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 ~~June~~September 30, 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, ~~24,464,746~~24,478,288 shares, as of ~~July 18,~~October 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

~~June~~September 30, 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

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

(Dollar amounts in thousands)


		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
		(Unaudited)					(Unaudited)
ASSETS	ASSETS					ASSETS
Cash and due from banks	Cash and due from banks	$	84,625	$	122,929	Cash and due from banks	$	139,937	$	122,929
Interest bearing deposits with other banks	Interest bearing deposits with other banks	639,612		260,249		Interest bearing deposits with other banks	281,792		260,249
Total cash and cash equivalents	Total cash and cash equivalents	724,237		383,178		Total cash and cash equivalents	421,729		383,178
Securities - equity investments with readily determinable fair values	Securities - equity investments with readily determinable fair values	5,050		5,504		Securities - equity investments with readily determinable fair values	4,916		5,504
Securities - available for sale	Securities - available for sale	215,909		182,426		Securities - available for sale	238,434		182,426
Securities - held to maturity, net of allowance for credit losses of $2,355 and $2,082, respectively, fair value of $5,790 and $5,447, respectively		4,335		4,947
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	6		7,330		Loans held for sale	78		7,330
Loans, net of allowance for credit losses of $43,407 and $42,213, respectively		4,391,959		4,825,359
Assets held for sale		24,405		—
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	6,169		10,146		Federal Home Loan Bank and other restricted stock	6,213		10,146
Premises and equipment, net	Premises and equipment, net	105,293		105,729		Premises and equipment, net	104,272		105,729
Other real estate owned, net	Other real estate owned, net	168		524		Other real estate owned, net	—		524
Goodwill	Goodwill	233,709		233,727		Goodwill	233,709		233,727
Intangible assets, net	Intangible assets, net	36,957		43,129		Intangible assets, net	34,895		43,129
Bank-owned life insurance	Bank-owned life insurance	41,278		40,993		Bank-owned life insurance	41,390		40,993
Deferred tax asset, net	Deferred tax asset, net	13,117		10,023		Deferred tax asset, net	14,663		10,023
Indemnification asset	Indemnification asset	4,377		4,786		Indemnification asset	4,173		4,786
Other assets	Other assets	148,538		98,449		Other assets	144,636		98,449
Total assets	Total assets	$	5,955,507	$	5,956,250	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	$	2,085,249	$	1,925,370	Noninterest bearing	$	1,897,309	$	1,925,370
Interest bearing	Interest bearing	2,695,675		2,721,309		Interest bearing	2,544,045		2,721,309
Total deposits	Total deposits	4,780,924		4,646,679		Total deposits	4,441,354		4,646,679
Deposits held for sale		1,410		—
Customer repurchase agreements	Customer repurchase agreements	11,746		2,103		Customer repurchase agreements	13,463		2,103
Federal Home Loan Bank advances	Federal Home Loan Bank advances	30,000		180,000		Federal Home Loan Bank advances	30,000		180,000
Paycheck Protection Program Liquidity Facility	Paycheck Protection Program Liquidity Facility	—		27,144		Paycheck Protection Program Liquidity Facility	—		27,144
Subordinated notes	Subordinated notes	107,377		106,957		Subordinated notes	107,587		106,957
Junior subordinated debentures	Junior subordinated debentures	40,876		40,602		Junior subordinated debentures	41,016		40,602
Other liabilities	Other liabilities	108,893		93,901		Other liabilities	117,857		93,901
Total liabilities	Total liabilities	5,081,226		5,097,386		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, 24,457,777 and 25,158,879 shares outstanding, respectively		283		283
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	524,636		510,939		Additional paid-in-capital	529,804		510,939
Treasury stock, at cost	Treasury stock, at cost	(156,924)		(104,743)		Treasury stock, at cost	(156,949)		(104,743)
Retained earnings	Retained earnings	466,269		399,351		Retained earnings	481,697		399,351
Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)	(4,983)		8,034		Accumulated other comprehensive income (loss)	(8,662)		8,034
Total stockholders’ equity	Total stockholders’ equity	874,281		858,864		Total stockholders’ equity	891,173		858,864
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	5,955,507	$	5,956,250	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 ~~Six~~Nine Months Ended ~~June~~September 30, 2022 and 2021

(Dollar amounts in thousands, except per share amounts)

(Unaudited)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Interest and dividend income:	Interest and dividend income:									Interest and dividend income:
Loans, including fees	Loans, including fees	$	44,131	$	45,988	$	84,978	$	94,694	Loans, including fees	$	44,928	$	44,882	$	129,906	$	139,576
Factored receivables, including fees	Factored receivables, including fees	60,026		47,328		121,232		85,123		Factored receivables, including fees	53,317		50,516		174,549		135,639
Securities	Securities	1,329		1,187		2,507		2,837		Securities	2,308		1,126		4,815		3,963
FHLB and other restricted stock	FHLB and other restricted stock	34		27		110		103		FHLB and other restricted stock	65		28		175		131
Cash deposits	Cash deposits	787		158		915		284		Cash deposits	2,607		183		3,522		467
Total interest income	Total interest income	106,307		94,688		209,742		183,041		Total interest income	103,225		96,735		312,967		279,776
Interest expense:	Interest expense:									Interest expense:
Deposits	Deposits	2,706		2,470		4,267		5,842		Deposits	2,743		1,948		7,010		7,790
Subordinated notes	Subordinated notes	1,302		1,350		2,601		2,699		Subordinated notes	1,304		2,449		3,905		5,148
Junior subordinated debentures	Junior subordinated debentures	556		446		1,010		888		Junior subordinated debentures	726		443		1,736		1,331
Other borrowings	Other borrowings	315		140		357		310		Other borrowings	182		124		539		434
Total interest expense	Total interest expense	4,879		4,406		8,235		9,739		Total interest expense	4,955		4,964		13,190		14,703
Net interest income	Net interest income	101,428		90,282		201,507		173,302		Net interest income	98,270		91,771		299,777		265,073
Credit loss expense (benefit)	Credit loss expense (benefit)	2,901		(1,806)		3,402		(9,651)		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)	98,527		92,088		198,105		182,953		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	1,664		1,857		3,627		3,644		Service charges on deposits	1,558		2,030		5,185		5,674
Card income	Card income	2,080		2,225		4,091		4,197		Card income	2,034		2,144		6,125		6,341
Net OREO gains (losses) and valuation adjustments	Net OREO gains (losses) and valuation adjustments	18		(287)		(114)		(367)		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	2,514		1		2,514		1		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	17,269		1,019		17,203		2,588		Net gains (losses) on sale of loans	1,107		377		18,310		2,965
Fee income	Fee income	6,273		4,470		11,976		6,719		Fee income	6,120		5,198		18,096		11,917
Insurance commissions	Insurance commissions	1,346		1,272		3,018		2,758		Insurance commissions	1,191		1,231		4,209		3,989
Other	Other	16,996		3,339		16,966		8,647		Other	677		1,080		17,643		9,727
Total noninterest income	Total noninterest income	48,160		13,896		59,281		28,187		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	54,257		41,658		100,541		77,638		Salaries and employee benefits	49,307		43,769		149,848		121,407
Occupancy, furniture and equipment	Occupancy, furniture and equipment	6,507		6,112		12,943		11,891		Occupancy, furniture and equipment	6,826		6,388		19,769		18,279
FDIC insurance and other regulatory assessments	FDIC insurance and other regulatory assessments	382		500		793		1,477		FDIC insurance and other regulatory assessments	386		353		1,179		1,830
Professional fees	Professional fees	3,607		5,052		7,266		7,597		Professional fees	4,263		2,362		11,529		9,959
Amortization of intangible assets	Amortization of intangible assets	3,064		2,428		6,172		4,403		Amortization of intangible assets	2,913		3,274		9,085		7,677
Advertising and promotion	Advertising and promotion	1,785		1,241		2,987		2,131		Advertising and promotion	1,929		1,403		4,916		3,534
Communications and technology	Communications and technology	9,820		6,028		18,932		11,928		Communications and technology	11,935		7,090		30,867		19,018
Other	Other	9,185		7,779		17,537		14,625		Other	9,130		8,174		26,667		22,799
Total noninterest expense	Total noninterest expense	88,607		70,798		167,171		131,690		Total noninterest expense	86,689		72,813		253,860		204,503
Net income before income tax expense	Net income before income tax expense	58,080		35,186		90,215		79,450		Net income before income tax expense	21,603		32,200		111,818		111,650
Income tax expense	Income tax expense	13,888		7,204		21,694		17,545		Income tax expense	5,374		7,771		27,068		25,316
Net income	Net income	$	44,192	$	27,982	$	68,521	$	61,905	Net income	$	16,229	$	24,429	$	84,750	$	86,334
Dividends on preferred stock	Dividends on preferred stock	(802)		(802)		(1,603)		(1,603)		Dividends on preferred stock	(801)		(802)		(2,404)		(2,405)
Net income available to common stockholders	Net income available to common stockholders	$	43,390	$	27,180	$	66,918	$	60,302	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	$	1.78	$	1.10	$	2.72	$	2.44	Basic	$	0.64	$	0.95	$	3.36	$	3.40
Diluted	Diluted	$	1.74	$	1.08	$	2.66	$	2.39	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 ~~Six~~Nine Months Ended ~~June~~September 30, 2022 and 2021

(Dollar amounts in thousands)

(Unaudited)


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Net income	Net income	$	44,192	$	27,982	$	68,521	$	61,905	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	(5,457)		(611)		(8,358)		(926)		Unrealized holding gains (losses) arising during the period	(4,806)		(378)		(13,164)		(1,303)
Tax effect	Tax effect	1,251		145		1,941		214		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	(4,206)		(466)		(6,417)		(712)		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	(2,514)		(1)		(2,514)		(1)		Reclassification of amount realized through sale or call of securities	—		(4)		(2,514)		(5)
Tax effect	Tax effect	619		—		619		—		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	(1,895)		(1)		(1,895)		(1)		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	(6,101)		(467)		(8,312)		(713)		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	—		(592)		3,152		3,071		Unrealized holding gains (losses) arising during the period	—		(9)		3,152		3,062
Tax effect	Tax effect	—		141		(754)		(734)		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	—		(451)		2,398		2,337		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	Reclassification of amount of (gains) losses recognized into income	(9,083)		29		(9,316)		52		Reclassification of amount of (gains) losses recognized into income	—		18		(9,316)		70
Tax effect	Tax effect	2,144		(7)		2,213		(12)		Tax effect	—		(4)		2,213		(17)
Reclassification of amount of (gains) losses recognized into income, net of taxes	Reclassification of amount of (gains) losses recognized into income, net of taxes	(6,939)		22		(7,103)		40		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	(6,939)		(429)		(4,705)		2,377		Change in unrealized gains (losses) on derivative financial instruments	—		7		(4,705)		2,386

Total other comprehensive income (loss)	Total other comprehensive income (loss)	(13,040)		(896)		(13,017)		1,664		Total other comprehensive income (loss)	(3,679)		(285)		(16,696)		1,379
Comprehensive income	Comprehensive income	$	31,152	$	27,086	$	55,504	$	63,569	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 ~~Six~~Nine Months Ended ~~June~~September 30, 2022 and 2021

(Dollar amounts in thousands)

(Unaudited)

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)
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 — 5,502 — — — — — — —
Stock option exercises, net — 2,021 — (74) — — — — (74)
Issuance of common stock pursuant to the Employee Stock Purchase Plan — 10,585 — 688 — — — — 688
Stock based compensation — — — 4,952 — — — — 4,952
Forfeiture of restricted stock awards — (487) — 46 487 (46) — — —
Purchase of treasury stock — (14,810) — — 14,810 (1,316) — — (1,316)
Dividends on preferred stock — — — — — — (801) — (801)
Net income — — — — — — 24,329 — 24,329
Other comprehensive income (loss) — — — — — — — 23 23
Balance, March 31, 2022 $ 45,000 25,161,690 $ 283 $ 516,551 3,118,098 $ (106,105) $ 422,879 $ 8,057 886,665
Issuance of restricted stock awards — — — — — — — — —
Vesting of performance stock units — 20,996 — — — — — — —
Stock option exercises, net — 32 — — — — — — —
Stock based compensation — — — 7,880 — — — — 7,880
Forfeiture of restricted stock awards — (2,417) — 205 2,417 (205) — — —
Purchase of treasury stock — (722,524) — — 722,524 (50,614) — — (50,614)
Dividends on preferred stock — — — — — — (802) — (802)
Net income — — — — — — 44,192 — 44,192
Other comprehensive income (loss) — — — — — — — (13,040) (13,040)
Balance, June 30, 2022 $ 45,000 24,457,777 $ 283 $ 524,636 3,843,039 $ (156,924) $ 466,269 $ (4,983) 874,281


	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)
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	—		5,502	—		—		—	—		—		—		—
Stock option exercises, net	—		2,021	—		(74)		—	—		—		—		(74)
Issuance of common stock pursuant to the Employee Stock Purchase Plan	—		10,585	—		688		—	—		—		—		688
Stock based compensation	—		—	—		4,952		—	—		—		—		4,952
Forfeiture of restricted stock awards	—		(487)	—		46		487	(46)		—		—		—
Purchase of treasury stock	—		(14,810)	—		—		14,810	(1,316)		—		—		(1,316)
Dividends on preferred stock	—		—	—		—		—	—		(801)		—		(801)
Net income	—		—	—		—		—	—		24,329		—		24,329
Other comprehensive income (loss)	—		—	—		—		—	—		—		23		23
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	—		20,996	—		—		—	—		—		—		—
Stock option exercises, net	—		32	—		—		—	—		—		—		—
Stock based compensation	—		—	—		7,880		—	—		—		—		7,880
Forfeiture of restricted stock awards	—		(2,417)	—		205		2,417	(205)		—		—		—
Purchase of treasury stock	—		(722,524)	—		—		722,524	(50,614)		—		—		(50,614)
Dividends on preferred stock	—		—	—		—		—	—		(802)		—		(802)
Net income	—		—	—		—		—	—		44,192		—		44,192
Other comprehensive income (loss)	—		—	—		—		—	—		—		(13,040)		(13,040)
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	—		6,969	—		—		—	—		—		—		—

Stock based compensation	—		—	—		4,296		—	—		—		—		4,296
Forfeiture of restricted stock awards	—		(194)	—		12		194	(12)		—		—		—
Issuance of common stock pursuant to the employee stock purchase plan	—		13,931	—		860		—	—		—		—		860
Purchase of treasury stock	—		(195)	—		—		195	(13)		—		—		(13)
Dividends declared	—		—	—		—		—	—		(801)		—		(801)
Net income	—		—	—		—		—	—		16,229		—		16,229
Other comprehensive income (loss)	—		—	—		—		—	—		—		(3,679)		(3,679)
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

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
Balance, January 1, 2021 $ 45,000 24,868,218 $ 280 $ 489,151 3,083,503 $ (103,052) $ 289,583 $ 5,819 $ 726,781
Issuance of restricted stock awards — 4,613 — — — — — — —
Stock option exercises, net — 10,205 — 191 — — — — 191
Stock based compensation — — — 1,350 — — — — 1,350
Forfeiture of restricted stock awards — (107) — 7 107 (7) — — —
Dividends on preferred stock — — — — — — (801) — (801)
Net income — — — — — — 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 on preferred stock — — — — — — (802) — (802)
Net income — — — — — — 27,982 — 27,982
Other comprehensive income (loss) — — — — — — — (896) (896)
Balance, June 30, 2021 $ 45,000 25,109,703 $ 282 $ 494,224 3,100,057 $ (104,486) $ 349,885 $ 7,483 $ 792,388


	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
Balance, January 1, 2021	$	45,000	24,868,218	$	280	$	489,151	3,083,503	$	(103,052)	$	289,583	$	5,819	$	726,781
Issuance of restricted stock awards	—		4,613	—		—		—	—		—		—		—
Stock option exercises, net	—		10,205	—		191		—	—		—		—		191
Stock based compensation	—		—	—		1,350		—	—		—		—		1,350
Forfeiture of restricted stock awards	—		(107)	—		7		107	(7)		—		—		—
Dividends on preferred stock	—		—	—		—		—	—		(801)		—		(801)
Net income	—		—	—		—		—	—		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 on preferred stock	—		—	—		—		—	—		(802)		—		(802)
Net income	—		—	—		—		—	—		27,982		—		27,982
Other comprehensive income (loss)	—		—	—		—		—	—		—		(896)		(896)
Balance, June 30, 2021	$	45,000	25,109,703	$	282	$	494,224	3,100,057	$	(104,486)	$	349,885	$	7,483	$	792,388
Issuance of restricted stock awards	—		3,651	—		—		—	—		—		—		—
Stock option exercises, net	—		2,409	—		50		—	—		—		—		50
Stock based compensation	—		—	—		4,445		—	—		—		—		4,445
Forfeiture of restricted stock awards	—		(1,522)	—		114		1,522	(114)		—		—		—
Issuance of common stock pursuant to the ESPP	—		9,101	—		449		—	—		—		—		449
Dividends declared	—		—	—		—		—	—		(802)		—		(802)
Net income	—		—	—		—		—	—		24,429		—		24,429
Other comprehensive income (loss)	—		—	—		—		—	—		—		(285)		(285)
Balance, September 30, 2021	$	45,000	25,123,342	$	282	$	499,282	3,101,579	$	(104,600)	$	373,512	$	7,198	$	820,674

See accompanying condensed notes to consolidated financial statements.

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

(Dollar amounts in thousands)

(Unaudited)


		Six Months Ended June 30,					Nine Months Ended September 30,
		2022		2021			2022		2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	68,521	$	61,905	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	6,044		5,905		Depreciation	9,979		8,992
Net accretion on loans	Net accretion on loans	(5,092)		(5,662)		Net accretion on loans	(6,631)		(7,615)
Amortization of subordinated notes issuance costs	Amortization of subordinated notes issuance costs	420		111		Amortization of subordinated notes issuance costs	630		1,022
Amortization of junior subordinated debentures	Amortization of junior subordinated debentures	274		261		Amortization of junior subordinated debentures	414		395
Net (accretion) amortization on securities	Net (accretion) amortization on securities	(398)		(337)		Net (accretion) amortization on securities	(609)		(465)
Amortization of intangible assets	Amortization of intangible assets	6,172		4,403		Amortization of intangible assets	9,085		7,677
Deferred taxes	Deferred taxes	943		4,464		Deferred taxes	524		5,432
Credit Loss Expense (benefit)		3,402		(9,651)
Credit loss expense (benefit)						Credit loss expense (benefit)	6,048		(10,838)
Stock based compensation	Stock based compensation	12,832		4,736		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	(2,514)		(1)		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	(9,709)		(28)		Net (gains) losses on equity securities	(9,575)		203
Net OREO (gains) losses and valuation adjustments	Net OREO (gains) losses and valuation adjustments	114		367		Net OREO (gains) losses and valuation adjustments	133		376
Origination of loans held for sale	Origination of loans held for sale	(6,873)		(26,771)		Origination of loans held for sale	(10,402)		(32,645)
Purchases of loans held for sale	Purchases of loans held for sale	(6,913)		(16,096)		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	14,145		45,138		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	(17,203)		(2,588)		Net (gains) losses on sale of loans	(18,310)		(2,965)
Net change in operating leases	Net change in operating leases	555		303		Net change in operating leases	272		468
(Increase) decrease in other assets	(Increase) decrease in other assets	(38,471)		(12,261)		(Increase) decrease in other assets	(37,308)		(19,275)
Increase (decrease) in other liabilities	Increase (decrease) in other liabilities	(12,122)		3,306		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	14,127		57,504		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	(79,119)		(8,000)		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	40,163		—		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	20,798		43,344		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	424		560		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	(68,908)		(51,585)		Purchases of loans held for investment	(133,674)		(77,571)
Proceeds from sale of loans	Proceeds from sale of loans	207,405		45,582		Proceeds from sale of loans	207,406		63,028
Net change in loans	Net change in loans	215,676		164,616		Net change in loans	285,854		227,650
Purchases of premises and equipment, net	Purchases of premises and equipment, net	(5,608)		(9,221)		Purchases of premises and equipment, net	(8,522)		(9,899)
Net proceeds from sale of OREO	Net proceeds from sale of OREO	289		408		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	3,977		(1,345)		(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)		Net cash (paid for) received in acquisitions	—		(96,926)
Proceeds from sale of disposal group	Proceeds from sale of disposal group	66,918		—		Proceeds from sale of disposal group	85,923		—
Net cash provided by (used in) investing activities	Net cash provided by (used in) investing activities	402,015		87,433		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	145,337		8,850		Net increase (decrease) in deposits	(194,494)		105,975
Increase (decrease) in customer repurchase agreements	Increase (decrease) in customer repurchase agreements	9,643		6,144		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	(150,000)		25,000		Increase (decrease) in Federal Home Loan Bank advances	(150,000)		(75,000)
Proceeds from Paycheck Protection Program Liquidity Facility borrowings		—		226,630
Repayment of Paycheck Protection Program Liquidity Facility borrowings		(27,144)		(278,817)
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	(1,603)		(1,603)		Preferred dividends	(2,404)		(2,405)
Stock option exercises		(74)		146
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	688		—		Proceeds from employee stock purchase plan common stock issuance	1,548		449
Purchase of treasury stock	Purchase of treasury stock	(51,930)		(1,241)		Purchase of treasury stock	(51,943)		(1,241)
Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	(75,083)		(14,891)		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	341,059		130,046		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	383,178		314,393		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	724,237		444,439		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 ~~Six~~Nine Months Ended ~~June~~September 30, 2022 and 2021

(Dollar amounts in thousands)

(Unaudited)


		Six Months Ended June 30,					Nine Months Ended September 30,
		2022		2021			2022		2021
Supplemental cash flow information:	Supplemental cash flow information:					Supplemental cash flow information:
Interest paid	Interest paid	$	7,296	$	11,393	Interest paid	$	11,416	$	15,551
Income taxes paid, net	Income taxes paid, net	$	45,035	$	28,449	Income taxes paid, net	$	45,035	$	36,353
Cash paid for operating lease liabilities	Cash paid for operating lease liabilities	$	1,903	$	2,147	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	$	47	$	356	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	$	197,899	$	64,603	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	$	80,819	$	—	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	$	—	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	$	5,267	$	16,396	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	$	23,370	$	5,250	Securities available for sale purchased, not settled	$	14,976	$	—
Indemnification reduction	Indemnification reduction	$	—	$	35,633	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	$	4,502	$	—	Non-cash consideration received from sale of loan portfolio or disposal group	$	5,529	$	—

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Triumph Bancorp, Inc. (collectively with its subsidiaries, “Triumph”, or the “Company” as applicable) is a financial holding company headquartered in Dallas, Texas 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, 2021. Operating results for the three and ~~six~~nine months ended ~~June~~September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 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 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 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 segment includes holding company financing and investment activities and management and administrative expenses to support the overall operations of the Company.

