as of December 31, ~~2020~~2021 to ~~$3.176~~$2.984 billion as of September 30, ~~2021,~~2022, a decrease of ~~18.1%~~5.8%. Our Factoring factored receivables, which constitute ~~31%~~30% of our total loan portfolio at September 30, ~~2021, increased~~2022, decreased from ~~$1.037~~$1.546 billion in aggregate as of December 31, ~~2020~~2021 to ~~$1.480~~$1.330 billion as of September 30, ~~2021, an increase~~2022, a decrease of ~~42.8%~~14.0%. 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 September 30, ~~2021, increased~~2022, decreased from ~~$84.2~~$153.2 million in aggregate as of December 31, ~~2020~~2021 to ~~$127.0~~$119.0 million as of September 30, ~~2021, an increase~~2022, a decrease of ~~50.8%~~22.3%.

At September 30, ~~2021,~~2022, we had total liabilities of ~~$5.204~~$4.751 billion, including total deposits of ~~$4.823~~$4.441 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~~decreased $205.3 million during the nine months ended September 30, ~~2021.~~2022.

At September 30, ~~2021,~~2022, we had total stockholders' equity of ~~$820.7~~$891.2 million. During the nine months ended September 30, ~~2021,~~2022, total stockholders’ equity increased ~~$93.9~~$32.3 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%~~13.64% and ~~13.69%~~16.56%, respectively, at September 30, ~~2021.~~2022.

The total dollar value of invoices purchased by Triumph Business Capital during the three months ended September 30, 2022 was $3.600 billion with an average invoice size of $2,141. The average transportation invoice size for the three months ended September 30, 2022 was $2,073. This compares to invoice purchase volume of $3.532 billion with an average invoice size of $2,300 and average transportation invoice size of $2,195 during the same period a year ago.

TriumphPay processed 4.7 million invoices paying Carriers a total of $5.952 billion during the three months ended September 30, 2022. This compares to processed volume of 3.8 million invoices for a total of $4.191 billion during the same period a year ago.

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2022 Items of Note

Equipment Loan Sale

During the three months ended June 30, 2022, we made the decision to sell 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 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. During the three months ended September 30, 2022, Factored Receivable Disposal Group factored receivables totaling $20.1 million and customer reserves totaling $1.1 million were sold resulting in a gain on sale of loans of $1.0 million.

The gains on sale, net of transaction costs, totaling $14.2 million were included in net gains (losses) on sale of loans in the Company’s Consolidated Statements of Income and were allocated to the Factoring segment.

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. During the three months ended June 30, 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.

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 nine months ended September 30, 2022.

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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 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 September 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 September 30, 2022.

At September 30, 2022, the carrying value of the acquired over-formula advances was $8.8 million, the total reserve on acquired over-formula advances was $8.8 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 $4.2 million.

As of September 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 are a party to 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 September 30, 2022. The full amount of such receivable is reflected in non-performing and past due factored receivables as of September 30, 2022 in accordance with our policy. As of September 30, 2022, the entire $19.4 million Misdirected Payments amount was greater than 90 days past due.

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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 Combinations~~Acquisitions and Divestitures in the accompanying condensed notes to the consolidated financial statements included elsewhere in this report.

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~~Misdirected Payments~~Trucking transportation

The largest driver of changes in revenue at our Factoring segment is what is happening in freight markets, particularly in brokered freight, which is priced largely off the spot market and subject to variability in diesel prices.The third quarter saw continuing slow reduction in freight volume and spot rates. Volume was similar to pre-pandemic years in July and August of 2022, but September ~~30, 2021 we carry a separate $19.4 million receivable (the “Misdirected Payments”) payable by~~did not see 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 customerusual increase in ~~contravention of notices of assignment delivered to,~~volume. While spot rates declined, they remained above 2019 numbers 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~~was a good quarter for freight brokers as 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~~differential between contract rates and ~~filed a new action seeking recourse from~~spot rates remained wide. Flat bed truck activity had decreased the ~~USPS in the United States Court of Federal Claims.~~Based on our legal analysis and discussions with our counsel advising us on this matter, we continue to believe it is probable that we will prevail in such action and that the USPS will have the capacity to make payment on such receivable. Consequently, we have not reserved for such balance as of September 30, 2021. The full amount of such receivable is reflected in non-performing and past due factored receivables as of September 30, 2021 in accordance with our policy. As of September 30, 2021, the entire $19.4 million Misdirected Payments amount was greater than 90 days past due.

~~2020 Items of Note~~

~~Transport Financial Solutions~~

On July 8, 2020, we, through our wholly-owned subsidiary Advance Business Capital LLC (“ABC”), acquired the transportation factoring assets (the “TFS Acquisition”) of Transport Financial Solutions (“TFS”), a wholly owned subsidiary of Covenant Logistics Group, Inc. ("CVLG"), in exchange for cash consideration of $108.4 million, 630,268 shares of the Company’s common stock 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,most 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 under the Agreement were secured by a pledge of equipment collateral by Covenant with an estimated net orderly liquidation value of $60 million (the “Equipment Collateral”). The Company’s wholly-owned bank subsidiary, TBK Bank, SSB, provided Covenant with a $45 million line of credit, also secured by the Equipment Collateral, the proceeds of which may be drawn to satisfy Covenant’s indemnification obligations under the Agreement. During the first quarter of 2021, Covenant drew on the line of credit to fund its only $35.6 million indemnification payment thus far, but has since paid down that amount in its entirety. At September 30, 2021, Covenant had remaining availability of $9.4 million left on its TBK line of credit available to cover our indemnification balance up to of $5.0 million.

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Pursuant to the Agreement, the Company and Covenant have provided mutual releases to each other related to any and all claims related to the transactions contemplated by the ARPA or the Over-Formula Advance Portfolio. Also in connection the Agreement, Covenant agreed to dismiss, with prejudice, the declaratory judgment action filed in the 95th Judicial District Court of Dallas County, Texas (removed to the United States District Court, Northern District of Texas), related to the ARPA and the transactions contemplated.

~~Further discussion regarding activity related to the TFS Acquisition can be found below.~~

~~Triumph Premium Finance~~

On April 20, 2020, we entered into an agreement to sell the assets (the “Disposal Group”) of Triumph Premium Finance (“TPF”) and exit our premium finance line of business. The decision to sell TPF was made during the three months ended March 31, 2020, and at March 31, 2020, the carrying amount of the Disposal Group was transferred to assets held for sale. The transaction closed on June 30, 2020, and the assets of the Disposal Group, consisting primarily of $84.5 million of premium finance loans, was sold for a gain on sale of $9.8 million.

For further information on the above transactions, see Note 2 – Business Combinations and Divestitures in the accompanying condensed notes to the consolidated financial statements included elsewhere in this report.

~~Preferred Stock Offering~~

On June 19, 2020, we issued 45,000 shares 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.

~~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~~the third quarter, driven by, among other items, fewer housing starts. Refrigerated van volume and rates maintained a ~~$2 trillion legislative package. The goal~~relatively strong position, while dry vans saw dropping rates in most markets at a slow decline. Overall, there have been some dropouts of 1-5 truck firms and owner-operators. There has been a shift to shorter hauls by this segment, primarily due to diesel prices not supported within spot rates and much of the ~~CARES Act was~~freight has shifted to ~~curb~~contract haulers with a fuel surcharge written into 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 September 30, 2021, if there is a resurgence in the virus, the Company could experience further adverse effects on its business, financial condition, results of operations and cash flows. While it is not possible to know the full universe or extent that the impact of COVID-19, and any potential resulting measures to curtail its spread, will have on the Company’s future operations, the Company is disclosing potentially material items of which it is aware.

~~Table of~~ ~~Contents~~

~~Financial position and results of operations~~

Pertaining to our September 30, 2021 financial condition and year to date results of operations, improving conditions around COVID-19 had a material impact on our allowance for credit losses (“ACL”). 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 September 30, 2021, all of our capital ratios, and our subsidiary bank’s capital ratios, were in excess of all regulatory requirements. While we believe that we have sufficient capital to withstand a double-dip economic recession brought about by a resurgence in COVID-19, our reported and regulatory capital ratios could be adversely impacted by further credit loss expense. We rely on cash on hand as well as dividends from our subsidiary bank to service our debt. If our capital deteriorates such that our subsidiary bank is unable to pay dividends to us for an extended period of time, we may not be able to service our debt.

We maintain access to multiple sources of liquidity. Wholesale funding markets have remained open to us, but rates for short term funding can be volatile. If an extended recession caused large numbers of our deposit customers to withdraw their funds, we might become more reliant on volatile or 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.load tenders.

~~Table of~~ ~~Contents~~

~~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 experience adverse impacts as a result of COVID-19 virus, we had exposures (on balance sheet loans and commitments to lend) in the following loan categories considered to be “at-risk” of significant impact as of September 30, 2021. The exposures reported below exclude fully guaranteed PPP loans.

~~Retail Lending:~~

~~The Company’s exposure to retail at September 30, 2021 equated to approximately $188.6 million, or 3.9% of total loans, summarized as follows:~~

•~~36% retail real estate~~

•~~28% new and used vehicle lending; mostly dealer floorplan~~

•~~17% grocery stores, pet stores, pharmacies, gas stations and convenience stores~~

•~~7% factoring~~

•~~12% other types of retail lending~~

~~At September 30, 2021 there were no retail loans in deferral through our CARES Act deferral program.~~

~~Office Lending:~~

~~The Company’s exposure to office lending at September 30, 2021 equated to approximately $180.4 million, or 3.8% of total loans, summarized as follows:~~

•~~85% non-owner occupied facilities.~~

•~~15% owner occupied facilities~~

•~~less than 1% construction development lending~~

~~At September 30, 2021 there were no office lending loans in deferral through our CARES Act deferral program.~~

~~Hospitality Lending:~~

The Company’s exposure to hospitality at September 30, 2021 equated to approximately $121.9 million, or 2.5% of total loans. These were mostly smaller loans purchased through our bank acquisitions and secured by hotels. At September 30, 2021 there were no hospitality loans in deferral through our CARES Act deferral program.

~~Table of~~ ~~Contents~~

~~Restaurants:~~

The Company’s exposure to restaurants at September 30, 2021 equated to approximately $31.3 million, or less than 1% of total loans. At September 30, 2021 there were no restaurant loans in deferral through our CARES Act deferral program.

~~Health Care and Senior Care Lending:~~

The Company’s exposure to health care and senior care at September 30, 2021 equated to $42.7 million, or less than 1% of total loans. At September 30, 2021 there were no health care and senior care loans in deferral through our CARES Act deferral program.

We continue to work with customers directly affected by COVID-19. We are prepared to offer assistance in accordance with regulator guidelines. As a result of the current economic environment caused by the COVID-19 virus, we continue to engage in communication with borrowers to better understand their situation and the challenges faced, allowing us to respond proactively as needs and issues arise.

~~Trucking transportation~~

The third quarter of 2021 featured a continuation of high spot market rates in all transportation modes; dry van, reefer and flat bed. The well-publicized difficulties in supply chain movements from port to warehouse have kept trucks utilized and demand at record levels. Ocean carriers and air freight also experienced record demand and at record price levels. Through August 2021, a record number of new motor carriers had received carrier authority. These are generally not new drivers to the market but previously employed company drivers who have begun operating 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 September 30,						Nine Months Ended September 30,
(Dollars in thousands, except per share amounts)	(Dollars in thousands, except per share amounts)	2021			2020			2021			2020			(Dollars in thousands, except per share amounts)	2022			2021			2022			2021
Income Statement Data:	Income Statement Data:													Income Statement Data:
Interest income	Interest income	$	96,735		$	82,364		$	279,776		$	232,176		Interest income	$	103,225		$	96,735		$	312,967		$	279,776
Interest expense	Interest expense	4,964			7,985			14,703			31,046			Interest expense	4,955			4,964			13,190			14,703
Net interest income	Net interest income	91,771			74,379			265,073			201,130			Net interest income	98,270			91,771			299,777			265,073
Credit loss expense (benefit)	Credit loss expense (benefit)	(1,187)			(258)			(10,838)			33,649			Credit loss expense (benefit)	2,646			(1,187)			6,048			(10,838)
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)	95,624			92,958			293,729			275,911
Gain on sale of subsidiary or division		—			—			—			9,758
Other noninterest income		12,055			10,493			40,242			28,241

Noninterest income	Noninterest income	12,055			10,493			40,242			37,999			Noninterest income	12,668			12,055			71,949			40,242
Noninterest expense	Noninterest expense	72,813			55,297			204,503			162,776			Noninterest expense	86,689			72,813			253,860			204,503
Net income (loss) before income taxes	Net income (loss) before income taxes	32,200			29,833			111,650			42,704			Net income (loss) before income taxes	21,603			32,200			111,818			111,650
Income tax expense (benefit)	Income tax expense (benefit)	7,771			6,929			25,316			10,810			Income tax expense (benefit)	5,374			7,771			27,068			25,316
Net income (loss)	Net income (loss)	$	24,429		$	22,904		$	86,334		$	31,894		Net income (loss)	$	16,229		$	24,429		$	84,750		$	86,334
Dividends on preferred stock	Dividends on preferred stock	(802)			(899)			(2,405)			(899)			Dividends on preferred stock	(801)			(802)			(2,404)			(2,405)
Net income available (loss) to common stockholders	Net income available (loss) to common stockholders	$	23,627		$	22,005		$	83,929		$	30,995		Net income available (loss) to common stockholders	$	15,428		$	23,627		$	82,346		$	83,929

Per Share Data:	Per Share Data:													Per Share Data:
Basic earnings (loss) per common share	Basic earnings (loss) per common share	$	0.95		$	0.89		$	3.40		$	1.28		Basic earnings (loss) per common share	$	0.64		$	0.95		$	3.36		$	3.40
Diluted earnings (loss) per common share	Diluted earnings (loss) per common share	$	0.94		$	0.89		$	3.33		$	1.27		Diluted earnings (loss) per common share	$	0.62		$	0.94		$	3.28		$	3.33
Weighted average shares outstanding - basic	Weighted average shares outstanding - basic	24,759,419			24,592,092			24,719,861			24,298,897			Weighted average shares outstanding - basic	24,227,020			24,759,419			24,483,054			24,719,861
Weighted average shares outstanding - diluted	Weighted average shares outstanding - diluted	25,227,963			24,802,388			25,199,991			24,464,215			Weighted average shares outstanding - diluted	24,979,257			25,227,963			25,072,862			25,199,991

Adjusted Per Share Data(1):	Adjusted Per Share Data(1):													Adjusted Per Share Data(1):
Adjusted diluted earnings per common share	Adjusted diluted earnings per common share	$	0.94		$	0.91		$	3.42		$	0.99		Adjusted diluted earnings per common share	$	0.62		$	0.94		$	3.28		$	3.42
Adjusted weighted average shares outstanding - diluted	Adjusted weighted average shares outstanding - diluted	25,227,963			24,802,388			25,199,991			24,464,215			Adjusted weighted average shares outstanding - diluted	24,979,257			25,227,963			25,072,862			25,199,991

Performance ratios - Annualized:	Performance ratios - Annualized:													Performance ratios - Annualized:
Return on average assets	Return on average assets	1.61		%	1.65		%	1.91		%	0.80		%	Return on average assets	1.13		%	1.61		%	1.95		%	1.91		%
Return on average total equity	Return on average total equity	11.85		%	13.24		%	14.72		%	6.63		%	Return on average total equity	7.16		%	11.85		%	12.77		%	14.72		%
Return on average common equity	Return on average common equity	12.13		%	13.61		%	15.18		%	6.62		%	Return on average common equity	7.17		%	12.13		%	13.07		%	15.18		%
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)	10.47		%	19.21		%	19.28		%	22.12		%
Yield on loans(2)	Yield on loans(2)	7.92		%	7.05		%	7.65		%	6.92		%	Yield on loans(2)	8.95		%	7.92		%	8.77		%	7.65		%
Cost of interest bearing deposits	Cost of interest bearing deposits	0.27		%	0.79		%	0.33		%	1.07		%	Cost of interest bearing deposits	0.41		%	0.27		%	0.35		%	0.33		%
Cost of total deposits	Cost of total deposits	0.16		%	0.56		%	0.21		%	0.79		%	Cost of total deposits	0.24		%	0.16		%	0.20		%	0.21		%
Cost of total funds	Cost of total funds	0.38		%	0.67		%	0.38		%	0.90		%	Cost of total funds	0.42		%	0.38		%	0.36		%	0.38		%
Net interest margin(2)	Net interest margin(2)	6.69		%	5.83		%	6.41		%	5.52		%	Net interest margin(2)	7.71		%	6.69		%	7.69		%	6.41		%
Efficiency ratio	Efficiency ratio	70.13		%	65.15		%	66.98		%	68.07		%	Efficiency ratio	78.14		%	70.13		%	68.29		%	66.98		%
Adjusted efficiency ratio (1)	Adjusted efficiency ratio (1)	70.13		%	64.18		%	66.00		%	70.61		%	Adjusted efficiency ratio (1)	78.14		%	70.13		%	68.29		%	66.00		%
Net noninterest expense to average assets	Net noninterest expense to average assets	4.00		%	3.23		%	3.63		%	3.14		%	Net noninterest expense to average assets	5.15		%	4.00		%	4.19		%	3.63		%
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)	5.15		%	4.00		%	4.19		%	3.57		%

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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)	September 30, 2022			December 31, 2021
Balance Sheet Data:	Balance Sheet Data:							Balance Sheet Data:
Total assets	Total assets	$	6,024,535		$	5,935,791		Total assets	$	5,642,450		$	5,956,250
Cash and cash equivalents	Cash and cash equivalents	532,764			314,393			Cash and cash equivalents	421,729			383,178
Investment securities	Investment securities	175,927			236,055			Investment securities	247,499			192,877
Loans held for investment, net	Loans held for investment, net	4,741,713			4,901,037			Loans held for investment, net	4,389,193			4,825,359
Total liabilities	Total liabilities	5,203,861			5,209,010			Total liabilities	4,751,277			5,097,386
Noninterest bearing deposits	Noninterest bearing deposits	2,020,984			1,352,785			Noninterest bearing deposits	1,897,309			1,925,370
Interest bearing deposits	Interest bearing deposits	2,801,591			3,363,815			Interest bearing deposits	2,544,045			2,721,309
FHLB advances	FHLB advances	30,000			105,000			FHLB advances	30,000			180,000
Paycheck Protection Program Liquidity Facility	Paycheck Protection Program Liquidity Facility	97,554			191,860			Paycheck Protection Program Liquidity Facility	—			27,144
Subordinated notes	Subordinated notes	106,755			87,509			Subordinated notes	107,587			106,957
Junior subordinated debentures	Junior subordinated debentures	40,467			40,072			Junior subordinated debentures	41,016			40,602
Total stockholders’ equity	Total stockholders’ equity	820,674			726,781			Total stockholders’ equity	891,173			858,864
Preferred stockholders' equity	Preferred stockholders' equity	45,000			45,000			Preferred stockholders' equity	45,000			45,000
Common stockholders' equity	Common stockholders' equity	775,674			681,781			Common stockholders' equity	846,173			813,864

Per Share Data:	Per Share Data:							Per Share Data:
Book value per share	Book value per share	$	30.87		$	27.42		Book value per share	$	34.57		$	32.35
Tangible book value per share (1)	Tangible book value per share (1)	$	19.73		$	19.78		Tangible book value per share (1)	$	23.60		$	21.34
Shares outstanding end of period	Shares outstanding end of period	25,123,342			24,868,218			Shares outstanding end of period	24,478,288			25,158,879

Asset Quality ratios(3):	Asset Quality ratios(3):							Asset Quality ratios(3):
Past due to total loans	Past due to total loans	2.31		%	3.22		%	Past due to total loans	2.33		%	2.86		%
Nonperforming loans to total loans	Nonperforming loans to total loans	0.90		%	1.16		%	Nonperforming loans to total loans	1.26		%	0.95		%
Nonperforming assets to total assets	Nonperforming assets to total assets	0.86		%	1.15		%	Nonperforming assets to total assets	1.11		%	0.92		%
ACL to nonperforming loans	ACL to nonperforming loans	95.75		%	164.98		%	ACL to nonperforming loans	78.88		%	91.20		%
ACL to total loans	ACL to total loans	0.86		%	1.92		%	ACL to total loans	0.99		%	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)	0.09		%	0.95		%

Capital ratios:	Capital ratios:							Capital ratios:
Tier 1 capital to average assets	Tier 1 capital to average assets	10.43		%	10.80		%	Tier 1 capital to average assets	12.57		%	11.11		%
Tier 1 capital to risk-weighted assets	Tier 1 capital to risk-weighted assets	11.06		%	10.60		%	Tier 1 capital to risk-weighted assets	13.64		%	11.51		%
Common equity Tier 1 capital to risk-weighted assets	Common equity Tier 1 capital to risk-weighted assets	9.45		%	9.05		%	Common equity Tier 1 capital to risk-weighted assets	11.93		%	9.94		%
Total capital to risk-weighted assets	Total capital to risk-weighted assets	13.69		%	13.03		%	Total capital to risk-weighted assets	16.56		%	14.10		%
Total stockholders' equity to total assets	Total stockholders' equity to total assets	13.62		%	12.24		%	Total stockholders' equity to total assets	15.79		%	14.42		%
Tangible common stockholders' equity ratio (1)	Tangible common stockholders' equity ratio (1)	8.63		%	8.56		%	Tangible common stockholders' equity ratio (1)	10.75		%	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 September 30,				Nine Months Ended September 30,
(Dollars in thousands, except per share amounts)	(Dollars in thousands, except per share amounts)	2021		2020		2021		2020		(Dollars in thousands, except per share amounts)	2022		2021		2022		2021
Loan discount accretion	Loan discount accretion	$	1,953	$	4,104	$	7,615	$	8,377	Loan discount accretion	$	1,539	$	1,953	$	6,631	$	7,615

(3)Asset quality ratios exclude loans held for sale, except for non-performing assets to total assets.