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Prior to June 30, 2021, management determined that the Company had 3 reportable segments consisting of Banking, Factoring, and Corporate, and the Banking segment included the operations of TBK Bank and TriumphPay. On June 1, 2021, TriumphPay acquired HubTran, Inc., a cloud-based provider of automation software for the trucking industry’s back office (see Note 2 – Acquisitions and Divestitures for further disclosures regarding the acquisition of HubTran). The acquisition of HubTran allows TriumphPay to create a payments network for trucking; servicing brokers and factors. TriumphPay already offered tools and services to provide automation, mitigate fraud, and create back-office efficiency. Through the acquisition of HubTran, TriumphPay created additional value through building upon its presentment, audit, and payment capabilities for shippers, third party logistics companies (i.e., freight brokers) and their carriers, and factors. The acquisition of HubTran was an 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 had historically been quantitatively immaterial; however, given the shift in strategy brought on by the acquisition of HubTran as well as 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~~

COVID-19 has adversely impacted a broad range of industries in which the Company's customers operate and could still impair their ability to fulfill their financial obligations to the Company. The Company’s business is dependent upon the willingness and ability of its employees and customers to conduct banking and other financial transactions. While epidemiological and macroeconomic conditions have improved as of June 30, 2022, if there is a resurgence in the virus, the Company could experience further adverse effects on its business, financial condition, results of operations and cash flows. While it is not possible to know the full universe or extent that the impact of COVID-19, and any potential resulting measures to curtail its spread, will have on the Company's future operations, the Company is disclosing potentially material items of which it is aware.

~~Allowance for credit losses~~

Improving conditions around COVID-19 had an impact on the Company's allowance for credit losses ("ACL") throughout the prior year as the Company experienced a decline in required reserves over that period. Pertaining to the Company's June 30, 2022 financial condition and year to date results of operations, COVID-19 had little impact on required ACL levels. The Company has not yet experienced material charge-offs related to COVID-19. The Company's ACL calculation, and resulting provision for credit losses, are significantly impacted by changes in forecasted economic conditions. Should economic conditions worsen as a result of a resurgence in the virus and resulting measures to curtail its spread, the Company could experience increases in its required ACL and record additional credit loss expense. It is possible that the Company's asset quality measures could worsen at future measurement periods if the effects of COVID-19 are prolonged.

~~Capital and liquidity~~

As of June 30, 2022, all of the Company's capital ratios, and its subsidiary bank’s capital ratios, were in excess of all regulatory requirements. While the Company believes that it has sufficient capital to withstand an economic recession brought about by a resurgence in COVID-19 and/or resulting impacts of efforts used to curtail its spread, the Company's reported and regulatory capital ratios could be adversely impacted by further credit loss expense. The Company relies on cash on hand as well as dividends from its subsidiary bank to service its debt. If the Company's capital deteriorates such that its subsidiary bank is unable to pay dividends to the Company for an extended period of time, the Company may not be able to service its debt.

The Company maintains access to multiple sources of liquidity. Wholesale funding markets have remained open to the Company, but rates for short term funding can be volatile. 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.

~~Credit~~

While all industries experienced adverse impacts as a result of COVID-19 virus, the Company had no material exposure to loan categories that management considered to be "at-risk" of significant impact as of June 30, 2022.

~~Table of Contents~~

~~TRIUMPH BANCORP, INC. AND SUBSIDIARIES~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

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

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 for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. The Company is evaluating the effect that ASU 2022-02 will have on its consolidated financial statements and related disclosures.

NOTE 2 — ACQUISITIONS AND DIVESTITURES

Equipment Loan Sale

During the ~~second~~ quarter ofended June 30, 2022, the Company made the decision to sell ~~and closed on the sale of~~ a portfolio of equipment loans for cash consideration. The sale closed on June 23, 2022. A summary of the carrying amount of the assets sold and the gain on sale is as follows:


(Dollars in thousands)
Equipment loans	$	191,167
Accrued interest receivable	$	1,587
Assets sold	$	192,754

Cash consideration	$	197,454
Return of premium liability	$	(708)
Total consideration	$	196,746
Transaction costs	$	73
Gain on sale, net of transaction costs	$	3,919

The associated agreement contains a provision that in 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 Consolidated Balance Sheet and ~~will be~~is marked to fair value through earnings at each reporting period.

The gain on sale, net of transaction costs, was included in net gains (losses) on sale of loans in the Company’s Consolidated Statements of Income and was allocated to the Banking segment.

1110

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Factored Receivable Disposal Group

~~During the quarter ended March 31,~~On June 30, 2022 and September 6, 2022, the Company ~~made the decision~~entered into and closed two separate agreements to sell ~~a portfolio~~two separate portfolios of ~~non-transportation~~ factored receivables and their related customer reserves, (the "Factored Receivable Disposal Group"). As a result, the Factored Receivable Disposal Group was classified as assets and deposits held for sale on the unaudited March 31, 2022 Consolidated Balance Sheet. The fair value of the Factored Receivable Disposal Group exceeded the Company’s corresponding cost basis and thus, the Factored Receivable Disposal Group was classified as held for sale at cost with no impact to earnings except for the reversal of the allowance for credit loss associated with the factored receivables discussed below.

receivables. A summary of the carrying ~~amount of the assets and liabilities in the Factored Receivable Disposal Group transferred to held for sale at March 31, 2022 is as follows:~~


~~(Dollars in thousands)~~
~~Factored receivables~~	$	~~80,819~~
~~Assets held for sale~~	$	~~80,819~~

~~Customer reserve noninterest bearing deposits~~	$	~~10,434~~
~~Deposits held for sale~~	$	~~10,434~~

~~The Company reversed $415,000 of allowance for credit losses on loans during the quarter ended March 31, 2022 when the factored receivables were transferred to assets held for sale.~~

~~On June 30, 2022, the Company entered into an agreement to sell and closed on the sale of a portion of the Factored Receivable Disposal Group. A summary of the carrying amount~~amounts of the assets and liabilities sold and the ~~gain~~gains on sale isare as follows:


~~(Dollars in thousands)~~
~~Factored receivables~~	$	~~67,888~~
~~Assets held for sale~~	$	~~67,888~~

~~Customer reserve noninterest bearing deposits~~	$	~~9,682~~
~~Liabilities held for sale~~	$	~~9,682~~
~~Net assets sold~~	$	~~58,206~~
~~Cash consideration~~	$	~~66,292~~
~~Revenue share asset~~	~~5,210~~
~~Total consideration~~	$	~~71,502~~
~~Transaction costs~~	82
~~Gain on sale, net of transaction costs~~	$	~~13,214~~


(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 ~~associated~~June 30, 2022 agreement contains a revenue share provision that entitles the Company to an amount equal to 15fifteen percent of the future gross monthly revenue of the clients associated with the sold factored receivable portfolio. As this transaction qualified as a sale of a group of entire financial assets, management ~~must recognize,~~recognized, as proceeds, ~~any~~the assets obtained and liabilities incurred. Thus, management recorded a $5,210,000 asset for the contractual right to receive future cash flows from a third party measured at fair value as of the date of close. This is a financial asset for which management elected the fair value option. It is 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 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 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 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 ~~gain~~gains on sale, net of transaction costs, ~~was~~were included in net gains (losses) on sale of loans in the Company’s Consolidated Statements of Income and ~~was~~were allocated to the Factoring segment.

~~Table of Contents~~

~~TRIUMPH BANCORP, INC. AND SUBSIDIARIES~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~A summary of the remaining carrying amount of the assets and liabilities in the Factored Receivable Disposal Group held for sale at June 30, 2022 is as follows.~~


~~(Dollars in thousands)~~
~~Factored receivables~~	$	~~24,405~~
~~Assets held for sale~~	$	~~24,405~~

~~Customer reserve noninterest bearing deposits~~	$	~~1,410~~
~~Deposits held for sale~~	$	~~1,410~~

Factored receivables in the Factored Receivable Disposal Group with a recorded investment of $1,647,000 and $2,012,000 were past due 30-59 days and past due 60-90 days, respectively, and factored receivables with a recorded investment of $164,000 were past due 90 days or more and considered nonperforming assets at June 30, 2022. The Factored Receivable Disposal Group is included in the Factoring segment.

~~Branch Disposal Group~~

During the quarter ended March 31, 2022, the Company made the decision to sell 15 branches primarily located in rural eastern Colorado and western Kansas (the “Branch Disposal Group”). The gross assets and deposits of the Branch Disposal Group were classified as held for sale on the unaudited March 31, 2022 Consolidated Balance Sheet. During the quarter ended June 30, 2022, there was a change in circumstances and the Company made the decision to terminate the sale process completely (including all marketing activities) and retain the branches indefinitely. The gross assets and deposits of the Branch Disposal Group were returned to held for investment at their carrying amounts less depreciation and amortization expense that would have been recognized had the disposal group been continuously classified as held for investment.

HubTran Inc.

On June 1, 2021, the Company, through TriumphPay, a division of the Company's wholly-owned subsidiary TBK Bank, SSB, acquired HubTran, Inc. ("HubTran"), a cloud-based provider of automation software for the trucking industry's back-office.

Table of Contents

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		Measurement Period Adjustments		Adjusted Values
Assets acquired:
Cash	$	170	$	—	$	170
Intangible assets - capitalized software	16,932		—		16,932
Intangible assets - customer relationship	10,360		—		10,360
Other assets	1,546		24		1,570
	29,008		24		29,032
Liabilities assumed:
Deferred income taxes	4,703		(3,248)		1,455
Other liabilities	906		16		922
	5,609		(3,232)		2,377
Fair value of net assets acquired	$	23,399	$	3,256	$	26,655
Consideration:
Cash paid	$	97,096	$	—	$	97,096
Goodwill	$	73,697	$	(3,256)	$	70,441

The Company has recognized goodwill of $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.

~~Table of Contents~~

~~TRIUMPH BANCORP, INC. AND SUBSIDIARIES~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Goodwill was calculated as the excess of the fair value of consideration exchanged as compared to the fair value of identifiable net assets acquired and was allocated to the Company’s Payments segment. The goodwill in this acquisition resulted from expected synergies and progress in the development of a fully integrated open loop payments network for the transportation industry. The goodwill will not be deducted for tax purposes.

The 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 customer relationship intangible assets with an acquisition date fair value of $10,360,000 which will be amortized utilizing an accelerated method over their eleven year estimated useful 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.

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On September 23, 2020, the Company and ABC entered into an Account Management Agreement, Amendment to Purchase Agreement and Mutual Release (the “Agreement”) with CVLG and Covenant Transport Solutions, LLC, a wholly owned subsidiary of CVLG (“CTS” and, together with CVLG, "Covenant"). Pursuant to the Agreement, the parties agreed to certain amendments to that certain Accounts Receivable Purchase Agreement (the “ARPA”), dated as of July 8, 2020, by and among ABC, as buyer, CTS, as seller, and the Company, as buyer indirect parent. Such amendments include:

•Return of the portion of the purchase price paid under the ARPA consisting of 630,268 shares of Company common stock, which will be accomplished through the sale of such shares by Covenant pursuant to the terms of the Agreement and the surrender of the cash proceeds of such sale (net of brokerage or underwriting fees and commissions) to the Company;

•Elimination of the earn-out consideration potentially payable to CTS under the ARPA; and

•Modification of the indemnity provisions under the ARPA to eliminate the existing indemnifications for breaches of representations and warranties and to replace such with a newly established indemnification by Covenant in the event ABC incurs losses related to the $62,200,000 in over-formula advances made to specified clients identified in the Agreement (the “Over-Formula Advance Portfolio”). Under the terms of the new indemnification arrangement, Covenant will be responsible for and will indemnify ABC for 100% of the first $30,000,000 of any losses incurred by ABC related to the Over-Formula Advance Portfolio, and for 50% of the next $30,000,000 of any losses incurred by ABC, for total indemnification by Covenant of $45,000,000.

Covenant’s indemnification obligations under the Agreement were secured by a pledge of equipment collateral by Covenant with an estimated net orderly liquidation value of $60,000,000 (the “Equipment Collateral”). The Company’s wholly-owned bank subsidiary, TBK Bank, SSB, has provided Covenant with a $45,000,000 line of credit, also secured by the Equipment Collateral, the proceeds of which may be drawn to satisfy Covenant’s indemnification obligations under the Agreement.

~~Table of Contents~~

~~TRIUMPH BANCORP, INC. AND SUBSIDIARIES~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Pursuant to the Agreement, Triumph and Covenant have agreed to certain terms related to the management of the Over-Formula Advance Portfolio, and the terms by which Covenant may provide assistance to maximize recovery on the Over-Formula Advance Portfolio.

Pursuant to the Agreement, the Company and Covenant have provided mutual releases to each other related to any and all claims related to the transactions contemplated by the ARPA or the Over-Formula Advance Portfolio.

The indemnification asset 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 ~~$4,377,000~~$4,173,000 and $4,786,000 at ~~June~~September 30, 2022 and December 31, 2021, respectively.

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(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 ~~June~~September 30, 2022. At ~~June~~September 30, 2022, Covenant had remaining availability of $9,361,000 on its TBK line of credit available to cover our ~~gross~~undiscounted indemnification balance of ~~up to $4,608,000.~~$4,393,000.

During the ~~six~~nine months ended ~~June~~September 30, 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. One of the remaining Over-Formula Advance clients has made payments totaling ~~$861,000~~$1,291,000 during the ~~six~~nine months ended ~~June~~September 30, 2022, which resulted in a dollar-for-dollar reduction in the required ACL as well as a write-off of a portion of the corresponding indemnification asset. The impact of the payment to net income available to common stockholders for the ~~six~~nine months ended ~~June~~September 30, 2022 was not significant.

NOTE 3 — SECURITIES

Equity Securities With Readily Determinable Fair Values

The Company held equity securities with readily determinable fair values of ~~$5,050,000~~$4,916,000 and $5,504,000 at ~~June~~September 30, 2022 and December 31, 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 June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2022		2021		2022		2021		(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	$	(35)	$	28	$	(454)	$	28	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	—		—		—		—
		$	(35)	$	28	$	(454)	$	28		$	(134)	$	(231)	$	(588)	$	(203)

1514

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(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)	(Dollars in thousands)	June 30, 2022		December 31, 2021		(Dollars in thousands)	September 30, 2022		December 31, 2021
Equity Securities without readily determinable fair value, at cost	Equity Securities without readily determinable fair value, at cost	$	38,505	$	14,671	Equity Securities without readily determinable fair value, at cost	$	38,846	$	14,671
Upward adjustments based on observable price changes, cumulative	Upward adjustments based on observable price changes, cumulative	10,163		—		Upward adjustments based on observable price changes, cumulative	10,163		—
Equity Securities without readily determinable fair value, carrying value	Equity Securities without readily determinable fair value, carrying value	$	48,668	$	14,671	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 June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2022		2021		2022		2021		(Dollars in thousands)	2022		2021		2022		2021
Unrealized gains (losses) on equity securities still held at the reporting date	Unrealized gains (losses) on equity securities still held at the reporting date	$	10,163	$	—	$	10,163	$	—	Unrealized gains (losses) on equity securities still held at the reporting date	$	—	$	—	$	10,163	$	—
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	—		—		—		—
		$	10,163	$	—	$	10,163	$	—		$	—	$	—	$	10,163	$	—

During the three months ended June 30, 2022, the Company adjusted the fair value of an equity security without readily determinable fair value upwards due to an orderly and observable transaction for an identical investment. For further information on this transaction, see Note 6 – Equity Method Investment.

Debt Securities

Debt securities have been classified in the financial statements as available for sale or held to maturity. The following table summarizes the amortized cost, fair value, and allowance for credit losses of debt securities and the corresponding amounts of gross unrealized gains and losses of available for sale securities recognized in accumulated other comprehensive income (loss) and gross unrecognized gains and losses of held to maturity securities:


(Dollars in thousands)	(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
June 30, 2022
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:
Mortgage-backed securities, residential	Mortgage-backed securities, residential	$	51,742	$	113	$	(3,217)	$	—	$	48,638	Mortgage-backed securities, residential		$	49,962		$	—		$	(5,287)				$	—			$	44,675
Asset-backed securities	Asset-backed securities	6,590		—		(39)		—		6,551		Asset-backed securities	6,501			—			(25)					—				6,476
State and municipal	State and municipal	14,995		83		(55)		—		15,023		State and municipal	14,485			2			(225)				—				14,262
CLO securities	CLO securities	145,631		—		(3,380)		—		142,251		CLO securities	175,386			25			(5,703)				—				169,708
Corporate bonds	Corporate bonds	1,270		1		(3)		—		1,268		Corporate bonds	1,270			1			(22)				—				1,249
SBA pooled securities	SBA pooled securities	2,191		62		(75)		—		2,178		SBA pooled securities	2,146			45			(127)				—				2,064
Total available for sale securities	Total available for sale securities	$	222,419	$	259	$	(6,769)	$	—	$	215,909	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, 2022
Held to maturity securities:
CLO securities	$	6,579	$	455	$	(1,431)	$	5,603
Allowance for credit losses	(2,430)
Total held to maturity securities, net of ACL	$	4,149

1615

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands) Amortized
Cost Gross
Unrealized
Gains Gross
Unrecognized
Losses Fair
Value
June 30, 2022
Held to maturity securities:
CLO securities $ 6,690 $ 336 $ (1,236) $ 5,790
Allowance for credit losses (2,355)
Total held to maturity securities, net of ACL $ 4,335


(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit 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 ~~June~~September 30, 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
(Dollars in thousands) Amortized
Cost Fair
Value Amortized
Cost Fair
Value
Due in one year or less $ 1,872 $ 1,873 $ — $ —
Due from one year to five years 2,079 2,088 — —
Due from five years to ten years 49,899 48,875 6,690 5,790
Due after ten years 108,046 105,706 — —
161,896 158,542 6,690 5,790
Mortgage-backed securities, residential 51,742 48,638 — —
Asset-backed securities 6,590 6,551 — —
SBA pooled securities 2,191 2,178 — —
$ 222,419 $ 215,909 $ 6,690 $ 5,790

~~Table of Contents~~

~~TRIUMPH BANCORP, INC. AND SUBSIDIARIES~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~


	Available for Sale Securities				Held to Maturity Securities
(Dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	1,527	$	1,525	$	—	$	—
Due from one year to five years	3,122		3,067		—		—
Due from five years to ten years	53,433		51,539		6,579		5,603
Due after ten years	133,059		129,088		—		—
	191,141		185,219		6,579		5,603
Mortgage-backed securities, residential	49,962		44,675		—		—
Asset-backed securities	6,501		6,476		—		—
SBA pooled securities	2,146		2,064		—		—
	$	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 June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2022		2021		2022		2021		(Dollars in thousands)	2022		2021		2022		2021
Proceeds	Proceeds	$	40,163	$	—	$	40,163	$	—	Proceeds	$	—	$	—	$	40,163	$	—
Gross gains	Gross gains	2,512		—		2,512		—		Gross gains	—		—		2,512		—
Gross losses	Gross losses	—		—		—		—		Gross losses	—		—		—		—
Net gains and losses from calls of securities	Net gains and losses from calls of securities	2		1		2		1		Net gains and losses from calls of securities	—		4		2		5

Debt securities with a carrying amount of approximately ~~$99,294,000~~$96,198,000 and $72,805,000 at ~~June~~September 30, 2022 and December 31, 2021, respectively, were pledged to secure public deposits, customer repurchase agreements, and for other purposes required or permitted by law.

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Accrued interest on available for sale securities totaled ~~$944,000~~$1,764,000 and $802,000 at ~~June~~September 30, 2022 and December 31, 2021, respectively, and was included in other assets on the Company's consolidated balance sheets. There was no accrued interest related to debt securities reversed against interest income for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 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
June 30, 2022
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:
Mortgage-backed securities, residential	Mortgage-backed securities, residential	$	35,002	$	(3,217)	$	—	$	—	$	35,002	$	(3,217)	Mortgage-backed securities, residential		$	44,500		$	(5,287)		$	3		$	—		$	44,503				$	(5,287)
Asset-backed securities	Asset-backed securities	1,561		(29)		4,990		(10)		6,551		(39)		Asset-backed securities	1,479			(21)			4,996			(4)			6,475					(25)
State and municipal	State and municipal	1,880		(55)		—		—		1,880		(55)		State and municipal	12,981			(225)			—			—			12,981				(225)
CLO securities	CLO securities	118,933		(3,272)		4,892		(108)		123,825		(3,380)		CLO securities	140,066			(5,119)			9,666			(584)			149,732				(5,703)
Corporate bonds	Corporate bonds	766		(3)		—		—		766		(3)		Corporate bonds	748			(22)			—			—			748				(22)
SBA pooled securities	SBA pooled securities	1,471		(75)		—		—		1,471		(75)		SBA pooled securities	1,380			(127)			—			—			1,380				(127)
		$	159,613	$	(6,651)	$	9,882	$	(118)	$	169,495	$	(6,769)		$	201,154		$	(10,801)		$	14,665		$	(588)		$	215,819			$	(11,389)


	Less than 12 Months				12 Months or More				Total
(Dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
December 31, 2021
Available for sale securities:
Mortgage-backed securities, residential	$	20,386	$	(155)	$	6	$	(1)	$	20,392	$	(156)
Asset-backed securities	37		—		4,999		(1)		5,036		(1)
State and municipal	30		—		—		—		30		—
CLO Securities	22,707		(54)		—		—		22,707		(54)
Corporate bonds	—		—		—		—		—		—
SBA pooled securities	—		—		—		—		—		—
	$	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.

~~Table of Contents~~

~~TRIUMPH BANCORP, INC. AND SUBSIDIARIES~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

At ~~June~~September 30, 2022, the Company had ~~102~~140 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 ~~June~~September 30, 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.

Table of Contents

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 June 30,				Six Months Ended June 30,				(Dollars in thousands)	Three Months Ended September 30,				Nine Months Ended September 30,
Held to Maturity CLO Securities	Held to Maturity CLO Securities	2022		2021		2022		2021		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	$	2,455	$	1,859	$	2,082	$	2,026	Beginning balance	$	2,355	$	1,727	$	2,082	$	2,026
Credit loss expense	Credit loss expense	(100)		(132)		273		(299)		Credit loss expense	75		10		348		(289)
Allowance for credit losses ending balance	Allowance for credit losses ending balance	$	2,355	$	1,727	$	2,355	$	1,727	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 ~~June~~September 30, 2022 and December 31, 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. At ~~June~~September 30, 2022, ~~$5,258,000~~$5,130,000 of the Company’s held to maturity securities were classified as nonaccrual.

NOTE 4 — LOANS AND ALLOWANCE FOR CREDIT LOSSES

Loans Held for Sale

The following table presents loans held for sale:

(Dollars in thousands) June 30, 2022 December 31, 2021
1-4 family residential $ — $ 712
Commercial 6 6,618
Total loans held for sale $ 6 $ 7,330

Loans held for sale exclude loans transferred to assets held for sale as part of a disposal group. For further information regarding loans transferred to assets held for sale as part of a disposal group, see Note 2 – Acquisitions and Divestitures.

~~Table of Contents~~

~~TRIUMPH BANCORP, INC. AND SUBSIDIARIES~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~


(Dollars in thousands)	September 30, 2022		December 31, 2021
1-4 family residential	$	68	$	712
Commercial	10		6,618
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:


		June 30, 2022						December 31, 2021							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	$	649,280	$	650,900	$	(1,620)	$	632,775	$	634,319	$	(1,544)	Commercial real estate	$	669,742	$	670,980	$	(1,238)	$	632,775	$	634,319	$	(1,544)
Construction, land development, land	Construction, land development, land	103,377		103,416		(39)		123,464		123,643		(179)		Construction, land development, land	75,527		75,606		(79)		123,464		123,643		(179)
1-4 family residential	1-4 family residential	126,362		126,599		(237)		123,115		123,443		(328)		1-4 family residential	122,594		122,804		(210)		123,115		123,443		(328)
Farmland	Farmland	70,272		70,661		(389)		77,394		77,905		(511)		Farmland	66,595		66,838		(243)		77,394		77,905		(511)
Commercial	Commercial	1,225,479		1,234,555		(9,076)		1,430,429		1,440,542		(10,113)		Commercial	1,282,199		1,295,015		(12,816)		1,430,429		1,440,542		(10,113)
Factored receivables	Factored receivables	1,596,282		1,601,310		(5,028)		1,699,537		1,703,936		(4,399)		Factored receivables	1,449,080		1,453,591		(4,511)		1,699,537		1,703,936		(4,399)
Consumer	Consumer	9,709		9,713		(4)		10,885		10,883		2		Consumer	9,506		9,509		(3)		10,885		10,883		2
Mortgage warehouse	Mortgage warehouse	654,605		654,605		—		769,973		769,973		—		Mortgage warehouse	758,061		758,061		—		769,973		769,973		—
Total loans held for investment	Total loans held for investment	4,435,366		$	4,451,759	$	(16,393)	4,867,572		$	4,884,644	$	(17,072)	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	(43,407)						(42,213)						Allowance for credit losses	(44,111)						(42,213)
		$	4,391,959					$	4,825,359						$	4,389,193					$	4,825,359

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The difference between the amortized cost and the unpaid principal is due to (1) premiums and discounts associated with acquired loans totaling ~~$10,256,000~~$14,263,000 and $11,723,000 at ~~June~~September 30, 2022 and December 31, 2021, respectively, and (2) net deferred origination and factoring fees totaling ~~$6,137,000~~$4,837,000 and $5,349,000 at ~~June~~September 30, 2022 and December 31, 2021, respectively.

Accrued interest on loans, which is excluded from the amortized cost of loans held for investment, totaled ~~$13,586,000~~$16,159,000 and $14,513,000 at ~~June~~September 30, 2022 and December 31, 2021, respectively, and was included in other assets on the Company's consolidated balance sheets.

At ~~June~~September 30, 2022 and December 31, 2021, the Company had ~~$248,812,000~~$249,729,000 and $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 ~~June~~September 30, 2022 and December 31, 2021 the balance of the Over-Formula Advance Portfolio included in factored receivables was ~~$9,216,000~~$8,785,000 and $10,077,000, respectively. These balances were fully reserved as of those respective dates.

At ~~June~~September 30, 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. We ~~have commenced~~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 ~~June~~September 30, 2022.

Loans with carrying amounts of ~~$1,538,687,000~~$1,416,089,000 and $1,733,917,000 at ~~June~~September 30, 2022 and December 31, 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.

~~Table of Contents~~

~~TRIUMPH BANCORP, INC. AND SUBSIDIARIES~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Allowance for Credit Losses

The Company’s estimate of the ACL reflects losses expected over the remaining contractual life of the assets. The contractual term does not consider extensions, renewals or modifications unless the Company has identified an expected troubled debt restructuring. The activity in the allowance for credit losses (“ACL”) related to loans held for investment is as follows:


(Dollars in thousands)	(Dollars in thousands)	Beginning Balance				Credit Loss Expense		Charge-offs		Recoveries				Ending Balance		(Dollars in thousands)			Beginning Balance				Credit Loss Expense				Charge-offs			Recoveries			Ending Balance
Three months ended June 30, 2022
Three months ended September 30, 2022																Three months ended September 30, 2022			Beginning Balance				Credit Loss Expense				Charge-offs			Recoveries			Ending Balance
Commercial real estate	Commercial real estate			$	3,527			$	1,594			$	—				$	46							$	5,167			Commercial real estate
Construction, land development, land	Construction, land development, land	901				290		—		1				1,192		Construction, land development, land			1,192					(198)				—				1			995
1-4 family residential	1-4 family residential	450				305		—		2				757		1-4 family residential			757				(16)				—				1			742
Farmland	Farmland	121				369		—		—				490		Farmland			490				(23)				—			—			467
Commercial	Commercial	13,215				(407)		(260)		190				12,738		Commercial			12,738				3,431				(208)			59			16,020
Factored receivables	Factored receivables	22,471				(120)		(712)		573				22,212		Factored receivables			22,212				183				(2,433)			172			20,134
Consumer	Consumer	175				77		(96)		41				197		Consumer			197				62				(106)			49			202
Mortgage warehouse	Mortgage warehouse	693				(39)		—		—				654		Mortgage warehouse			654				103				—			—			757
		$	41,553			$	2,069	$	(1,068)	$	853			$	43,407				$	43,407			$	3,169			$	(2,747)		$	282		$	44,111

(Dollars in thousands)		Beginning Balance				Credit Loss Expense		Charge-offs		Recoveries				Ending Balance
Three months ended June 30, 2021
Commercial real estate				$	6,823			$	(2,422)			$	—				$	3			$	4,404
Construction, land development, land		1,670				(181)		—		1				1,490
1-4 family residential		631				(62)		(25)		1				545
Farmland		699				(30)		—		—				669
Commercial		17,158				(1,678)		(8)		202				15,674
Factored receivables		19,716				2,643		(583)		47				21,823
Consumer		296				(59)		(90)		89				236
Mortgage warehouse		1,031				(178)		—		—				853
		$	48,024			$	(1,967)	$	(706)	$	343			$	45,694

(Dollars in thousands)		Beginning Balance				Credit Loss Expense		Charge-offs		Recoveries				Ending Balance
Six Months Ended June 30, 2022
Commercial real estate				$	3,961			$	1,254			$	(108)				$	60			$	5,167
Construction, land development, land		827				363		—		2				1,192
1-4 family residential		468				284		—		5				757
Farmland		562				(72)		—		—				490
Commercial		14,485				(1,014)		(984)		251				12,738
Factored receivables		20,915				2,115		(1,420)		602				22,212
Consumer		226				118		(207)		60				197
Mortgage warehouse		769				(115)		—		—				654
		$	42,213			$	2,933	$	(2,719)	$	980			$	43,407

(Dollars in thousands)		Beginning Balance				Credit Loss Expense		Charge-offs		Recoveries				Ending Balance
Six months ended June 30, 2021
Commercial real estate				$	10,182			$	(5,786)			$	—				$	8			$	4,404
Construction, land development, land		3,418				(1,918)		(12)		2				1,490
1-4 family residential		1,225				(740)		(25)		85				545

2119

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


(Dollars in thousands)												(Dollars in thousands)	Beginning Balance				Credit Loss Expense		Charge-offs		Recoveries		Ending Balance
Three months ended September 30, 2021												Three months ended September 30, 2021
Commercial real estate												Commercial real estate			$	4,404			$	(453)	$	(17)	$	2	$	3,936
Construction, land development, land												Construction, land development, land	1,490				(434)		—		1		1,057
1-4 family residential												1-4 family residential	545				(64)		(1)		5		485
Farmland	Farmland	832		(163)		—		—		669		Farmland	669				(59)		—		—		610
Commercial	Commercial	22,040		(6,749)		(281)		664		15,674		Commercial	15,674				(1,187)		(211)		—		14,276
Factored receivables	Factored receivables	56,463		7,361		(42,086)		85		21,823		Factored receivables	21,823				1,186		(3,597)		239		19,651
Consumer	Consumer	542		(252)		(169)		115		236		Consumer	236				153		(139)		—		250
Mortgage warehouse	Mortgage warehouse	1,037		(184)		—		—		853		Mortgage warehouse	853				(101)		—		—		752
		$	95,739	$	(8,431)	$	(42,573)	$	959	$	45,694		$	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 during the three months ended ~~June~~September 30, 2022 is a function of net charge-offs of ~~$215,000~~$2,465,000 and credit loss expense of ~~$2,069,000.~~$3,169,000. The increase in required ACL during the ~~six~~nine months ended ~~June~~September 30, 2022 is a function of net charge-offs of ~~$1,739,000~~$4,204,000 and credit loss expense of ~~$2,933,000.~~$6,102,000.

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company uses the discounted cash flow (DCF) method to estimate ACL for the commercial real estate, construction, land development, land, 1-4 family residential, commercial (excluding liquid credit and 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 ~~June~~September 30, 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 ~~June~~September 30, 2022 as compared to December 31, 2021, the Company forecasted ~~an increase in~~increasing national unemployment, a steeper decrease in one-year percentage change in national retail sales, a steeper decrease in one-year percentage change in the national home price index, and a steeper decrease in one-year percentage change in national gross domestic product. At ~~June~~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 ~~levels~~level in the first ~~two~~ projected ~~quarters~~quarter followed by a decline to near-zero or negative levels over the last ~~two~~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 declines over the last three projected quarters to negative levels below recent actual periods. At ~~June~~September 30, 2022, the Company slowed its historical prepayment speeds in response to the 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 ~~June~~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 ~~$2,558,000.~~$1,487,000. Changes in net new required specific reserves also increased the required ACL at ~~June~~September 30, 2022. Changes in loan volume and mix during the ~~three~~nine months ended ~~June~~September 30, 2022 decreased the ACL during the period. ~~Charge-offs had an insignificant impact on the change in required ACL~~Net charge-offs during the ~~three months ended June 30, 2022.~~period were $4,204,000.

2221

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

For the ~~three~~nine months ended June 30, 2021, changes in projected loss drivers and prepayment assumptions over the reasonable and supportable forecast period decreased the required ACL by $1,847,000. Changes in loan volume and mix during the three months ended June 30, 2021 also decreased the ACL during the period. These decreases were partially offset by an increase in net new specific reserves. Charge-offs had an insignificant impact on the change in required ACL during the three months ended June 30, 2021.

For the six months ended June 30, 2022, changes in projected loss drivers and prepayment assumptions over the reasonable and supportable forecast period increased the required ACL by $1,541,000. Changes in net new required specific reserves also increased the required ACL at June 30, 2022. Changes in loan volume and mix during the six months ended June 30, 2022 decreased the ACL during the period. Net charge-offs during the period were $1,739,000.

~~For the six months ended June~~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 ~~$10,142,000.~~$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 ~~six~~nine months ended ~~June~~September 30, 2021 also decreased the ACL during the period. Non-PCD-related charge-offs ~~had an insignificant impact on~~reduced the ~~change in required~~ ACL by $4,067,000 during the ~~six~~nine months ended ~~June~~September 30, 2021.

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
June 30, 2022
September 30, 2022																				September 30, 2022			Real Estate		Accounts Receivable				Equipment		Other				Total			ACL Allocation
Commercial real estate	Commercial real estate			$	2,037					$	—					$	—				$	146					$	2,183					$	283			Commercial real estate
Construction, land development, land	Construction, land development, land	152				—		—				—		152				—		Construction, land development, land			151			—				—		—				151				—
1-4 family residential	1-4 family residential	1,455				—		—				55		1,510				80		1-4 family residential			1,663		—				—		47				1,710				80
Farmland	Farmland	983				—		117				116		1,216				—		Farmland			196		—				112		106				414			—
Commercial	Commercial	223				—		4,575				1,725		6,523				1,897		Commercial			208		—				3,256		14,403				17,867			4,330
Factored receivables	Factored receivables	—				49,471		—				—		49,471				14,191		Factored receivables			—		47,628				—		—				47,628			13,024
Consumer	Consumer	—				—		—				183		183				18		Consumer			—		—				—		154				154			13
Mortgage warehouse	Mortgage warehouse	—				—		—				—		—				—		Mortgage warehouse			—		—				—		—				—			—
Total	Total	$	4,850			$	49,471	$	4,692			$	2,225	$	61,238			$	16,469	Total			$	3,458	$	47,628			$	3,368	$	14,852			$	69,306		$	17,730

At ~~June~~September 30, 2022 the balance of the Over-Formula Advance Portfolio included in factored receivables was ~~$9,216,000~~$8,785,000 and was fully reserved. At ~~June~~September 30, 2022 the balance of Misdirected Payments included in factored receivables was $19,361,000 and carried no ACL allocation.


(Dollars in thousands)	Real Estate		Accounts Receivable		Equipment		Other		Total		ACL Allocation
December 31, 2021
Commercial real estate	$	2,143	$	—	$	—	$	155	$	2,298	$	283
Construction, land development, land	987		—		—		—		987		—
1-4 family residential	1,583		—		—		116		1,699		39
Farmland	1,803		—		126		116		2,045		—
Commercial	254		—		5,598		3,017		8,869		1,733
Factored receivables	—		42,863		—		—		42,863		12,640
Consumer	—		—		—		240		240		21
Mortgage warehouse	—		—		—		—		—		—
Total	$	6,770	$	42,863	$	5,724	$	3,644	$	59,001	$	14,716

2322

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

At December 31, 2021 the balance of the Over-Formula Advance Portfolio included in factored receivables was $10,077,000 and carried an ACL allocation of $10,077,000. At December 31, 2021 the balance of Misdirected Payments included in factored receivables was $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
June 30, 2022
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			$	566					$	—			$	16					$	582				$	648,698					$	649,280					$	—			Commercial real estate
Construction, land development, land	Construction, land development, land	—				—		145				145				103,232		103,377				—		Construction, land development, land			9			—				145		154				75,373				75,527			—
1-4 family residential	1-4 family residential	1,476				212		927				2,615				123,747		126,362				—		1-4 family residential			984		461				819		2,264				120,330				122,594			—
Farmland	Farmland	141				—		553				694				69,578		70,272				—		Farmland			—		—				—		—				66,595			66,595			—
Commercial	Commercial	176				1,238		4,925				6,339				1,219,140		1,225,479				—		Commercial			288		178				3,097		3,563				1,278,636			1,282,199			48
Factored receivables	Factored receivables	46,043				14,192		38,679				98,914				1,497,368		1,596,282				38,679		Factored receivables			42,637		13,455				38,969		95,061				1,354,019			1,449,080			38,969
Consumer	Consumer	116				63		83				262				9,447		9,709				—		Consumer			144		28				62		234				9,272			9,506			—
Mortgage warehouse	Mortgage warehouse	—				—		—				—				654,605		654,605				—		Mortgage warehouse			—		—				—		—				758,061			758,061			—
Total	Total	$	48,518			$	15,705	$	45,328			$	109,551			$	4,325,815	$	4,435,366			$	38,679	Total			$	45,527	$	14,122			$	43,513	$	103,162			$	4,330,142		$	4,433,304		$	39,017


(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, 2021
Commercial real estate	$	1,021	$	—	$	16	$	1,037	$	631,738	$	632,775	$	—
Construction, land development, land	30		—		145		175		123,289		123,464		—
1-4 family residential	730		332		1,114		2,176		120,939		123,115		134
Farmland	378		154		977		1,509		75,885		77,394		—
Commercial	996		346		4,948		6,290		1,424,139		1,430,429		—
Factored receivables	70,109		18,302		39,134		127,545		1,571,992		1,699,537		39,134
Consumer	255		48		99		402		10,483		10,885		—
Mortgage warehouse	—		—		—		—		769,973		769,973		—
Total	$	73,519	$	19,182	$	46,433	$	139,134	$	4,728,438	$	4,867,572	$	39,268

At ~~June~~September 30, 2022 and December 31, 2021, total past due Over-Formula Advances recorded in factored receivables was ~~$9,216,000~~$8,785,000 and $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 ~~June~~September 30, 2022 and December 31, 2021, the Misdirected Payments totaled $19,361,000, all of 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 June 30, 2022.~~assets. Historically, any income recognized on factored receivables that are past due 90 days or more has not been material.

2423

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the amortized cost basis of loans on nonaccrual status and the amortized cost basis of loans on nonaccrual status for which there was no related allowance for credit losses:


		June 30, 2022				December 31, 2021					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	$	1,906	$	1,317	$	2,025	$	1,375	Commercial real estate	$	1,108	$	541	$	2,025	$	1,375
Construction, land development, land	Construction, land development, land	152		152		964		964		Construction, land development, land	151		151		964		964
1-4 family residential	1-4 family residential	1,494		1,438		1,683		1,582		1-4 family residential	1,710		1,604		1,683		1,582
Farmland	Farmland	1,215		1,215		2,044		2,044		Farmland	414		414		2,044		2,044
Commercial	Commercial	5,881		3,067		8,078		3,910		Commercial	17,291		3,015		8,078		3,910
Factored receivables	Factored receivables	—		—		—		—		Factored receivables	—		—		—		—
Consumer	Consumer	183		125		240		159		Consumer	154		112		240		159
Mortgage warehouse	Mortgage warehouse	—		—		—		—		Mortgage warehouse	—		—		—		—
		$	10,831	$	7,314	$	15,034	$	10,034		$	20,828	$	5,837	$	15,034	$	10,034

The following table presents accrued interest on nonaccrual loans reversed through interest income:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2022		2021		2022		2021		(Dollars in thousands)	2022		2021		2022		2021
Commercial real estate	Commercial real estate	$	—	$	8	$	—	$	8	Commercial real estate	$	—	$	—	$	—	$	8
Construction, land development, land	Construction, land development, land	—		—		—		—		Construction, land development, land	—		—		2		—
1-4 family residential	1-4 family residential	—		—		—		1		1-4 family residential	1		—		1		1
Farmland	Farmland	—		—		—		6		Farmland	—		—		—		6
Commercial	Commercial	2		20		6		23		Commercial	—		—		4		23
Factored receivables	Factored receivables	—		—		—		—		Factored receivables	—		—		—		—
Consumer	Consumer	—		—		—		—		Consumer	—		3		—		3
Mortgage warehouse	Mortgage warehouse	—		—		—		—		Mortgage warehouse	—		—		—		—
		$	2	$	28	$	6	$	38		$	1	$	3	$	7	$	41

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

The following table presents information regarding nonperforming loans:


(Dollars in thousands)	(Dollars in thousands)	June 30, 2022		December 31, 2021		(Dollars in thousands)	September 30, 2022		December 31, 2021
Nonaccrual loans(1)	Nonaccrual loans(1)	$	10,831	$	15,034	Nonaccrual loans(1)	$	20,828	$	15,034
Factored receivables greater than 90 days past due	Factored receivables greater than 90 days past due	29,463		29,057		Factored receivables greater than 90 days past due	30,184		29,057
Other nonperforming factored receivables(2)	Other nonperforming factored receivables(2)	997		1,428		Other nonperforming factored receivables(2)	4,331		1,428
Troubled debt restructurings accruing interest	Troubled debt restructurings accruing interest	643		765		Troubled debt restructurings accruing interest	577		765
		$	41,934	$	46,284		$	55,920	$	46,284

(1)Includes troubled debt restructurings of ~~$2,859,000~~$2,034,000 and $3,912,000 at ~~June~~September 30, 2022 and December 31, 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.

2524

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Credit Quality Information

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

Pass – Pass rated loans have low to average risk and are not otherwise classified.

Classified – Classified loans are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the repayment of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Certain classified loans have the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

2625

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Management considers the guidance in ASC 310-20 when determining whether a modification, extension, or renewal of loan constitutes a current period origination. Generally, current period renewals of credit are re-underwritten at the point of renewal and considered current period originations for purposes of the table below. As of ~~June~~September 30, 2022 and December 31, 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
June 30, 2022		2022		2021		2020		2019		2018		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	$	159,609	$	165,100	$	213,311	$	35,879	$	19,446	$	43,806			$	4,638			$	—				$	641,789	Pass		$	209,979		$	162,141		$	201,656		$	27,482		$	18,640		$	38,969
Classified	Classified	—		3,522		2,565		40		—		1,108		256				—				7,491		Classified			2,634			779			1,883			39			—			1,098			—					—					6,433
Total commercial real estate	Total commercial real estate	$	159,609	$	168,622	$	215,876	$	35,919	$	19,446	$	44,914	$	4,894			$	—			$	649,280	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	$	34,136	$	33,901	$	27,972	$	4,446	$	673	$	748	$	9			$	—			$	101,885	Pass			$	46,466		$	16,185		$	7,115		$	4,368		$	654		$	578		$	10		$	—			$	75,376
Classified	Classified	—		1,340		7		—		—		145		—				—				1,492		Classified			—			—			6			—			—			145			—			—				151
Total construction, land development, land	Total construction, land development, land	$	34,136	$	35,241	$	27,979	$	4,446	$	673	$	893	$	9			$	—			$	103,377	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	$	15,577	$	23,796	$	13,257	$	8,628	$	4,137	$	23,987	$	35,147			$	271			$	124,800	Pass			$	19,058		$	23,089		$	11,450		$	3,046		$	3,787		$	22,067		$	38,002		$	308			$	120,807
Classified	Classified	—		239		164		53		4		1,083		19				—				1,562		Classified			29			420			156			52			3			1,059			68			—				1,787
Total 1-4 family residential	Total 1-4 family residential	$	15,577	$	24,035	$	13,421	$	8,681	$	4,141	$	25,070	$	35,166			$	271			$	126,362	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	$	6,610	$	12,925	$	12,249	$	6,372	$	6,896	$	22,297	$	1,301			$	233			$	68,883	Pass			$	10,092		$	12,736		$	10,381		$	2,738		$	6,790		$	21,707		$	1,370		$	218			$	66,032
Classified	Classified	199		—		497		607		—		86		—				—				1,389		Classified			199			11			131			112			—			110			—			—				563
Total farmland	Total farmland	$	6,809	$	12,925	$	12,746	$	6,979	$	6,896	$	22,383	$	1,301			$	233			$	70,272	Total farmland			$	10,291		$	12,747		$	10,512		$	2,850		$	6,790		$	21,817		$	1,370		$	218			$	66,595

Commercial	Commercial																							Commercial
Pass	Pass	$	182,667	$	264,391	$	201,907	$	49,325	$	9,454	$	15,229	$	473,418			$	265			$	1,196,656	Pass			$	300,479		$	220,970		$	181,171		$	45,579		$	7,594		$	13,283		$	473,205		$	269			$	1,242,550
Classified	Classified	1,532		11,792		5,518		2,548		68		109		7,256				—				28,823		Classified			14,656			10,681			3,701			2,148			110			115			8,238			—				39,649
Total commercial	Total commercial	$	184,199	$	276,183	$	207,425	$	51,873	$	9,522	$	15,338	$	480,674			$	265			$	1,225,479	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	$	1,561,503	$	—	$	—	$	—	$	—	$	—	$	—			$	—			$	1,561,503	Pass			$	1,411,243		$	—		$	—		$	—		$	—		$	—		$	—		$	—			$	1,411,243
Classified	Classified	14,204		—		20,575		—		—		—		—				—				34,779		Classified			17,693			—			20,144			—			—			—			—			—				37,837
Total factored receivables	Total factored receivables	$	1,575,707	$	—	$	20,575	$	—	$	—	$	—	$	—			$	—			$	1,596,282	Total factored receivables			$	1,428,936		$	—		$	20,144		$	—		$	—		$	—		$	—		$	—			$	1,449,080

Consumer	Consumer																							Consumer
Pass	Pass	$	2,161	$	1,943	$	1,244	$	444	$	410	$	3,163	$	161			$	—			$	9,526	Pass			$	3,112		$	1,590		$	1,033		$	361		$	355		$	2,760		$	141		$	—			$	9,352
Classified	Classified	—		3		1		—		—		179		—				—				183		Classified			—			2			2			—			—			150			—			—				154
Total consumer	Total consumer	$	2,161	$	1,946	$	1,245	$	444	$	410	$	3,342	$	161			$	—			$	9,709	Total consumer			$	3,112		$	1,592		$	1,035		$	361		$	355		$	2,910		$	141		$	—			$	9,506