(4)Net charge-offs to average loans ratios are for the nine months ended September 30, ~~2021~~2022 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 September 30,						Nine Months Ended September 30,
(Dollars in thousands, except per share amounts)	(Dollars in thousands, except per share amounts)	2021			2020			2021			2020			(Dollars in thousands, except per share amounts)	2022			2021			2022			2021
Net income available to common stockholders	Net income available to common stockholders	$	23,627		$	22,005		$	83,929		$	30,995		Net income available to common stockholders	$	15,428		$	23,627		$	82,346		$	83,929
Transaction costs	Transaction costs	—			827			2,992			827			Transaction costs	—			—			—			2,992
Gain on sale of subsidiary or division		—			—			—			(9,758)

Tax effect of adjustments	Tax effect of adjustments	—			(197)			(715)			2,254			Tax effect of adjustments	—			—			—			(715)
Adjusted net income available to common stockholders	Adjusted net income available to common stockholders	$	23,627		$	22,635		$	86,206		$	24,318		Adjusted net income available to common stockholders	$	15,428		$	23,627		$	82,346		$	86,206
Weighted average shares outstanding - diluted	Weighted average shares outstanding - diluted	25,227,963			24,802,388			25,199,991			24,464,215			Weighted average shares outstanding - diluted	24,979,257			25,227,963			25,072,862			25,199,991
Adjusted diluted earnings per common share	Adjusted diluted earnings per common share	$	0.94		$	0.91		$	3.42		$	0.99		Adjusted diluted earnings per common share	$	0.62		$	0.94		$	3.28		$	3.42

Average total stockholders' equity	Average total stockholders' equity	$	818,022		$	688,327		$	784,019		$	642,151		Average total stockholders' equity	$	898,845		$	818,022		$	887,497		$	784,019
Average preferred stock liquidation preference	Average 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' equity	Average total common stockholders' equity	773,022			643,327			739,019			625,071			Average total common stockholders' equity	853,845			773,022			842,497			739,019
Average goodwill and other intangibles	Average goodwill and other intangibles	(284,970)			(192,682)			(231,751)			(189,776)			Average goodwill and other intangibles	(269,417)			(284,970)			(271,350)			(231,751)
Average tangible common equity	Average tangible common equity	$	488,052		$	450,645		$	507,268		$	435,295		Average tangible common equity	$	584,428		$	488,052		$	571,147		$	507,268

Net income available to common stockholders	Net income available to common stockholders	$	23,627		$	22,005		$	83,929		$	30,995		Net income available to common stockholders	$	15,428		$	23,627		$	82,346		$	83,929
Average tangible common equity	Average tangible common equity	488,052			450,645			507,268			435,295			Average tangible common equity	584,428			488,052			571,147			507,268
Return on average tangible common equity	Return on average tangible common equity	19.21		%	19.43		%	22.12		%	9.51		%	Return on average tangible common equity	10.47		%	19.21		%	19.28		%	22.12		%

Adjusted efficiency ratio:	Adjusted efficiency ratio:													Adjusted efficiency ratio:
Net interest income	Net interest income	$	91,771		$	74,379		$	265,073		$	201,130		Net interest income	$	98,270		$	91,771		$	299,777		$	265,073
Noninterest income	Noninterest income	12,055			10,493			40,242			37,999			Noninterest income	12,668			12,055			71,949			40,242
Operating revenue	Operating revenue	103,826			84,872			305,315			239,129			Operating revenue	110,938			103,826			371,726			305,315
Gain on sale of subsidiary or division		—			—			—			(9,758)
Adjusted operating revenue		$	103,826		$	84,872		$	305,315		$	229,371

Total noninterest expense	Total noninterest expense	$	72,813		$	55,297		$	204,503		$	162,776		Total noninterest expense	$	86,689		$	72,813		$	253,860		$	204,503
Transaction costs	Transaction costs	—			(827)			(2,992)			(827)			Transaction costs	—			—			—			(2,992)
Adjusted noninterest expense	Adjusted noninterest expense	$	72,813		$	54,470		$	201,511		$	161,949		Adjusted noninterest expense	$	86,689		$	72,813		$	253,860		$	201,511
Adjusted efficiency ratio	Adjusted efficiency ratio	70.13		%	64.18		%	66.00		%	70.61		%	Adjusted efficiency ratio	78.14		%	70.13		%	68.29		%	66.00		%

Adjusted net noninterest expense to average assets ratio:	Adjusted net noninterest expense to average assets ratio:													Adjusted net noninterest expense to average assets ratio:
Total noninterest expense	Total noninterest expense	$	72,813		$	55,297		$	204,503		$	162,776		Total noninterest expense	$	86,689		$	72,813		$	253,860		$	204,503
Transaction costs	Transaction costs	—			(827)			(2,992)			(827)			Transaction costs	—			—			—			(2,992)
Adjusted noninterest expense	Adjusted noninterest expense	72,813			54,470			201,511			161,949			Adjusted noninterest expense	86,689			72,813			253,860			201,511
Total noninterest income	Total noninterest income	12,055			10,493			40,242			37,999			Total noninterest income	12,668			12,055			71,949			40,242
Gain on sale of subsidiary or division		—			—			—			(9,758)
Adjusted noninterest income		12,055			10,493			40,242			28,241
Adjusted net noninterest expenses		$	60,758		$	43,977		$	161,269		$	133,708

Net noninterest expenses														Net noninterest expenses	$	74,021		$	60,758		$	181,911		$	161,269
Average total assets	Average total assets	6,020,631			5,518,708			6,042,677			5,304,903			Average total assets	$	5,700,547		$	6,020,631		$	5,806,933		$	6,042,677
Adjusted net noninterest expense to average assets ratio	Adjusted net noninterest expense to average assets ratio	4.00		%	3.17		%	3.57		%	3.37		%	Adjusted net noninterest expense to average assets ratio	5.15		%	4.00		%	4.19		%	3.57		%

5856

Table of Contents


(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)	September 30, 2022			December 31, 2021
Total stockholders' equity	Total stockholders' equity	$	820,674		$	726,781		Total stockholders' equity	$	891,173		$	858,864
Preferred stock	Preferred stock	(45,000)			(45,000)			Preferred stock	(45,000)			(45,000)
Total common stockholders' equity	Total common stockholders' equity	775,674			681,781			Total common stockholders' equity	846,173			813,864
Goodwill and other intangibles	Goodwill and other intangibles	(280,055)			(189,922)			Goodwill and other intangibles	(268,604)			(276,856)
Tangible common stockholders' equity	Tangible common stockholders' equity	$	495,619		$	491,859		Tangible common stockholders' equity	$	577,569		$	537,008
Common shares outstanding	Common shares outstanding	25,123,342			24,868,218			Common shares outstanding	24,478,288			25,158,879
Tangible book value per share	Tangible book value per share	$	19.73		$	19.78		Tangible book value per share	$	23.60		$	21.34

Total assets at end of period	Total assets at end of period	$	6,024,535		$	5,935,791		Total assets at end of period	$	5,642,450		$	5,956,250
Goodwill and other intangibles	Goodwill and other intangibles	(280,055)			(189,922)			Goodwill and other intangibles	(268,604)			(276,856)
Tangible assets at period end	Tangible assets at period end	$	5,744,480		$	5,745,869		Tangible assets at period end	$	5,373,846		$	5,679,394
Tangible common stockholders' equity ratio	Tangible common stockholders' equity ratio	8.63		%	8.56		%	Tangible common stockholders' equity ratio	10.75		%	9.46		%

Results of Operations

Three months ended September 30, ~~2021~~2022 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.”

~~Table of~~ ~~Contents~~

Three Months Ended September 30,
2021 2020
(Dollars in thousands) Average
Balance Interest
Average
Rate(4)
Average
Balance Interest
Average
Rate(4)
Interest earning assets:
Cash and cash equivalents 474,122 183 0.15 % 224,958 73 0.13 %
Taxable securities 154,017 948 2.44 % 259,470 1,674 2.57 %
Tax-exempt securities 27,839 178 2.54 % 39,847 253 2.53 %
FHLB and other restricted stock 7,956 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 assets 5,441,343 96,735 7.05 % 5,072,459 82,364 6.46 %
Noninterest earning assets:
Cash and cash equivalents 75,374 56,871
Other noninterest earning assets 503,914 389,378
Total assets 6,020,631 5,518,708
Interest bearing liabilities:
Deposits:
Interest bearing demand 779,625 435 0.22 % 635,287 207 0.13 %
Individual retirement accounts 86,571 126 0.58 % 95,962 300 1.24 %
Money market 417,435 225 0.21 % 385,620 263 0.27 %
Savings 479,915 185 0.15 % 400,102 152 0.15 %
Certificates of deposit 595,001 725 0.48 % 905,075 3,782 1.66 %
Brokered time deposits 99,116 29 0.12 % 247,928 941 1.51 %
Other brokered deposits 441,446 223 0.20 % 251,701 189 0.30 %
Total interest bearing deposits 2,899,109 1,948 0.27 % 2,921,675 5,834 0.79 %
Federal Home Loan Bank advances 36,522 22 0.24 % 255,163 143 0.22 %
Subordinated notes 114,071 2,449 8.52 % 87,425 1,348 6.13 %
Junior subordinated debentures 40,390 443 4.35 % 39,874 462 4.61 %
Other borrowings 127,946 102 0.32 % 236,297 198 0.33 %
Total interest bearing liabilities 3,218,038 4,964 0.61 % 3,540,434 7,985 0.90 %
Noninterest bearing liabilities and equity:
Noninterest bearing demand deposits 1,912,398 1,213,494
Other liabilities 72,173 76,453
Total equity 818,022 688,327
Total liabilities and equity 6,020,631 5,518,708
Net interest income 91,771 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.~~

~~Table of~~ ~~Contents~~

~~The following table presents loan yields earned on our loan portfolios:~~

Three Months Ended September 30,
(Dollars in thousands) 2021 2020
Average Banking loans $ 3,299,152 $ 3,707,293
Average Factoring receivables 1,362,856 768,087
Average Payments receivables 115,401 50,683
Average total loans $ 4,777,409 $ 4,526,063
Banking yield 5.40 % 5.23 %
Factoring yield 13.75 % 15.59 %
Payments Yield 11.33 % 10.68 %
Total loan yield 7.92 % 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.

~~Table of~~ ~~Contents~~

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) Rate Volume Net Increase
Interest earning assets:
Cash and cash equivalents $ 14 $ 96 $ 110
Taxable securities (77) (649) (726)
Tax-exempt securities 2 (77) (75)
FHLB and other restricted stock (45) (49) (94)
Loans 10,137 5,019 15,156
Total interest income 10,031 4,340 14,371
Interest bearing liabilities:
Interest bearing demand 147 81 228
Individual retirement accounts (160) (14) (174)
Money market (55) 17 (38)
Savings 2 31 33
Certificates of deposit (2,679) (378) (3,057)
Brokered time deposits (868) (44) (912)
Other brokered deposits (62) 96 34
Total interest bearing deposits (3,675) (211) (3,886)
Federal Home Loan Bank advances 11 (132) (121)
Subordinated notes 529 572 1,101
Junior subordinated debentures (25) 6 (19)
Other borrowings (10) (86) (96)
Total interest expense (3,170) 149 (3,021)
Change in net interest income $ 13,201 $ 4,191 $ 17,392

~~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) 2021 2020 $ 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 securities 10 106 (96) (90.6) %
Credit loss expense on available for sale securities — — — —
Total credit loss expense (benefit) $ (1,187) $ (258) $ (929) 360.1 %

~~Table of~~ ~~Contents~~

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.

~~Table of~~ ~~Contents~~

~~Noninterest Income~~

~~The following table presents our major categories of noninterest income:~~

Three Months Ended September 30,
(Dollars in thousands) 2021 2020 $ Change % Change
Service charges on deposits $ 2,030 $ 1,470 $ 560 38.1 %
Card income 2,144 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 securities 4 3,109 (3,105) (99.9) %
Fee income 5,198 1,402 3,796 270.8 %
Insurance commissions 1,231 990 241 24.3 %
Other 1,457 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) 2021 2020 $ Change % Change
Salaries and employee benefits $ 43,769 $ 31,651 $ 12,118 38.3 %
Occupancy, furniture and equipment 6,388 5,574 814 14.6 %
FDIC insurance and other regulatory assessments 353 360 (7) (1.9) %
Professional fees 2,362 3,265 (903) (27.7) %
Amortization of intangible assets 3,274 2,141 1,133 52.9 %
Advertising and promotion 1,403 1,105 298 27.0 %
Communications and technology 7,090 5,569 1,521 27.3 %
Travel and entertainment 1,352 314 1,038 330.6 %
Other 6,822 5,318 1,504 28.3 %
Total noninterest expense $ 72,813 $ 55,297 $ 17,516 31.7 %

~~Table of~~ ~~Contents~~

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.

~~Table of~~ ~~Contents~~

Reported segments and the financial information of the reported segments are not necessarily comparable with similar information reported by other financial institutions. 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, 2021 Banking Factoring Payments Corporate Consolidated
Total interest income $ 46,175 $ 47,222 $ 3,295 $ 43 $ 96,735
Intersegment interest allocations 2,452 (2,341) (111) — —
Total interest expense 2,073 — — 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 expense 48,953 43,717 3,146 (2,858) 92,958
Noninterest income 7,371 1,557 3,086 41 12,055
Noninterest expense 41,183 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, 2020 Banking Factoring Payments Corporate Consolidated
Total interest income $ 50,927 $ 30,068 $ 1,361 $ 8 $ 82,364
Intersegment interest allocations 3,459 (3,312) (147) — —
Total interest expense 6,176 — — 1,809 7,985
Net interest income (expense) 48,210 26,756 1,214 (1,801) 74,379
Credit loss expense (benefit) (3,419) 3,053 2 106 (258)
Net interest income after credit loss expense 51,629 23,703 1,212 (1,907) 74,637
Other noninterest income 7,443 3,157 47 (154) 10,493
Noninterest expense 37,389 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, 2021 Banking Factoring Payments Corporate Eliminations Consolidated
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, 2020 Banking Factoring Payments Corporate Eliminations Consolidated
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

~~Table of~~ ~~Contents~~

~~Banking~~

(Dollars in thousands) Three Months Ended September 30,
Banking 2021 2020 $ Change % Change
Total interest income $ 46,175 $ 50,927 $ (4,752) (9.3) %
Intersegment interest allocations 2,452 3,459 (1,007) (29.1) %
Total interest expense 2,073 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 expense 48,953 51,629 (2,676) (5.2) %
Other noninterest income 7,371 7,443 (72) (1.0) %
Noninterest expense 41,183 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 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.

~~Table of~~ ~~Contents~~

~~Factoring~~

(Dollars in thousands) Three Months Ended September 30,
Factoring 2021 2020 $ 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 expense 43,717 23,703 20,014 84.4 %
Noninterest income 1,557 3,157 (1,600) (50.7) %
Noninterest expense 19,106 13,665 5,441 39.8 %
Operating income (loss) $ 26,168 $ 13,195 $ 12,973 98.3 %

Three Months Ended September 30,
2021 2020
Factored receivable period end balance $ 1,479,989,000 $ 953,434,000
Yield on average receivable balance 13.75 % 15.59 %
Current quarter charge-off rate 0.24 % 0.09 %
Factored receivables - transportation concentration 90 % 88 %
Interest income, including fees $ 47,222,000 $ 30,068,000
Non-interest income(1)
1,557,000 1,157,000
Factored receivable total revenue 48,779,000 31,225,000
Average net funds employed 1,235,610,000 694,170,000
Yield on average net funds employed 15.66 % 17.89 %
Accounts receivable purchased $ 3,531,811,000 $ 1,984,490,000
Number of invoices purchased 1,535,321 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.

~~Table of~~ ~~Contents~~

The decrease in credit loss expense at our Factoring segment is primarily due to decreased growth in the underlying factored receivables. During the three months ended September 30, 2021, the outstanding factored receivable balance at our Factoring segment grew $195.7 million compared to $425.1 million during the same period in the prior year. These changes in volume resulted in $1.0 million and $2.1 million of credit loss expense during the three months ended September 30, 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,
Payments 2021 2020 $ Change % Change
Total interest income $ 3,295 $ 1,361 $ 1,934 142.1 %
Intersegment interest allocations (111) (147) 36 24.5 %
Total interest expense — — — — %
Net interest income (expense) 3,184 1,214 1,970 162.3 %
Credit loss expense (benefit) 38 2 36 1800.0 %
Net interest income after credit loss expense 3,146 1,212 1,934 159.6 %
Noninterest income 3,086 47 3,039 6466.0 %
Noninterest expense 11,416 3,195 8,221 257.3 %
Operating income (loss) $ (5,184) $ (1,936) $ (3,248) (167.8) %

Three Months Ended September 30,
2021 2020
Factored receivable period end balance $ 127,039,000 $ 62,903,000
Interest income $ 3,295,000 $ 1,361,000
Noninterest income 3,086,000 47,000
Total revenue $ 6,381,000 $ 1,408,000
Operating income (loss) $ (5,184,000) $ (1,936,000)
Interest expense 111,000 147,000
Depreciation and software amortization expense 77,000 63,000
Intangible amortization expense 1,490,000 —
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 processed 3,760,948 1,408,232
Amount of payments processed $ 4,191,424,000 $ 1,221,305,000

~~Table of~~ ~~Contents~~

~~(1)~~Adjusted earnings (losses) before interest, taxes, depreciation, and amortization excludes material gains and expenses related to merger and acquisition-related activities and is a non-GAAP financial measure used to provide meaningful supplemental information regarding the segment's operational performance and to enhance investors' overall understanding of such financial performance by removing the volatility associated with certain acquisition-related items that are unrelated to our core business.

~~Our Payments segment's operating loss increased $3.2 million, or 167.8%.~~

The number of invoices processed by our Payments segment increased 167.1% from 1,408,232 for the three months ended September 30, 2020 to 3,760,948 for the three months ended September 30, 2021, and the amount of payments processed increased 243.2% from $1.221 billion for the three months ended September 30, 2020 to $4.191 billion for the three months ended September 30, 2021.

Interest income increased due to increased factoring activity at our Payments segment and increased yields period over period. Noninterest income increased almost entirely due to $2.9 million in Payments fees related to a full quarter of acquired HubTran operations during the three months ended September 30, 2021.

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,
Corporate 2021 2020 $ Change % Change
Total interest income $ 43 $ 8 $ 35 437.5 %
Intersegment interest allocations — — — —
Total interest expense 2,891 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 income 41 (154) 195 126.6 %
Noninterest expense 1,108 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.

~~Table of~~ ~~Contents~~

~~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~~$16.2 million for the ~~nine~~three months ended September 30, 2022 compared to net income of $24.4 million for the three months ended September 30, 2021, ~~compared to $31.9 million for the nine months ended September 30, 2020, an increase~~a decrease of ~~$54.4~~$8.2 million.

The results for the nine months ended September 30, 2021 were impacted by $3.0 million of transaction costs associated with the HubTran acquisition reported as noninterest expense. The results for the nine months ended September 30, 2020 were impacted by the gain on sale of TPF of $9.8 million reported as noninterest income and transaction costs of $0.8 million associated with the TFS Acquisition reported as noninterest expense. Excluding the transaction costs, net of taxes, we earned adjusteddecrease in net income ~~to common stock holders of $86.2~~was driven by a $13.9 million ~~for the nine months ended September 30, 2021 compared to $24.3~~increase in noninterest expense and a $3.8 million ~~for the nine months ended September 30, 2020, an~~ increase ~~of $61.9 million. The adjusted increase was primarily the result of~~in credit loss expense partially offset by a ~~$63.9~~$6.5 million increase in net interest income, a ~~$44.5~~$0.6 million increase in noninterest income, and a $2.4 million decrease in ~~credit loss expense, and a $12.0 million increase in adjusted noninterest income offset by a $39.6 million increase in adjusted noninterest expense, a $17.4 million increase in adjusted~~ income tax ~~expense, and a $1.5 million increase in dividends on preferred stock.~~expense.

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

Net Interest Income

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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 September 30,
		2021						2020							2022				2021
(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 equivalents	Cash and cash equivalents	$	508,279	$	467	0.12	%	$	209,621	$	640	0.41	%	Cash and cash equivalents	452,136	2,607	2.29	%	474,122	183	0.15	%
Taxable securities	Taxable securities	169,607		3,343		2.64	%	263,978		6,029		3.05	%	Taxable securities	231,759	2,217	3.80	%	154,017	948	2.44	%
Tax-exempt securities	Tax-exempt securities	31,977		620		2.59	%	36,535		681		2.49	%	Tax-exempt securities	14,197	91	2.54	%	27,839	178	2.54	%
FHLB and other restricted stock	FHLB and other restricted stock	8,094		131		2.16	%	26,515		474		2.39	%	FHLB and other restricted stock	6,171	65	4.18	%	7,956	28	1.40	%
Loans (1)	Loans (1)	4,812,985		275,215		7.65	%	4,327,919		224,352		6.92	%	Loans (1)	4,355,132	98,245	8.95	%	4,777,409	95,398	7.92	%
Total interest earning assets	Total interest earning assets	5,530,942		279,776		6.76	%	4,864,568		232,176		6.38	%	Total interest earning assets	5,059,395	103,225	8.09	%	5,441,343	96,735	7.05	%
Noninterest earning assets:	Noninterest earning assets:													Noninterest earning assets:
Cash and cash equivalents	Cash and cash equivalents	81,419						58,942						Cash and cash equivalents	108,323				75,374
Other noninterest earning assets	Other noninterest earning assets	430,316						381,393						Other noninterest earning assets	532,829				503,914
Total assets	Total assets	$	6,042,677					$	5,304,903					Total assets	5,700,547				6,020,631
Interest bearing liabilities:	Interest bearing liabilities:													Interest bearing liabilities:
Deposits:	Deposits:													Deposits:
Interest bearing demand	Interest bearing demand	$	746,590	$	1,288	0.23	%	$	617,392	$	838	0.18	%	Interest bearing demand	879,851	812	0.37	%	779,625	435	0.22	%
Individual retirement accounts	Individual retirement accounts	88,579		455		0.69	%	99,827		1,061		1.42	%	Individual retirement accounts	77,004	97	0.50	%	86,571	126	0.58	%
Money market	Money market	404,651		670		0.22	%	408,487		1,657		0.54	%	Money market	524,483	313	0.24	%	417,435	225	0.21	%
Savings	Savings	465,041		530		0.15	%	382,236		419		0.15	%	Savings	524,106	209	0.16	%	479,915	185	0.15	%
Certificates of deposit	Certificates of deposit	674,284		3,838		0.76	%	993,590		14,844		2.00	%	Certificates of deposit	407,130	564	0.55	%	595,001	725	0.48	%
Brokered time deposits	Brokered time deposits	134,781		259		0.26	%	297,829		4,085		1.83	%	Brokered time deposits	186,856	748	1.59	%	99,116	29	0.12	%
Other brokered deposits	Other brokered deposits	641,959		750		0.16	%	86,064		191		0.30	%	Other brokered deposits	26,758	—	—	%	441,446	223	0.20	%
Total interest bearing deposits	Total interest bearing deposits	3,155,885		7,790		0.33	%	2,885,425		23,095		1.07	%	Total interest bearing deposits	2,626,188	2,743	0.41	%	2,899,109	1,948	0.27	%
Federal Home Loan Bank advances	Federal Home Loan Bank advances	37,234		67		0.24	%	430,250		1,959		0.61	%	Federal Home Loan Bank advances	30,000	182	2.41	%	36,522	22	0.24	%
Subordinated notes	Subordinated notes	96,495		5,148		7.13	%	87,372		4,016		6.14	%	Subordinated notes	107,477	1,304	4.81	%	114,071	2,449	8.52	%
Junior subordinated debentures	Junior subordinated debentures	40,256		1,331		4.42	%	39,743		1,662		5.59	%	Junior subordinated debentures	40,948	726	7.03	%	40,390	443	4.35	%
Other borrowings	Other borrowings	146,005		367		0.34	%	125,756		314		0.33	%	Other borrowings	13,180	—	—	%	127,946	102	0.32	%
Total interest bearing liabilities	Total interest bearing liabilities	3,475,875		14,703		0.57	%	3,568,546		31,046		1.16	%	Total interest bearing liabilities	2,817,793	4,955	0.70	%	3,218,038	4,964	0.61	%
Noninterest bearing liabilities and equity:	Noninterest bearing liabilities and equity:													Noninterest bearing liabilities and equity:
Noninterest bearing demand deposits	Noninterest bearing demand deposits	1,720,213						1,021,745						Noninterest bearing demand deposits	1,885,111				1,912,398
Other liabilities	Other liabilities	62,570						72,461						Other liabilities	98,798				72,173
Total equity	Total equity	784,019						642,151						Total equity	898,845				818,022
Total liabilities and equity	Total liabilities and equity	$	6,042,677					$	5,304,903					Total liabilities and equity	5,700,547				6,020,631
Net interest income	Net interest income			$	265,073					$	201,130			Net interest income		98,270				91,771
Interest spread (2)	Interest spread (2)					6.19	%					5.22	%	Interest spread (2)			7.39	%			6.44	%
Net interest margin (3)	Net interest margin (3)					6.41	%					5.52	%	Net interest margin (3)			7.71	%			6.69	%

(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 September 30,
(Dollars in thousands)	(Dollars in thousands)	2021			2020			(Dollars in thousands)	2022			2021
Average Banking loans	Average Banking loans	$	3,511,379		$	3,661,573		Average Banking loans	$	2,830,507		$	3,299,152
Average Factoring receivables	Average Factoring receivables	1,203,494			636,107			Average Factoring receivables	1,393,141			1,362,856
Average Payments receivables	Average Payments receivables	98,112			30,239			Average Payments receivables	131,484			115,401
Average total loans	Average total loans	$	4,812,985		$	4,327,919		Average total loans	$	4,355,132		$	4,777,409
Banking yield	Banking yield	5.31		%	5.38		%	Banking yield	6.30		%	5.40		%
Factoring yield	Factoring yield	14.19		%	15.63		%	Factoring yield	14.11		%	13.75		%
Payments Yield		10.82		%	10.78		%
Payments yield								Payments yield	11.33		%	11.33		%
Total loan yield	Total loan yield	7.65		%	6.92		%	Total loan yield	8.95		%	7.92		%

We earned net interest income of ~~$265.1~~$98.3 million for the ~~nine~~three months ended September 30, 2022 compared to $91.8 million for the three months ended September 30, 2021, ~~compared to $201.1 million for the nine months ended September 30, 2020,~~ an increase of ~~$64.0~~$6.5 million, or ~~31.8%~~7.1%, primarily driven by the following factors.

Interest income increased ~~$47.6~~$6.5 million, or ~~20.5%~~6.7%, ~~reflecting an increase~~ in ~~total~~spite of a decrease in average interest earning assets of ~~$666.4~~$381.9 million, or ~~13.7%~~7.0%, and ~~an increase~~a decrease in average total loans of ~~$485.1~~$422.3 million, or ~~11.2%~~8.8%. The average balance of our higher yielding Factoring factored receivables increased ~~$567.4~~$30.3 million, or ~~89.2%~~2.2%, partially 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~~$468.6 million, or ~~4.1%.~~14.2% due to decreases in the average balances of all Banking loan types except for general commercial, asset based lending, and liquid credit. In addition to volumes, the increase in interest income was impacted by higher average rates discussed below. 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~~$610.8 million for the ~~nine~~three months ended September 30, ~~2021~~2022 compared to ~~$672.4~~$772.3 million for the ~~nine~~three months ended September 30, ~~2020.~~2021. Further, included in our Banking loans were PPP loans with a carrying amounts of $0.1 million and $87.4 million at September 30, 2022 and September 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~~$1.5 million and ~~$8.4~~$2.0 million for the ~~nine~~three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

Interest expense decreased ~~$16.3~~$0.01 million, or ~~52.6%~~0.2%, ~~and~~despite a larger decrease in average ~~interest bearing liabilities decreased $92.7 million, or 2.6%. While~~interest-bearing liabilities. More specifically, average total interest bearing deposits ~~increased $270.5~~decreased $272.9 million, or 9.4%~~, the increase~~. Average noninterest bearing demand deposits decreased $27.3 million. The change in ~~average balance~~interest expense period over period was ~~offset~~driven by ~~lower~~higher 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%~~7.71% for the ~~nine~~three months ended September 30, 2022 from 6.69% for the three months ended September 30, 2021, ~~from 5.52% for the nine months ended September 30, 2020,~~ an increase of 89102 basis points or ~~16.1%~~15.2%.

~~Our~~The increase in our net interest margin was impacted by an increase in our yield on ~~our~~ interest earning assets of 38104 basis points to ~~6.76%~~8.09% for the ~~nine~~three months ended September 30, ~~2021.~~2022. This increase was primarily driven by higher yields on loans which increased 73103 basis points to ~~7.65%~~8.95% for the same period. ~~While~~ Factoring yield ~~decreased~~increased period over period ~~its~~and, average Factoring factored receivables as a percentage of the total loan portfolio increased ~~significantly having~~which 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 percentage~~were 96% and 90% of ~~the overall factoring~~our Factoring portfolio ~~to 91%~~ at September 30, 2022 and 2021, ~~compared to 88% at September 30, 2020.~~respectively. Banking ~~and~~yields also increased period over period while Payments yields were ~~relatively flat~~flat. Non-loan yields were generally higher period over period, ~~and non-loan yields~~but had little impact on the change in our yield on interest earning assets.

The increase in our net interest margin was also impacted by ~~a decrease~~an increase in our average cost of interest bearing liabilities of 599 basis points. This ~~decrease~~increase in average cost was caused by ~~lower~~generally higher interest rates paid on our ~~interest bearing~~interest-bearing liabilities driven by changes in interest rates in the macro economy.

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		Nine Months Ended							Three Months Ended
		September 30, 2021 vs. 2020							September 30, 2022 vs. 2021
		Increase (Decrease) Due to:				Net Increase			Increase (Decrease) Due to:
(Dollars in thousands)	(Dollars in thousands)	Rate		Volume				(Dollars in thousands)	Rate		Volume		Net Increase
Interest earning assets:	Interest earning assets:							Interest earning assets:
Cash and cash equivalents	Cash and cash equivalents	$	(447)	$	274	$	(173)	Cash and cash equivalents	$	2,551	$	(127)	$	2,424
Taxable securities	Taxable securities	(826)		(1,860)		(2,686)		Taxable securities	525		744		1,269
Tax-exempt securities	Tax-exempt securities	27		(88)		(61)		Tax-exempt securities	—		(87)		(87)
FHLB and other restricted stock	FHLB and other restricted stock	(45)		(298)		(343)		FHLB and other restricted stock	56		(19)		37
Loans	Loans	23,126		27,737		50,863		Loans	12,373		(9,526)		2,847
Total interest income	Total interest income	21,835		25,765		47,600		Total interest income	15,505		(9,015)		6,490
Interest bearing liabilities:	Interest bearing liabilities:							Interest bearing liabilities:
Interest bearing demand	Interest bearing demand	227		223		450		Interest bearing demand	285		92		377
Individual retirement accounts	Individual retirement accounts	(548)		(58)		(606)		Individual retirement accounts	(17)		(12)		(29)
Money market	Money market	(981)		(6)		(987)		Money market	24		64		88
Savings	Savings	17		94		111		Savings	6		18		24
Certificates of deposit	Certificates of deposit	(9,189)		(1,817)		(11,006)		Certificates of deposit	99		(260)		(161)
Brokered time deposits	Brokered time deposits	(3,513)		(313)		(3,826)		Brokered time deposits	368		351		719
Other brokered deposits	Other brokered deposits	(90)		649		559		Other brokered deposits	(223)		—		(223)
Total interest bearing deposits	Total interest bearing deposits	(14,077)		(1,228)		(15,305)		Total interest bearing deposits	542		253		795
Federal Home Loan Bank advances	Federal Home Loan Bank advances	(1,185)		(707)		(1,892)		Federal Home Loan Bank advances	200		(40)		160
Subordinated notes	Subordinated notes	645		487		1,132		Subordinated notes	(1,065)		(80)		(1,145)
Junior subordinated debentures	Junior subordinated debentures	(348)		17		(331)		Junior subordinated debentures	273		10		283
Other borrowings	Other borrowings	2		51		53		Other borrowings	(102)		—		(102)
Total interest expense	Total interest expense	(14,963)		(1,380)		(16,343)		Total interest expense	(152)		143		(9)
Change in net interest income	Change in net interest income	$	36,798	$	27,145	$	63,943	Change in net interest income	$	15,657	$	(9,158)	$	6,499

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~~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:

Nine Months Ended September 30,
(Dollars in thousands) 2021 2020 $ 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 September 30,
(Dollars in thousands)	2022		2021		$ Change		% Change
Credit loss expense (benefit) on loans	$	3,169	$	(959)	$	4,128	430.4	%
Credit loss expense (benefit) on off balance sheet credit exposures	(598)		(238)		(360)		(151.3)	%
Credit loss expense (benefit) on held to maturity securities	75		10		65		650.0	%
Credit loss expense on available for sale securities	—		—		—		—
Total credit loss expense (benefit)	$	2,646	$	(1,187)	$	3,833	322.9	%

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~~Upon and subsequent to adoption of ASC 326, for~~For available for sale debt securities in an unrealized loss position, the Company evaluates the securities at each measurement date to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors. Any impairment that is not credit related is recognized in other comprehensive income, net of applicable taxes. Credit-related impairment is recognized as an ACL on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings via credit loss expense. At ~~December 31, 2020 and~~ September 30, ~~2021,~~2022 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 ~~nine~~three months ended September 30, ~~2021.~~2022. The same was true for the same period in the prior year.

~~Upon and subsequent to adoption of ASC 326, the~~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~~2022 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 September 30, ~~2021~~2022 and ~~December 31, 2020,~~June 30, 2022, the Company carried ~~$7.2~~$6.6 million and ~~$7.9~~$6.7 million of these HTM securities at amortized cost, respectively. The required ACL on these balances was ~~$1.7~~$2.4 million at September 30, ~~2021~~2022 and ~~$2.0 million at December 31, 2020 and we recognized a benefit~~June 30, 2022 resulting in an immaterial impact to credit loss expense ~~of $0.3 million~~ during the ~~nine~~current quarter. Credit loss expense during the three months ended September 30, ~~2021.~~2021 was also insignificant. None of the overcollateralization triggers tied to the CLO securities were tripped as of September 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~~$44.1 million as of September 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%~~0.99% and ~~1.92%~~0.87% respectively.

Our credit loss expense on loans ~~decreased $37.4~~increased $4.1 million, or ~~133.6%~~430.4%, for the ~~nine~~three months ended September 30, ~~2021~~2022 compared to the ~~nine months ended September 30, 2020.~~

The Over-Formula Advances classified as factored receivables and deemed to be purchased credit deteriorated ("PCD") from Covenant had an impact on credit loss expense during the nine months ended September 30, 2021. During that time, new adverse developments with the largest of the three Over-Formula Advance clients caused us to charge-off the entire Over-Formula Advance amount due from that client. This resulted in a net charge-off of $41.3 million; however, this net charge-off had no impact on credit loss expense for the nine months ended September 30, 2021 as the entire amount had been reserved in a prior period. In accordance with the Agreement reached with Covenant, Covenant reimbursed us for $35.6 million of this charge-off by drawing on its secured line of credit. As of September 30, 2021 the balance of Covenant's credit facility had been fully repaid. Given separate developments with the other two Over-Formula Advance clients, we reserved an additional $2.8 million reflected in credit loss expense during the nine months ended September 30, 2021. At quarter end, our entire remaining over formula advance position was down from $62.1 million at December 31, 2020 to $10.1 million at September 30, 2021 and that $10.1 million balance at September 30, 2021 was fully reserved. The $2.8 million increase in required ACL as well as accretion of most of the fair value discount on the indemnification asset held at December 31, 2020 resulted in a $4.7 million gain on the indemnification asset which was recorded through non-interest income during the nine months ended September 30, 2021.

During the three months ended September 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 $0.4 million. We continue to reserve the full balance of the Over-Formula Advance clients at September 30, 2022 which totals $8.8 million.

The ~~decreased~~increased credit loss expense was primarily the result of ~~projected improvement~~changes in net new specific reserves (including reserves on Over-Formula Advances) which resulted in $3.7 million of credit loss expense during the three months ended September 30, 2022 compared to a $1.4 million benefit to credit loss expense during the same period a year ago.

Changes to projected loss drivers that the Company forecasted over the reasonable and supportable forecast period to calculate expected losses ~~at September 30, 2021 which~~ resulted in a benefit to credit loss expense of ~~$10.3~~$0.1 million for the ~~nine~~three 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~~2022 compared to a benefit of ~~COVID-19 which resulted in credit loss expense of $23.3 million. See further discussion in the allowance for credit loss section below.~~

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The decrease in credit loss expense was further driven by changes in net new specific reserves. Including the aforementioned $2.8 million additional specific reserve on PCD assets, we recorded net new specific reserves of $1.1$0.2 million during the nine months ended September 30, 2021 compared to net new specific reserves of $5.7 million during the nine months ended September 30, 2020. Including the aforementioned PCD charge-off, net charge-offs were $45.3 million for the nine months ended September 30, 2021 and approximately $45.2 million of the gross charge-offs had been reserved insame period 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.~~

year ago.

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~~$0.5 million during the ~~nine~~three months ended September 30, 2022 compared to credit loss expense of $0.1 during the same period a year prior.

Net charge-offs were $2.5 million for the three months ended September 30, 2022 and approximately $2.4 million of the gross charge-off balance had been reserved in a prior period. Net charge-offs were $3.7 million for the three months ended September 30, 2021 ~~compared to~~and approximately $3.2 million of the gross charge-off balance had been reserved in a ~~benefit of $2.7 million during the nine months ended September 30, 2020.~~prior period.

Credit loss expense for off balance sheet credit exposures decreased ~~$5.0~~$0.4 million, primarily due to the changes in the assumptions used to project the loss rates previously ~~discussed.~~discussed and changes to underlying 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 September 30,
(Dollars in thousands)	(Dollars in thousands)	2021		2020		$ Change		% Change		(Dollars in thousands)	2022		2021		$ Change		% Change
Service charges on deposits	Service charges on deposits	$	5,674	$	3,631	$	2,043	56.3	%	Service charges on deposits	$	1,558	$	2,030	$	(472)	(23.3)	%
Card income	Card income	6,341		5,832		509		8.7	%	Card income	2,034		2,144		(110)		(5.1)	%
Net OREO gains (losses) and valuation adjustments	Net OREO gains (losses) and valuation adjustments	(376)		(399)		23		5.8	%	Net OREO gains (losses) and valuation adjustments	(19)		(9)		(10)		(111.1)	%
Net gains (losses) on sale or call of securities	Net gains (losses) on sale or call of securities	5		3,210		(3,205)		99.8	%	Net gains (losses) on sale or call of securities	—		4		(4)		(100.0)	%
Net gains (losses) on sale of loans										Net gains (losses) on sale of loans	1,107		377		730		193.6	%
Fee income	Fee income	11,917		4,392		7,525		171.3	%	Fee income	6,120		5,198		922		17.7	%
Insurance commissions	Insurance commissions	3,989		2,905		1,084		37.3	%	Insurance commissions	1,191		1,231		(40)		(3.2)	%
Gain on sale of subsidiary or division		—		9,758		(9,758)		(100.0	%)
Other	Other	12,692		8,670		4,022		46.4	%	Other	677		1,080		(403)		(37.3)	%
Total noninterest income	Total noninterest income	$	40,242	$	37,999	$	2,243	5.9	%	Total noninterest income	$	12,668	$	12,055	$	613	5.1	%

Noninterest income increased ~~$2.2~~$0.6 million, or ~~5.9%~~5.1%. 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~~Net gains (losses) 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 quartersale 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.~~

•loans. Net gains (losses) on sale ~~or call~~ of ~~securities.~~ ~~Net gains (losses) on sale or call of securities decreased $3.2~~loans increased $0.7 million due to ~~decreased sales activity~~the aforementioned gain on sale of factored receivables of $1.0 million during the ~~current period.~~three months ended September 30, 2022.

•Fee income. Fee income increased ~~$7.5~~$0.9 million, or ~~171.3% primarily~~17.7%, due to ~~$1.2~~a $0.5 million ~~of early termination~~increase in payment fees ~~charged to two customers~~earned by TriumphPay Audit during the ~~nine~~three months ended September 30, ~~2021. We also recognized $3.9 million in Payments fees related~~2022 compared to the ~~acquired operations of HubTran during the~~ same period a year ago. Additionally, wire fees increased $0.4 million period over period. There were no other significant changes within the components of fee income.