Mortgage warehouse	Mortgage warehouse																							Mortgage warehouse
Pass	Pass	$	654,605	$	—	$	—	$	—	$	—	$	—	$	—			$	—			$	654,605	Pass			$	758,061		$	—		$	—		$	—		$	—		$	—		$	—		$	—			$	758,061
Classified	Classified	—		—		—		—		—		—		—				—				—		Classified			—			—			—			—			—			—			—			—				—
Total mortgage warehouse	Total mortgage warehouse	$	654,605	$	—	$	—	$	—	$	—	$	—	$	—			$	—			$	654,605	Total mortgage warehouse			$	758,061		$	—		$	—		$	—		$	—		$	—		$	—		$	—			$	758,061

Total loans	Total loans																							Total loans
Pass	Pass	$	2,616,868	$	502,056	$	469,940	$	105,094	$	41,016	$	109,230	$	514,674			$	769			$	4,359,647	Pass			$	2,758,490		$	436,711		$	412,806		$	83,574		$	37,820		$	99,364		$	517,170		$	795			$	4,346,730
Classified	Classified	15,935		16,896		29,327		3,248		72		2,710		7,531				—				75,719		Classified			35,211			11,893			26,023			2,351			113			2,677			8,306			—				86,574
Total loans	Total loans	$	2,632,803	$	518,952	$	499,267	$	108,342	$	41,088	$	111,940	$	522,205			$	769			$	4,435,366	Total loans			$	2,793,701		$	448,604		$	438,829		$	85,925		$	37,933		$	102,041		$	525,476		$	795			$	4,433,304

2726

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


													Revolving Loans		Revolving Loans Converted To Term Loans		Total
(Dollars in thousands)	Year of Origination
December 31, 2021	2021		2020		2019		2018		2017		Prior
Commercial real estate
Pass	$	211,088	$	249,652	$	50,223	$	25,930	$	47,447	$	37,290	$	4,595	$	—	$	626,225
Classified	2,879		3,358		41		—		16		—		256		—		6,550
Total commercial real estate	$	213,967	$	253,010	$	50,264	$	25,930	$	47,463	$	37,290	$	4,851	$	—	$	632,775

Construction, land development, land
Pass	$	56,764	$	33,756	$	4,744	$	23,696	$	1,199	$	994	$	8	$	—	$	121,161
Classified	2,150		8		—		—		—		145		—		—		2,303
Total construction, land development, land	$	58,914	$	33,764	$	4,744	$	23,696	$	1,199	$	1,139	$	8	$	—	$	123,464

1-4 family residential
Pass	$	26,840	$	15,195	$	9,485	$	6,526	$	8,591	$	22,151	$	32,210	$	318	$	121,316
Classified	273		233		53		6		64		1,089		81		—		1,799
Total 1-4 family residential	$	27,113	$	15,428	$	9,538	$	6,532	$	8,655	$	23,240	$	32,291	$	318	$	123,115

Farmland
Pass	$	14,387	$	13,396	$	7,892	$	8,040	$	10,040	$	19,792	$	1,317	$	241	$	75,105
Classified	199		612		593		333		128		298		126		—		2,289
Total farmland	$	14,586	$	14,008	$	8,485	$	8,373	$	10,168	$	20,090	$	1,443	$	241	$	77,394

Commercial
Pass	$	466,254	$	332,746	$	77,010	$	18,940	$	15,032	$	7,704	$	490,159	$	49	$	1,407,894
Classified	9,317		6,858		5,088		558		56		456		202		—		22,535
Total commercial	$	475,571	$	339,604	$	82,098	$	19,498	$	15,088	$	8,160	$	490,361	$	49	$	1,430,429

Factored receivables
Pass	$	1,667,922	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	1,667,922
Classified	10,826		20,789		—		—		—		—		—		—		31,615
Total factored receivables	$	1,678,748	$	20,789	$	—	$	—	$	—	$	—	$	—	$	—	$	1,699,537

Consumer
Pass	$	3,252	$	1,794	$	669	$	553	$	2,424	$	1,882	$	70	$	—	$	10,644
Classified	5		—		—		12		119		105		—		—		241
Total consumer	$	3,257	$	1,794	$	669	$	565	$	2,543	$	1,987	$	70	$	—	$	10,885

Mortgage warehouse
Pass	$	769,973	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	769,973
Classified	—		—		—		—		—		—		—		—		—
Total mortgage warehouse	$	769,973	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	769,973

Total loans
Pass	$	3,216,480	$	646,539	$	150,023	$	83,685	$	84,733	$	89,813	$	528,359	$	608	$	4,800,240
Classified	25,649		31,858		5,775		909		383		2,093		665		—		67,332
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 ~~$3,502,000~~$2,611,000 and $4,677,000 as of ~~June~~September 30, 2022 and December 31, 2021, respectively. The Company had allocated ~~$1,069,000~~$1,104,000 and $1,068,000 of allowance for those loans at ~~June~~September 30, 2022 and December 31, 2021, respectively, and had not committed to lend additional amounts.

2827

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the pre- and post-modification recorded investment of loans modified as troubled debt restructurings. 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

Six months ended June 30, 2021
Nine months ended September 30, 2021										Nine months ended September 30, 2021
Commercial real estate	Commercial real estate	$	—	0	$	741	$	741	1	Commercial real estate	$	—			$	741	$	741	1

											$	—	$	—	$	741	$	741	1

There were no loans modified as troubled debt restructurings during the three ~~and six~~ months ended ~~June 30, 2022 or during the three months ended June~~September 30, 2021.

During the ~~six~~nine months ended ~~June~~September 30, 2022, the Company had ~~1 loan modified as a troubled debt restructuring with a recorded investment of $521,000 for which there was payment default within twelve months following the modification.~~ ~~During the six months ended June 30, 2021, the Company had 4~~two loans modified as troubled debt restructurings with a recorded investment of ~~$670,000~~$546,000 for which there were payment defaults within twelve months following the modification. During the nine months ended September 30, 2021, the Company had three loans modified as troubled debt restructurings with a recorded investment of $1,681,000 for which there were payment defaults within twelve months following the modification. 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 June 30,		Six Months Ended June 30,			Three Months Ended September 30,		Nine Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2022	2021	2022	2021	(Dollars in thousands)	2022	2021	2022	2021
Total modifications	Total modifications	—	—	—	10,459	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 ~~June 30, 2022 and~~ December 31, 2021:

(Dollars in thousands) Total
Loans Balance of
Loans Currently
in Deferral Percentage
of Portfolio Accrued
Interest
Receivable
June 30, 2022
Commercial real estate $ 649,280 $ — — % $ —
Construction, land development, land 103,377 1,340 1.3 % 5
1-4 family residential 126,362 — — % —
Farmland 70,272 — — % —
Commercial 1,225,479 — — % —
Factored receivables 1,596,282 — — % —
Consumer 9,709 — — % —
Mortgage warehouse 654,605 — — % —
Total $ 4,435,366 $ 1,340 — % $ 5


(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

2928

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands) Total
Loans Balance of
Loans Currently
in Deferral Percentage
of Portfolio Accrued
Interest
Receivable
December 31, 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

Residential Real Estate Loans In Process of Foreclosure

At ~~June~~September 30, 2022 and December 31, 2021, the Company had ~~$254,000~~$129,000 and $301,000, respectively, in 1-4 family residential real estate loans for which formal foreclosure proceedings were in process.

NOTE 5 — GOODWILL AND INTANGIBLE ASSETS

Goodwill and intangible assets consist of the following:


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


		June 30, 2022						December 31, 2021							September 30, 2022						December 31, 2021
(Dollars in thousands)	(Dollars in thousands)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		(Dollars in thousands)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Core deposit intangibles	Core deposit intangibles	$	43,578	$	(33,649)	$	9,929	$	43,578	$	(31,800)	$	11,778	Core deposit intangibles	$	43,578	$	(34,536)	$	9,042	$	43,578	$	(31,800)	$	11,778
Software intangible assets	Software intangible assets	16,932		(4,586)		12,346		16,932		(2,469)		14,463		Software intangible assets	16,932		(5,644)		11,288		16,932		(2,469)		14,463
Other intangible assets	Other intangible assets	29,560		(14,878)		14,682		29,560		(12,672)		16,888		Other intangible assets	30,410		(15,845)		14,565		29,560		(12,672)		16,888
		$	90,070	$	(53,113)	$	36,957	$	90,070	$	(46,941)	$	43,129		$	90,920	$	(56,025)	$	34,895	$	90,070	$	(46,941)	$	43,129

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


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2022		2021		2022		2021		(Dollars in thousands)	2022		2021		2022		2021
Beginning balance	Beginning balance	$	269,119	$	188,006	$	276,856	$	189,922	Beginning balance	$	270,666	$	286,567	$	276,856	$	189,922
Acquired goodwill	Acquired goodwill	—		73,697		—		73,697		Acquired goodwill	—		—		—		73,697
Acquired intangible assets	Acquired intangible assets	—		27,292		—		27,292		Acquired intangible assets	851		—		851		27,292
Acquired goodwill - measurement period adjustment	Acquired goodwill - measurement period adjustment	—		—		(18)		59		Acquired goodwill - measurement period adjustment	—		(3,238)		(18)		(3,179)
Goodwill transferred to assets held for sale		—		—		(3,217)		—
Intangible assets transferred to assets held for sale		—		—		(1,394)		—
Goodwill transferred from assets held for sale		3,217		—		3,217		—
Intangible assets transferred from assets held for sale		1,394		—		1,394		—

Amortization of intangibles	Amortization of intangibles	(3,064)		(2,428)		(6,172)		(4,403)		Amortization of intangibles	(2,913)		(3,274)		(9,085)		(7,677)
Ending balance	Ending balance	$	270,666	$	286,567	$	270,666	$	286,567	Ending balance	$	268,604	$	280,055	$	268,604	$	280,055

~~Table of Contents~~

~~TRIUMPH BANCORP, INC. AND SUBSIDIARIES~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

NOTE 6 — EQUITY METHOD INVESTMENT

On October 17, 2019, the Company made a minority equity investment of $8,000,000 in Warehouse Solutions Inc. (“WSI”), purchasing 8% of the common stock of WSI and receiving warrants to purchase an additional 10% of the common stock of WSI upon exercise of the warrants at a later date. WSI provides technology solutions to help reduce supply chain costs for a global client base across multiple industries.

Although the Company held less than 20% of the voting stock of WSI, the investment in common stock was initially accounted for using the equity method as the Company’s representation on WSI’s board of directors, which was disproportionately larger in size than the common stock investment held, demonstrated that it had significant influence over the investee.

On June 10, 2022, the Company entered into 2two separate agreements with WSI. First, the Company entered into an Affiliate Agreement. The Affiliate Agreement canceled the Company’s outstanding warrants and modified the structure of the existing operating agreement to be consistent with TriumphPay operating as an open loop payments network. By modifying the operating agreement, the Company’s Payments segment operations now have greater ability to operate in the freight shipper audit space. As a result of the Affiliate Agreement, the Company recognized a total loss on impairment of the warrants of $3,224,000, which represented the full book balance of the warrants on the date the Affiliate Agreement was executed. The impairment loss was included in other noninterest income on the Company's consolidated statements of income during the three ~~and six~~ months ended June 30, 2022.

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Separately, the Company also entered into an Amended and Restated Investor Rights Agreement (the “Investor Rights Agreement”). The Investor Rights Agreement eliminated the Company’s representation on WSI’s board of directors making the Company a completely passive investor. The Investor Rights Agreement also provided for the Company’s purchase of an additional 10% of WSI’s common stock for $23,000,000 raising the Company’s ownership of WSI’s common stock to 18%. As a passive investor, the Company no longer holds significant influence over the investee and the investment in WSI’s common stock no longer qualifies for equity method accounting. The investment in WSI’s common stock is now accounted for as an equity investment without a readily determinable fair value measured under the measurement alternative. The measurement alternative requires the Company to remeasure its investment in the common stock of WSI only upon the execution of an orderly and observable transaction in an identical or similar instrument.

The Company's additional investment in WSI under the Investor Rights Agreement resulted in the Company discontinuing the equity method of accounting and qualified as an orderly and observable transaction for an identical investment in WSI, therefore the fair value of the Company's original 8% common stock investment was required to be adjusted from $4,925,000 at March 31, 2022 to $15,088,000, resulting in a gain of $10,163,000 that was recorded in other noninterest income on the Company's consolidated statements of income during the three ~~and six~~ months ended June 30, 2022.

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


(Dollars in thousands)	(Dollars in thousands)	June 30, 2022		December 31, 2021		(Dollars in thousands)	September 30, 2022		December 31, 2021
Common stock	Common stock	$	38,088	$	5,142	Common stock	$	38,088	$	5,142
Warrants	Warrants	—		3,224		Warrants	—		3,224
Total investment	Total investment	$	38,088	$	8,366	Total investment	$	38,088	$	8,366

The investment is included in other assets on the Company’s consolidated balance sheets and ~~is included in other assets on~~has been allocated to the ~~Payment Segment’s balance sheets.~~Payments segment. All gains and losses related to the investment are included in the Payment segment’s operating results.

~~Table of Contents~~

~~TRIUMPH BANCORP, INC. AND SUBSIDIARIES~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

NOTE 7 — DERIVATIVE FINANCIAL INSTRUMENTS

The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s interest bearing deposits.

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Beginning in June 2020, such derivatives were used to hedge the variable cash flows associated with interest bearing deposits.

The Company discontinues hedge accounting when it determines that the derivative is no longer effective in 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 ~~three and six~~nine months ended ~~June 31,~~September 30, 2022, the Company reclassified ~~$232,000 and~~ $465,000 ~~respectively,~~ into earnings through interest expense in the consolidated statements of income. On May 4, 2022, the Company terminated the hedged funding, incurring a termination fee of $732,000, which was recognized through interest expense in the consolidated statements of income, and reclassified the remaining $8,851,000 unrealized gain on the terminated derivative into earnings through other noninterest income in the consolidated statements of income.

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2022		2021		2022		2021		(Dollars in thousands)	2022		2021		2022		2021
Unrealized gains on terminated hedges	Unrealized gains on terminated hedges									Unrealized gains on terminated hedges
Beginning Balance	Beginning Balance	$	9,083	$	—	$	—	$	—	Beginning Balance	$	—	$	—	$	—	$	—
Unrealized gains arising during the period	Unrealized gains arising during the period	—		—		9,316		—		Unrealized gains arising during the period	—		—		9,316		—
Reclassification adjustments for amortization of unrealized (gains) into net income	Reclassification adjustments for amortization of unrealized (gains) into net income	(9,083)		—		(9,316)		—		Reclassification adjustments for amortization of unrealized (gains) into net income	—		—		(9,316)		—
Ending Balance	Ending Balance	$	—	$	—	$	—	$	—	Ending Balance	$	—	$	—	$	—	$	—

The Company did not have any derivative financial instruments at ~~June~~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 cash flow hedge accounting on Accumulated Other Comprehensive Income, net of tax:


	Amount of Gain or (Loss) Recognized in OCI on Derivative		Amount of Gain or (Loss) Recognized in OCI Included Component		Location of (Gain) or Loss Recognized from AOCI into Income	Amount of (Gain) or Loss Reclassified from AOCI into Income		Amount of (Gain) or Loss Reclassified from AOCI into Income Included Component
(Dollars in thousands)
Three Months Ended September 30, 2022
Derivatives in cash flow hedging relationships:
Interest rate swaps	$	—	$	—	Interest Expense, Noninterest Income	$	—	$	—

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

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

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

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~The table below presents the effect of cash flow hedge accounting on Accumulated Other Comprehensive Income, net of tax:~~

Amount of
Gain or (Loss)
Recognized
in OCI on
Derivative Amount of
Gain or (Loss)
Recognized in
OCI Included
Component Location of
(Gain) or Loss
Recognized from
AOCI into
Income Amount of
(Gain) or Loss
Reclassified
from AOCI
into Income Amount of
(Gain) or Loss
Reclassified
from AOCI
into Income
Included
Component
(Dollars in thousands)
Three Months Ended June 30, 2022
Derivatives in cash flow hedging relationships:
Interest rate swaps $ (6,939) $ (6,939) Interest Expense, Noninterest Income $ (6,939) $ (6,939)
Three Months Ended June 30, 2021
Derivatives in cash flow hedging relationships:
Interest rate swaps $ (429) $ (429) Interest Expense $ 22 $ 22
Six Months Ended June 30, 2022
Derivatives in cash flow hedging relationships:
Interest rate swaps $ (4,705) $ (4,705) Interest Expense, Noninterest Income $ (7,103) $ (7,103)
Six Months Ended June 30, 2021
Derivatives in cash flow hedging relationships:
Interest rate swaps $ 2,377 $ 2,377 Interest Expense $ 40 $ 40

NOTE 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

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 ~~$4,335,000~~$4,149,000 and $4,947,000 at ~~June~~September 30, 2022 and December 31, 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 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 ~~June~~September 30, 2022, will have no material effect on the Company’s consolidated financial statements.

~~Table of Contents~~

~~TRIUMPH BANCORP, INC. AND SUBSIDIARIES~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

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:


		June 30, 2022						December 31, 2021							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	$	14,774	$	505,448	$	520,222	$	26,029	$	523,483	$	549,512	Unused lines of credit	$	3,994	$	442,809	$	446,803	$	26,029	$	523,483	$	549,512
Standby letters of credit	Standby letters of credit	$	11,501	$	5,524	$	17,025	$	11,090	$	5,409	$	16,499	Standby letters of credit	$	13,711	$	4,920	$	18,631	$	11,090	$	5,409	$	16,499
Commitments to purchase loans	Commitments to purchase loans	$	—	$	127,358	$	127,358	$	—	$	108,423	$	108,423	Commitments to purchase loans	$	—	$	79,030	$	79,030	$	—	$	108,423	$	108,423
Mortgage warehouse commitments	Mortgage warehouse commitments	$	—	$	997,165	$	997,165	$	—	$	823,060	$	823,060	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.

Table of Contents

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 ~~June~~September 30, 2022 and December 31, 2021, the allowance for credit losses on off-balance sheet credit exposures totaled ~~$4,278,000~~$3,680,000 and $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 June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2022		2021		2022		2021		(Dollars in thousands)	2022		2021		2022		2021
Credit loss expense (benefit)	Credit loss expense (benefit)	$	932	$	293	$	196	$	(921)	Credit loss expense (benefit)	$	(598)	$	(238)	$	(402)	$	(1,159)

NOTE 11 — 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.

~~Table of Contents~~

~~TRIUMPH BANCORP, INC. AND SUBSIDIARIES~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

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

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

The methods of determining the fair value of assets and liabilities presented in this note are consistent with the methodologies disclosed in Note 17 of the Company’s 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
June 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 $ — $ 48,638 $ — $ 48,638
Asset-backed securities — 6,551 — 6,551
State and municipal — 15,023 — 15,023
CLO securities — 142,251 — 142,251
Corporate bonds — 1,268 — 1,268
SBA pooled securities — 2,178 — 2,178
$ — $ 215,909 $ — $ 215,909
Equity securities with readily determinable fair values
Mutual fund $ 5,050 $ — $ — $ 5,050
Loans held for sale $ — $ 6 $ — $ 6
Indemnification asset $ — $ — $ 4,377 $ 4,377
Revenue share asset $ — $ — $ 5,210 $ 5,210
Liabilities measured at fair value on a recurring basis
Return of premium liability $ — $ — $ 708 $ 708

3533

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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


(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

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

There were no transfers between levels during 2022 or 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 ~~June~~September 30, 2022 and December 31, 2021, the estimated cash payments expected to be received from Covenant for probable losses on the covered Over-Formula Advance Portfolio were approximately ~~$4,608,000~~$4,393,000 and $5,038,000, respectively, and a discount rate of 5.0% and 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 June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2022		2021		2022		2021		(Dollars in thousands)	2022		2021		2022		2021
Beginning balance	Beginning balance	$	4,582	$	5,246	$	4,786	$	36,225	Beginning balance	$	4,377	$	5,246	$	4,786	$	36,225
Indemnification asset recognized in business combination	Indemnification asset recognized in business combination	—		—		—		—		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	(205)		—		(409)		4,654		Change in fair value of indemnification asset recognized in earnings	(204)		(460)		(613)		4,194
Indemnification reduction	Indemnification reduction	—		—		—		(35,633)		Indemnification reduction	—		—		—		(35,633)
Ending balance	Ending balance	$	4,377	$	5,246	$	4,377	$	5,246	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 ~~an agreement~~and closed two separate agreements to sell ~~a portfolio~~two separate portfolios of factored receivables. The ~~associated~~June 30, 2022 agreement contains a revenue share ~~provision~~provisions that entitles the Company to an amount equal to 15fifteen 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 ~~asset~~assets is calculated each reporting period, and changes in the fair value of the revenue share ~~asset~~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 ~~June~~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 ~~$7,719,000~~$8,653,000 and a discount rate of 10.0% was applied to calculate the present value of the revenue share ~~asset~~asset. A reconciliation of ~~$5,210,000. As the revenue share asset was recorded during the three months ended June 30, 2022, there was no difference between~~ the opening balance ~~and~~to the closing balance of the fair value of the revenue share asset ~~during the current period.~~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

3635

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

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 ~~June~~September 30, 2022, the fair value of the estimated premium expected to be returned to the purchaser for sold loans prepaid in full was ~~$708,000~~ calculated as the difference between the discounted cash flows of each sold loan assuming no prepayments and the discounted cash flows of each sold loan assuming an ~~11%~~11.0% prepayment speed; consistent with management's expected prepayment speed. ~~As the return~~A reconciliation of ~~premium liability was recorded during the three months ended June 30, 2022, there was no difference between~~ the opening balance ~~and~~to the closing balance of the fair value of the return of premium liability ~~during the current period.~~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 ~~June~~September 30, 2022 and December 31, 2021.


(Dollars in thousands)	(Dollars in thousands)	Fair Value Measurements Using						Total Fair Value		(Dollars in thousands)	Fair Value Measurements Using						Total Fair Value
June 30, 2022		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	$	—	$	—	$	306	$	306	Commercial real estate	$	—	$	—	$	283	$	283
1-4 family residential	1-4 family residential	—		—		27		27		1-4 family residential	—		—		25		25
Commercial	Commercial	—		—		2,020		2,020		Commercial	—		—		9,771		9,771
Factored receivables	Factored receivables	—		—		35,280		35,280		Factored receivables	—		—		34,604		34,604
Consumer	Consumer	—		—		40		40		Consumer	—		—		29		29
Other real estate owned (1)
1-4 family residential		—		—		41		41
Equity investment without readily determinable fair value		$	38,088	$	—	$	—	$	38,088
		$	38,088	$	—	$	37,714	$	75,802

											$	—	$	—	$	44,712	$	44,712


(Dollars in thousands)	Fair Value Measurements Using						Total Fair Value
December 31, 2021	Level 1		Level 2		Level 3
Collateral dependent loans
Commercial real estate	$	—	$	—	$	366	$	366
1-4 family residential	—		—		61		61
Commercial	—		—		2,435		2,435
Factored receivables	—		—		30,224		30,224
Consumer	—		—		60		60
Other real estate owned (1)
Commercial real estate	—		—		7		7
Construction, land development, land	—		—		63		63
	$	—	$	—	$	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.