•~~Insurance commissions~~Other.~~. Insurance commissions increased $1.1~~ Other noninterest income decreased $0.4 million, or 37.3%, ~~due to higher policy volumes processed by Triumph Insurance Group.~~

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•~~Other. Other noninterest income increased $4.0 million, or 46.4%~~ primarily due to a ~~$4.2~~$0.5 million ~~gain on the Company's indemnification asset~~BOLI death benefit paid out during the ~~nine months ended September 30, 2021. We also recognized a $1.5 million recovery during the nine~~three months ended September 30, 2021 ~~on an acquired loan~~ that was charged off prior to our acquisition of the originating bank. Additionally, during the current period, we recognized a $0.4 million increase in revenue from BOLI primarily related to a benefit payment. We recognized a gain on sale of liquid credit and mortgage loans during the nine months ended September 30, 2021 of $3.0 million compared to $1.9 million during the same period a year ago. These increases were partially offset by the recognition of $1.9 million of loan syndication fees related to the syndication and placement of one large relationship that closed during the nine months ended September 30, 2020. This revenue was recognized at the time of closing as all required services had been completed and did not repeat during the nine months ended September 30, 2021. Additionally, we recognized $2.0 million of income during the nine months ended September 30, 2020 driven by an increase in the value of the receivable due from Covenant resulting from the Agreement previously discussed. The increase was partially offset by a $0.7 million loss recognized on the donation of a branch to a local municipality during the nine months ended September 30, 2020.current period. There were no other significant changes within the components of other noninterest income.

Noninterest Expense

The following table presents our major categories of noninterest expense:


		Nine Months Ended September 30,									Three Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2021		2020		$ Change		% Change		(Dollars in thousands)	2022		2021		$ Change		% Change
Salaries and employee benefits	Salaries and employee benefits	$	121,407	$	93,177	$	28,230	30.3	%	Salaries and employee benefits	$	49,307	$	43,769	$	5,538	12.7	%
Occupancy, furniture and equipment	Occupancy, furniture and equipment	18,279		15,720		2,559		16.3	%	Occupancy, furniture and equipment	6,826		6,388		438		6.9	%
FDIC insurance and other regulatory assessments	FDIC insurance and other regulatory assessments	1,830		1,170		660		56.4	%	FDIC insurance and other regulatory assessments	386		353		33		9.3	%
Professional fees	Professional fees	9,959		7,023		2,936		41.8	%	Professional fees	4,263		2,362		1,901		80.5	%
Amortization of intangible assets	Amortization of intangible assets	7,677		6,265		1,412		22.5	%	Amortization of intangible assets	2,913		3,274		(361)		(11.0)	%
Advertising and promotion	Advertising and promotion	3,534		3,548		(14)		(0.4	%)	Advertising and promotion	1,929		1,403		526		37.5	%
Communications and technology	Communications and technology	19,018		16,514		2,504		15.2	%	Communications and technology	11,935		7,090		4,845		68.3	%
Travel and entertainment	Travel and entertainment	2,725		1,504		1,221		81.2	%	Travel and entertainment	1,340		1,352		(12)		(0.9)	%
Other	Other	20,074		17,855		2,219		12.4	%	Other	7,790		6,822		968		14.2	%
Total noninterest expense	Total noninterest expense	$	204,503	$	162,776	$	41,727	25.6	%	Total noninterest expense	$	86,689	$	72,813	$	13,876	19.1	%

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Noninterest expense increased ~~$41.7~~$13.9 million, or ~~25.6%~~19.1%. Noninterest expense for the nine months ended September 30, 2021 was impacted by $3.0 million of transaction costs associated with the HubTran acquisition. Noninterest expense for the nine months ended September 30, 2020 was impacted by $0.8 million of transaction costs associated with the TFS Acquisition. Excluding the HubTran and TFS acquisition costs, we incurred adjusted noninterest expense of $201.5 million and $161.9 million for the nine months ended September 30, 2021 and 2020, respectively, resulting in an adjusted increase in noninterest expense of $39.6 million, or 24.5%, period over period. Details of the more significant changes in the various components of noninterest expense are further discussed below.

•Salaries and Employee Benefits. Salaries and employee benefits expenses increased ~~$28.2~~$5.5 million, or ~~30.3%~~12.7%, which is primarily due to merit increases for existing employees, higher health insurance benefit costs, incentive compensation, and 401(k) expense. ~~The~~Further, 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 ~~1,181.8~~1,410.3 and ~~1,122.6~~1,215.7 for the ~~nine~~three months ended September 30, 2022 and 2021, respectively. Further, accruals for bonus expense were $0.2 million higher period over period and ~~2020, respectively. Given improved 2021 performance compared to 2020, our annual bonus accrual~~stock based compensation expense increased ~~$6.5~~$0.1 million period over period. ~~Further, sales~~Additionally, compensation paid to temporary contract labor increased $1.5 million period over period. Sales commissions, primarily related to our operations at Triumph Business Capital and TriumphPay, ~~increased $3.5~~decreased $1.8 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 ~~$2.9~~$1.9 million, or ~~41.8%~~80.5%, primarily due to ~~$3.0~~a $1.7 million ~~of transaction costs associated with the HubTran acquisition slightly offset by $0.8 million of transaction costs associated with the TFS acquisition.~~

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•~~Amortization of intangible assets. Amortization of intangible assets increased $1.4 million, or 22.5%, primarily due to the additional intangibles recorded through the HubTran acquisition during the current year.~~increase in legal and consulting fees period over period.

•~~Communications~~Advertising and ~~Technology.~~Promotion ~~Communications~~. Advertising and promotion increased $0.5 million, or 37.5%, primarily due increased activity in this area period over period.

•Communication and Technology. Communication and technology ~~expenses~~ increased ~~$2.5~~$4.8 million, or ~~15.2%~~68.3%, 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~~our technology platforms 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~~$1.0 million, or ~~12.4%.~~14.2% due to a $0.5 million increase in recruiting and placement expense. There were no other significant increases or decreases in the individual components of other noninterest expense period over period.

Income Taxes

Income tax expense ~~increased $14.5~~decreased $2.4 million, ~~or 134.2%,~~ from ~~$10.8~~$7.8 million for the ~~nine~~three months ended September 30, ~~2020~~2021 to ~~$25.3~~$5.4 million for the ~~nine~~three months ended September 30, ~~2021.~~2022. The effective tax rate was ~~23%~~25% for the ~~nine~~three months ended September 30, ~~2021 and 25%~~2022, compared to 24% for the ~~nine~~three months ended September 30, ~~2020. The decrease in the effective tax rate period over period is principally due to an adjustment to state taxes during the prior year.~~2021.

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 ~~factor~~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~~Carrier a ~~QuickPay~~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~~Brokers the ability to settle their invoices with us on an extended term following our payment to their ~~carriers~~Carriers as an additional liquidity option for such ~~freight brokers.~~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~~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.~~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.

~~Table of~~ ~~Contents~~

The following tables present our primary operating results for our operating segments:


(Dollars in thousands)	(Dollars in thousands)											(Dollars in thousands)
Nine Months Ended September 30, 2021		Banking		Factoring		Payments		Corporate		Consolidated
Three Months Ended September 30, 2022												Three Months Ended September 30, 2022	Banking		Factoring		Payments		Corporate		Consolidated
Total interest income	Total interest income	$	144,087	$	127,699	$	7,939	$	51	$	279,776	Total interest income	$	49,864	$	49,561	$	3,756	$	44	$	103,225
Intersegment interest allocations	Intersegment interest allocations	8,117		(7,700)		(417)		—		—		Intersegment interest allocations	2,606		(2,458)		(148)		—		—
Total interest expense	Total interest expense	8,225		—		—		6,478		14,703		Total interest expense	2,924		—		—		2,031		4,955
Net interest income (expense)	Net interest income (expense)	143,979		119,999		7,522		(6,427)		265,073		Net interest income (expense)	49,546		47,103		3,608		(1,987)		98,270
Credit loss expense (benefit)	Credit loss expense (benefit)	(19,187)		8,091		548		(290)		(10,838)		Credit loss expense (benefit)	2,388		(52)		235		75		2,646
Net interest income after credit loss expense	Net interest income after credit loss expense	163,166		111,908		6,974		(6,137)		275,911		Net interest income after credit loss expense	47,158		47,155		3,373		(2,062)		95,624
Noninterest income	Noninterest income	25,139		10,710		4,242		151		40,242		Noninterest income	6,189		2,941		3,518		20		12,668
Noninterest expense	Noninterest expense	122,497		52,433		26,393		3,180		204,503		Noninterest expense	48,648		22,896		14,066		1,079		86,689
Operating income (loss)		$	65,808	$	70,185	$	(15,177)	$	(9,166)	$	111,650
Net income (loss) before income tax expense												Net income (loss) before income tax expense	$	4,699	$	27,200	$	(7,175)	$	(3,121)	$	21,603


(Dollars in thousands)	(Dollars in thousands)											(Dollars in thousands)
Nine Months Ended September 30, 2020		Banking		Factoring		Payments		Corporate		Consolidated
Three Months Ended September 30, 2021												Three Months Ended September 30, 2021	Banking		Factoring		Payments		Corporate		Consolidated
Total interest income	Total interest income	$	155,517	$	73,952	$	2,440	$	267	$	232,176	Total interest income	$	46,175	$	47,222	$	3,295	$	43	$	96,735
Intersegment interest allocations	Intersegment interest allocations	9,139		(8,873)		(266)		—		—		Intersegment interest allocations	2,452		(2,341)		(111)		—		—
Total interest expense	Total interest expense	25,368		—		—		5,678		31,046		Total interest expense	2,073		—		—		2,891		4,964
Net interest income (expense)	Net interest income (expense)	139,288		65,079		2,174		(5,411)		201,130		Net interest income (expense)	46,554		44,881		3,184		(2,848)		91,771
Credit loss expense (benefit)	Credit loss expense (benefit)	27,211		4,437		167		1,834		33,649		Credit loss expense (benefit)	(2,399)		1,164		38		10		(1,187)
Net interest income after credit loss expense	Net interest income after credit loss expense	112,077		60,642		2,007		(7,245)		167,481		Net interest income after credit loss expense	48,953		43,717		3,146		(2,858)		92,958
Gain on sale of subsidiary or division		9,758		—		—		—		9,758
Other noninterest income		22,512		5,524		74		131		28,241
Noninterest income												Noninterest income	7,371		1,557		3,086		41		12,055
Noninterest expense	Noninterest expense	113,047		37,695		8,954		3,080		162,776		Noninterest expense	41,183		19,106		11,416		1,108		72,813
Operating income (loss)		$	31,300	$	28,471	$	(6,873)	$	(10,194)	$	42,704
Net income (loss) before income tax expense												Net income (loss) before income tax expense	$	15,141	$	26,168	$	(5,184)	$	(3,925)	$	32,200

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

~~Banking~~

(Dollars in thousands) Nine Months Ended September 30, % Change
Banking 2021 2020 $ Change
Total interest income $ 144,087 $ 155,517 $ (11,430) (7.3 %)
Intersegment interest allocations 8,117 9,139 (1,022) (11.2 %)
Total interest expense 8,225 25,368 (17,143) (67.6 %)
Net interest income 143,979 139,288 4,691 3.4 %
Credit loss expense (benefit) (19,187) 27,211 (46,398) (170.5 %)
Net interest income after credit loss expense 163,166 112,077 51,089 45.6 %
Gain on sale of subsidiary or division — 9,758 (9,758) (100.0 %)
Other noninterest income 25,139 22,512 2,627 11.7 %
Noninterest expense 122,497 113,047 9,450 8.4 %
Operating income (loss) $ 65,808 $ 31,300 $ 34,508 110.2 %


(Dollars in thousands)
September 30, 2022	Banking		Factoring		Payments		Corporate		Eliminations		Consolidated
Total assets	$	5,162,380	$	1,406,367	$	354,179	$	1,041,293	$	(2,321,769)	$	5,642,450
Gross loans	$	3,849,962	$	1,330,122	$	118,958	$	—	$	(865,738)	$	4,433,304

(Dollars in thousands)
December 31, 2021	Banking		Factoring		Payments		Corporate		Eliminations		Consolidated
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

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Banking


(Dollars in thousands)	Three Months Ended September 30,
Banking	2022		2021		$ Change		% Change
Total interest income	$	49,864	$	46,175	$	3,689	8.0	%
Intersegment interest allocations	2,606		2,452		154		6.3	%
Total interest expense	2,924		2,073		851		41.1	%
Net interest income (expense)	49,546		46,554		2,992		6.4	%
Credit loss expense (benefit)	2,388		(2,399)		4,787		199.5	%
Net interest income after credit loss expense	47,158		48,953		(1,795)		(3.7)	%
Other noninterest income	6,189		7,371		(1,182)		(16.0)	%
Noninterest expense	48,648		41,183		7,465		18.1	%
Operating income (loss)	$	4,699	$	15,141	$	(10,442)	(69.0)	%

Our Banking segment’s operating income ~~increased $34.5~~decreased $10.4 million, or ~~110.2%~~69.0%. 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~~increased $3.7 million, or ~~7.3%~~8.0%, ~~primarily as a result of~~at our Banking segment despite decreases in the majority of the balances of our interest earning assets, primarily loans. The increase in interest income was driven by an increase in yields on interest earning assets at our Banking segment. Average loans in our Banking segment, excluding intersegment loans, decreased ~~4.1%~~14.2% from ~~$3.662~~$3.299 billion for the ~~nine~~three months ended September 30, ~~2020~~2021 to ~~$3.511~~$2.831 billion for the ~~nine~~three months ended September 30, ~~2021.~~2022. The decrease in ~~interest income was also driven by~~average loan balances reflects decreases in the average balances of all Banking segment loan types except for general commercial, asset based lending, and liquid credit.

Interest expense increased despite a decrease in ~~yields on interest earning assets.~~

~~Interest expense decreased period over period. While the~~ average ~~balance of interest bearing~~interest-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 in~~period over period. This increase was driven by higher interest ~~expense was the result of a decrease in~~rates paid on our ~~average cost of interest bearing~~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 $3.0 million for the three months ended September 30, 2022 compared to a benefit to credit loss expense on loans of ~~$18.0~~$2.2 million for the ~~nine~~three months ended September 30, ~~2021 compared to credit loss expense of $23.4 million for the nine months ended September 30, 2020.~~2021. The ~~decreased~~increase in credit loss expense was primarily the result of ~~projected improvement~~increased net new specific reserves period over period as well as changes in the volume and mix of the Banking segment's loan portfolio. Net charge-off activity and changes to projected prepayments speeds and loss ~~drivers that the Company forecasted over the reasonable and supportable forecast period to calculate expected losses~~driver assumptions did not have a material impact on credit loss expense at our Banking segment as of September 30, 2021 which resulted in a benefit to credit loss 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 of specific reserve releases on our Banking segment loans. These releases created a $4.3 million benefit to credit loss expense for the nine months ended September 30, 2021 compared to $4.8 million of credit loss expense on net new specific reserves during the nine months ended September 30, 2020. Net charge-offs at our Banking segment were insignificant during the nine months ended September 30, 2021 compared to net charge-offs of $0.4 million during the same period ~~a year ago. Said charge-offs carried a reserve balance of $0.2 million established during a prior~~over period. Changes in loan volume and mix at our Banking segment partially offset the decrease in credit loss expense as these factors created a $3.3 million benefit to credit loss expense during the nine months ended September 30, 2021 compared to a $5.0 million benefit during the same period of the prior year.

Credit loss expense for off balance sheet credit exposures decreased ~~$5.0~~$0.4 million, from ~~$3.8~~a benefit of $0.2 million for the ~~nine~~three months ended September 30, ~~2020~~2021 to a benefit of ~~$1.2~~$0.6 million for the ~~nine~~three months ended September 30, ~~2021. The decrease was~~ 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 a $2.0 million increase in service charges on deposits consistent with increased average deposit balances subject to such fees period over period. Further, in keeping with guidance from regulators, we actively worked with COVID-19 affected customers during the second quarter of 2020 to waive fees from a variety of sources, such as, but not limited to, insufficient funds and overdraft fees, ATM fees, account maintenance fees, etc. These reductions in fees were temporary and expired on June 1, 2020. Additionally card income at our Banking segment increased $0.5decreased $1.2 million primarily due to ~~increased debit card activity~~a $0.5 million BOLI death benefit paid out during the nine months ended September 30, 2021. Further, insurance commissions at our Banking segment increased $1.1 million due to higher policy volumes processed by Triumph Insurance group. The Banking segment also recognized a $1.5 million recovery during the ninethree months ended September 30, 2021 ~~on an acquired loan~~ that was charged off prior to our acquisition of the originating bank. Additionally, during the current period, we recognized a $0.4 million increase in revenue from BOLI primarily related to a benefit payment. We 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~~current period and a ~~$0.7~~$0.5 million ~~loss~~decrease in service charges on ~~the donation of a branch to a local municipality during the nine months ended September 30, 2020.~~deposits. There were no other significant changes within the components of other noninterest ~~income.~~

~~Table of~~ ~~Contents~~

~~Factoring~~

(Dollars in thousands) Nine Months Ended September 30,
Factoring 2021 2020 $ 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 income 119,999 65,079 54,920 84.4 %
Credit loss expense (benefit) 8,091 4,437 3,654 82.4 %
Net interest income after credit loss expense 111,908 60,642 51,266 84.5 %
Noninterest income 10,710 5,524 5,186 93.9 %
Noninterest expense 52,433 37,695 14,738 39.1 %
Operating income (loss) $ 70,185 $ 28,471 $ 41,714 146.5 %

Nine Months Ended September 30,
2021 2020
Factored receivable period end balance $ 1,479,989,000 $ 953,434,000
Yield on average receivable balance 14.19 % 15.63 %
Year to date charge-off rate(1)
3.76 % 0.45 %
Factored receivables - transportation concentration 90 % 88 %
Interest income, including fees $ 127,699,000 $ 73,952,000
Non-interest income(2)
6,056,000 3,524,000
Factored receivable total revenue 133,755,000 77,476,000
Average net funds employed 1,082,610,000 569,928,000
Yield on average net funds employed 16.52 % 18.16 %
Accounts receivable purchased $ 9,092,541,000 $ 4,673,573,000
Number of invoices purchased 4,125,694 2,719,508
Average invoice size $ 2,204 $ 1,719
Average invoice size - transportation $ 2,096 $ 1,567
Average invoice size - non-transportation $ 4,812 $ 4,527

~~(1)~~ Net charge-offs for the nine months ended September 30, 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 nine months ended September 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 $41.7 million, or 146.5%.~~

Our average invoice size increased 28.2% from $1,719 for the nine months ended September 30, 2020 to $2,204 for the nine months ended September 30, 2021 and the number of invoices purchased increased 51.7% period over period.

Net interest income at our Factoring segment increased period over period. Overall average net funds employed (“NFE”) increased 90.0% during the nine months ended September 30, 2021 compared to the same period in 2020. The increase in average NFE was 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.

~~Table of~~ ~~Contents~~

The increase 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. Growth in the underlying factored receivable portfolio at our Factoring segment resulted in $2.6 million and $2.1 million of credit loss expense during the nine months ended September 30, 2021 and 2020, respectively. Net charge-offs at our factoring segment were $45.2 million consisting mostly of the aforementioned $41.3 million charge-off of the Over-Formula Advance balance associated with 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 meaningful impact on credit loss expense during the nine months ended September 30, 2021 or 2020.

The increase in noninterest income at our Factoring segment was primarily due to a $4.2 million gain on the Company's indemnification asset during the nine months ended September 30, 2021. Additionally, we recognized $1.2 million early termination fees during the nine months ended September 30, 2021. These increases were partially offset by the recognition of $2.0 million of income during the nine months ended September 30, 2021 driven by an increase in the value of the receivable due from Covenant resulting from the Agreement previously discussed. There were no other material fluctuations in noninterest income at our Factoring segment.

Noninterest expense increased primarily due to an increase in salaries and employee benefits expense due to merit increases for existing employees, higher health insurance benefit costs, incentive compensation, stock based compensation and 401(k) expense. 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, including a significant amount of information technology expense, are allocated to the Banking segment.

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Factoring


(Dollars in thousands)	Three Months Ended September 30,
Factoring	2022		2021		$ Change		% Change
Total interest income	$	49,561	$	47,222	$	2,339	5.0	%
Intersegment interest allocations	(2,458)		(2,341)		(117)		(5.0)	%
Total interest expense	—		—		—		—
Net interest income (expense)	47,103		44,881		2,222		5.0	%
Credit loss expense (benefit)	(52)		1,164		(1,216)		(104.5)	%
Net interest income (expense) after credit loss expense	47,155		43,717		3,438		7.9	%
Noninterest income	2,941		1,557		1,384		88.9	%
Noninterest expense	22,896		19,106		3,790		19.8	%
Net income (loss) before income tax expense	$	27,200	$	26,168	$	1,032	3.9	%


	Three Months Ended September 30,
	2022			2021
Factored receivable period end balance	$	1,330,122,000		$	1,479,989,000
Yield on average receivable balance	14.11		%	13.75		%
Current quarter charge-off rate	0.16		%	0.24		%
Factored receivables - transportation concentration	96		%	90		%

Interest income, including fees	$	49,561,000		$	47,222,000
Non-interest income(1)	2,941,000			1,557,000
Factored receivable total revenue	52,502,000			48,779,000
Average net funds employed	1,242,133,000			1,235,610,000
Yield on average net funds employed	16.77		%	15.66		%

Accounts receivable purchased	$	3,599,771,000		$	3,531,811,000
Number of invoices purchased	1,681,489			1,535,321
Average invoice size	$	2,141		$	2,300
Average invoice size - transportation	$	2,073		$	2,195
Average invoice size - non-transportation	$	5,701		$	4,944

Metrics above include assets and deposits held for sale.