3736

Table of Contents

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.

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

~~Equity Investment Without Readily Determinable Fair Value~~: Equity investments without a readily determinable fair value are measured under the measurement alternative. The measurement alternative requires the fair value of the investment to be adjusted upwards or downwards only upon the execution of an orderly and observable transaction in an identical or similar instrument. As the fair value measurement is based on an observable price change, it is classified in Level 1of the valuation hierarchy.

The estimated fair values of the Company’s financial instruments not measured at fair value on a recurring or non-recurring basis at ~~June~~September 30, 2022 and December 31, 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
June 30, 2022				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	$	724,237		$	724,237		$	—		$	—	$	724,237	Cash and cash equivalents	$	421,729		$	421,729		$	—		$	—		$	421,729
Securities - held to maturity	Securities - held to maturity	4,335			—			—			5,790		5,790		Securities - held to maturity	4,149			—			—			5,603			5,603
Loans not previously presented, gross	Loans not previously presented, gross	4,397,693			167,575			—			4,172,858		4,340,433		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	6,169			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	14,563			14,563			—			—		14,563		Accrued interest receivable	18,214			18,214			—			—			18,214

Financial liabilities:	Financial liabilities:														Financial liabilities:
Deposits	Deposits	4,782,334			—			4,773,774			—		4,773,774		Deposits	4,441,354			—			4,429,225			—			4,429,225
Customer repurchase agreements	Customer repurchase agreements	11,746			—			11,746			—		11,746		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
Subordinated notes	Subordinated notes	107,377			—			122,308			—		122,308		Subordinated notes	107,587			—			106,327			—			106,327
Junior subordinated debentures	Junior subordinated debentures	40,876			—			42,344			—		42,344		Junior subordinated debentures	41,016			—			42,847			—			42,847
Accrued interest payable	Accrued interest payable	2,054			2,054			—			—		2,054		Accrued interest payable	2,538			2,538			—			—			2,538

3837

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


(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 ~~June~~September 30, 2022 and December 31, 2021, the Company and TBK Bank meet all capital adequacy requirements to which they are subject.

As of ~~June~~September 30, 2022 and December 31, 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 ~~June~~September 30, 2022 that management believes have changed TBK Bank’s category.

3938

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The actual capital amounts and ratios for the Company and TBK Bank are presented in the following 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
June 30, 2022		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.	$	806,684	15.9%	$	405,879	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	$	777,831	15.5%	$	401,461	8.0%	$	501,826	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.	$	661,392	13.0%	$	305,258	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	$	741,811	14.8%	$	300,734	6.0%	$	400,979	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.	$	575,516	11.3%	$	229,188	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	$	741,811	14.8%	$	225,551	4.5%	$	325,795	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.	$	661,392	11.8%	$	224,201	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	$	741,811	13.2%	$	224,791	4.0%	$	280,989	5.0%	TBK Bank, SSB	$	744,948	13.7%	$	217,503	4.0%	$	271,879	5.0%

As of December 31, 2021	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.	$	769,475	14.1%	$	436,582	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	$	698,286	12.9%	$	433,046	8.0%	$	541,307	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.	$	628,094	11.5%	$	327,701	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	$	665,336	12.3%	$	324,554	6.0%	$	432,739	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.	$	542,492	9.9%	$	246,587	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	$	665,336	12.3%	$	243,416	4.5%	$	351,600	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.	$	628,094	11.1%	$	226,340	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	$	665,336	11.8%	$	225,538	4.0%	$	281,922	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.

4039

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The capital conservation buffer set forth by the Basel III regulatory capital framework was 2.5% at ~~June~~September 30, 2022 and December 31, 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 ~~June~~September 30, 2022 and December 31, 2021, the Company’s and TBK Bank’s risk based capital exceeded the required capital conservation buffer.

NOTE 13 — 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)	June 30, 2022			December 31, 2021			(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


		June 30, 2022		December 31, 2021			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	28,300,816		28,261,680		Shares issued	28,321,716		28,261,680
Treasury shares	Treasury shares	(3,843,039)		(3,102,801)		Treasury shares	(3,843,428)		(3,102,801)
Shares outstanding	Shares outstanding	24,457,777		25,158,879		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

Stock Repurchase Programs

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 June 30, 2022, and on May 23, 2022, the Company announced 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 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 ~~these programs:~~the February 7, 2022 program. No shares have been purchased under the May 23, 2022 program.


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2022		2021		2022		2021			2022		2021		2022		2021
Shares repurchased into treasury stock	Shares repurchased into treasury stock	694,985		—		709,795		—		Shares repurchased into treasury stock	—		—		709,795		—
Average price of shares repurchased into treasury stock	Average price of shares repurchased into treasury stock	$	70.02	$	—	$	70.41	$	—	Average price of shares repurchased into treasury stock	$	—	$	—	$	70.41	$	—
Total cost of shares repurchased into treasury stock	Total cost of shares repurchased into treasury stock	$	48,684,000	$	—	$	50,000,000	$	—	Total cost of shares repurchased into treasury stock	$	—	$	—	$	50,000,000	$	—

4140

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 14 — STOCK BASED COMPENSATION

Stock based compensation expense that has been charged against income was ~~$7,880,000~~$4,296,000 and ~~$3,386,000~~$4,445,000 for the three months ended ~~June~~September 30, 2022 and 2021, respectively, and ~~$12,832,000~~$17,128,000 and ~~$4,736,000~~$9,181,000 for the ~~six~~nine months ended ~~June~~September 30, 2022 and 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 ~~six~~nine months ended ~~June~~September 30, 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, 2022	Nonvested at January 1, 2022	363,404	67.56	Nonvested at January 1, 2022	363,404	67.56
Granted	Granted	5,502	87.63	Granted	12,471	74.42
Vested	Vested	(119,234)	61.61	Vested	(126,203)	61.74
Forfeited	Forfeited	(2,904)	45.68	Forfeited	(3,098)	45.60
Nonvested at June 30, 2022		246,768	71.15
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 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 ~~June~~September 30, 2022, there was ~~$9,011,000~~$7,552,000 of unrecognized compensation cost related to the nonvested RSAs. The cost is expected to be recognized over a remaining period of ~~2.76~~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 ~~six~~nine months ended ~~June~~September 30, 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, 2022	Nonvested at January 1, 2022	122,470	52.07	Nonvested at January 1, 2022	122,470	52.07
Granted	Granted	91,849	69.44	Granted	91,849	69.44
Vested	Vested	—	—	Vested	—	—
Forfeited	Forfeited	(535)	38.75	Forfeited	(967)	52.46
Nonvested at June 30, 2022		213,784	59.57
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 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 ~~June~~September 30, 2022, there was ~~$9,049,000~~$7,688,000 of unrecognized compensation cost related to the nonvested RSUs. The cost is expected to be recognized over a remaining period of ~~3.37~~3.19 years.

4241

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Market Based Performance Stock Units

A summary of changes in the Company’s nonvested Market Based Performance Stock Units (“Market Based PSUs”) under the Omnibus Incentive Plan for the ~~six~~nine months ended ~~June~~September 30, 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 January 1, 2022	Nonvested at January 1, 2022	94,984	$	43.68	Nonvested at January 1, 2022	94,984	$	43.68
Granted	Granted	33,276	84.22		Granted	33,276	84.22
Incremental shares earned	Incremental shares earned	8,997	N/A		Incremental shares earned	8,997	N/A
Vested	Vested	(20,996)	33.91		Vested	(20,996)	33.91
Forfeited	Forfeited	(535)	38.57		Forfeited	(535)	38.57
Nonvested at June 30, 2022		115,726	$	56.38
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:


		Six Months Ended June 30,							Nine Months Ended September 30,
		2022			2021				2022			2021
Grant date	Grant date	May 1, 2022			May 1, 2021			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	$	69.44		$	88.63		Stock price	$	69.44		$	88.63
Triumph stock price volatility	Triumph stock price volatility	55.17		%	51.71		%	Triumph stock price volatility	55.17		%	51.71		%
Risk-free rate	Risk-free rate	2.84		%	0.35		%	Risk-free rate	2.84		%	0.35		%

As of ~~June~~September 30, 2022, there was ~~$3,813,000~~$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 ~~2.41~~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 ~~six~~nine months ended ~~June~~September 30, 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, 2022	Nonvested at January 1, 2022	259,383	$	39.32	Nonvested at January 1, 2022	259,383	$	39.32
Granted	Granted	3,000	69.44		Granted	3,000	69.44
Vested	Vested	—	—		Vested	—	—
Forfeited	Forfeited	(7,551)	42.43		Forfeited	(6,349)	43.26
Nonvested at June 30, 2022		254,832	$	39.58
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.

4342

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

During the three and ~~six~~nine months ended ~~June~~September 30, 2022, the Company recognized ~~$4,328,000~~$298,000 and ~~$5,135,000,~~$5,433,000, respectively, of stock based compensation expense related to Performance ~~based~~Based PSUs. As of ~~June~~September 30, 2022, the maximum unrecognized compensation cost related to the nonvested Performance Based PSUs was ~~$7,631,000,~~$7,424,000, and the remaining performance period over which the cost could be recognized was ~~0.50~~0.25 years. No compensation cost was recorded during the three and ~~six~~nine months ended ~~June~~September 30, 2021.

Stock Options

A summary of the changes in the Company’s stock options under the Omnibus Incentive Plan for the ~~six~~nine months ended ~~June~~September 30, 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, 2022	Outstanding at January 1, 2022	166,755	$	33.34				Outstanding at January 1, 2022	166,755	$	33.34
Granted	Granted	35,939	69.44					Granted	35,939	69.44
Exercised	Exercised	(3,797)	26.12					Exercised	(3,797)	26.12
Forfeited or expired	Forfeited or expired	—	—					Forfeited or expired	—	—
Outstanding at June 30, 2022		198,897	$	40.00	6.66	$	5,175
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 June 30, 2022		198,897	$	40.00	6.66	$	5,175
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 June 30, 2022		128,958	$	29.10	5.40	$	4,425
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 ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 was as follows:


		Six Months Ended June 30,					Nine Months Ended September 30,
(Dollars in thousands, except per share amounts)	(Dollars in thousands, except per share amounts)	2022		2021		(Dollars in thousands, except per share amounts)	2022		2021
Aggregate intrinsic value of options exercised	Aggregate intrinsic value of options exercised	$	280	$	2,249	Aggregate intrinsic value of options exercised	$	280	$	2,249
Cash received from option exercises		—		146
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	59		472		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	$	32.15	$	35.37	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. 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 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 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:


		Six Months Ended June 30,					Nine Months Ended September 30,
		2022		2021			2022		2021
Risk-free interest rate	Risk-free interest rate	2.77	%	1.16	%	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	43.33	%	39.26	%	Expected stock price volatility	43.33	%	39.26	%
Dividend yield	Dividend yield	—		—		Dividend yield	—		—

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As of ~~June~~September 30, 2022, there was ~~$1,278,000~~$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 ~~3.44~~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 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. During the ~~six~~nine months ended ~~June~~September 30, 2022, ~~10,585~~24,516 shares were issued under the plan. No shares were issued during the ~~six~~nine months ended ~~June~~September 30, 2021.

NOTE 15 — EARNINGS PER SHARE

The factors used in the earnings per share computation follow:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2022		2021		2022		2021		(Dollars in thousands)	2022		2021		2022		2021
Basic	Basic									Basic
Net income to common stockholders	Net income to common stockholders	$	43,390	$	27,180	$	66,918	$	60,302	Net income to common stockholders	$	15,428	$	23,627	$	82,346	$	83,929
Weighted average common shares outstanding	Weighted average common shares outstanding	24,427,270		24,724,128		24,612,988		24,699,754		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	$	1.78	$	1.10	$	2.72	$	2.44	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	$	43,390	$	27,180	$	66,918	$	60,302	Net income to common stockholders	$	15,428	$	23,627	$	82,346	$	83,929
Weighted average common shares outstanding	Weighted average common shares outstanding	24,427,270		24,724,128		24,612,988		24,699,754		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	89,443		134,358		99,402		133,219		Assumed exercises of stock options	85,239		121,110		95,252		129,149
Restricted stock awards	Restricted stock awards	144,526		139,345		189,492		156,029		Restricted stock awards	122,723		141,204		162,883		146,172
Restricted stock units	Restricted stock units	85,934		73,155		91,236		70,236		Restricted stock units	97,512		74,268		96,174		71,620
Performance stock units - market based	Performance stock units - market based	115,825		134,313		127,694		131,240		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	3,575		3,708		2,173		2,563		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	24,866,573		25,209,007		25,122,985		25,193,041		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	$	1.74	$	1.08	$	2.66	$	2.39	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 June 30,		Six Months Ended June 30,			Three Months Ended September 30,		Nine Months Ended September 30,
		2022	2021	2022	2021		2022	2021	2022	2021
Stock options	Stock options	52,878	16,939	52,878	16,939	Stock options	52,878	16,939	52,878	16,939
Restricted stock awards	Restricted stock awards	6,348	—	6,348	209,040	Restricted stock awards	6,348	—	6,348	195,640
Restricted stock units	Restricted stock units	15,000	—	15,000	17,757	Restricted stock units	15,000	—	15,000	17,757
Performance stock units - market based	Performance stock units - market based	45,296	13,520	45,296	13,520	Performance stock units - market based	45,296	12,020	45,296	12,020
Performance stock units - performance based	Performance stock units - performance based	254,832	265,625	254,832	265,625	Performance stock units - performance based	—	259,383	—	259,383
Employee stock purchase program	Employee stock purchase program	—	—	—	—	Employee stock purchase program	—	—	—	—

Table of Contents

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.

~~Table of Contents~~

~~TRIUMPH BANCORP, INC. AND SUBSIDIARIES~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Descriptions of the Company's significant revenue-generating activities within the scope of Topic 606, which are included in non-interest income in the Company's consolidated statements of income, are as follows:

•Service charges on deposits. Service charges on deposits primarily consists of fees from the Company's deposit customers for account maintenance, account analysis, and overdraft services. Account maintenance fees and analysis fees are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs.

•Card income. Card income primarily consists of interchange fees. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized when the transaction processing services are provided to the cardholder.

•Net OREO gains (losses) and valuation adjustments. The Company records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer.

•Fee income. Fee income for the Banking and Factoring segments primarily consists of transaction-based fees, including wire transfer fees, ACH and check fees, early termination fees, and other fees, earned from the Company's banking and factoring customers. Transaction based fees are recognized at the time the transaction is executed as that is the point in time the Company satisfies its performance obligations.

Fee income for the Payments segment ~~includes~~primarily consists of TriumphPay payment and audit fees. These fees totaled ~~$3,381,000~~$3,545,000 and ~~$1,075,000~~$3,095,000 for the three months ended ~~June~~September 30, 2022 and 2021, respectively, and ~~$6,610,000~~$10,156,000 and ~~$1,156,000~~$4,251,000 for the ~~six~~nine months ended ~~June~~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.

4645

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 17 — BUSINESS SEGMENT INFORMATION

The following table presents the Company’s operating segments. The accounting policies of the reportable segments 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 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 June 30, 2022		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	$	46,239	$	55,854	$	4,172	$	42	$	106,307	Total interest income	$	49,864	$	49,561	$	3,756	$	44	$	103,225
Intersegment interest allocations	Intersegment interest allocations	2,188		(2,079)		(109)		—		—		Intersegment interest allocations	2,606		(2,458)		(148)		—		—
Total interest expense	Total interest expense	3,020		—		—		1,859		4,879		Total interest expense	2,924		—		—		2,031		4,955
Net interest income (expense)	Net interest income (expense)	45,407		53,775		4,063		(1,817)		101,428		Net interest income (expense)	49,546		47,103		3,608		(1,987)		98,270
Credit loss expense (benefit)	Credit loss expense (benefit)	3,120		64		(184)		(99)		2,901		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	42,287		53,711		4,247		(1,718)		98,527		Net interest income after credit loss expense	47,158		47,155		3,373		(2,062)		95,624
Noninterest income	Noninterest income	22,312		15,521		10,309		18		48,160		Noninterest income	6,189		2,941		3,518		20		12,668
Noninterest expense	Noninterest expense	48,385		22,123		17,663		436		88,607		Noninterest expense	48,648		22,896		14,066		1,079		86,689
Net income (loss) before income tax expense	Net income (loss) before income tax expense	$	16,214	$	47,109	$	(3,107)	$	(2,136)	$	58,080	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 June 30, 2021		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	$	47,356	$	44,653	$	2,675	$	4	$	94,688	Total interest income	$	46,175	$	47,222	$	3,295	$	43	$	96,735
Intersegment interest allocations	Intersegment interest allocations	2,723		(2,584)		(139)		—		—		Intersegment interest allocations	2,452		(2,341)		(111)		—		—
Total interest expense	Total interest expense	2,610		—		—		1,796		4,406		Total interest expense	2,073		—		—		2,891		4,964
Net interest income (expense)	Net interest income (expense)	47,469		42,069		2,536		(1,792)		90,282		Net interest income (expense)	46,554		44,881		3,184		(2,848)		91,771
Credit loss expense (benefit)	Credit loss expense (benefit)	(4,335)		2,444		218		(133)		(1,806)		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	51,804		39,625		2,318		(1,659)		92,088		Net interest income after credit loss expense	48,953		43,717		3,146		(2,858)		92,958
Noninterest income	Noninterest income	10,018		2,742		1,083		53		13,896		Noninterest income	7,371		1,557		3,086		41		12,055
Noninterest expense	Noninterest expense	41,860		17,174		10,842		922		70,798		Noninterest expense	41,183		19,106		11,416		1,108		72,813
Net income (loss) before income tax expense	Net income (loss) before income tax expense	$	19,962	$	25,193	$	(7,441)	$	(2,528)	$	35,186	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)
Six months ended June 30, 2022		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	$	88,422	$	112,228	$	9,004	$	88	$	209,742	Total interest income	$	138,286	$	161,789	$	12,760	$	132	$	312,967
Intersegment interest allocations	Intersegment interest allocations	4,045		(3,854)		(191)		—		—		Intersegment interest allocations	6,651		(6,312)		(339)		—		—
Total interest expense	Total interest expense	4,623		—		—		3,612		8,235		Total interest expense	7,547		—		—		5,643		13,190
Net interest income (expense)	Net interest income (expense)	87,844		108,374		8,813		(3,524)		201,507		Net interest income (expense)	137,390		155,477		12,421		(5,511)		299,777
Credit loss expense (benefit)	Credit loss expense (benefit)	250		2,013		170		969		3,402		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	87,594		106,361		8,643		(4,493)		198,105		Net interest income after credit loss expense	134,752		153,516		12,016		(6,555)		293,729
Noninterest income	Noninterest income	28,307		17,392		13,551		31		59,281		Noninterest income	34,496		20,333		17,069		51		71,949
Noninterest expense	Noninterest expense	90,093		43,512		31,996		1,570		167,171		Noninterest expense	138,741		66,408		46,062		2,649		253,860
Net income (loss) before income tax expense	Net income (loss) before income tax expense	$	25,808	$	80,241	$	(9,802)	$	(6,032)	$	90,215	Net income (loss) before income tax expense	$	30,507	$	107,441	$	(16,977)	$	(9,153)	$	111,818

4746

Table of Contents

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


(Dollars in thousands)	(Dollars in thousands)											(Dollars in thousands)
Six months ended June 30, 2021		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	$	97,912	$	80,477	$	4,644	$	8	$	183,041	Total interest income	$	144,087	$	127,699	$	7,939	$	51	$	279,776
Intersegment interest allocations	Intersegment interest allocations	5,665		(5,359)		(306)		—		—		Intersegment interest allocations	8,117		(7,700)		(417)		—		—
Total interest expense	Total interest expense	6,152		—		—		3,587		9,739		Total interest expense	8,225		—		—		6,478		14,703
Net interest income (expense)	Net interest income (expense)	97,425		75,118		4,338		(3,579)		173,302		Net interest income (expense)	143,979		119,999		7,522		(6,427)		265,073
Credit loss expense (benefit)	Credit loss expense (benefit)	(16,788)		6,927		510		(300)		(9,651)		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	114,213		68,191		3,828		(3,279)		182,953		Net interest income after credit loss expense	163,166		111,908		6,974		(6,137)		275,911
Noninterest income	Noninterest income	17,768		9,153		1,156		110		28,187		Noninterest income	25,139		10,710		4,242		151		40,242
Noninterest expense	Noninterest expense	81,314		33,327		14,977		2,072		131,690		Noninterest expense	122,497		52,433		26,393		3,180		204,503
Net income (loss) before income tax expense	Net income (loss) before income tax expense	$	50,667	$	44,017	$	(9,993)	$	(5,241)	$	79,450	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)
June 30, 2022		Banking		Factoring		Payments		Corporate		Eliminations		Consolidated
September 30, 2022														September 30, 2022	Banking		Factoring		Payments		Corporate		Eliminations		Consolidated
Total assets	Total assets	$	5,620,770	$	1,614,369	$	340,357	$	1,024,081	$	(2,644,070)	$	5,955,507	Total assets	$	5,162,380	$	1,406,367	$	354,179	$	1,041,293	$	(2,321,769)	$	5,642,450
Gross loans	Gross loans	$	3,990,481	$	1,450,447	$	145,835	$	—	$	(1,151,397)	$	4,435,366	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

4847

Table of Contents

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, 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, offering a diversified line of payments, factoring and banking services. As of ~~June~~September 30, 2022, we had consolidated total assets of ~~$5.956~~$5.642 billion, total loans held for investment of ~~$4.435~~$4.433 billion, total deposits of ~~$4.781~~$4.441 billion and total stockholders’ equity of ~~$874.3~~$891.2 million.

Through our wholly owned bank subsidiary, TBK Bank, we offer traditional banking services, commercial lending product lines focused on businesses that require specialized financial solutions and national lending product lines that further diversify our lending operations. 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~~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 asset-based lending and equipment lending products are offered on a nationwide 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. Our Banking products and services share basic processes and have similar economic characteristics.

In addition to our traditional banking operations, we also operate a factoring business focused primarily on serving the over-the-road trucking industry. This business involves the provision of working capital to the trucking industry through the purchase of invoices generated by ~~small~~medium to ~~medium~~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 described above. Given its acquisition, this business 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.

4948

Table of Contents

At ~~June~~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 ~~six~~nine months ended ~~June~~September 30, 2022, our Banking segment generated ~~43%~~45% of our total revenue (comprised of interest and noninterest income), our Factoring segment generated ~~48%~~47% of our total revenue, our Payments segment generated 8% of our total revenue, and our Corporate segment generated less than 1% of our total revenue.

~~Second~~Third Quarter 2022 Overview

Net income available to common stockholders for the three months ended ~~June~~September 30, 2022 was ~~$43.4~~$15.4 million, or ~~$1.74~~$0.62 per diluted share, compared to net income to common stockholders for the three months ended ~~June~~September 30, 2021 of ~~$27.2~~$23.6 million, or ~~$1.08~~$0.94 per diluted share. For the three months ended September 30, 2022, our return on average common equity was 7.17% and our return on average assets was 1.13%.

Net income available to common stockholders for the nine months ended September 30, 2022 was $82.3 million, or $3.28 per diluted share, compared to net income available to common stockholders for the nine months ended September 30, 2021 of $83.9 million, or $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 ~~$29.5~~$86.2 million, or ~~$1.17~~$3.42 per diluted share, for the ~~three~~nine months ended ~~June~~September 30, 2021. There were no such adjustment for the nine months ended September 30, 2022. For the ~~three~~nine months ended ~~June~~September 30, 2022, our return on average common equity was ~~20.78%~~13.07% and our return on average assets was ~~3.02%.~~

Net income available to common stockholders for the six months ended June 30, 2022 was $66.9 million, or $2.66 per diluted share, compared to net income available to common stockholders for the six months ended June 30, 2021 of $60.3 million, or $2.39 per diluted share. Excluding material gains and expenses related to merger and acquisition related activities, including divestitures, adjusted net income to common stockholders was $62.6 million, or $2.48 per diluted share, for the six months ended June 30, 2021. For the six months ended June 30, 2022, our return on average common equity was 16.13% and our return on average assets was 2.36%1.95%.

At ~~June~~September 30, 2022, we had total assets of ~~$5.956~~$5.642 billion, including gross loans held for investment of ~~$4.435~~$4.433 billion, compared to $5.956 billion of total assets and $4.868 billion of gross loans held for investment at December 31, 2021. Total loans held for investment decreased ~~$432.2~~$434.3 million during the ~~six~~nine months ended ~~June~~September 30, 2022. Our Banking loans, which constitute ~~64%~~67% of our total loan portfolio at ~~June~~September 30, 2022, decreased from $3.168 billion in aggregate as of December 31, 2021 to ~~$2.839~~$2.984 billion as of ~~June~~September 30, 2022, a decrease of ~~10.4%~~5.8%. Our Factoring factored receivables, which constitute ~~33%~~30% of our total loan portfolio at ~~June~~September 30, 2022, decreased from $1.546 billion in aggregate as of December 31, 2021 to ~~$1.450~~$1.330 billion as of ~~June~~September 30, 2022, a decrease of ~~6.2%~~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% of our total loan portfolio at ~~June~~September 30, 2022, decreased from $153.2 million in aggregate as of December 31, 2021 to ~~$145.8~~$119.0 million as of ~~June~~September 30, 2022, a decrease of ~~4.8%~~22.3%.

At ~~June~~September 30, 2022, we had total liabilities of ~~$5.081~~$4.751 billion, including total deposits of ~~$4.781~~$4.441 billion, compared to $5.097 billion of total liabilities and $4.647 billion of total deposits at December 31, 2021. Deposits ~~increased $134.2~~decreased $205.3 million during the ~~six~~nine months ended ~~June~~September 30, 2022.

At ~~June~~September 30, 2022, we had total stockholders' equity of ~~$874.3~~$891.2 million. During the ~~six~~nine months ended ~~June~~September 30, 2022, total stockholders’ equity increased ~~$15.4~~$32.3 million, primarily due to our net income during the 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 ~~13.04%~~13.64% and ~~15.91%~~16.56%, respectively, at ~~June~~September 30, 2022.

The total dollar value of invoices purchased by Triumph Business Capital during the three months ended ~~June~~September 30, 2022 was ~~$4.024~~$3.600 billion with an average invoice size of ~~$2,332.~~$2,141. The average transportation invoice size for the three months ended ~~June~~September 30, 2022 was ~~$2,176.~~$2,073. This compares to invoice purchase volume of ~~$3.068~~$3.532 billion with an average invoice size of ~~$2,189~~$2,300 and average transportation invoice size of ~~$2,090~~$2,195 during the same period a year ago.

TriumphPay processed ~~4.4~~4.7 million invoices paying Carriers a total of ~~$6.034~~$5.952 billion during the three months ended ~~June~~September 30, 2022. This compares to processed volume of ~~3.2~~3.8 million invoices for a total of ~~$3.427~~$4.191 billion during the same period a year ago.

5049

Table of Contents

2022 Items of Note

Equipment Loan Sale

During the ~~quarter~~three months ended June 30, 2022, we made the decision to sell ~~and closed on the sale of~~ a portfolio of equipment loans. Equipment loans totaling $191.2 million were sold resulting in a gain on sale of loans of $3.9 million.

The gain on sale, net of transaction costs, was included in net gains (losses) on sale of loans in the Company’s Consolidated Statements of Income and was allocated to the Banking segment.

Factored Receivable Disposal Group

During the quarter ended March 31, 2022, we made the decision to sell a portfolio of non-transportation factored receivables, net of customer reserves, (the "Factored Receivable Disposal Group"). As a result, the Factored Receivable Disposal Group was classified as assets and deposits held for sale on the unaudited March 31, 2022 Consolidated Balance Sheet. As the fair value of the Factored Receivable Disposal Group exceeded the corresponding cost basis, the Factored Receivable Disposal Group was classified as held for sale at cost with no impact to earnings except for the reversal of the allowance for credit loss associated with the factored receivables. Factored receivables totaling $80.8 million and customer reserves totaling $10.4 million were transferred to assets held for sale and deposits held for sale, respectively, during the three months ended March 31, 2022. During the three months ended June 30, 2022, Factored Receivable Disposal Group factored receivables totaling $67.9 million and customer reserves totaling $9.7 million were sold resulting in a gain on sale of loans of $13.2 million. During the three months ended September 30, 2022, Factored Receivable Disposal Group factored receivables totaling ~~$24.4~~$20.1 million and customer reserves totaling ~~$1.4~~$1.1 million ~~remain classified as assets held for~~were sold resulting in a gain on sale ~~and deposits held for sale, respectively, at June 30, 2022.~~of loans of $1.0 million.

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

~~Branch Disposal Group~~

During the quarter ended March 31, 2022, we made the decision to sell 15 branches primarily located in rural eastern Colorado and western Kansas (the “Branch Disposal Group”). The gross assets and deposits of the Branch Disposal Group were classified as held for sale on the unaudited March 31, 2022 Consolidated Balance Sheet. During the quarter ended June 30, 2022, there was a change in circumstances and we made the decision to terminate the sale process completely (including all marketing activities) and retain the branches indefinitely. The gross assets and deposits of the Branch Disposal Group were returned to held for investment at their carrying amounts less depreciation and amortization expense that would have been recognized had the disposal group been continuously classified as held for investment.

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

Interest rate swap termination

During the three months ended March 31, 2022, we terminated our single derivative with a notional value totaling $200.0 million, resulting in a termination value of $9.3 million. ~~On May 4,~~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.

~~Table of Contents~~

Although we held less than 20% of the voting stock of WSI, the investment in common stock was initially accounted for using the equity method as our representation on WSI’s board of directors, which was disproportionately larger in size than the common stock investment held, demonstrated that we had significant influence over the investee.

On June 10, 2022, we entered into two separate agreements with WSI. First, we entered into an Affiliate Agreement. The Affiliate Agreement canceled our outstanding warrants in exchange for cancellation of an exclusivity clause included in the original investment agreement executed during 2019. By cancelling the exclusivity clause, our Payments segment operations now have greater ability to operate in the freight shipper audit space. As a result of the Affiliate Agreement, we recognized a total loss on impairment of the warrants of $3.2 million, which represented the full book balance of the warrants on the date the Affiliate Agreement was executed. The impairment loss was included in other noninterest income in the consolidated statements of income during the three and ~~six~~nine months ended ~~June~~September 30, 2022.

Table of Contents

Separately, we also entered into an Amended and Restated Investor Rights Agreement (the “Investor Rights Agreement”). The Investor Rights Agreement eliminated our representation on WSI’s board of directors making us a completely passive investor. The Investor Rights Agreement also provided for our purchase of an additional 10% of WSI’s common stock for $23.0 million raising our ownership of WSI’s common stock to 18%. As a passive investor, we no longer hold significant influence over the investee and the investment in WSI’s common stock no longer qualifies for equity method accounting. The investment in WSI’s common stock is now accounted for as an equity investment without a readily determinable fair value measured under the measurement alternative. The measurement alternative requires us to remeasure our investment in the common stock of WSI only upon the execution of an orderly and observable transaction in an identical or similar instrument.

Our additional investment in WSI under the Investor Rights Agreement resulted in us discontinuing the equity method of accounting and qualified as an orderly and observable transaction for an identical investment in WSI, therefore the fair value of our original 8% common stock investment was required to be adjusted from $4.9 million at March 31, 2022 to $15.1 million, resulting in a gain of $10.2 million that was recorded in other noninterest income in the consolidated statements of income during the three ~~and six~~ months ended June 30, 2022.

The gains and losses associated with this transaction were allocated to the Payments segment.

For further information on the above transactions, see Note 6 – Equity Method Investment in the accompanying condensed notes to the consolidated financial statements included elsewhere in this report.

Stock Repurchase Programs

On February 7, 2022, we announced that our board of directors had authorized us to repurchase up to $50.0 million of our outstanding common stock in open market transactions or through privately negotiated transactions at our discretion. During the three and six months ended June 30, 2022, we repurchased into treasury stock under the stock repurchase program 694,985 shares at an average price of $70.02 for a total of $48.7 million and 709,795 shares at an average price of $70.41 for a total of $50.0 million, respectively, completing this stock repurchase program.

On May 23, 2022, we announced that our board of directors had authorized us to repurchase up to an additional $75.0 million of our outstanding common stock in open market transactions or through privately negotiated transactions at our discretion. The amount, timing and nature of any share repurchases will be based on a variety of factors, including the trading price of our common stock, applicable securities laws restrictions, regulatory limitations and market and economic factors. The repurchase program is authorized for a period of up to one year and does not require us to repurchase any specific number of shares. The repurchase program may be modified, suspended or discontinued at any time, at our discretion. As of ~~June~~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 ~~June~~September 30, 2022.

At ~~June~~September 30, 2022, the carrying value of the acquired over-formula advances was ~~$9.2~~$8.8 million, the total reserve on acquired over-formula advances was ~~$9.2~~$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 ~~$4.4~~$4.2 million.

~~Table of Contents~~

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

Table of Contents

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.

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

Trucking transportation

The ~~second~~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 ~~a slight decline~~continuing slow reduction in ~~over~~freight volume and spot rates. Volume was similar to pre-pandemic years in July and August of 2022, but September did not see the ~~road trucks utilization as slowing of~~usual increase in volume. While spot rates declined, they remained above 2019 numbers and the economy was reflected in the trucking industry. In what is seasonally a strong demand quarter, volumes were steady instead of the uptick usually seen. Spot rates continued a slow decline, but imputed fuel surcharge related to record diesel prices kept average invoice values fairly even with little downward movement in most of May and June.

While shipping rates are declining, there remains near record volumes of ships waiting at U.S. ports, not limited to California ports. The railroads have been metering capacity on certain lanes in an attempt to decongest their networks. This has benefited long-haul trucking segments with cross country volumes still strong in the second quarter. The potential for California port worker and national railroad worker strikes in early third quarter ~~could have~~was a ~~material impact on trucking; however, warehouses are at capacity~~good quarter for freight brokers as the differential between contract rates and ~~for example, Mexican plants were asked to slow production at~~spot rates remained wide. Flat bed truck activity had decreased the most by the end of ~~June.~~

~~The shipping rate decline~~the third quarter, driven by, among other items, fewer housing starts. Refrigerated van volume and rates maintained a 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 ~~muted~~a shift to shorter hauls by ~~rising~~this segment, primarily due to diesel ~~prices. The~~prices not supported within spot ~~market is~~rates and much of the freight has shifted to contract haulers with a ~~real time indicator that re-prices daily and thus, automatically adjusts for~~ fuel ~~costs. With fuel prices remaining elevated for~~surcharge written into the ~~foreseeable future, we expect average invoice sizes to stay close to current levels, but we could see volumes decrease if the environment becomes more recessionary.~~

~~COVID-19~~

Significant progress has been made to combat the outbreak of COVID-19; however, the global pandemic 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.

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 June 30, 2022, if there is a resurgence in the virus, the Company could experience further adverse effects on its business, financial condition, results of operations and cash flows. While it is not possible to know the full universe or extent that the impact ofload tenders.

~~Table of Contents~~

~~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.~~

~~Allowance for credit losses~~

Improving conditions around COVID-19 had an impact on our allowance for credit losses ("ACL") throughout the prior year as we experienced a decline in required reserves over that period. Pertaining to our June 30, 2022 financial condition and year to date results of operations, COVID-19 had little direct impact on required ACL levels. We have not yet experienced material charge-offs related to COVID-19. Our ACL calculation, and resulting provision for credit losses, are significantly impacted by changes in forecasted economic conditions. 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. It is possible that our asset quality measures could worsen at future measurement periods if the effects of COVID-19 are prolonged.

~~Capital and liquidity~~

As of June 30, 2022, all of our capital ratios, and our subsidiary bank’s capital ratios, were in excess of all regulatory requirements. While we believe that we have sufficient capital to withstand an economic recession brought about by a resurgence in COVID-19 and/or resulting impacts of efforts used to curtail its spread, our reported and regulatory capital ratios could be adversely impacted by further credit loss expense. We rely on cash on hand as well as dividends from our subsidiary bank to service our debt. If our capital deteriorates such that our subsidiary bank is unable to pay dividends to us for an extended period of time, we may not be able to service our debt.

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

~~Credit~~

While all industries experienced adverse impacts as a result of COVID-19 virus, we had no material exposure to loan categories that management considered to be "at-risk" of significant impact as of March 31, 2022.

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

5452

Table of Contents

Financial Highlights


		Three Months Ended June 30,						Six Months Ended June 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)	2022			2021			2022			2021			(Dollars in thousands, except per share amounts)	2022			2021			2022			2021
Income Statement Data:	Income Statement Data:													Income Statement Data:
Interest income	Interest income	$	106,307		$	94,688		$	209,742		$	183,041		Interest income	$	103,225		$	96,735		$	312,967		$	279,776
Interest expense	Interest expense	4,879			4,406			8,235			9,739			Interest expense	4,955			4,964			13,190			14,703
Net interest income	Net interest income	101,428			90,282			201,507			173,302			Net interest income	98,270			91,771			299,777			265,073
Credit loss expense (benefit)	Credit loss expense (benefit)	2,901			(1,806)			3,402			(9,651)			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)	98,527			92,088			198,105			182,953			Net interest income after credit loss expense (benefit)	95,624			92,958			293,729			275,911

Noninterest income	Noninterest income	48,160			13,896			59,281			28,187			Noninterest income	12,668			12,055			71,949			40,242
Noninterest expense	Noninterest expense	88,607			70,798			167,171			131,690			Noninterest expense	86,689			72,813			253,860			204,503
Net income (loss) before income taxes	Net income (loss) before income taxes	58,080			35,186			90,215			79,450			Net income (loss) before income taxes	21,603			32,200			111,818			111,650
Income tax expense (benefit)	Income tax expense (benefit)	13,888			7,204			21,694			17,545			Income tax expense (benefit)	5,374			7,771			27,068			25,316
Net income (loss)	Net income (loss)	$	44,192		$	27,982		$	68,521		$	61,905		Net income (loss)	$	16,229		$	24,429		$	84,750		$	86,334
Dividends on preferred stock	Dividends on preferred stock	(802)			(802)			(1,603)			(1,603)			Dividends on preferred stock	(801)			(802)			(2,404)			(2,405)
Net income available (loss) to common stockholders	Net income available (loss) to common stockholders	$	43,390		$	27,180		$	66,918		$	60,302		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	$	1.78		$	1.10		$	2.72		$	2.44		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	$	1.74		$	1.08		$	2.66		$	2.39		Diluted earnings (loss) per common share	$	0.62		$	0.94		$	3.28		$	3.33
Weighted average shares outstanding - basic	Weighted average shares outstanding - basic	24,427,270			24,724,128			24,612,988			24,699,754			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	24,866,573			25,209,007			25,122,985			25,193,041			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	$	1.74		$	1.17		$	2.66		$	2.48		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	24,866,573			25,209,007			25,122,985			25,193,041			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	3.02		%	1.84		%	2.36		%	2.06		%	Return on average assets	1.13		%	1.61		%	1.95		%	1.91		%
Return on average total equity	Return on average total equity	20.08		%	14.27		%	15.67		%	16.28		%	Return on average total equity	7.16		%	11.85		%	12.77		%	14.72		%
Return on average common equity	Return on average common equity	20.78		%	14.70		%	16.13		%	16.85		%	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)	30.63		%	20.92		%	23.91		%	23.52		%	Return on average tangible common equity (1)	10.47		%	19.21		%	19.28		%	22.12		%
Yield on loans(2)	Yield on loans(2)	8.79		%	7.77		%	8.69		%	7.51		%	Yield on loans(2)	8.95		%	7.92		%	8.77		%	7.65		%
Cost of interest bearing deposits	Cost of interest bearing deposits	0.41		%	0.31		%	0.32		%	0.36		%	Cost of interest bearing deposits	0.41		%	0.27		%	0.35		%	0.33		%
Cost of total deposits	Cost of total deposits	0.23		%	0.20		%	0.19		%	0.24		%	Cost of total deposits	0.24		%	0.16		%	0.20		%	0.21		%
Cost of total funds	Cost of total funds	0.40		%	0.34		%	0.34		%	0.38		%	Cost of total funds	0.42		%	0.38		%	0.36		%	0.38		%
Net interest margin(2)	Net interest margin(2)	7.68		%	6.47		%	7.68		%	6.27		%	Net interest margin(2)	7.71		%	6.69		%	7.69		%	6.41		%
Efficiency ratio	Efficiency ratio	59.23		%	67.96		%	64.10		%	65.36		%	Efficiency ratio	78.14		%	70.13		%	68.29		%	66.98		%
Adjusted efficiency ratio (1)	Adjusted efficiency ratio (1)	59.23		%	65.09		%	64.10		%	63.87		%	Adjusted efficiency ratio (1)	78.14		%	70.13		%	68.29		%	66.00		%
Net noninterest expense to average assets	Net noninterest expense to average assets	2.76		%	3.75		%	3.71		%	3.45		%	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)	2.76		%	3.55		%	3.71		%	3.35		%	Adjusted net noninterest expense to average assets (1)	5.15		%	4.00		%	4.19		%	3.57		%

5553

Table of Contents


(Dollars in thousands, except per share amounts)	(Dollars in thousands, except per share amounts)	June 30, 2022			December 31, 2021			(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	$	5,955,507		$	5,956,250		Total assets	$	5,642,450		$	5,956,250
Cash and cash equivalents	Cash and cash equivalents	724,237			383,178			Cash and cash equivalents	421,729			383,178
Investment securities	Investment securities	225,294			192,877			Investment securities	247,499			192,877
Loans held for investment, net	Loans held for investment, net	4,391,959			4,825,359			Loans held for investment, net	4,389,193			4,825,359
Total liabilities	Total liabilities	5,081,226			5,097,386			Total liabilities	4,751,277			5,097,386
Noninterest bearing deposits	Noninterest bearing deposits	2,085,249			1,925,370			Noninterest bearing deposits	1,897,309			1,925,370
Interest bearing deposits	Interest bearing deposits	2,695,675			2,721,309			Interest bearing deposits	2,544,045			2,721,309
FHLB advances	FHLB advances	30,000			180,000			FHLB advances	30,000			180,000
Paycheck Protection Program Liquidity Facility	Paycheck Protection Program Liquidity Facility	—			27,144			Paycheck Protection Program Liquidity Facility	—			27,144
Subordinated notes	Subordinated notes	107,377			106,957			Subordinated notes	107,587			106,957
Junior subordinated debentures	Junior subordinated debentures	40,876			40,602			Junior subordinated debentures	41,016			40,602
Total stockholders’ equity	Total stockholders’ equity	874,281			858,864			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	829,281			813,864			Common stockholders' equity	846,173			813,864

Per Share Data:	Per Share Data:							Per Share Data:
Book value per share	Book value per share	$	33.91		$	32.35		Book value per share	$	34.57		$	32.35
Tangible book value per share (1)	Tangible book value per share (1)	$	22.84		$	21.34		Tangible book value per share (1)	$	23.60		$	21.34
Shares outstanding end of period	Shares outstanding end of period	24,457,777			25,158,879			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	2.47		%	2.86		%	Past due to total loans	2.33		%	2.86		%
Nonperforming loans to total loans	Nonperforming loans to total loans	0.95		%	0.95		%	Nonperforming loans to total loans	1.26		%	0.95		%
Nonperforming assets to total assets	Nonperforming assets to total assets	0.83		%	0.92		%	Nonperforming assets to total assets	1.11		%	0.92		%
ACL to nonperforming loans	ACL to nonperforming loans	103.51		%	91.20		%	ACL to nonperforming loans	78.88		%	91.20		%
ACL to total loans	ACL to total loans	0.98		%	0.87		%	ACL to total loans	0.99		%	0.87		%
Net charge-offs to average loans(4)	Net charge-offs to average loans(4)	0.04		%	0.95		%	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	11.76		%	11.11		%	Tier 1 capital to average assets	12.57		%	11.11		%
Tier 1 capital to risk-weighted assets	Tier 1 capital to risk-weighted assets	13.04		%	11.51		%	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	11.35		%	9.94		%	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	15.91		%	14.10		%	Total capital to risk-weighted assets	16.56		%	14.10		%
Total stockholders' equity to total assets	Total stockholders' equity to total assets	14.68		%	14.42		%	Total stockholders' equity to total assets	15.79		%	14.42		%
Tangible common stockholders' equity ratio (1)	Tangible common stockholders' equity ratio (1)	9.83		%	9.46		%	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.

5654

Table of Contents

•"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 June 30,				Six Months Ended June 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)	2022		2021		2022		2021		(Dollars in thousands, except per share amounts)	2022		2021		2022		2021
Loan discount accretion	Loan discount accretion	$	3,556	$	2,161	$	5,092	$	5,662	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 ~~six~~nine months ended ~~June~~September 30, 2022 and the year ended December 31, 2021.