(1) Non-interest income for the three months ended September 30, 2022 includes a $1.0 million gain on sale of a portfolio of factored receivables, which contributed 0.33% to the yield on average net funds employed for the quarter.

Our Factoring segment’s operating income increased $1.0 million, or 3.9%.

Our average invoice size decreased 6.9% from $2,300 for the three months ended September 30, 2021 to $2,141 for the three months ended September 30, 2022; however, the number of invoices purchased increased 9.5% period over period.

Net interest income at our Factoring segment increased period over period. Overall average net funds employed (“NFE”) increased 0.5% during the three months ended September 30, 2022 compared to the same period in 2021. The increase in average NFE was the result of increased invoice purchase volume partially offset by a decrease in average invoice size. Those, in turn, resulted from a softening transportation market. See further discussion under the Recent Developments: Trucking Transportation section. We maintained high concentration in transportation factoring balances, which typically generate a higher yield than our non-transportation factoring balances. This concentration was at 90% at September 30, 2021 and 96% at September 30, 2022.

Credit loss expense at our Factoring segment decreased period over period, primarily due to a reduction in the period end volume of the factoring portfolio period over period. This reduction was partially offset by additional required specific reserves. Net charge-offs at our Factoring segment during the three months ended September 30, 2022 were $2.3 million compared to $3.3 million during the same period a year ago. Changes in loss assumptions did not have a material impact on the change in credit loss expense period over period.

Table of Contents

Noninterest income at our Factoring segment increased period over period due to the aforementioned gain on sale of factored receivables of $1.0 million during the three months ended September 30, 2022. There were no other material fluctuations in noninterest income at our Factoring segment.

Noninterest expense increased primarily due to an increase in communications and technology expense as a result of increased spending on IT consulting to develop efficiency in our Factoring segment and improve the functionality of our technology platforms. Additionally at or Factoring segment, professional fees increased $0.8 million and salaries and employee benefits expense increased $0.5 million. Remaining fluctuations in the individual components of noninterest expense at our Factoring segment were insignificant period over period.

Payments


(Dollars in thousands)	(Dollars in thousands)	Nine Months Ended September 30,								(Dollars in thousands)	Three Months Ended September 30,
Payments	Payments	2021		2020		$ Change		% Change		Payments	2022		2021		$ Change		% Change
Total interest income	Total interest income	$	7,939	$	2,440	$	5,499	225.4	%	Total interest income	$	3,756	$	3,295	$	461	14.0	%
Intersegment interest allocations	Intersegment interest allocations	(417)		(266)		(151)		(56.8)	%	Intersegment interest allocations	(148)		(111)		(37)		(33.3)	%
Total interest expense	Total interest expense	—		—		—		—	%	Total interest expense	—		—		—		—	%
Net interest income		7,522		2,174		5,348		246.0	%
Net interest income (expense)										Net interest income (expense)	3,608		3,184		424		13.3	%
Credit loss expense (benefit)	Credit loss expense (benefit)	548		167		381		228.1	%	Credit loss expense (benefit)	235		38		197		518.4	%
Net interest income after credit loss expense	Net interest income after credit loss expense	6,974		2,007		4,967		247.5	%	Net interest income after credit loss expense	3,373		3,146		227		7.2	%
Noninterest income	Noninterest income	4,242		74		4,168		5632.4	%	Noninterest income	3,518		3,086		432		14.0	%
Noninterest expense	Noninterest expense	26,393		8,954		17,439		194.8	%	Noninterest expense	14,066		11,416		2,650		23.2	%
Operating income (loss)		$	(15,177)	$	(6,873)	$	(8,304)	(120.8)	%
Net income (loss) before income tax expense										Net income (loss) before income tax expense	$	(7,175)	$	(5,184)	$	(1,991)	(38.4)	%

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Nine Months Ended
2021 2020
Factored receivable period end balance $ 127,039,000 $ 62,903,000
Interest income $ 7,939,000 $ 2,440,000
Noninterest income 4,242,000 74,000
Total revenue $ 12,181,000 $ 2,514,000
Operating income (loss) $ (15,177,000) $ (6,873,000)
Interest expense 417,000 266,000
Depreciation and software amortization expense 210,000 186,000
Intangible amortization expense 1,987,000 —
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 processed 9,455,740 2,679,662
Amount of payments processed $ 9,919,864,000 $ 2,419,500,000


	Three Months Ended September 30,
	2022		2021
Factored receivable period end balance	$	118,958,000	$	127,039,000

Interest income	$	3,756,000	$	3,295,000
Noninterest income	3,518,000		3,086,000
Total revenue	$	7,274,000	$	6,381,000

Operating income (loss)	$	(7,175,000)	$	(5,184,000)
Interest expense	148,000		111,000
Depreciation and software amortization expense	120,000		77,000
Intangible amortization expense	1,450,000		1,490,000
Earnings (losses) before interest, taxes, depreciation, and amortization	$	(5,457,000)	$	(3,506,000)



Number of invoices processed	4,676,249		3,760,948
Amount of payments processed	$	5,951,706,000	$	4,191,424,000
Conforming invoice volume	144,253		—
Conforming payment volume	$	288,410,000	$	—

Our Payments segment's operating loss increased ~~$8.3~~$2.0 million, or ~~120.8%~~38.4%.

The number of invoices processed by our Payments segment increased ~~252.9%~~24.3% from ~~2,679,662~~3,760,948 for the ~~nine~~three months ended September 30, ~~2020~~2021 to ~~9,455,740~~4,676,249 for the ~~nine~~three months ended September 30, ~~2021,~~2022, and the amount of payments processed increased ~~310.0%~~42.0% from ~~$2.420~~$4.191 billion for the ~~nine~~three months ended September 30, ~~2020~~2021 to ~~$9.920~~$5.952 billion for the ~~nine~~three months ended September 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. During the three months ended September 30, 2022, we processed 144,253 conforming invoices representing a conforming payment volume of $288.4 million.

Net interest income increased due increased factoring activity and increased yields at our Payments segment period over period.

Noninterest income increased due to ~~increased factoring activity at our Payments segment and increased yields period over period. Noninterest income increased primarily due to $3.9~~a $0.5 million increase in ~~Payments~~payment fees ~~related to the acquired HubTran operations~~earned by TriumphPay during the ~~nine~~three months ended September 30, ~~2021.~~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.

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 employees~~Additionally at our Payments segment, ~~were 87.1 and 40.8 for the nine months ended September 30, 2021 and 2020, respectively.~~professional fees increased $0.5 million. We continue to invest heavily in the operations of TriumphPay.

The acquisition of HubTran during ~~the nine months ended September 30,~~ 2021 allows TriumphPay to create a fully integrated payments network for ~~transportation;~~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,
Corporate	2022		2021		$ Change		% Change
Total interest income	$	44	$	43	$	1	2.3	%
Intersegment interest allocations	—		—		—		—
Total interest expense	2,031		2,891		(860)		(29.7)	%
Net interest income (expense)	(1,987)		(2,848)		861		30.2	%
Credit loss expense (benefit)	75		10		65		650.0	%
Net interest income (expense) after credit loss expense	(2,062)		(2,858)		796		27.9	%
Other noninterest income	20		41		(21)		(51.2)	%
Noninterest expense	1,079		1,108		(29)		(2.6)	%
Net income (loss) before income tax expense	$	(3,121)	$	(3,925)	$	804	20.5	%

The Corporate segment reported an operating loss of $3.1 million for the three months ended September 30, 2022 compared to an operating loss of $3.9 million for the three months ended September 30, 2021. Interest expense decreased due to a full quarter of impact of subordinated notes issued August 26, 2021 that carry a lower interest rate than the subordinated notes that they replaced. There were no other material fluctuations in the operating results of our Corporate segment period over period.

Results of Operations

Nine months ended September 30, 2022 compared with nine months ended September 30, 2021

Net Income

We earned net income of $84.8 million for the nine months ended September 30, 2022 compared to $86.3 million for the nine months ended September 30, 2021, a decrease of $1.6 million.

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The results for the nine months ended September 30, 2021 were impacted by $3.0 million of pre-tax transaction costs associated with the HubTran acquisition reported as noninterest expense. Excluding the transaction costs, net of taxes, we earned adjusted net income of $88.6 million for the nine months ended September 30, 2021. There were no such adjustments during the nine months ended September 30, 2022. The adjusted decrease in net income for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 totaled $3.9 million and was driven by a $52.4 million increase in adjusted noninterest expense, a $16.9 million increase in credit loss expense, and a $1.0 million increase in adjusted income tax expense partially offset by a $34.7 million increase in net interest income and a $31.7 million increase in noninterest income.

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

Net Interest Income

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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.


	Nine Months Ended September 30,
	2022						2021
(Dollars in thousands)	Average Balance		Interest		Average Rate(4)		Average Balance		Interest		Average Rate(4)
Interest earning assets:
Cash and cash equivalents	$	357,016	$	3,522	1.32	%	$	508,279	$	467	0.12	%
Taxable securities	192,325		4,537		3.15	%	169,607		3,343		2.64	%
Tax-exempt securities	14,452		278		2.57	%	31,977		620		2.59	%
FHLB and other restricted stock	9,549		175		2.45	%	8,094		131		2.16	%
Loans (1)	4,639,280		304,455		8.77	%	4,812,985		275,215		7.65	%
Total interest earning assets	5,212,622		312,967		8.03	%	5,530,942		279,776		6.76	%
Noninterest earning assets:
Cash and cash equivalents	89,932						81,419
Other noninterest earning assets	504,379						430,316
Total assets	$	5,806,933					$	6,042,677
Interest bearing liabilities:
Deposits:
Interest bearing demand	$	861,753	$	1,791	0.28	%	$	746,590	$	1,288	0.23	%
Individual retirement accounts	80,437		308		0.51	%	88,579		455		0.69	%
Money market	536,130		875		0.22	%	404,651		670		0.22	%
Savings	516,972		602		0.16	%	465,041		530		0.15	%
Certificates of deposit	461,862		1,697		0.49	%	674,284		3,838		0.76	%
Brokered time deposits	102,793		1,052		1.37	%	134,781		259		0.26	%
Other brokered deposits	109,684		685		0.83	%	641,959		750		0.16	%
Total interest bearing deposits	2,669,631		7,010		0.35	%	3,155,885		7,790		0.33	%
Federal Home Loan Bank advances	83,022		535		0.86	%	37,234		67		0.24	%
Subordinated notes	107,261		3,905		4.87	%	96,495		5,148		7.13	%
Junior subordinated debentures	40,805		1,736		5.69	%	40,256		1,331		4.42	%
Other borrowings	8,068		4		0.07	%	146,005		367		0.34	%
Total interest bearing liabilities	2,908,787		13,190		0.61	%	3,475,875		14,703		0.57	%
Noninterest bearing liabilities and equity:
Noninterest bearing demand deposits	1,924,556						1,720,213
Other liabilities	86,093						62,570
Total equity	887,497						784,019
Total liabilities and equity	$	5,806,933					$	6,042,677
Net interest income			$	299,777					$	265,073
Interest spread (2)					7.42	%					6.19	%
Net interest margin (3)					7.69	%					6.41	%

(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:


	Nine Months Ended September 30,
(Dollars in thousands)	2022			2021
Average Banking loans	$	2,958,534		$	3,511,379
Average Factoring receivables	1,527,126			1,203,494
Average Payments receivables	153,620			98,112
Average total loans	$	4,639,280		$	4,812,985
Banking yield	5.87		%	5.31		%
Factoring yield	14.16		%	14.19		%
Payments Yield	11.11		%	10.82		%
Total loan yield	8.77		%	7.65		%

We earned net interest income of $299.8 million for the nine months ended September 30, 2022 compared to $265.1 million for the nine months ended September 30, 2021, an increase of $34.7 million, or 13.1%, primarily driven by the following factors.

Interest income increased $33.2 million, or 11.9%, in spite of a decrease in total average interest earning assets of $318.3 million, or 5.8%, and a decrease in average total loans of $173.7 million, or 3.6%. The average balance of our higher yielding Factoring factored receivables increased $323.6 million, or 26.9%, 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 $552.8 million, or 15.7% due to decreases in the average balances of all Banking loan types except for general commercial, asset based lending, and liquid credit. Interest income from our Banking loans is impacted by our lower yielding mortgage warehouse lending product. The average mortgage warehouse lending balance was $632.9 million for the nine months ended September 30, 2022 compared to $827.1 million for the nine months ended September 30, 2021. A component of interest income consists of discount accretion on acquired loan portfolios. We recognized discount accretion on purchased loans of $6.6 million and $7.6 million for the nine months ended September 30, 2022 and 2021, respectively.

Interest expense decreased $1.5 million, or 10.3%, and average interest bearing liabilities decreased $567.1 million, or 16.3%. More specifically, average total interest bearing deposits decreased $486.3 million, or 15.4%. Average noninterest bearing deposits grew $204.3 million. Average rates on interest bearing liabilities were up slightly as discussed below.

Net interest margin increased to 7.69% for the nine months ended September 30, 2022 from 6.41% for the nine months ended September 30, 2021, an increase of 128 basis points, or 20.0%.

Our net interest margin was impacted by an increase in yield on our interest earning assets of 127 basis points to 8.03% for the nine months ended September 30, 2022. This increase was driven by higher yields on loans which increased 112 basis points to 8.77% for the same period. Factoring yield decreased period over period; however, average Factoring factored receivables as a percentage of the total loan portfolio increased 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 96% at September 30, 2022 compared to 91% at September 30, 2021. Banking and Payments yields 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 4 basis points.

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	Nine Months Ended
	September 30, 2022 vs. 2021
	Increase (Decrease) Due to:				Net Increase
(Dollars in thousands)	Rate		Volume
Interest earning assets:
Cash and cash equivalents	$	4,547	$	(1,492)	$	3,055
Taxable securities	658		536		1,194
Tax-exempt securities	(5)		(337)		(342)
FHLB and other restricted stock	17		27		44
Loans	40,639		(11,399)		29,240
Total interest income	45,856		(12,665)		33,191
Interest bearing liabilities:
Interest bearing demand	264		239		503
Individual retirement accounts	(116)		(31)		(147)
Money market	(10)		215		205
Savings	12		60		72
Certificates of deposit	(1,361)		(780)		(2,141)
Brokered time deposits	1,120		(327)		793
Other brokered deposits	3,259		(3,324)		(65)
Total interest bearing deposits	3,168		(3,948)		(780)
Federal Home Loan Bank advances	173		295		468
Subordinated notes	(1,635)		392		(1,243)
Junior subordinated debentures	382		23		405
Other borrowings	(295)		(68)		(363)
Total interest expense	1,793		(3,306)		(1,513)
Change in net interest income	$	44,063	$	(9,359)	$	34,704

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:


	Nine Months Ended September 30,
(Dollars in thousands)	2022		2021		$ Change		% Change
Credit loss expense on loans	$	6,102	$	(9,390)	$	15,492	165.0	%
Credit loss expense on off balance sheet credit exposures	(402)		(1,159)		757		65.3	%
Credit loss expense on held to maturity securities	348		(289)		637		220.4	%
Credit loss expense on available for sale securities	—		—		—		—
Total credit loss expense	$	6,048	$	(10,838)	$	16,886	155.8	%

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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 September 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 nine months ended September 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 September 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 September 30, 2022 and December 31, 2021, the Company carried $6.6 million and $7.0 million of these HTM securities at amortized cost, respectively. The ACL on these balances was $2.4 million at September 30, 2022 and $2.1 million at December 31, 2021 and we recognized credit loss expense of $0.3 million during the nine months ended September 30, 2022. None of the overcollateralization triggers tied to the CLO securities were tripped as of September 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 September 30, 2021 and December 31, 2020, the Company carried $7.2 million and $7.9 million of these HTM securities at amortized cost, respectively. The ACL on these balances was $1.7 million at September 30, 2021 and $2.0 million at December 31, 2020, and we recognized a benefit to credit loss expense of $0.3 million during the nine months ended September 30, 2021.

Our ACL on loans was $44.1 million as of September 30, 2022, compared to $42.2 million as of December 31, 2021, representing an ACL to total loans ratio of 0.99% and 0.87% respectively.

Our credit loss expense on loans increased $15.5 million, or 165.0%, for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

During the nine months ended September 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 $1.3 million. We continue to reserve the full balance of the Over-Formula Advance clients at September 30, 2022 which totals $8.8 million.

The increased credit loss expense for the nine months ended September 30, 2022 was primarily the result of projected improvement of the loss drivers during the prior period which resulted in a benefit to credit loss expense of $10.3 million for the nine months ended September 30, 2021. During the nine months ended September 30, 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.

The increased credit loss expense was also result of changes in net new specific reserves (including reserves on Over-Formula Advances) which resulted in $3.8 million of credit loss expense during the nine months ended September 30, 2022 compared to $1.1 million of credit loss expense during the same period a year ago.

Increased credit loss expense was also driven by charge-off activity. Net charge-offs were $4.2 million for the nine months ended September 30, 2022 and approximately $0.7 million of the gross charge-off balance had been reserved in a prior period. Net charge-offs were $45.3 million for the nine months ended September 30, 2021 and approximately $45.2 million of the gross charge-off balance had been reserved in a prior period.

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Changes in loan volume and mix resulted in a benefit to credit loss expense of $2.7 million during the nine months ended September 30, 2022 compared to a benefit of $0.4 during the same period a year prior.

Credit loss expense for off balance sheet credit exposures increased $0.8 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:


	Nine Months Ended September 30,
(Dollars in thousands)	2022		2021		$ Change		% Change
Service charges on deposits	$	5,185	$	5,674	$	(489)	(8.6	%)
Card income	6,125		6,341		(216)		(3.4	%)
Net OREO gains (losses) and valuation adjustments	(133)		(376)		243		64.6	%
Net gains (losses) on sale or call of securities	2,514		5		2,509		N/M
Net gains (losses) on sale of loans	18,310		2,965		15,345		517.5	%
Fee income	18,096		11,917		6,179		51.9	%
Insurance commissions	4,209		3,989		220		5.5	%
Other	17,643		9,727		7,916		81.4	%
Total noninterest income	$	71,949	$	40,242	$	31,707	78.8	%

Noninterest income increased $31.7 million, or 78.8%. 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 nine months ended September 30, 2022.

•Net gains (losses) on sale of loans. Net gains (losses) on sale of loans increased $15.3 million, due to the aforementioned gain on sales of factored receivables of $14.2 million and gain on sale of equipment loans of $3.9 million during the nine months ended September 30, 2022.

•Fee income. Fee income increased $6.2 million, or 51.9% primarily due to a $5.9 million increase in payment fees earned by TriumphPay Audit during the nine months ended September 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 $1.4 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 nine months ended September 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 $7.9 million, or 81.4% primarily due to a gain of $8.9 million on the aforementioned termination of an interest rate swap recognized during the nine months ended September 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 nine months ended September 30, 2021 on an acquired loan that was charged off prior to our acquisition of the originating bank. Also offsetting the increases was a $4.2 million gain on our indemnification asset recognized during the nine months ended September 30, 2021 compared to a write off of the indemnification asset of $0.6 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:


	Nine Months Ended September 30,
(Dollars in thousands)	2022		2021		$ Change		% Change
Salaries and employee benefits	$	149,848	$	121,407	$	28,441	23.4	%
Occupancy, furniture and equipment	19,769		18,279		1,490		8.2	%
FDIC insurance and other regulatory assessments	1,179		1,830		(651)		(35.6	%)
Professional fees	11,529		9,959		1,570		15.8	%
Amortization of intangible assets	9,085		7,677		1,408		18.3	%
Advertising and promotion	4,916		3,534		1,382		39.1	%
Communications and technology	30,867		19,018		11,849		62.3	%
Travel and entertainment	3,864		2,725		1,139		41.8	%
Other	22,803		20,074		2,729		13.6	%
Total noninterest expense	$	253,860	$	204,503	$	49,357	24.1	%

Noninterest expense increased $49.4 million, or 24.1%. Noninterest expense for the nine months ended September 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 $201.5 million for the nine months ended September 30, 2021, resulting in an adjusted increase in noninterest expense of $52.4 million, or 26.0%, period over period. Details of the more significant changes in the various components of noninterest expense are further discussed below.

•Salaries and Employee Benefits. Salaries and employee benefits expenses increased $28.4 million, or 23.4%, 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 1,355.6 and 1,181.8 for the nine months ended September 30, 2022 and 2021, respectively. Accruals for bonus expense were $1.4 million higher period over period and stock based compensation expense increased $7.9 million period over period. Additionally, compensation paid to temporary contract labor increased $3.6 million period over period. Sales commissions, primarily related to our operations at Triumph Business Capital and TriumphPay, decreased $1.1 million period over period.

•Occupancy, Furniture and Equipment. Occupancy, furniture and equipment expenses increased $1.5 million, or 8.2%, 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 35.6%, due to decreased assessments period over period.

•Professional Fees. Professional fees increased $1.6 million, or 15.8%, primarily due to a $1.4 million increase in legal and consulting fees period over period.