5755

Table of Contents

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 June 30,						Six Months Ended June 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)	2022			2021			2022			2021			(Dollars in thousands, except per share amounts)	2022			2021			2022			2021
Net income available to common stockholders	Net income available to common stockholders	$	43,390		$	27,180		$	66,918		$	60,302		Net income available to common stockholders	$	15,428		$	23,627		$	82,346		$	83,929
Transaction costs	Transaction costs	—			2,992			—			2,992			Transaction costs	—			—			—			2,992

Tax effect of adjustments	Tax effect of adjustments	—			(715)			—			(715)			Tax effect of adjustments	—			—			—			(715)
Adjusted net income available to common stockholders	Adjusted net income available to common stockholders	$	43,390		$	29,457		$	66,918		$	62,579		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	24,866,573			25,209,007			25,122,985			25,193,041			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	$	1.74		$	1.17		$	2.66		$	2.48		Adjusted diluted earnings per common share	$	0.62		$	0.94		$	3.28		$	3.42

Average total stockholders' equity	Average total stockholders' equity	$	882,505		$	786,404		$	881,732		$	766,736		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)			(45,000)			Average preferred stock liquidation preference	(45,000)			(45,000)			(45,000)			(45,000)
Average total common stockholders' equity	Average total common stockholders' equity	837,505			741,404			836,732			721,736			Average total common stockholders' equity	853,845			773,022			842,497			739,019
Average goodwill and other intangibles	Average goodwill and other intangibles	(269,319)			(220,310)			(272,332)			(204,732)			Average goodwill and other intangibles	(269,417)			(284,970)			(271,350)			(231,751)
Average tangible common equity	Average tangible common equity	$	568,186		$	521,094		$	564,400		$	517,004		Average tangible common equity	$	584,428		$	488,052		$	571,147		$	507,268

Net income available to common stockholders	Net income available to common stockholders	$	43,390		$	27,180		$	66,918		$	60,302		Net income available to common stockholders	$	15,428		$	23,627		$	82,346		$	83,929
Average tangible common equity	Average tangible common equity	568,186			521,094			564,400			517,004			Average tangible common equity	584,428			488,052			571,147			507,268
Return on average tangible common equity	Return on average tangible common equity	30.63		%	20.92		%	23.91		%	23.52		%	Return on average tangible common equity	10.47		%	19.21		%	19.28		%	22.12		%

Efficiency ratio:
Adjusted efficiency ratio:														Adjusted efficiency ratio:
Net interest income	Net interest income	$	101,428		$	90,282		$	201,507		$	173,302		Net interest income	$	98,270		$	91,771		$	299,777		$	265,073
Noninterest income	Noninterest income	48,160			13,896			59,281			28,187			Noninterest income	12,668			12,055			71,949			40,242
Operating revenue	Operating revenue	149,588			104,178			260,788			201,489			Operating revenue	110,938			103,826			371,726			305,315

Total noninterest expense	Total noninterest expense	$	88,607		$	70,798		$	167,171		$	131,690		Total noninterest expense	$	86,689		$	72,813		$	253,860		$	204,503
Transaction costs	Transaction costs	—			(2,992)			—			(2,992)			Transaction costs	—			—			—			(2,992)
Adjusted noninterest expense	Adjusted noninterest expense	$	88,607		$	67,806		$	167,171		$	128,698		Adjusted noninterest expense	$	86,689		$	72,813		$	253,860		$	201,511
Efficiency ratio		59.23		%	65.09		%	64.10		%	63.87		%
Adjusted efficiency ratio														Adjusted efficiency ratio	78.14		%	70.13		%	68.29		%	66.00		%

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	$	88,607		$	70,798		$	167,171		$	131,690		Total noninterest expense	$	86,689		$	72,813		$	253,860		$	204,503
Transaction costs	Transaction costs	—			(2,992)			—			(2,992)			Transaction costs	—			—			—			(2,992)
Adjusted noninterest expense	Adjusted noninterest expense	88,607			67,806			167,171			128,698			Adjusted noninterest expense	86,689			72,813			253,860			201,511
Total noninterest income	Total noninterest income	48,160			13,896			59,281			28,187			Total noninterest income	12,668			12,055			71,949			40,242

Net noninterest expenses	Net noninterest expenses	$	40,447		$	53,910		$	107,890		$	100,511		Net noninterest expenses	$	74,021		$	60,758		$	181,911		$	161,269
Average total assets	Average total assets	$	5,878,320		$	6,093,805		$	5,860,916		$	6,053,826		Average total assets	$	5,700,547		$	6,020,631		$	5,806,933		$	6,042,677
Net noninterest expense to average assets ratio		2.76		%	3.55		%	3.71		%	3.35		%
Adjusted net noninterest expense to average assets ratio														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)	June 30, 2022			December 31, 2021			(Dollars in thousands, except per share amounts)	September 30, 2022			December 31, 2021
Total stockholders' equity	Total stockholders' equity	$	874,281		$	858,864		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	829,281			813,864			Total common stockholders' equity	846,173			813,864
Goodwill and other intangibles	Goodwill and other intangibles	(270,666)			(276,856)			Goodwill and other intangibles	(268,604)			(276,856)
Tangible common stockholders' equity	Tangible common stockholders' equity	$	558,615		$	537,008		Tangible common stockholders' equity	$	577,569		$	537,008
Common shares outstanding	Common shares outstanding	24,457,777			25,158,879			Common shares outstanding	24,478,288			25,158,879
Tangible book value per share	Tangible book value per share	$	22.84		$	21.34		Tangible book value per share	$	23.60		$	21.34

Total assets at end of period	Total assets at end of period	$	5,955,507		$	5,956,250		Total assets at end of period	$	5,642,450		$	5,956,250
Goodwill and other intangibles	Goodwill and other intangibles	(270,666)			(276,856)			Goodwill and other intangibles	(268,604)			(276,856)
Tangible assets at period end	Tangible assets at period end	$	5,684,841		$	5,679,394		Tangible assets at period end	$	5,373,846		$	5,679,394
Tangible common stockholders' equity ratio	Tangible common stockholders' equity ratio	9.83		%	9.46		%	Tangible common stockholders' equity ratio	10.75		%	9.46		%

Results of Operations

Three months ended ~~June~~September 30, 2022 compared with three months ended ~~June~~September 30, 2021.

~~Net Income~~

~~We earned net income of $44.2 million for the three months ended June 30, 2022 compared to net income of $28.0 million for the three months ended June 30, 2021, an increase of $16.2 million.~~

The results for the three months ended June 30, 2021 were impacted by $3.0 million of transaction costs associated with the HubTran acquisition reported as noninterest expense. Excluding the transaction costs, net of taxes, we earned adjusted net income of $30.3 million for the three months ended June 30, 2021. There were no such adjustments during the three months ended June 30, 2022. The adjusted increase in net income for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 totaled $13.9 million and was driven by a $34.4 million increase in noninterest income and an $11.1 million increase in net interest income offset by an adjusted $20.8 million increase in noninterest expense, an adjusted $6.1 million increase in income tax expense and an increase of $4.7 million in credit loss expense.

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

~~Net Interest Income~~

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

~~Table of Contents~~

The following table presents the distribution of average assets, liabilities and equity, as well as interest income and fees earned on average interest earning assets and interest expense paid on average interest bearing liabilities. Average balances and interest are inclusive of assets and deposits classified as held for sale.

Three Months Ended June 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 343,210 787 0.92 % 572,485 158 0.11 %
Taxable securities 174,489 1,237 2.84 % 165,786 967 2.34 %
Tax-exempt securities 14,378 92 2.57 % 33,451 220 2.64 %
FHLB and other restricted stock 12,526 34 1.09 % 9,518 27 1.14 %
Loans (1)
4,753,893 104,157 8.79 % 4,814,050 93,316 7.77 %
Total interest earning assets 5,298,496 106,307 8.05 % 5,595,290 94,688 6.79 %
Noninterest earning assets:
Cash and cash equivalents 91,882 78,132
Other noninterest earning assets 487,942 420,383
Total assets 5,878,320 6,093,805
Interest bearing liabilities:
Deposits:
Interest bearing demand 874,503 536 0.25 % 757,529 469 0.25 %
Individual retirement accounts 81,678 106 0.52 % 88,142 143 0.65 %
Money market 545,508 280 0.21 % 398,290 216 0.22 %
Savings 516,924 201 0.16 % 468,517 178 0.15 %
Certificates of deposit 461,280 550 0.48 % 664,478 1,157 0.70 %
Brokered time deposits 101,270 302 1.20 % 138,102 51 0.15 %
Other brokered deposits 89,714 731 3.27 % 685,397 256 0.15 %
Total interest bearing deposits 2,670,877 2,706 0.41 % 3,200,455 2,470 0.31 %
Federal Home Loan Bank advances 155,549 316 0.81 % 39,341 22 0.22 %
Subordinated notes 107,263 1,302 4.87 % 87,590 1,350 6.18 %
Junior subordinated debentures 40,802 556 5.47 % 40,251 446 4.44 %
Other borrowings 5,844 (1) (0.07) % 138,649 118 0.34 %
Total interest bearing liabilities 2,980,335 4,879 0.66 % 3,506,286 4,406 0.50 %
Noninterest bearing liabilities and equity:
Noninterest bearing demand deposits 1,951,725 1,749,858
Other liabilities 63,755 51,257
Total equity 882,505 786,404
Total liabilities and equity 5,878,320 6,093,805
Net interest income 101,428 90,282
Interest spread (2)
7.39 % 6.29 %
Net interest margin (3)
7.68 % 6.47 %

~~(1)Balance totals include respective nonaccrual assets.~~

~~(2)Net interest spread is the yield on average interest earning assets less the rate on interest bearing liabilities.~~

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

~~(4)Ratios have been annualized.~~

~~Table of Contents~~

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

Three Months Ended June 30,
(Dollars in thousands) 2022 2021
Average Banking loans $ 3,014,573 $ 3,516,747
Average Factoring receivables 1,576,208 1,195,209
Average Payments receivables 163,112 102,094
Average total loans $ 4,753,893 $ 4,814,050
Banking yield 5.87 % 5.25 %
Factoring yield 14.21 % 14.99 %
Payments yield 10.26 % 10.51 %
Total loan yield 8.79 % 7.77 %

We earned net interest income of $101.4 million for the three months ended June 30, 2022 compared to $90.3 million for the three months ended June 30, 2021, an increase of $11.1 million, or 12.3%, primarily driven by the following factors.

Interest income increased $11.6 million, or 12.3%, in spite of a decrease in average interest earning assets of $296.8 million, or 5.3%, and a decrease in average total loans of $60.2 million, or 1.2%. The average balance of our higher yielding Factoring factored receivables increased $381.0 million, or 31.9%, driving the majority of the increase in interest income along with an increase in average Payments factored receivables. This was partially offset by a decrease in average Banking loans of $502.2 million, or 14.3% due to decreases in the average balances of all Banking loan types except for general commercial and asset based lending. Interest income from our Banking loans is impacted by our lower yielding mortgage warehouse lending product. The average mortgage warehouse lending balance was $651.4 million for the three months ended June 30, 2022 compared to $789.0 million for the three months ended June 30, 2021. Further, included in our Banking loans were PPP loans with a carrying amounts of $4.5 million and $135.3 million at June 30, 2022 and June 30, 2021, respectively. A component of interest income consists of discount accretion on acquired loan portfolios and acquired liquid credit. We recognized discount accretion on purchased loans of $3.6 million and $2.2 million for the three months ended June 30, 2022 and 2021, respectively.

Interest expense increased $0.5 million, or 10.7%, despite a decrease in average interest-bearing liabilities. More specifically, average total interest bearing deposits decreased $529.6 million, or 16.5%. Average noninterest bearing demand deposits grew $201.9 million. The increase in interest expense was driven by higher average rates discussed below.

~~Net interest margin increased to 7.68% for the three months ended June 30, 2022 from 6.47% for the three months ended June 30, 2021, an increase of 121 basis points or 18.7%.~~

The increase in our net interest margin was impacted by an increase in our yield on interest earning assets of 126 basis points to 8.05% for the three months ended June 30, 2022. This increase was primarily driven by higher yields on loans which increased 102 basis points to 8.79% for the same period. Factoring yield decreased period over period; however, average Factoring factored receivables as a percentage of the total loan portfolio increased significantly which had a meaningful upward impact on total loan yield. Our transportation factoring balances, which generally generate a higher yield than our non-transportation factoring balances, were 95% and 91% of our Factoring portfolio at June 30, 2022 and 2021, respectively. Banking yields also increased period over period while Payments yields decreased. Non-loan yields had little impact on our yield on interest earning assets.

The increase in our net interest margin was also impacted by an increase in our average cost of interest bearing liabilities of 16 basis points. This increase in average cost was caused by generally higher 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
June 30, 2022 vs. 2021
Increase (Decrease) Due to:
(Dollars in thousands) Rate Volume Net Increase
Interest earning assets:
Cash and cash equivalents $ 1,155 $ (526) $ 629
Taxable securities 208 62 270
Tax-exempt securities (6) (122) (128)
FHLB and other restricted stock (1) 8 7
Loans 12,159 (1,318) 10,841
Total interest income 13,515 (1,896) 11,619
Interest bearing liabilities:
Interest bearing demand (5) 72 67
Individual retirement accounts (29) (8) (37)
Money market (12) 76 64
Savings 4 19 23
Certificates of deposit (365) (242) (607)
Brokered time deposits 361 (110) 251
Other brokered deposits 5,329 (4,854) 475
Total interest bearing deposits 5,283 (5,047) 236
Federal Home Loan Bank advances 58 236 294
Subordinated notes (287) 239 (48)
Junior subordinated debentures 102 8 110
Other borrowings (142) 23 (119)
Total interest expense 5,014 (4,541) 473
Change in net interest income $ 8,501 $ 2,645 $ 11,146

~~Credit Loss Expense~~

Credit loss expense is the amount of expense that, based on our judgment, is required to maintain the allowances for credit losses (“ACL”) at an appropriate level under the current expected credit loss model. The determination of the amount of the allowance is complex and involves a high degree of judgment and subjectivity. Refer to Note 1 of the Company’s 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:~~

Three Months Ended June 30,
(Dollars in thousands) 2022 2021 $ Change % Change
Credit loss expense (benefit) on loans $ 2,069 $ (1,967) $ 4,036 205.2 %
Credit loss expense (benefit) on off balance sheet credit exposures 932 293 639 218.1 %
Credit loss expense (benefit) on held to maturity securities (100) (132) 32 24.2 %
Credit loss expense on available for sale securities — — — —
Total credit loss expense (benefit) $ 2,901 $ (1,806) $ 4,707 260.6 %

~~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 June 30, 2022 and March 31, 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 three months ended June 30, 2022. 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 June 30, 2022 and December 31, 2021, the Company’s held to maturity securities consisted of three investments in the subordinated notes of collateralized loan obligation (“CLO”) funds. Expected credit losses for these securities are estimated using a discounted cash flow methodology which considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. At June 30, 2022 and March 31, 2022, the Company carried $6.7 million and $6.9 million of these HTM securities at amortized cost, respectively. The required ACL on these balances was $2.4 million at June 30, 2022 and $2.5 million at March 31, 2022 resulting in a benefit to credit loss expense of $0.1 million during the current quarter. Credit loss expense during the three months ended June 30, 2021 was a benefit of $0.1 million. None of the overcollateralization triggers tied to the CLO securities were tripped as of June 30, 2022. Ultimately, the realized cash flows on CLO securities such as these will be driven by a variety of factors, including credit performance of the underlying loan portfolio, adjustments to the portfolio by the asset manager, and the timing of a potential call.

~~Our ACL on loans was $43.4 million as of June 30, 2022, compared to $42.2 million as of December 31, 2021, representing an ACL to total loans ratio of 0.98% and 0.87% respectively.~~

~~Our credit loss expense on loans increased $4.0 million, or 205.2%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021.~~

During the three months ended June 30, 2022, we decreased our reserve on Over-Formula Advance clients reflecting payment made during the quarter. This resulted in a benefit to credit loss expense of $0.4 million. We continue to reserve the full balance of the Over-Formula Advance clients at June 30, 2022 which totals $9.2 million.

The increased credit loss expense was primarily the result of projected improvement of the loss drivers that the Company forecasted over the reasonable and supportable forecast period to calculate expected losses at June 30, 2021 which resulted in a benefit to credit loss expense of $1.8 million for the three months ended June 30, 2021. During the three months ended June 30, 2022 the Company forecasted some deterioration in the loss factors as well as slower prepayment speeds which resulted in credit loss expense of $2.6 million. See further discussion in the allowance for credit loss section below.

The increased credit loss expense was also driven by changes in net new specific reserves (including reserves on Over-Formula Advances) which resulted in $1.4 million and $0.7 million of credit loss expense for the three months ended June 30, 2022 and 2021, respectively.

Changes in loan volume and mix resulted in a benefit to credit loss expense of $1.6 million during the three months ended June 30, 2022 compared to a benefit of $0.7 during the same period a year prior.

Net charge-offs were $0.2 million for the three months ended June 30, 2022 and approximately $0.5 million of the gross charge-off balance had been reserved in a prior period. Net charge-offs were $0.4 million for the three months ended June 30, 2021 and approximately $0.5 million of the gross charge-off balance had been reserved in a prior period.

Credit loss expense for off balance sheet credit exposures increased $0.6 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.

~~Table of Contents~~

~~Noninterest Income~~

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

Three Months Ended June 30,
(Dollars in thousands) 2022 2021 $ Change % Change
Service charges on deposits $ 1,664 $ 1,857 $ (193) (10.4) %
Card income 2,080 2,225 (145) (6.5) %
Net OREO gains (losses) and valuation adjustments 18 (287) 305 106.3 %
Net gains (losses) on sale or call of securities 2,514 1 2,513 N/M
Net gains (losses) on sale of loans 17,269 1,019 16,250 1,594.7 %
Fee income 6,273 4,470 1,803 40.3 %
Insurance commissions 1,346 1,272 74 5.8 %
Other 16,996 3,339 13,657 409.0 %
Total noninterest income $ 48,160 $ 13,896 $ 34,264 246.6 %

~~Noninterest income increased $34.3 million, or 246.6%. 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 three months ended June 30, 2022.~~

•~~Net gains (losses) on sale of loans.~~ Net gains (losses) on sale of loans increased $16.3 million due to the aforementioned gain on sale of factored receivables of $13.2 million and gain on sale of equipment loans of $3.9 million during the three months ended June 30, 2022.

•~~Fee income~~. Fee income increased $1.8 million, or 40.3%, due to a $2.3 million increase in payment fees earned by TriumphPay during the three months ended June 30, 2022 compared to the same period a year ago. The fees were primarily a result of the acquired operations of HubTran during June of the prior year. Additionally, wire fees increased $0.5 million period over period. These increases were partially offset by a combined $1.2 million of early termination fees charged to two customers during the three months ended June 30, 2021 that did not repeat during the current year. There were no other significant changes within the components of fee income.

•~~Other.~~ Other noninterest income increased $13.7 million, or 409.0%, primarily due to a gain of $8.9 million on the aforementioned termination of an interest rate swap recognized during the three months ended June 30, 2022. During that same period, we recognized a net gain of $7.0 million on the aforementioned termination of WSI warrants and additional investment in WSI common stock. These increases were partially offset by a $1.5 million recovery during the three months ended June 30, 2021 on an acquired loan that was charged off prior to our acquisition of the originating bank. There were no other significant changes within the components of other noninterest income.

~~Table of Contents~~

~~Noninterest Expense~~

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

Three Months Ended June 30,
(Dollars in thousands) 2022 2021 $ Change % Change
Salaries and employee benefits $ 54,257 $ 41,658 $ 12,599 30.2 %
Occupancy, furniture and equipment 6,507 6,112 395 6.5 %
FDIC insurance and other regulatory assessments 382 500 (118) (23.6) %
Professional fees 3,607 5,052 (1,445) (28.6) %
Amortization of intangible assets 3,064 2,428 636 26.2 %
Advertising and promotion 1,785 1,241 544 43.8 %
Communications and technology 9,820 6,028 3,792 62.9 %
Travel and entertainment 1,423 960 463 48.2 %
Other 7,762 6,819 943 13.8 %
Total noninterest expense $ 88,607 $ 70,798 $ 17,809 25.2 %

Noninterest expense increased $17.8 million, or 25.2%. Noninterest expense for the three months ended June 30, 2021 was impacted by $3.0 million of transaction costs associated with the HubTran acquisition. Excluding the HubTran acquisition costs, we incurred adjusted noninterest expense of $67.8 million for the three months ended June 30, 2021, resulting in an adjusted increase in noninterest expense of $20.8 million, or 30.7%, period over period. Details of the more significant changes in the various components of noninterest expense are further discussed below.

•~~Salaries and Employee Benefits.~~ Salaries and employee benefits expenses increased $12.6 million, or 30.2%, which is primarily due to merit increases for existing employees, higher health insurance benefit costs, incentive compensation, and 401(k) expense. The size of our workforce increased period over period due in part due to the acquisition of HubTran, but also organic growth within the Company. Our average full-time equivalent employees were 1,365.3 and 1,190.5 for the three months ended June 30, 2022 and 2021, respectively. Further, accruals for bonus expense were $2.0 million higher period over period reflecting strong operating results through the first half of 2022 and stock based compensation expense increased $4.5 million period over period. Additionally, compensation paid to temporary contract labor increased $1.6 million period over period. Sales commissions, primarily related to our operations at Triumph Business Capital and TriumphPay, decreased $0.8 million period over period.

•~~Professional Fees~~. Professional fees decreased $1.4 million, or 28.6%, primarily due to a $3.0 million of transaction costs associated with the acquisition of HubTran during 2021 offset by the professional fees paid on the equipment loan and factored receivable sales during the three months ended June 30, 2022.

•~~Amortization of Intangible Assets. Amortization of intangible assets increased $0.6 million, or 26.2%, primarily due to the additional intangibles recorded through the acquisition of HubTran during June 2021.~~

•~~Advertising and Promotion. Advertising and promotion increased $0.5 million, or 43.8%, primarily due increased activity in this area period over period.~~

•~~Communication and Technology.~~ Communication and technology increased $3.8 million, or 62.9%, primarily as a result of increased spending on IT consulting and IT license and software maintenance to develop efficiency in our operations and improve the functionality of the TriumphPay platform period over period.

•~~Other.~~ Other noninterest expense includes loan-related expenses, software amortization, training and recruiting, postage, insurance, and subscription services. Other noninterest expense increased $0.9 million, or 13.8% despite a $0.8 million decrease in other loan related expenses period over period. There were no other significant increases or decreases in the individual components of other noninterest expense period over period.

~~Income Taxes~~

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

~~Table of Contents~~

Income tax expense increased $6.7 million, from $7.2 million for the three months ended June 30, 2021 to $13.9 million for the three months ended June 30, 2022. The effective tax rate was 24% for the three months ended June 30, 2022, compared to 20% for the three months ended June 30, 2021. The prior period effective tax rate was impacted by restricted stock and stock option activity as well as amended return benefit.

~~Operating Segment Results~~

Our reportable segments are Banking, Factoring, Payments, and Corporate, which have been determined based upon their business processes and economic characteristics. This determination also gave consideration to the structure and management of various product lines. The Banking segment includes the operations of TBK Bank. Our Banking segment derives its revenue principally from investments in interest earning assets as well as noninterest income typical for the banking industry. The Factoring segment includes the operations of Triumph Business Capital with revenue derived from factoring services. The Payments segment includes the operations of the TBK Bank's TriumphPay division, which provides a presentment, audit, and payment solution to Shipper, 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 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 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 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.