•Amortization of intangible assets. Amortization of intangible assets increased $1.4 million, or 18.3%, due to the additional intangibles recorded through the HubTran acquisition during the prior year.

•Advertising and Promotion. Advertising and promotion increased $1.4 million, or 39.1%, due to increased activity in this area period over period.

•Communications and Technology. Communications and technology expenses increased $11.8 million, or 62.3%, 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 $1.1 million, or 41.8%, primarily due to increased business development activity in this area period over period.

•Other. Other noninterest expense increased $2.7 million or 13.6% despite a $1.1 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

Income tax expense increased $1.8 million, or 6.9%, from $25.3 million for the nine months ended September 30, 2021 to $27.1 million for the nine months ended September 30, 2022. The effective tax rate was 24% for the nine months ended September 30, 2022 and 23% for the nine months ended September 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)
Nine Months Ended September 30, 2022	Banking		Factoring		Payments		Corporate		Consolidated
Total interest income	$	138,286	$	161,789	$	12,760	$	132	$	312,967
Intersegment interest allocations	6,651		(6,312)		(339)		—		—
Total interest expense	7,547		—		—		5,643		13,190
Net interest income (expense)	137,390		155,477		12,421		(5,511)		299,777
Credit loss expense (benefit)	2,638		1,961		405		1,044		6,048
Net interest income after credit loss expense	134,752		153,516		12,016		(6,555)		293,729
Noninterest income	34,496		20,333		17,069		51		71,949
Noninterest expense	138,741		66,408		46,062		2,649		253,860
Net income (loss) before income tax expense	$	30,507	$	107,441	$	(16,977)	$	(9,153)	$	111,818

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(Dollars in thousands)
Nine Months Ended September 30, 2021	Banking		Factoring		Payments		Corporate		Consolidated
Total interest income	$	144,087	$	127,699	$	7,939	$	51	$	279,776
Intersegment interest allocations	8,117		(7,700)		(417)		—		—
Total interest expense	8,225		—		—		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 expense	163,166		111,908		6,974		(6,137)		275,911
Noninterest income	25,139		10,710		4,242		151		40,242
Noninterest expense	122,497		52,433		26,393		3,180		204,503
Net income (loss) before income tax expense	$	65,808	$	70,185	$	(15,177)	$	(9,166)	$	111,650


(Dollars in thousands)
September 30, 2022	Banking		Factoring		Payments		Corporate		Eliminations		Consolidated
Total assets	$	5,162,380	$	1,406,367	$	354,179	$	1,041,293	$	(2,321,769)	$	5,642,450
Gross loans	$	3,849,962	$	1,330,122	$	118,958	$	—	$	(865,738)	$	4,433,304


(Dollars in thousands)
December 31, 2021	Banking		Factoring		Payments		Corporate		Eliminations		Consolidated
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)	Nine Months Ended September 30,						% Change
Banking	2022		2021		$ Change
Total interest income	$	138,286	$	144,087	$	(5,801)	(4.0	%)
Intersegment interest allocations	6,651		8,117		(1,466)		(18.1	%)
Total interest expense	7,547		8,225		(678)		(8.2	%)
Net interest income	137,390		143,979		(6,589)		(4.6	%)
Credit loss expense (benefit)	2,638		(19,187)		21,825		113.7	%
Net interest income after credit loss expense	134,752		163,166		(28,414)		(17.4	%)
Noninterest income	34,496		25,139		9,357		37.2	%
Noninterest expense	138,741		122,497		16,244		13.3	%
Net income (loss) before income tax expense	$	30,507	$	65,808	$	(35,301)	(53.6	%)

Our Banking segment’s operating income decreased $35.3 million, or 53.6%.

Total interest income decreased $5.8 million, or 4.0%, 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 15.7% from $3.511 billion for the nine months ended September 30, 2021 to $2.959 billion for the nine months ended September 30, 2022. The decrease in interest income was partially offset by an increase in yields on interest earning assets at our Banking segment.

Interest expense decreased $0.7 million, or 8.2%. Average balance of interest bearing liabilities at our Banking segment decreased overall, and average total interest bearing deposits decreased $486.3 million, or 15.4%. Average rates on interest bearing liabilities at our Banking segment were slightly higher period over period.

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Credit loss expense for off balance sheet credit exposures increased $0.8 million from a benefit of $1.2 million for the nine months ended September 30, 2021 to a benefit of $0.4 million for the nine months ended September 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 nine months ended September 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 nine months ended September 30, 2021 on an acquired loan that was charged off prior to our acquisition of the originating bank and a $2.8 million decrease in gains on sale of liquid credit and mortgage loans. There were no other significant changes within the components of other noninterest income at our Banking segment.

During the nine months ended September 30, 2022, the aggregate outstanding balances of our banking products decreased $183.8 million, or 5.8%, to $2.984 billion as of September 30, 2022. See the Financial Condition section below for further discussion of changes in loan balances:


(Dollars in thousands)	September 30, 2022		December 31, 2021
Banking
Commercial real estate	$	669,742	$	632,775
Construction, land development, land	75,527		123,464
1-4 family residential	122,594		123,115
Farmland	66,595		77,394
Commercial - General	319,016		295,662
Commercial - Paycheck Protection Program	60		27,197
Commercial - Agriculture	60,409		70,127
Commercial - Equipment	439,604		621,437
Commercial - Asset-based lending	238,119		281,659
Commercial - Liquid Credit	224,991		134,347
Consumer	9,506		10,885
Mortgage Warehouse	758,061		769,973
Total banking loans	$	2,984,224	$	3,168,035

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Factoring


(Dollars in thousands)	Nine Months Ended September 30,
Factoring	2022		2021		$ Change		% Change
Total interest income	$	161,789	$	127,699	$	34,090	26.7	%
Intersegment interest allocations	(6,312)		(7,700)		1,388		18.0	%
Total interest expense	—		—		—		—
Net interest income	155,477		119,999		35,478		29.6	%
Credit loss expense (benefit)	1,961		8,091		(6,130)		(75.8	%)
Net interest income after credit loss expense	153,516		111,908		41,608		37.2	%
Noninterest income	20,333		10,710		9,623		89.9	%
Noninterest expense	66,408		52,433		13,975		26.7	%
Net income (loss) before income tax expense	$	107,441	$	70,185	$	37,256	53.1	%


	Nine Months Ended September 30,
	2022			2021
Factored receivable period end balance	$	1,330,122,000		$	1,479,989,000
Yield on average receivable balance	14.16		%	14.19		%
Year to date charge-off rate(1)	0.19		%	3.76		%
Factored receivables - transportation concentration	96		%	90		%

Interest income, including fees	$	161,789,000		$	127,699,000
Non-interest income(2)	20,333,000			6,056,000
Factored receivable total revenue	182,122,000			133,755,000
Average net funds employed	1,367,041,000			1,082,610,000
Yield on average net funds employed	17.81		%	16.52		%

Accounts receivable purchased	$	11,665,223,000		$	9,092,541,000
Number of invoices purchased	5,011,222			4,125,694
Average invoice size	$	2,328		$	2,204
Average invoice size - transportation	$	2,213		$	2,096
Average invoice size - non-transportation	$	5,927		$	4,812

(1) Net charge-offs for the nine months ended September 30, 2021 includes a $41.3 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 nine months ended September 30, 2022 includes $14.2 million of gains on sale of a portfolio of factored receivables, which contributed 1.39% to the yield on average net funds employed for the period.

Non-interest income for the nine months ended September 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 $37.3 million, or 53.1%.

Our average invoice size increased 5.6% from $2,204 for the nine months ended September 30, 2021 to $2,328 for the nine months ended September 30, 2022 and the number of invoices purchased increased 21.5% period over period.

Net interest income at our Factoring segment increased period over period. Overall average net funds employed (“NFE”) increased 26.3% during the nine months ended September 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 seen during the period. 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 90% at September 30, 2021 and 96% at September 30, 2022.

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The period over period decrease in credit loss expense at our Factoring segment is primarily due to decreased charge-off activity and a reduction in the period end volume of the factoring portfolio during the periods. Net charge-offs at our Factoring segment during the nine months ended September 30, 2022 were $3.0 million compared to $45.2 million during the same period a year ago. Net charge-offs during the nine months ended September 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. Changes in specific reserves and loss assumptions did not have a material impact on the change in credit loss expense period over period.

The increase in noninterest income at our Factoring segment was primarily due to the aforementioned $14.2 million gain on sale of factored receivables during the nine months ended September 30, 2022. Additionally, wire transfer fees and ACH/check fees increased $1.9 million. These increases were partially offset by a combined $1.2 million of early termination fees charged to two customers during the nine months ended September 30, 2021 that did not repeat during the current year. Also offsetting the increases was a $4.2 million gain on our indemnification asset recognized during the nine months ended September 30, 2021 compared to a write off of the indemnification asset of $0.6 million during the same period of the 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 merit increases for existing employees, higher health insurance benefit costs, incentive compensation, stock based compensation and 401(k) expense. Additionally, communications and technology expense increased $4.9 million as a result of increased spending on IT consulting to develop efficiency in our Factoring segment and improve the functionality of our technology platforms. Additionally, professional fees increased $1.4 million. 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,
Payments	2022		2021		$ Change		% Change
Total interest income	$	12,760	$	7,939	$	4,821	60.7	%
Intersegment interest allocations	(339)		(417)		78		18.7	%
Total interest expense	—		—		—		—	%
Net interest income	12,421		7,522		4,899		65.1	%
Credit loss expense (benefit)	405		548		(143)		(26.1)	%
Net interest income after credit loss expense	12,016		6,974		5,042		72.3	%
Noninterest income	17,069		4,242		12,827		302.4	%
Noninterest expense	46,062		26,393		19,669		74.5	%
Net income (loss) before income tax expense	$	(16,977)	$	(15,177)	$	(1,800)	(11.9)	%


	Nine Months Ended
	2022		2021
Factored receivable period end balance	$	118,958,000	$	127,039,000

Interest income	$	12,760,000	$	7,939,000
Noninterest income	17,069,000		4,242,000
Total revenue	$	29,829,000	$	12,181,000

Operating income (loss)	$	(16,977,000)	$	(15,177,000)
Interest expense	339,000		417,000
Depreciation and software amortization expense	331,000		210,000
Intangible amortization expense	4,417,000		1,987,000
Earnings (losses) before interest, taxes, depreciation, and amortization	$	(11,890,000)	$	(12,563,000)
Transaction costs	$	—	$	2,992,000
Adjusted earnings (losses) before interest, taxes, depreciation, and amortization(1)	$	(11,890,000)	$	(9,571,000)

Number of invoices processed	13,043,134		9,455,740
Amount of payments processed	$	17,686,453,000	$	9,919,865,000
Conforming invoice volume	315,015		—
Conforming payment volume	$	671,291,000	$	—

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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 $1.8 million, or 11.9%.

The number of invoices processed by our Payments segment increased 37.9% from 9,455,740 for the nine months ended September 30, 2021 to 13,043,134 for the nine months ended September 30, 2022, and the amount of payments processed increased 78.3% from $9.920 billion for the nine months ended September 30, 2021 to $17.686 billion for the nine months ended September 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. During the nine months ended September 30, 2022, we processed 315,015 conforming invoices representing a conforming payment volume of $671.3 million.

Net interest income increased due to increased factoring activity and increased yields at our Payments segment period over period.

Noninterest income increased due to a $5.9 million increase in payment fees earned by TriumphPay during the nine months ended September 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 $2.6 million and amortization of the intangible assets acquired in the HubTran acquisition increased $2.4 million. We continue to invest heavily in the operations of TriumphPay.

The acquisition of HubTran during 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)	(Dollars in thousands)	Nine Months Ended September 30,						% Change		(Dollars in thousands)	Nine Months Ended September 30,						% Change
Corporate	Corporate	2021		2020		$ Change				Corporate	2022		2021		$ Change
Total interest income	Total interest income	$	51	$	267	$	(216)	(80.9	%)	Total interest income	$	132	$	51	$	81	158.8	%
Intersegment interest allocations	Intersegment interest allocations	—		—		—		—		Intersegment interest allocations	—		—		—		—
Total interest expense	Total interest expense	6,478		5,678		800		14.1	%	Total interest expense	5,643		6,478		(835)		(12.9	%)
Net interest income (expense)	Net interest income (expense)	(6,427)		(5,411)		(1,016)		(18.8	%)	Net interest income (expense)	(5,511)		(6,427)		916		14.3	%
Credit loss expense (benefit)	Credit loss expense (benefit)	(290)		1,834		(2,124)		(115.8	%)	Credit loss expense (benefit)	1,044		(290)		1,334		460.0	%
Net interest income (expense) after credit loss expense	Net interest income (expense) after credit loss expense	(6,137)		(7,245)		1,108		15.3	%	Net interest income (expense) after credit loss expense	(6,555)		(6,137)		(418)		(6.8	%)
Noninterest income	Noninterest income	151		131		20		15.3	%	Noninterest income	51		151		(100)		(66.2	%)
Noninterest expense	Noninterest expense	3,180		3,080		100		3.2	%	Noninterest expense	2,649		3,180		(531)		(16.7	%)
Operating income (loss)		$	(9,166)	$	(10,194)	$	1,028	10.1	%
Net income (loss) before income tax expense										Net income (loss) before income tax expense	$	(9,153)	$	(9,166)	$	13	0.1	%

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The Corporate segment reported an operating loss of $9.2 million for the nine months ended September 30, 2022 and 2021, ~~compared to an operating loss of $10.2 million for the nine months ended September 30, 2020. This was primarily due to decreased credit~~respectively. Credit loss expense on our HTM CLOs previously discussed in the Credit Loss Expense ~~section. Operating income~~section increased. Additionally, during the nine months ended September 30, 2022, management charged off a $0.7 million community reinvestment act loan that carried no reserve from a prior period. Interest expense decreased due to a full quarter of impact of subordinated notes issued August 26, 2021 ~~was also impacted by increased credit loss expense. During~~that carry a lower interest rate than the ~~nine 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 payoffnotes that ~~was written off through interest expense during the nine months ended September 30, 2021.~~they replaced. There were no other significant fluctuations in accounts in our Corporate segment period over period.

Financial Condition

Assets

Total assets were ~~$6.025~~$5.642 billion at September 30, ~~2021,~~2022, compared to ~~$5.936~~$5.956 billion at December 31, ~~2020, an increase~~2021, a decrease of ~~$88.7~~$313.8 million, the components of which are discussed below.

Loan Portfolio

Loans held for investment were ~~$4.783~~$4.433 billion at September 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, 2021				December 31, 2020				$ Change				% Change					September 30, 2022						December 31, 2021						$ Change			% Change
(Dollars in thousands)	(Dollars in thousands)			% of Total				% of Total				(Dollars in thousands)								% of Total						% of Total
Commercial real estate	Commercial real estate	$	630,106	13	%	$	779,158	16	%			$	(149,052)				(19.1	%)	Commercial real estate		$	669,742		15		%	$	632,775		13		%	$	36,967		5.8	%
Construction, land development, land	Construction, land development, land	171,814		4	%	219,647		4	%	(47,833)				(21.8	%)	Construction, land development, land			75,527			2	%		123,464			3	%		(47,937)			(38.8	%)
1-4 family residential	1-4 family residential	127,073		3	%	157,147		3	%	(30,074)				(19.1	%)	1-4 family residential			122,594			3	%		123,115			3	%		(521)			(0.4	%)
Farmland	Farmland	82,990		2	%	103,685		2	%	(20,695)				(20.0	%)	Farmland			66,595			2	%		77,394			2	%		(10,799)			(14.0	%)
Commercial	Commercial	1,398,497		29	%	1,562,957		32	%	(164,460)				(10.5	%)	Commercial			1,282,199			29	%		1,430,429			29	%		(148,230)			(10.4	%)
Factored receivables	Factored receivables	1,607,028		33	%	1,120,770		22	%	486,258				43.4	%	Factored receivables			1,449,080			32	%		1,699,537			34	%		(250,457)			(14.7	%)
Consumer	Consumer	12,677		—	%	15,838		—	%	(3,161)				(20.0	%)	Consumer			9,506			—	%		10,885			—	%		(1,379)			(12.7	%)
Mortgage warehouse	Mortgage warehouse	752,545		16	%	1,037,574		21	%	(285,029)				(27.5	%)	Mortgage warehouse			758,061			17	%		769,973			16	%		(11,912)			(1.5	%)
Total Loans	Total Loans	$	4,782,730	100	%	$	4,996,776	100	%	$	(214,046)			(4.3	%)	Total Loans			$	4,433,304		100	%		$	4,867,572		100	%		$	(434,268)		(8.9	%)

Commercial Real Estate Loans. Our commercial real estate loans ~~decreased $149.1~~increased $37.0 million, or ~~19.1%~~5.8%, due to ~~paydowns for the period~~new origination activity that outpaced ~~new loan origination activity.~~paydowns.

Construction and Development Loans. Our construction and development loans decreased ~~$47.8~~$47.9 million, or ~~21.8%~~38.8%, 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 ~~$30.1~~$0.5 million, or ~~19.1%~~0.4%, due ~~primarily~~ to paydowns that ~~were offset by modest~~outpaced new origination ~~and draw~~ activity.

~~Table of~~ ~~Contents~~

Farmland Loans. Our farmland loans decreased ~~$20.7~~$10.8 million, or ~~20.0%~~14.0%, due to paydowns ~~for the period~~ that outpaced ~~new loan~~modest origination activity.

Commercial Loans. Our commercial loans held for investment decreased ~~$164.5~~$148.2 million, or ~~10.5%~~10.4%, due to ~~decreases in liquid credit, PPP, agriculture and other commercial loans. The decline in commercial~~the 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 $51.6~~increased $23.4 million, or ~~15.1%~~7.9%.

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The following table shows our commercial loans:


(Dollars in thousands)	(Dollars in thousands)	September 30, 2021		December 31, 2020		$ Change		% Change		(Dollars in thousands)	September 30, 2022		December 31, 2021		$ Change		% Change
Commercial	Commercial									Commercial
Equipment	Equipment	$	588,105	$	573,163	$	14,942	2.6	%	Equipment	$	439,604	$	621,437	$	(181,833)	(29.3	%)
Asset-based lending	Asset-based lending	213,927		180,488		33,439		18.5	%	Asset-based lending	238,119		281,659		(43,540)		(15.5	%)
Liquid credit	Liquid credit	142,547		184,027		(41,480)		(22.5	%)	Liquid credit	224,991		134,347		90,644		67.5	%
Paycheck Protection Program loans	Paycheck Protection Program loans	87,413		189,857		(102,444)		(54.0	%)	Paycheck Protection Program loans	60		27,197		(27,137)		(99.8	%)
Agriculture	Agriculture	77,263		94,572		(17,309)		(18.3	%)	Agriculture	60,409		70,127		(9,718)		(13.9	%)
Other commercial lending	Other commercial lending	289,242		340,850		(51,608)		(15.1	%)	Other commercial lending	319,016		295,662		23,354		7.9	%
Total commercial loans	Total commercial loans	$	1,398,497	$	1,562,957	$	(164,460)	(10.5	%)	Total commercial loans	$	1,282,199	$	1,430,429	$	(148,230)	(10.4	%)

Factored Receivables. Our factored receivables ~~increased $486.3~~decreased $250.5 million, or ~~43.4%.~~14.7% due to the sale of $88.0 million of factored receivables during the period and a slowing freight market. At September 30, ~~2021,~~2022, the balance of the Over-Formula Advance Portfolio included in factored receivables was ~~$10.1~~$8.8 million. At September 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.

Consumer Loans. Our consumer loans decreased ~~$3.2~~$1.4 million, or ~~20.0%~~12.7%, due to paydowns ~~in excess of new loan~~that outpaced modest origination ~~activity during the period.~~activity.

Mortgage Warehouse. Our mortgage warehouse facilities decreased $~~285.0~~11.9 million, or ~~27.5%~~1.5%, 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 $610.8 million for the three months ended September 30, 2022 compared to $772.3 million for the three months ended September 30, 2021 ~~compared to $786.3~~and $632.9 million for the ~~three~~nine months ended September 30, ~~2020 and~~2022 compared to $827.1 million for the nine months ended September 30, ~~2021 compared to $672.4 million for the nine months ended September 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, land 99,602 59,587 12,625 171,814
1-4 family residential 9,988 37,034 80,051 127,073
Farmland 10,578 26,778 45,634 82,990
Commercial 311,838 997,252 89,407 1,398,497
Factored receivables 1,607,028 — — 1,607,028
Consumer 2,605 7,137 2,935 12,677
Mortgage warehouse 752,545 — — 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 rates 461,412 293,851
Total $ 1,495,859 $ 360,813

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	September 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	$	135,892	$	453,614	$	75,522	$	4,714	$	669,742
Construction, land development, land	24,508		47,742		3,243		34		75,527
1-4 family residential	8,896		31,273		16,477		65,948		122,594
Farmland	11,688		21,976		28,756		4,175		66,595
Commercial	381,223		778,603		122,063		310		1,282,199
Factored receivables	1,449,080		—		—		—		1,449,080
Consumer	1,273		7,055		1,169		9		9,506
Mortgage warehouse	758,061		—		—		—		758,061
	$	2,770,621	$	1,340,263	$	247,230	$	75,190	$	4,433,304

Sensitivity of loans to changes in interest rates:
Predetermined (fixed) interest rates			$	819,714	$	23,284	$	6,454
Floating interest rates			520,549		223,946		68,736
Total			$	1,340,263	$	247,230	$	75,190

As of September 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 (21%), ~~Texas (20%~~Colorado (13%), Illinois ~~(14%~~(11%), and Iowa (6%) make up ~~56%~~51% 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.

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Further, a majority ~~(91%~~(96%) of our factored receivables, including factored receivables held for sale, representing approximately 31% of our total loan portfolio as of September 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.

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, 2021 December 31, 2020
Nonperforming loans:
Commercial real estate $ 2,113 $ 9,945
Construction, land development, land 986 2,294
1-4 family residential 1,312 1,851
Farmland 2,046 2,531
Commercial 7,844 17,202
Factored receivables 28,287 23,956
Consumer 251 253
Mortgage warehouse — —
Total nonperforming loans 42,839 58,032
Held to maturity securities 5,810 7,945
Other real estate owned, net 893 1,432
Other repossessed assets 2,444 1,069
Total nonperforming assets $ 51,986 $ 68,478
Nonperforming assets to total assets 0.86 % 1.15 %
Nonperforming loans to total loans held for investment 0.90 % 1.16 %
Total past due loans to total loans held for investment 2.31 % 3.22 %

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(Dollars in thousands)	September 30, 2022			December 31, 2021
Nonperforming loans:
Commercial real estate	$	1,108		$	2,025
Construction, land development, land	151			964
1-4 family residential	1,710			1,684
Farmland	414			2,044
Commercial	17,868			8,842
Factored receivables	34,515			30,485
Consumer	154			240
Mortgage warehouse	—			—
Total nonperforming loans	55,920			46,284
Held to maturity securities	5,130			5,612
Other real estate owned, net	—			524
Other repossessed assets	1,751			2,368
Total nonperforming assets	$	62,801		$	54,788

Nonperforming assets to total assets	1.11		%	0.92		%
Nonperforming loans to total loans held for investment	1.26		%	0.95		%
Total past due loans to total loans held for investment	2.33		%	2.86		%

Nonperforming loans ~~decreased $15.2~~increased $9.6 million, or ~~26.2%~~20.8%, ~~primarily~~ due to the ~~payoff~~addition of a ~~$5.7~~$12.0 million liquid credit loan secured by the enterprise value of the borrower and a $4.0 million increase in nonperforming ~~commercial real estate loan,~~factored receivables. These additions were offset by the ~~payoff of $5.0 million nonperforming general commercial loan, the payoff~~removal of a ~~$2.3~~$1.6 million equipment finance loan through payoff and consistent decreases in nonperforming ~~commercial relationship, and the payoff of a $1.0 million nonperforming construction~~loans across several loan ~~during the year. Additionally, the~~types. The portion of the factoring Over-Formula Advances not covered by Covenant's indemnification ~~decreased by $8.6 million from $10.0 million at December 31, 2020 to $1.4~~and thus, considered nonperforming, is $0.8 million at September 30, ~~2021 primarily as a result of the aforementioned charge-off activity. These decreases were partially offset by $13.3 million of the total~~2022. 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 million, or ~~37.6%~~100.0%, due to the removal of individually insignificant OREO properties ~~as well as insignificant valuation adjustments made~~ throughout the period.

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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~~increased to ~~0.90%~~1.26% at September 30, ~~2021~~2022 from ~~1.16%~~0.95% December 31, ~~2020.~~2021.

Our ratio of nonperforming assets to total assets ~~decreased~~increased to ~~0.86%~~1.11% at September 30, ~~2021~~2022 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~~$0.5 million during the year.

Past due loans to total loans held for investment decreased to ~~2.31%~~2.33% at September 30, ~~2021~~2022 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 primarily~~2021, as a result of the aforementioned ~~charge-off activity. The remaining $10.1~~loan activity and a decrease in past due factored receivables. Both the $8.8 million acquired factoring Over-Formula Advance balance isand the $19.4 million Misdirected Payments balance are considered greater than 90 days past due at September 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 ~~2020~~2021 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.

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, 2021						December 31, 2020							September 30, 2022						December 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 estate	Commercial real estate	$	3,936	13	%	0.62	%	$	10,182	16	%	1.31	%	Commercial real estate	$	4,794	15	%	0.72	%	$	3,961	13	%	0.63	%
Construction, land development, land	Construction, land development, land	1,057		4	%	0.62	%	3,418		4	%	1.56	%	Construction, land development, land	995		2	%	1.32	%	827		3	%	0.67	%
1-4 family residential	1-4 family residential	485		3	%	0.38	%	1,225		3	%	0.78	%	1-4 family residential	742		3	%	0.61	%	468		3	%	0.38	%
Farmland	Farmland	610		2	%	0.74	%	832		2	%	0.80	%	Farmland	467		2	%	0.70	%	562		2	%	0.73	%
Commercial	Commercial	14,276		29	%	1.02	%	22,040		32	%	1.41	%	Commercial	16,020		29	%	1.25	%	14,485		29	%	1.01	%
Factored receivables	Factored receivables	19,651		33	%	1.22	%	56,463		22	%	5.04	%	Factored receivables	20,134		32	%	1.39	%	20,915		34	%	1.23	%
Consumer	Consumer	250		—	%	1.97	%	542		—	%	3.42	%	Consumer	202		—	%	2.12	%	226		—	%	2.08	%
Mortgage warehouse	Mortgage warehouse	752		16	%	0.10	%	1,037		21	%	0.10	%	Mortgage warehouse	757		17	%	0.10	%	769		16	%	0.10	%
Total Loans	Total Loans	$	41,017	100	%	0.86	%	$	95,739	100	%	1.92	%	Total Loans	$	44,111	100	%	0.99	%	$	42,213	100	%	0.87	%

The ACL ~~decreased $54.7~~increased $1.9 million, or ~~57.2%~~4.5%. This ~~decrease was primarily driven by~~increase reflects net charge-offs of $4.2 million and credit loss expense of $6.1 million. Refer to the ~~aforementioned charge-off~~Results 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 Discussion~~material 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, ~~2020~~2021 to ~~$10.1~~$8.8 million at September 30, ~~2021~~2022 and the entire balance at September 30, ~~2021~~2022 was fully reserved. At September 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 September 30, 2022.

~~Another~~A driver of the ~~decrease~~change in ~~required~~ ACL is projected ~~improvement~~deterioration of the loss drivers that the Company forecasted to calculate expected losses at September 30, ~~2021~~2022 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 ~~positive~~negative impact on the Company’s loss drivers and assumptions over the reasonable and supportable forecast period and resulted in ~~a release~~an increase of ~~$10.3~~$1.5 million of ACL period over period.

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For all DCF models at September 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 September 30, ~~2021~~2022 as compared to December 31, ~~2020,~~2021, the Company forecasted ~~a significant decrease in~~increasing national unemployment, ~~an increase~~a steeper decrease in one-year percentage change in national retail sales, ~~an increase~~a steeper decrease in one-year percentage change in the national home price index, and ~~an increase~~a steeper decrease in one-year percentage change in national gross domestic product. At September 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 a sustained level in the first projected quarter followed by a decline to near-zero or negative levels over the last three 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 for~~declines over the last three projected quarters ~~resembling something closer~~ to ~~pre-COVID-19~~negative levels ~~albeit slightly more modest. Projected unemployment rates used by~~below recent actual periods. At September 30, 2022, the Company ~~are relatively stable over~~slowed 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 following tables show our credit ratios and an analysis of our credit loss expense:


(Dollars in thousands)	September 30, 2022			December 31, 2021
Allowance for credit losses on loans	$	44,111		$	42,213
Total loans held for investment	$	4,433,304		$	4,867,572
Allowance to total loans held for investment	0.99		%	0.87		%

Nonaccrual loans	$	20,828		$	15,034
Total loans held for investment	$	4,433,304		$	4,867,572
Nonaccrual loans to total loans held for investment	0.47		%	0.31		%

Allowance for credit losses on loans	$	44,111		$	42,213
Nonaccrual loans	$	20,828		$	15,034
Allowance for credit losses to nonaccrual loans	211.79		%	280.78		%

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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 September 30, 2021, the Company carried $87.4 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 September 30, 2021.

The following table presents the unpaid principal 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 from credit loss 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, land 171,814 171,998 (184)
1-4 family residential 127,073 127,446 (373)
Farmland 82,990 83,549 (559)
Commercial 1,398,497 1,410,739 (12,242)
Factored receivables 1,607,028 1,611,525 (4,497)
Consumer 12,677 12,689 (12)
Mortgage warehouse 752,545 752,545 —
$ 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.

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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,
		Three Months Ended September 30,						Nine Months Ended September 30,							2022						2021
(Dollars in thousands)	(Dollars in thousands)	2021			2020			2021			2020			(Dollars in thousands)	Net Charge-Offs		Average Loans HFI		Net Charge-Off Ratio		Net Charge-Offs		Average Loans HFI		Net Charge-Off Ratio
Balance at beginning of period		$	45,694		$	54,613		$	95,739		$	29,092
Loans charged-off:
Commercial real estate	Commercial real estate	(17)			—			(17)			—			Commercial real estate	$	—	$	670,912	—	%	$	15	$	675,859	—	%
Construction, land development, land	Construction, land development, land	—			—			(12)			—			Construction, land development, land	(1)		84,116		—	%	(1)		182,550		—	%
1-4 family residential	1-4 family residential	(1)			(6)			(26)			(27)			1-4 family residential	(1)		127,574		—	%	(4)		130,808		—	%
Farmland	Farmland	—			—			—			—			Farmland	—		67,708		—	%	—		86,236		—	%
Commercial	Commercial	(211)			(528)			(426)			(1,173)			Commercial	149		1,258,735		0.01	%	211		1,432,667		0.01	%
Factored receivables	Factored receivables	(3,597)			(773)			(45,683)			(3,027)			Factored receivables	2,261		1,524,625		0.15	%	3,358		1,478,257		0.23	%
Consumer	Consumer	(139)			(118)			(285)			(410)			Consumer	57		9,730		0.59	%	139		12,197		1.14	%
Mortgage warehouse	Mortgage warehouse	—			—			—			—			Mortgage warehouse	—		610,844		—	%	—		772,275		—	%
Total loans charged-off		$	(3,965)		$	(1,425)		$	(46,449)		$	(4,637)
Recoveries of loans charged-off:
Commercial real estate		2			53			10			61
Construction, land development, land		1			2			3			5
1-4 family residential		5			7			90			40
Farmland		—			—			—			80
Commercial		—			615			598			949
Factored receivables		239			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 receivables		1,186			3,059			8,547			4,475
Consumer		153			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 investment		0.08		%	0.02		%	0.94		%	0.08		%
Allowance to total loans held for investment		0.86		%	1.88		%	0.86		%	1.88		%
Total Loans														Total Loans	$	2,465	$	4,354,244	0.06	%	$	3,718	$	4,770,849	0.08	%

Quarter to date net loans charged off ~~increased $3.0~~decreased $1.3 million ~~primarily due to increased~~with no individually significant charge-offs ~~on factored receivables partially offset by decreased charge-offs on commercial loans.~~in either period.


	Nine Months Ended September 30,
	2022						2021
(Dollars in thousands)	Net Charge-Offs		Average Loans HFI		Net Charge-Off Ratio		Net Charge-Offs		Average Loans HFI		Net Charge-Off Ratio
Commercial real estate	$	48	$	650,006	0.01	%	$	7	$	731,836	—	%
Construction, land development, land	(3)		109,552		—	%	9		202,712		—	%
1-4 family residential	(6)		127,079		—	%	(64)		139,517		(0.05)	%
Farmland	—		71,590		—	%	—		94,536		—	%
Commercial	882		1,352,309		0.07	%	(172)		1,490,058		(0.01)	%
Factored receivables	3,079		1,680,746		0.18	%	45,359		1,301,606		3.48	%
Consumer	204		10,166		2.01	%	193		13,661		1.41	%
Mortgage warehouse	—		632,879		—	%	—		827,133		—	%
Total Loans	$	4,204	$	4,634,327	0.09	%	$	45,332	$	4,801,059	0.94	%

Year to date net loans charged off ~~increased $42.0~~decreased $41.1 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.

~~Table of~~ ~~Contents~~

Securities

As of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, we held equity securities with areadily determinable fair ~~value~~values of ~~$5.6~~$4.9 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 September 30, ~~2021,~~2022, we held debt securities classified as available for sale with a fair value of ~~$164.8~~$238.4 million, ~~a decrease~~an increase of ~~$59.5~~$56.0 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, 2021		December 31, 2020		$ Change		% Change		(Dollars in thousands)	September 30, 2022		December 31, 2021		$ Change		% Change
U.S. Government agency obligations		$	5,001	$	15,088	$	(10,087)	(66.9)	%
Mortgage-backed securities, residential	Mortgage-backed securities, residential	18,167		27,684		(9,517)		(34.4)	%	Mortgage-backed securities, residential	$	44,675	$	37,449	$	7,226	19.3	%
Asset-backed securities	Asset-backed securities	6,864		7,039		(175)		(2.5)	%	Asset-backed securities	6,476		6,764		(288)		(4.3)	%
State and municipal	State and municipal	29,175		37,395		(8,220)		(22.0)	%	State and municipal	14,262		26,825		(12,563)		(46.8)	%
CLO Securities	CLO Securities	100,719		122,204		(21,485)		(17.6)	%	CLO Securities	169,708		106,634		63,074		59.1	%
Corporate bonds	Corporate bonds	2,061		11,573		(9,512)		(82.2)	%	Corporate bonds	1,249		2,056		(807)		(39.3)	%
SBA pooled securities	SBA pooled securities	2,829		3,327		(498)		(15.0)	%	SBA pooled securities	2,064		2,698		(634)		(23.5)	%
		$	164,816	$	224,310	$	(59,494)	(26.5)	%		$	238,434	$	182,426	$	56,008	30.7	%

Table of Contents

Our available for sale CLO portfolio consists of investment grade positions in high ranking tranches within their respective securitization structures. As of September 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 September 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 September 30, ~~2021,~~2022, we held investments classified as held to maturity with an amortized cost, net of ACL, of ~~$5.5~~$4.1 million, a decrease of ~~$0.4~~$0.8 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 September 30, ~~2021.~~2022.

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, 2021																					Maturity as of September 30, 2022
		One Year or Less				After One but within Five Years				After Five but within Ten Years				After Ten Years				Total					One Year or Less				After One but within Five Years				After Five but within Ten Years				After Ten Years				Total
(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 securities	Mortgage-backed securities	487		3	%	2,022		1.84	%	4,176		1.84	%	10,623		3.07	%	17,308		2.63	%	Mortgage-backed securities	$	1,837	1.97	%	$	9,167	3.90	%	$	2,111	2.45	%	$	36,847	3.32	%	$	49,962	3.35	%
Asset-backed securities	Asset-backed securities	—		—	%	61		0.27	%	5,000		0.27	%	1,799		1.28	%	6,860		0.53	%	Asset-backed securities	—		—	%	—		—	%	5,000		1.32	%	1,501		3.72	%	6,501		1.88	%
State and municipal	State and municipal	9,267		2.63	%	2,696		3.02	%	2,414		2.80	%	14,136		2.53	%	28,513		2.63	%	State and municipal	1,027		2.64	%	2,621		3.06	%	1,168		2.48	%	9,669		2.50	%	14,485		2.61	%
CLO securities	CLO securities	—		—	%	—		—	%	70,177		4.02	%	26,751		2.61	%	96,928		3.63	%	CLO securities	—		—	%	—		—	%	52,265		5.44	%	123,121		4.15	%	175,386		4.53	%
Corporate bonds	Corporate bonds	718		3.17	%	1,001		1.37	%	—		—	%	271		5.07	%	1,990		2.50	%	Corporate bonds	500		3.74	%	501		4.23	%	—		—	%	269		5.07	%	1,270		4.20	%
SBA pooled securities	SBA pooled securities	—		—	%	22		3.04	%	—		—	%	2,713		4.10	%	2,735		4.09	%	SBA pooled securities	—		—	%	2		5.12	%	20		8.77	%	2,124		4.07	%	2,146		4.11	%
Total available for sale securities	Total available for sale securities	$	15,471	2.52	%	$	5,802	2.30	%	$	81,767	3.66	%	$	56,293	2.71	%	$	159,333	3.17	%	Total available for sale securities	$	3,364	2.44	%	$	12,291	3.74	%	$	60,564	4.95	%	$	173,531	3.88	%	$	249,750	4.11	%

Held to maturity securities:	Held to maturity securities:	$	—	—	%	$	—	—	%	$	7,225	—	%	$	—	—	%	$	7,225	—	%	Held to maturity securities:	$	—	—	%	$	—	—	%	$	6,579	2.44	%	$	—	—	%	$	6,579	2.44	%

Liabilities

Total liabilities were ~~$5.204~~$4.751 billion as of September 30, ~~2021,~~2022, compared to ~~$5.209~~$5.097 billion at December 31, ~~2020,~~2021, a decrease of ~~$5.1~~$346.1 million, the components of which are discussed below.

~~Table of~~ ~~Contents~~

Deposits

The following table summarizes our deposits:


(Dollars in thousands)	(Dollars in thousands)	September 30, 2021		December 31, 2020		$ Change		% Change		(Dollars in thousands)	September 30, 2022		December 31, 2021		$ Change		% Change
Noninterest bearing demand	Noninterest bearing demand	$	2,020,984	$	1,352,785	$	668,199	49.4	%	Noninterest bearing demand	$	1,897,309	$	1,925,370	$	(28,061)	(1.5	%)
Interest bearing demand	Interest bearing demand	795,234		688,680		106,554		15.5	%	Interest bearing demand	883,581		830,019		53,562		6.5	%
Individual retirement accounts	Individual retirement accounts	86,012		92,584		(6,572)		(7.1	%)	Individual retirement accounts	74,423		83,410		(8,987)		(10.8	%)
Money market	Money market	472,242		393,325		78,917		20.1	%	Money market	505,082		520,358		(15,276)		(2.9	%)
Savings	Savings	483,946		421,488		62,458		14.8	%	Savings	546,862		504,146		42,716		8.5	%
Certificates of deposit	Certificates of deposit	574,539		790,844		(216,305)		(27.4	%)	Certificates of deposit	373,734		533,206		(159,472)		(29.9	%)
Brokered time deposits	Brokered time deposits	117,064		516,786		(399,722)		(77.3	%)	Brokered time deposits	160,363		40,125		120,238		299.7	%
Other brokered deposits	Other brokered deposits	272,554		460,108		(187,554)		(40.8	%)	Other brokered deposits	—		210,045		(210,045)		(100.0	%)
Total Deposits	Total Deposits	$	4,822,575	$	4,716,600	$	105,975	2.2	%	Total Deposits	$	4,441,354	$	4,646,679	$	(205,325)	(4.4	%)

Our total deposits ~~increased $106.0~~decreased $205.3 million, or ~~2.2%~~4.4%, primarily due to ~~growth in noninterest and interest bearing demand deposits partially offset by~~ decreases in other brokered deposits and certificates of ~~deposit, brokered time deposits, and other brokered deposits.~~deposit. 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 nine months ended September 30, 2022. As of September 30, ~~2021,~~2022, interest bearing demand deposits, noninterest bearing deposits, money market deposits, other brokered deposits, and savings deposits accounted for ~~84%~~86% of our total deposits, while individual retirement accounts, certificates of deposit, and brokered time deposits made up ~~16%~~14% of total deposits.

Table of Contents

At September 30, 2022 we held $68.5 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 more~~exceeding the FDIC insurance limit as of September 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 months 97,148 19,042 116,190
Over 6 through 12 months 126,159 49,354 175,513
Over 12 months 33,113 15,949 49,062
$ 348,490 $ 124,604 $ 473,094


(Dollars in thousands)	Over $250,000
Maturity
3 months or less	$	23,581
Over 3 through 6 months	11,467
Over 6 through 12 months	17,264
Over 12 months	6,661
	$	58,973

The following table summarizes our average deposit balances and weighted average rates:


		Three Months Ended September 30, 2021						Three Months Ended September 30, 2020							Three Months Ended September 30, 2022						Three Months Ended September 30, 2021
								Average
(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 demand	Interest bearing demand	$	779,625	0.22	%	16	%	$	635,287	0.13	%	15	%	Interest bearing demand	$	879,851	0.37	%	20	%	$	779,625	0.22	%	16	%
Individual retirement accounts	Individual retirement accounts	86,571		0.58	%	2	%	95,962		1.24	%	2	%	Individual retirement accounts	77,004		0.50	%	2	%	86,571		0.58	%	2	%
Money market	Money market	417,435		0.21	%	9	%	385,620		0.27	%	9	%	Money market	524,483		0.24	%	12	%	417,435		0.21	%	9	%
Savings	Savings	479,915		0.15	%	10	%	400,102		0.15	%	10	%	Savings	524,106		0.16	%	12	%	479,915		0.15	%	10	%
Certificates of deposit	Certificates of deposit	595,001		0.48	%	12	%	905,075		1.66	%	23	%	Certificates of deposit	407,130		0.55	%	9	%	595,001		0.48	%	12	%
Brokered time deposits	Brokered time deposits	99,116		0.12	%	2	%	247,928		1.51	%	6	%	Brokered time deposits	186,856		1.59	%	4	%	99,116		0.12	%	2	%
Other brokered deposits	Other brokered deposits	441,446		0.20	%	9	%	251,701		0.30	%	6	%	Other brokered deposits	26,758		—	%	1	%	441,446		0.20	%	9	%
Total interest bearing deposits	Total interest bearing deposits	2,899,109		0.27	%	60	%	2,921,675		0.79	%	71	%	Total interest bearing deposits	2,626,188		0.41	%	60	%	2,899,109		0.27	%	60	%
Noninterest bearing demand	Noninterest bearing demand	1,912,398		—		40	%	1,213,494		—		29	%	Noninterest bearing demand	1,885,111		—		40	%	1,912,398		—		40	%
Total deposits	Total deposits	$	4,811,507	0.16	%	100	%	$	4,135,169	0.56	%	100	%	Total deposits	$	4,511,299	0.24	%	100	%	$	4,811,507	0.16	%	100	%

															Nine Months Ended September 30, 2022						Nine Months Ended September 30, 2021
(Dollars in thousands)														(Dollars in thousands)	Average Balance		Weighted Avg Yields		% of Total		Average Balance		Weighted Avg Yields		% of Total
Interest bearing demand														Interest bearing demand	$	861,753	0.28	%	19	%	$	746,590	0.23	%	15	%
Individual retirement accounts														Individual retirement accounts	80,437		0.51	%	2	%	88,579		0.69	%	2	%
Money market														Money market	536,130		0.22	%	12	%	404,651		0.22	%	8	%
Savings														Savings	516,972		0.16	%	11	%	465,041		0.15	%	10	%
Certificates of deposit														Certificates of deposit	461,862		0.49	%	10	%	674,284		0.76	%	14	%
Brokered time deposits														Brokered time deposits	102,793		1.37	%	2	%	134,781		0.26	%	3	%
Other brokered deposits														Other brokered deposits	109,684		0.83	%	2	%	641,959		0.16	%	13	%
Total interest bearing deposits														Total interest bearing deposits	2,669,631		0.35	%	58	%	3,155,885		0.33	%	65	%
Noninterest bearing demand														Noninterest bearing demand	1,924,556		—		42	%	1,720,213		—		35	%
Total deposits														Total deposits	$	4,594,187	0.20	%	100	%	$	4,876,098	0.21	%	100	%

9289

Table of Contents

Nine Months Ended September 30, 2021 Nine Months Ended September 30, 2020
(Dollars in thousands) Average
Balance Weighted
Avg Yields % of
Total Average
Balance Weighted
Avg Yields % of
Total
Interest bearing demand $ 746,590 0.23 % 15 % $ 617,392 0.18 % 16 %
Individual retirement accounts 88,579 0.69 % 2 % 99,827 1.42 % 3 %
Money market 404,651 0.22 % 8 % 408,487 0.54 % 10 %
Savings 465,041 0.15 % 10 % 382,236 0.15 % 10 %
Certificates of deposit 674,284 0.76 % 14 % 993,590 2.00 % 25 %
Brokered time deposits 134,781 0.26 % 3 % 297,829 1.83 % 8 %
Other brokered deposits 641,959 0.16 % 13 % 86,064 0.30 % 2 %
Total interest bearing deposits 3,155,885 0.33 % 65 % 2,885,425 1.07 % 74 %
Noninterest bearing demand 1,720,213 — 35 % 1,021,745 — 26 %
Total deposits $ 4,876,098 0.21 % 100 % $ 3,907,170 0.79 % 100 %

Other Borrowings

Customer Repurchase Agreements

The following provides a summary of our customer repurchase agreements as of and for the nine months ended September 30, ~~2021~~2022 and the year ended December 31, ~~2020:~~2021:


(Dollars in thousands)	(Dollars in thousands)	September 30, 2021			December 31, 2020			(Dollars in thousands)	September 30, 2022			December 31, 2021
Amount outstanding at end of period	Amount outstanding at end of period	$	11,990		$	3,099		Amount outstanding at end of period	$	13,463		$	2,103
Weighted average interest rate at end of period	Weighted average interest rate at end of period	0.03		%	0.03		%	Weighted average interest rate at end of period	0.03		%	0.03		%
Average daily balance during the period	Average daily balance during the period	$	6,200		$	6,716		Average daily balance during the period	$	7,171		$	5,985
Weighted average interest rate during the period	Weighted average interest rate during the period	0.03		%	0.03		%	Weighted average interest rate during the period	0.03		%	0.03		%
Maximum month-end balance during the period	Maximum month-end balance during the period	$	12,405		$	14,192		Maximum month-end balance during the period	$	13,463		$	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.

FHLB Advances

The following provides a summary of our FHLB advances as of and for the nine months ended September 30, ~~2021~~2022 and the year ended December 31, ~~2020:~~2021:


(Dollars in thousands)	(Dollars in thousands)	September 30, 2021			December 31, 2020			(Dollars in thousands)	September 30, 2022			December 31, 2021
Amount outstanding at end of period	Amount 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 period	Weighted average interest rate at end of period	0.27		%	0.17		%	Weighted average interest rate at end of period	2.76		%	0.15		%
Average amount outstanding during the period	Average amount outstanding during the period	37,234			342,264			Average amount outstanding during the period	83,022			37,671
Weighted average interest rate during the period	Weighted average interest rate during the period	0.24		%	0.58		%	Weighted average interest rate during the period	0.86		%	0.24		%
Highest month end balance during the period	Highest month end balance during the period	180,000			850,000			Highest month end balance during the period	230,000			180,000

Our FHLB advances are collateralized by assets, including a blanket pledge of certain loans. At September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, we had ~~$995.3~~$736.0 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.

~~Table of~~ ~~Contents~~

Information concerning borrowings under the PPPLF is summarized as follows for the nine months ended September 30, ~~2021and~~2022 and the year ended December 31, ~~2020:~~2021:


(Dollars in thousands)	(Dollars in thousands)	September 30, 2021			December 31, 2020			(Dollars in thousands)	September 30, 2022			December 31, 2021
Amount outstanding at end of period	Amount outstanding at end of period	$	97,554		$	191,860		Amount outstanding at end of period	$	—		$	27,144
Weighted average interest rate at end of period	Weighted average interest rate at end of period	0.35		%	0.35		%	Weighted average interest rate at end of period	—		%	0.35		%
Average amount outstanding during the period	Average amount outstanding during the period	116,134			143,608			Average amount outstanding during the period	896			118,880
Weighted average interest rate during the period	Weighted average interest rate during the period	0.35		%	0.35		%	Weighted average interest rate during the period	0.32		%	0.35		%
Highest month end balance during the period	Highest month end balance during the period	181,635			223,809			Highest month end balance during the period	—			181,635

AtWe did not have any PPPLF borrowings outstanding at September 30, ~~2021, scheduled maturities of PPPLF borrowings are as follows:~~


~~(Dollars in thousands)~~	~~September 30, 2021~~
~~Within one year~~	$	~~24,796~~
~~After four but within five years~~	~~72,758~~
~~Total~~	$	~~97,554~~

2022. At ~~September 30, 2021 and~~ December 31, ~~2020,~~2021, the PPPLF borrowings were secured by PPP Loans totaling ~~$97.6~~$27.1 million and ~~$191.9 million, respectively, and bear~~incurred interest at a fixed rate of 0.35% annually.

Table of Contents

Subordinated Notes

OnThe following provides a summary of our subordinated notes as of September 30, ~~2016, we issued $50.0 million of Fixed-to-Floating~~2022:


(Dollars in thousands)	Face Value		Carrying Value		Maturity Date	Current Interest Rate	First Repricing Date	Variable Interest Rate at Repricing Date	Initial Issuance Costs
Subordinated Notes issued November 27, 2019	$	39,500	$	38,780	2029	4.875%	11/27/2024	Three Month LIBOR plus 3.330%	$	1,218
Subordinated Notes issued August 26, 2021	70,000		68,807		2031	3.500%	9/01/2026	Three Month SOFR(1) plus 2.860%	$	1,776
	$	109,500	$	107,587

(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, 2024~~the respective first repricing date and on any scheduled interest payment date thereafter, redeem the ~~2019~~Subordinated 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.~~

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

The Subordinated Notes are included on ~~our~~the consolidated balance ~~sheet~~sheets 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 and~~sheet. The debt issuance costs are being amortized using the effective interest method through ~~the earliest respective redemption date~~maturity and recognized as a component of interest expense.

The ~~carrying value of the~~ Subordinated Notes ~~totaled $106.8 million at September 30, 2021.~~

~~Table~~are subordinated in right of ~~Contents~~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.

Junior Subordinated Debentures

The following provides a summary of our junior subordinated debentures as of September 30, ~~2021:~~2022:


(Dollars in thousands)	(Dollars in thousands)	Face Value		Carrying Value		Maturity Date	Interest Rate	(Dollars in thousands)	Face Value		Carrying Value		Maturity Date	Interest Rate
National Bancshares Capital Trust II	National Bancshares Capital Trust II	$	15,464	$	13,316	September 2033	LIBOR + 3.00%	National Bancshares Capital Trust II	$	15,464	$	13,452	September 2033	LIBOR + 3.00%
National Bancshares Capital Trust III	National Bancshares Capital Trust III	17,526		13,134		July 2036	LIBOR + 1.64%	National Bancshares Capital Trust III	17,526		13,353		July 2036	LIBOR + 1.64%
ColoEast Capital Trust I	ColoEast Capital Trust I	5,155		3,665		September 2035	LIBOR + 1.60%	ColoEast Capital Trust I	5,155		3,739		September 2035	LIBOR + 1.60%
ColoEast Capital Trust II	ColoEast Capital Trust II	6,700		4,763		March 2037	LIBOR + 1.79%	ColoEast Capital Trust II	6,700		4,847		March 2037	LIBOR + 1.79%
Valley Bancorp Statutory Trust I	Valley Bancorp Statutory Trust I	3,093		2,889		September 2032	LIBOR + 3.40%	Valley Bancorp Statutory Trust I	3,093		2,903		September 2032	LIBOR + 3.40%
Valley Bancorp Statutory Trust II	Valley Bancorp Statutory Trust II	3,093		2,700		July 2034	LIBOR + 2.75%	Valley Bancorp Statutory Trust II	3,093		2,722		July 2034	LIBOR + 2.75%
		$	51,031	$	40,467				$	51,031	$	41,016

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~~$41.0 million was allowed in the calculation of Tier I capital as of September 30, ~~2021.~~2022.

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Capital Resources and Liquidity Management

Capital Resources

Our stockholders’ equity totaled ~~$820.7~~$891.2 million as of September 30, ~~2021,~~2022, compared to ~~$726.8~~$858.9 million as of December 31, ~~2020,~~2021, an increase of ~~$93.9~~$32.3 million. Stockholders’ equity increased during this period primarily due to our net income of ~~$86.3~~$84.8 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.

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

In addition to the liquidity provided by the sources described above, our subsidiary bank maintains correspondent relationships with other banks in order to sell loans or purchase overnight funds should additional liquidity be needed. As of September 30, ~~2021,~~2022, TBK Bank had ~~$529.3~~$518.1 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 September 30, ~~2021.~~2022. The amount of the obligations presented in the table ~~reflects~~reflect principal amounts only and ~~excludes~~exclude 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, 2021											Payments Due by Period - September 30, 2022
(Dollars in thousands)	(Dollars in thousands)	Total		One Year or Less		After One but within Three Years		After Three but within Five Years		After Five Years		(Dollars in thousands)	Total		One Year or Less		After One but within Three Years		After Three but within Five Years		After Five Years
Customer repurchase agreements	Customer repurchase agreements	$	11,990	$	11,990	$	—	$	—	$	—	Customer repurchase agreements	$	13,463	$	13,463	$	—	$	—	$	—
Federal Home Loan Bank advances	Federal Home Loan Bank advances	30,000		—		—		—		30,000		Federal Home Loan Bank advances	30,000						30,000
Paycheck Protection Program Liquidity Facility		97,554		24,796		—		72,758		—
Subordinated notes	Subordinated notes	109,500		—		—		—		109,500		Subordinated notes	109,500		—		—		—		109,500
Junior subordinated debentures	Junior subordinated debentures	51,031		—		—		—		51,031		Junior subordinated debentures	51,031		—		—		—		51,031
Operating lease agreements	Operating lease agreements	40,282		5,101		9,616		9,025		16,540		Operating lease agreements	39,961		5,600		10,523		9,751		14,087
Time deposits with stated maturity dates	Time deposits with stated maturity dates	777,615		675,332		94,049		8,234		—		Time deposits with stated maturity dates	608,520		477,072		119,484		10,379		1,585
Total contractual obligations	Total contractual obligations	$	1,117,972	$	717,219	$	103,665	$	90,017	$	207,071	Total contractual obligations	$	852,475	$	496,135	$	130,007	$	50,130	$	176,203

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Regulatory Capital Requirements

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.

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 ~~2020~~2021 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;

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•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;

•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.

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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.

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

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

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The following table summarizes simulated change in net interest income versus unchanged rates as of September 30, ~~2021~~2022 and December 31, ~~2020:~~2021:


		September 30, 2021				December 31, 2020					September 30, 2022				December 31, 2021
		Following 12 Months		Months 13-24		Following 12 Months		Months 13-24			Following 12 Months		Months 13-24		Following 12 Months		Months 13-24
+400 basis points	+400 basis points	23.2	%	31.6	%	18.4	%	19.8	%	+400 basis points	17.3	%	19.0	%	17.5	%	23.6	%
+300 basis points	+300 basis points	15.5	%	19.7	%	13.6	%	15.3	%	+300 basis points	12.9	%	14.1	%	13.1	%	18.1	%
+200 basis points	+200 basis points	10.4	%	13.9	%	8.7	%	10.7	%	+200 basis points	8.5	%	9.2	%	8.7	%	12.8	%
+100 basis points	+100 basis points	5.4	%	8.1	%	3.9	%	6.0	%	+100 basis points	4.2	%	4.5	%	4.4	%	7.5	%
Flat rates	Flat rates	0.0	%	0.0	%	0.0	%	0.0	%	Flat rates	0.0	%	0.0	%	0.0	%	0.0	%
-100 basis points	-100 basis points	(2.8	%)	(2.0	%)	(3.6	%)	(2.6	%)	-100 basis points	(4.3	%)	(4.7	%)	(2.7	%)	(1.4	%)

The following table presents the change in our economic value of equity as of September 30, ~~2021~~2022 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, 2021		December 31, 2020			September 30, 2022		December 31, 2021
+400 basis points	+400 basis points	35.0	%	36.5	%	+400 basis points	19.4	%	31.1	%
+300 basis points	+300 basis points	27.5	%	28.9	%	+300 basis points	15.1	%	24.3	%
+200 basis points	+200 basis points	19.3	%	20.3	%	+200 basis points	10.5	%	16.9	%
+100 basis points	+100 basis points	10.1	%	10.7	%	+100 basis points	5.4	%	8.8	%
Flat rates	Flat rates	0.0	%	0.0	%	Flat rates	0.0	%	0.0	%
-100 basis points	-100 basis points	(10.8	%)	(11.4	%)	-100 basis points	(6.1	%)	(9.5	%)

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

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

ITEM 4

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended September 30, ~~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 against~~in the United States Court of Federal Claims seeking a ruling that the United States Postal Service (“USPS”) ~~seeking damages related~~is 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.

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

None.

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

3.2						Certificate of Amendment to Second Amended and Restated Certificate of Formation of Triumph Bancorp, Inc., incorporated by reference to Exhibit 3.1 to Form 8-K filed with the SEC on May 10, 2018.

3.3						Statement of Designation of 7.125% Series C Fixed-Rate Non-Cumulative Perpetual Preferred Stock, dated June 17, 2020, incorporated by reference to Exhibit 3.1 to Form 8-K filed with the SEC on June 19, 2020.

~~3.4~~						Second Amended and Restated Bylaws of the Registrant, effective November 7, 2014, incorporated by reference to Exhibit 3.2 to Form 8-K filed with the SEC on November 13, 2014.

~~3.5~~3.4						Amendment No. 1 to Second Amended and Restated Bylaws of Triumph Bancorp, Inc., incorporated by reference to Exhibit 3.2 to Form 8-K filed with the SEC on May 10, 2018.

~~4.1~~						~~Third Supplemental Indenture, dated as of August 26, 2021, by and between Triumph Bancorp, Inc., as Issuer, and Wells Fargo Bank, National Association, as Trustee, incorporated by reference to Exhibit 4.2 to~~ ~~Form 8-K filed with the SEC on August 26, 2021.~~

~~100~~

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~~4.2~~						~~Forms of 3.500% Fixed-to-Floating Rate Subordinated Note due 2031 (included as Exhibit A-1 and Exhibit B-1 to the Third Supplemental Indenture, incorporated by reference to~~ ~~Exhibit 4.2~~ to ~~Form 8-K filed with the SEC on August 26, 2021~~).

~~10.1~~						~~Form of Subordinated Note Purchase Agreement, dated as of August 26, 2021, by and among Triumph Bancorp, Inc. and the Purchasers, incorporated by reference to Exhibit 10.1 to Form 8-K filed with the SEC on August 26, 2021~~*

~~10.2~~						~~Form of Registration Rights Agreement, dated as of August 26, 2021, by and among Triumph Bancorp, Inc. and the Purchasers, incorporated by reference to Exhibit 10.2 to Form 8-K filed with the SEC on August 26, 2021.~~

~~10.3~~						~~Employment Agreement between Triumph Bancorp, Inc. and W. Bradley Voss, dated September 1, 2021, incorporated by reference to Exhibit 10.1 to Form 8-K filed with the SEC on September 1, 2021.~~

~~10.4~~						~~Consulting Agreement between Triumph Bancorp, Inc. and R. Bryce Fowler, dated September 1, 2021, incorporated by reference to Exhibit 10.~~2 ~~to Form 8-K filed with the SEC on September 1, 2021.~~

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

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

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

101.INS						Inline 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.SCH						Inline XBRL Taxonomy Extension Schema Document.

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104						Cover 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.

~~101~~97

Table of Contents

SIGNATURES

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


		TRIUMPH BANCORP, INC.
		(Registrant)

Date:	October ~~20, 2021~~19, 2022	/s/ Aaron P. Graft
		Aaron P. Graft President and Chief Executive Officer

Date:	October ~~20, 2021~~19, 2022	/s/ W. Bradley Voss
		W. Bradley Voss Chief Financial Officer

~~102~~98


PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements
	Consolidated Balance Sheets	2
	Consolidated Statements of Income	3
	Consolidated Statements of Comprehensive Income	4
	Consolidated Statements of Changes in Stockholders’ Equity	5
	Consolidated Statements of Cash Flows	7
	Condensed Notes to Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	48

Item 3.	Quantitative and Qualitative Disclosures About Market Risks	9895

Item 4.	Controls and Procedures	9996

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	~~100~~96

Item 1A.	Risk Factors	~~100~~96

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	~~100~~96

Item 3.	Defaults Upon Senior Securities	~~100~~97

Item 4.	Mine Safety Disclosures	~~100~~97

Item 5.	Other Information	~~100~~97

Item 6.	Exhibits	~~100~~97


(Dollars in thousands)	Initial Values Recorded at Acquisition Date	Measurement Period Adjustments		Adjusted Values
Assets acquired:
Factored receivables	$107,524	$—		$107,524
Allowance for credit losses	(37,415)	—		(37,415)
Factored receivables, net of ACL	70,109	—		70,109
Intangible assets	3,500	—		3,500
Indemnification asset	30,959	—		30,959
Deferred income taxes	1,448	(59)		1,389
	106,016	(59)		105,957
Liabilities assumed:
Deposits	5,361	—		5,361
	5,361	—		5,361
Fair value of net assets acquired	$100,655	$	(59)	$100,596
Consideration:
Cash paid	$108,375	—		$108,375
Stock consideration	13,942	—		13,942
Cash due from seller subsequent to liquidation of stock consideration	(17,196)	—		(17,196)
Total consideration	$105,121	$—		$105,121
Goodwill	$4,466	$59		$4,525


(Dollars in thousands)	Recorded Investment		Unpaid Principal		Difference
September 30, 2021
Commercial real estate	$	630,106	$	632,182	$	(2,076)
Construction, land development, land	171,814		171,998		(184)
1-4 family residential	127,073		127,446		(373)
Farmland	82,990		83,549		(559)
Commercial	1,398,497		1,410,739		(12,242)
Factored receivables	1,607,028		1,611,525		(4,497)
Consumer	12,677		12,689		(12)
Mortgage warehouse	752,545		752,545		—
	$	4,782,730	$	4,802,673	$	(19,943)


(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 months	97,148		19,042		116,190
Over 6 through 12 months	126,159		49,354		175,513
Over 12 months	33,113		15,949		49,062
	$	348,490	$	124,604	$	473,094