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

(Dollars in thousands)
Three Months Ended June 30, 2022 Banking Factoring Payments Corporate Consolidated
Total interest income $ 46,239 $ 55,854 $ 4,172 $ 42 $ 106,307
Intersegment interest allocations 2,188 (2,079) (109) — —
Total interest expense 3,020 — — 1,859 4,879
Net interest income (expense) 45,407 53,775 4,063 (1,817) 101,428
Credit loss expense (benefit) 3,120 64 (184) (99) 2,901
Net interest income after credit loss expense 42,287 53,711 4,247 (1,718) 98,527
Noninterest income 22,312 15,521 10,309 18 48,160
Noninterest expense 48,385 22,123 17,663 436 88,607
Net income (loss) before income tax expense $ 16,214 $ 47,109 $ (3,107) $ (2,136) $ 58,080

~~Table of Contents~~

(Dollars in thousands)
Three Months Ended June 30, 2021 Banking Factoring Payments Corporate Consolidated
Total interest income $ 47,356 $ 44,653 $ 2,675 $ 4 $ 94,688
Intersegment interest allocations 2,723 (2,584) (139) — —
Total interest expense 2,610 — — 1,796 4,406
Net interest income (expense) 47,469 42,069 2,536 (1,792) 90,282
Credit loss expense (benefit) (4,335) 2,444 218 (133) (1,806)
Net interest income after credit loss expense 51,804 39,625 2,318 (1,659) 92,088
Noninterest income 10,018 2,742 1,083 53 13,896
Noninterest expense 41,860 17,174 10,842 922 70,798
Net income (loss) before income tax expense $ 19,962 $ 25,193 $ (7,441) $ (2,528) $ 35,186

(Dollars in thousands)
June 30, 2022 Banking Factoring Payments Corporate Eliminations Consolidated
Total assets $ 5,620,770 $ 1,614,369 $ 340,357 $ 1,024,081 $ (2,644,070) $ 5,955,507
Gross loans $ 3,990,481 $ 1,450,447 $ 145,835 $ — $ (1,151,397) $ 4,435,366
(Dollars in thousands)
December 31, 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) Three Months Ended June 30,
Banking 2022 2021 $ Change % Change
Total interest income $ 46,239 $ 47,356 $ (1,117) (2.4) %
Intersegment interest allocations 2,188 2,723 (535) (19.6) %
Total interest expense 3,020 2,610 410 15.7 %
Net interest income (expense) 45,407 47,469 (2,062) (4.3) %
Credit loss expense (benefit) 3,120 (4,335) 7,455 172.0 %
Net interest income after credit loss expense 42,287 51,804 (9,517) (18.4) %
Other noninterest income 22,312 10,018 12,294 122.7 %
Noninterest expense 48,385 41,860 6,525 15.6 %
Operating income (loss) $ 16,214 $ 19,962 $ (3,748) (18.8) %

~~Our Banking segment’s operating income decreased $3.7 million, or 18.8%.~~

Total interest income decreased $1.1 million, or 2.4%, at our Banking segment primarily as a result of decreases in the majority of the balances of our interest earning assets, primarily loans. Average loans in our Banking segment, excluding intersegment loans, decreased 14.3% from $3.517 billion for the three months ended June 30, 2021 to $3.015 billion for the three months ended June 30, 2022. The decrease in average loan balances reflects decreases in average commercial real estate, construction, 1-4 family residential, farmland, paycheck protection program, agriculture, equipment, liquid credit, consumer and mortgage warehouse loans. The decrease in interest income was partially offset by an increase in yields on interest earning assets at our Banking segment.

Interest expense increased despite a decrease in average interest-bearing liabilities including a decrease in average total interest bearing deposits period over period. This increase was driven by higher interest rates paid on our interest-bearing liabilities driven by changes in interest rates in the macro economy.

~~Table of Contents~~

Changes in volume and rate also contributed to the increase in provision expense period over period. We also recorded more specific reserves at our Banking segment during the three months ended June 30, 2022 compared to the same period a year ago. Charge-off activity did not have a significant impact on the increase in credit loss expense period over period.

Credit loss expense for off balance sheet credit exposures increased $0.6 million from $0.3 million for the three months ended June 30, 2021 to $0.9 million for the three months ended June 30, 2022, ~~primarily due to the changes in the assumptions used to project the loss rates previously discussed and changes to outstanding commitments to fund period over period~~.

Noninterest income at our Banking segment increased due to $2.5 million of gains on the sales of certain available for sale CLOs as well as the $3.9 million gain on sale of equipment loans during the three months ended June 30, 2022. Further, we recognized a gain of $8.9 million on the termination of an interest rate swap during the same period. These increases were partially offset by a $1.5 million recovery during the three months ended June 30, 2021 on an acquired loan that was charged off prior to our acquisition of the originating bank. There were no other significant changes within the components of other noninterest income at our Banking segment.

Noninterest expense increased primarily due to an increase in salaries and employee benefits expense due to merit increases for existing employees, higher health insurance benefit costs, incentive compensation, stock based compensation and 401(k) expense. Remaining fluctuations in the individual components of noninterest expense at our Banking segment were insignificant period over period. It should be noted that the majority of our executive leadership team's salary and employee benefits expense as well as other selling, general, and administrative shared services costs are allocated to the Banking segment.

During the three months ended June 30, 2022, the aggregate outstanding balances of our banking products decreased $329.0 million, or 10.4%, to $2.839 billion as of June 30, 2022. See the Financial Condition section below for further discussion of changes in loan balances:

(Dollars in thousands) June 30,
2022 December 31,
2021
Banking
Commercial real estate $ 649,280 $ 632,775
Construction, land development, land 103,377 123,464
1-4 family residential 126,362 123,115
Farmland 70,272 77,394
Commercial - General 319,660 295,662
Commercial - Paycheck Protection Program 4,538 27,197
Commercial - Agriculture 60,150 70,127
Commercial - Equipment 431,366 621,437
Commercial - Asset-based lending 239,505 281,659
Commercial - Liquid Credit 170,260 134,347
Consumer 9,709 10,885
Mortgage Warehouse 654,605 769,973
Total banking loans $ 2,839,084 $ 3,168,035

~~Factoring~~

(Dollars in thousands) Three Months Ended June 30,
Factoring 2022 2021 $ Change % Change
Total interest income $ 55,854 $ 44,653 $ 11,201 25.1 %
Intersegment interest allocations (2,079) (2,584) 505 19.5 %
Total interest expense — — — —
Net interest income (expense) 53,775 42,069 11,706 27.8 %
Credit loss expense (benefit) 64 2,444 (2,380) (97.4) %
Net interest income (expense) after credit loss expense 53,711 39,625 14,086 35.5 %
Noninterest income 15,521 2,742 12,779 466.0 %
Noninterest expense 22,123 17,174 4,949 28.8 %
Net income (loss) before income tax expense $ 47,109 $ 25,193 $ 21,916 87.0 %

~~Table of Contents~~

Three Months Ended June 30,
2022 2021
Factored receivable period end balance $ 1,474,852,000 $ 1,284,314,000
Yield on average receivable balance 14.21 % 14.99 %
Current quarter charge-off rate — % 0.04 %
Factored receivables - transportation concentration 94 % 91 %
Interest income, including fees $ 55,854,000 $ 44,653,000
Non-interest income(1)
15,521,000 2,742,000
Factored receivable total revenue 71,375,000 47,395,000
Average net funds employed 1,409,312,000 1,072,405,000
Yield on average net funds employed 20.31 % 17.73 %
Accounts receivable purchased $ 4,023,569,000 $ 3,068,262,000
Number of invoices purchased 1,725,721 1,401,695
Average invoice size $ 2,332 $ 2,189
Average invoice size - transportation $ 2,176 $ 2,090
Average invoice size - non-transportation $ 6,469 $ 4,701

~~Metrics above include assets and deposits held for sale.~~

~~(1)~~ Non-interest income for the three months ended June 30, 2022 includes a $13.2 million gain on sale of a portfolio of factored receivables, which contributed 3.76% to the yield on average net funds employed for the quarter.

~~Our Factoring segment’s operating income increased $21.9 million, or 87.0%.~~

Our average invoice size increased 6.5% from $2,189 for the three months ended June 30, 2021 to $2,332 for the three months ended June 30, 2022, and the number of invoices purchased increased 23.1% period over period.

Net interest income at our Factoring segment increased period over period. Overall average net funds employed (“NFE”) increased 31.4% during the three months ended June 30, 2022 compared to the same period in 2021. The increase in average NFE was the result of increased invoice purchase volume as well as increased average invoice size. Those, in turn, resulted from historically high freight volume in a reduced capacity market. See further discussion under the Recent Developments: Trucking Transportation section. The increase in net interest income was partially offset by decreased purchase discount rates driven by greater focus on larger lower priced fleets and competitive pricing pressure; however, those negative factors were somewhat mitigated by high concentration in transportation factoring balances, which typically generate a higher yield than our non-transportation factoring balances. This concentration, calculated based on receivables held for investment and held for sale, was at 91% at June 30, 2021 and 94% at June 30, 2022.

The period over period decrease in credit loss expense at our Factoring segment is primarily due to a decrease driven by changes in volume and mix during the comparative periods. Additionally, increases in required specific reserves on factored receivables at our Factoring segment were lesser in magnitude during the current period. Changes in loss assumptions did not have a material impact on the change in credit loss expense period over period. Net charge-offs at our Factoring segment during the three months ended June 30, 2022 were less than $0.1 million compared to $0.5 million during the same period a year ago.

The increase in noninterest income at our Factoring segment was primarily due to the aforementioned $13.2 million gain on sale of factored receivables during the three months ended June 30, 2022. The increase was partially offset by a combined $1.2 million of early termination fees charged to two customers during the three months ended June 30, 2021 that did not repeat during 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 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.

~~Table of Contents~~

~~Payments~~

(Dollars in thousands) Three Months Ended June 30,
Payments 2022 2021 $ Change % Change
Total interest income $ 4,172 $ 2,675 $ 1,497 56.0 %
Intersegment interest allocations (109) (139) 30 21.6 %
Total interest expense — — — — %
Net interest income (expense) 4,063 2,536 1,527 60.2 %
Credit loss expense (benefit) (184) 218 (402) (184.4) %
Net interest income after credit loss expense 4,247 2,318 1,929 83.2 %
Noninterest income 10,309 1,083 9,226 851.9 %
Noninterest expense 17,663 10,842 6,821 62.9 %
Net income (loss) before income tax expense $ (3,107) $ (7,441) $ 4,334 58.2 %

Three Months Ended June 30,
2022 2021
Factored receivable period end balance $ 145,835,000 $ 113,985,000
Interest income $ 4,172,000 $ 2,675,000
Noninterest income(1)
10,309,000 1,083,000
Total revenue $ 14,481,000 $ 3,758,000
Operating income (loss) $ (3,107,000) $ (7,441,000)
Interest expense 109,000 139,000
Depreciation and software amortization expense 103,000 68,000
Intangible amortization expense 1,477,000 497,000
Earnings (losses) before interest, taxes, depreciation, and amortization $ (1,418,000) $ (6,737,000)
Transaction costs $ — $ 2,992,000
Adjusted earnings (losses) before interest, taxes, depreciation, and amortization(2)
$ (1,418,000) $ (3,745,000)
Number of invoices processed 4,388,711 3,165,119
Amount of payments processed $ 6,033,898,000 $ 3,426,808,000
Conforming invoice volume 118,580 —
Conforming payment volume $ 253,312,000 $ —

~~(1)June 30, 2022 non-interest income includes a $10.2 million gain on an equity investment and a $3.2 million loss on impairment of warrants.~~

~~(2)~~Earnings (losses) before interest, taxes, depreciation, and amortization ("EBITDA") is a non-GAAP financial measure used as a supplemental measure to evaluate the performance of our Payments segment. Adjusted EBITDA excludes material gains and expenses related to merger and acquisition-related activities and is a non-GAAP financial measure used to provide meaningful supplemental information regarding the segment's operational performance and to enhance investors' overall understanding of such financial performance by removing the volatility associated with certain acquisition-related items that are unrelated to our core business.

~~Our Payments segment's operating loss decreased $4.3 million, or 58.2%.~~

The number of invoices processed by our Payments segment increased 38.7% from 3,165,119 for the three months ended June 30, 2021 to 4,388,711 for the three months ended June 30, 2022, and the amount of payments processed increased 76.1% from $3.427 billion for the three months ended June 30, 2021 to $6.034 billion for the three months ended June 30, 2022.

~~Table of Contents~~

We began processing conforming transactions during the first quarter of 2022. When a fully integrated TriumphPay payor receives an invoice from a fully integrated TriumphPay payee, we call that a “conforming transaction.” All conforming transactions are included in our payment processing volume above. These transactions are facilitated through TriumphPay APIs with parties on both sides of the transaction using structured data; similar to how a credit card works at a point-of-sale terminal. The integrations largely automate the process and make it cheaper, faster and safer. In recognition of these benefits, we will charge a network fee tied to conforming transactions. During the three months ended June 30, 2022, we processed 118,580 conforming invoices representing a conforming payment volume of $253.3 million.

Net interest income increased due to increased factoring activity at our Payments segment slightly offset by decreased yields period over period. Noninterest income increased due to a $2.3 million increase in payment fees earned by TriumphPay during the three months ended June 30, 2022 compared to the same period a year ago. The fees were primarily 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.

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 June 30,
Corporate 2022 2021 $ Change % Change
Total interest income $ 42 $ 4 $ 38 950.0 %
Intersegment interest allocations — — — —
Total interest expense 1,859 1,796 63 3.5 %
Net interest income (expense) (1,817) (1,792) (25) (1.4) %
Credit loss expense (benefit) (99) (133) 34 25.6 %
Net interest income (expense) after credit loss expense (1,718) (1,659) (59) (3.6) %
Other noninterest income 18 53 (35) (66.0) %
Noninterest expense 436 922 (486) (52.7) %
Net income (loss) before income tax expense $ (2,136) $ (2,528) $ 392 15.5 %

The Corporate segment reported an operating loss of $2.1 million for the three months ended June 30, 2022 compared to an operating loss of $2.5 million for the three months ended June 30, 2021. There were no material fluctuations in the operating results of our Corporate segment period over period.

~~Results of Operations~~

~~Six months ended June 30, 2022 compared with six months ended June 30, 2021~~

Net Income

We earned net income of ~~$68.5~~$16.2 million for the ~~six~~three months ended ~~June~~September 30, 2022 compared to ~~$61.9~~net income of $24.4 million for the ~~six~~three months ended ~~June~~September 30, 2021, a decrease of $8.2 million. The decrease in net income was driven by a $13.9 million increase in noninterest expense and a $3.8 million increase in credit loss expense partially offset by a $6.5 million increase in net interest income, a $0.6 million increase in noninterest income, and a $2.4 million decrease in income tax expense.

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

Net Interest Income

Table of Contents


	Three 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	452,136	2,607	2.29	%	474,122	183	0.15	%
Taxable securities	231,759	2,217	3.80	%	154,017	948	2.44	%
Tax-exempt securities	14,197	91	2.54	%	27,839	178	2.54	%
FHLB and other restricted stock	6,171	65	4.18	%	7,956	28	1.40	%
Loans (1)	4,355,132	98,245	8.95	%	4,777,409	95,398	7.92	%
Total interest earning assets	5,059,395	103,225	8.09	%	5,441,343	96,735	7.05	%
Noninterest earning assets:
Cash and cash equivalents	108,323				75,374
Other noninterest earning assets	532,829				503,914
Total assets	5,700,547				6,020,631
Interest bearing liabilities:
Deposits:
Interest bearing demand	879,851	812	0.37	%	779,625	435	0.22	%
Individual retirement accounts	77,004	97	0.50	%	86,571	126	0.58	%
Money market	524,483	313	0.24	%	417,435	225	0.21	%
Savings	524,106	209	0.16	%	479,915	185	0.15	%
Certificates of deposit	407,130	564	0.55	%	595,001	725	0.48	%
Brokered time deposits	186,856	748	1.59	%	99,116	29	0.12	%
Other brokered deposits	26,758	—	—	%	441,446	223	0.20	%
Total interest bearing deposits	2,626,188	2,743	0.41	%	2,899,109	1,948	0.27	%
Federal Home Loan Bank advances	30,000	182	2.41	%	36,522	22	0.24	%
Subordinated notes	107,477	1,304	4.81	%	114,071	2,449	8.52	%
Junior subordinated debentures	40,948	726	7.03	%	40,390	443	4.35	%
Other borrowings	13,180	—	—	%	127,946	102	0.32	%
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 demand deposits	1,885,111				1,912,398
Other liabilities	98,798				72,173
Total equity	898,845				818,022
Total liabilities and equity	5,700,547				6,020,631
Net interest income		98,270				91,771
Interest spread (2)			7.39	%			6.44	%
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.

Table of Contents

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


	Three Months Ended September 30,
(Dollars in thousands)	2022			2021
Average Banking loans	$	2,830,507		$	3,299,152
Average Factoring receivables	1,393,141			1,362,856
Average Payments receivables	131,484			115,401
Average total loans	$	4,355,132		$	4,777,409
Banking yield	6.30		%	5.40		%
Factoring yield	14.11		%	13.75		%
Payments yield	11.33		%	11.33		%
Total loan yield	8.95		%	7.92		%

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

Interest income increased $6.5 million, or 6.7%, in spite of a decrease in average interest earning assets of $381.9 million, or 7.0%, and a decrease in average total loans of $422.3 million, or 8.8%. The average balance of our higher yielding Factoring factored receivables increased $30.3 million, or 2.2%, partially driving 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 $468.6 million, or 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 $610.8 million for the three months ended September 30, 2022 compared to $772.3 million for the three months ended September 30, 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 and acquired liquid credit. We recognized discount accretion on purchased loans of $1.5 million and $2.0 million for the three months ended September 30, 2022 and 2021, respectively.

Interest expense decreased $0.01 million, or 0.2%, despite a larger decrease in average interest-bearing liabilities. More specifically, average total interest bearing deposits decreased $272.9 million, or 9.4%. Average noninterest bearing demand deposits decreased $27.3 million. The change in interest expense period over period was driven by higher average rates discussed below.

Net interest margin increased to 7.71% for the three months ended September 30, 2022 from 6.69% for the three months ended September 30, 2021, an increase of 102 basis points or 15.2%.

The increase in our net interest margin was impacted by an increase in our yield on interest earning assets of 104 basis points to 8.09% for the three months ended September 30, 2022. This increase was primarily driven by higher yields on loans which increased 103 basis points to 8.95% for the same period. Factoring yield increased period over period and, 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 generally generate a higher yield than our non-transportation factoring balances, were 96% and 90% of our Factoring portfolio at September 30, 2022 and 2021, respectively. Banking yields also increased period over period while Payments yields were flat. Non-loan yields were generally higher period over period, 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 an increase in our average cost of interest bearing liabilities of 9 basis points. This increase in average cost was caused by generally higher interest rates paid on our interest-bearing liabilities driven by changes in interest rates in the macro economy.

Table of Contents


	Three Months Ended
	September 30, 2022 vs. 2021
	Increase (Decrease) Due to:
(Dollars in thousands)	Rate		Volume		Net Increase
Interest earning assets:
Cash and cash equivalents	$	2,551	$	(127)	$	2,424
Taxable securities	525		744		1,269
Tax-exempt securities	—		(87)		(87)
FHLB and other restricted stock	56		(19)		37
Loans	12,373		(9,526)		2,847
Total interest income	15,505		(9,015)		6,490
Interest bearing liabilities:
Interest bearing demand	285		92		377
Individual retirement accounts	(17)		(12)		(29)
Money market	24		64		88
Savings	6		18		24
Certificates of deposit	99		(260)		(161)
Brokered time deposits	368		351		719
Other brokered deposits	(223)		—		(223)
Total interest bearing deposits	542		253		795
Federal Home Loan Bank advances	200		(40)		160
Subordinated notes	(1,065)		(80)		(1,145)
Junior subordinated debentures	273		10		283
Other borrowings	(102)		—		(102)
Total interest expense	(152)		143		(9)
Change in net interest income	$	15,657	$	(9,158)	$	6,499

Credit Loss Expense

The following table presents the major categories of credit loss expense:


	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	%

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, 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 three months ended September 30, 2022. 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, 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 June 30, 2022, the Company carried $6.6 million and $6.7 million of these HTM securities at amortized cost, respectively. The required ACL on these balances was $2.4 million at September 30, 2022 and June 30, 2022 resulting in an immaterial impact to credit loss expense during the current quarter. Credit loss expense during the three months ended September 30, 2021 was also insignificant. 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.

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 $4.1 million, or 430.4%, for the three months ended September 30, 2022 compared to the three 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 increased credit loss expense was primarily the result of 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 resulted in a benefit to credit loss expense of $0.1 million for the three months ended September 30, 2022 compared to a benefit of $0.2 million during the same period a year ago.

Changes in loan volume and mix resulted in a benefit to credit loss expense of $0.5 million during the 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 and approximately $3.2 million of the gross charge-off balance had been reserved in a prior period.

Credit loss expense for off balance sheet credit exposures decreased $0.4 million, primarily due to the changes in the assumptions used to project the loss rates previously discussed and changes to underlying 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)	2022		2021		$ Change		% Change
Service charges on deposits	$	1,558	$	2,030	$	(472)	(23.3)	%
Card income	2,034		2,144		(110)		(5.1)	%
Net OREO gains (losses) and valuation adjustments	(19)		(9)		(10)		(111.1)	%
Net gains (losses) on sale or call of securities	—		4		(4)		(100.0)	%
Net gains (losses) on sale of loans	1,107		377		730		193.6	%
Fee income	6,120		5,198		922		17.7	%
Insurance commissions	1,191		1,231		(40)		(3.2)	%
Other	677		1,080		(403)		(37.3)	%
Total noninterest income	$	12,668	$	12,055	$	613	5.1	%

Noninterest income increased $0.6 million, or 5.1%. Changes in selected components of noninterest income in the above table are discussed below.

•Net gains (losses) on sale of loans. Net gains (losses) on sale of loans increased $0.7 million due to the aforementioned gain on sale of factored receivables of $1.0 million during the three months ended September 30, 2022.

•Fee income. Fee income increased $0.9 million, or 17.7%, due to a $0.5 million increase in payment fees earned by TriumphPay Audit during the three months ended September 30, 2022 compared to 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.

•Other. Other noninterest income decreased $0.4 million, or 37.3%, primarily due to a $0.5 million BOLI death benefit paid out during the three months ended September 30, 2021 that did not repeat during the 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:


	Three Months Ended September 30,
(Dollars in thousands)	2022		2021		$ Change		% Change
Salaries and employee benefits	$	49,307	$	43,769	$	5,538	12.7	%
Occupancy, furniture and equipment	6,826		6,388		438		6.9	%
FDIC insurance and other regulatory assessments	386		353		33		9.3	%
Professional fees	4,263		2,362		1,901		80.5	%
Amortization of intangible assets	2,913		3,274		(361)		(11.0)	%
Advertising and promotion	1,929		1,403		526		37.5	%
Communications and technology	11,935		7,090		4,845		68.3	%
Travel and entertainment	1,340		1,352		(12)		(0.9)	%
Other	7,790		6,822		968		14.2	%
Total noninterest expense	$	86,689	$	72,813	$	13,876	19.1	%

Table of Contents

Noninterest expense increased $13.9 million, or 19.1%. 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 $5.5 million, or 12.7%, which is primarily due to merit increases for existing employees, higher health insurance benefit costs, incentive compensation, and 401(k) expense. Further, the size of our workforce increased period over period due to organic growth within the Company. Our average full-time equivalent employees were 1,410.3 and 1,215.7 for the three months ended September 30, 2022 and 2021, respectively. Further, accruals for bonus expense were $0.2 million higher period over period and stock based compensation expense increased $0.1 million period over period. 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, decreased $1.8 million period over period.

•Professional Fees. Professional fees increased $1.9 million, or 80.5%, primarily due to a $1.7 million increase in legal and consulting fees period over period.

•Advertising and Promotion. 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 increased $4.8 million, or 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 our technology platforms period over period.

•Other. Other noninterest expense includes loan-related expenses, software amortization, training and recruiting, postage, insurance, and subscription services. Other noninterest expense increased $1.0 million, or 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 decreased $2.4 million, from $7.8 million for the three months ended September 30, 2021 to $5.4 million for the three months ended September 30, 2022. The effective tax rate was 25% for the three months ended September 30, 2022, compared to 24% for the three months ended September 30, 2021.

Operating Segment Results

Table of Contents

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


(Dollars in thousands)
Three Months Ended September 30, 2022	Banking		Factoring		Payments		Corporate		Consolidated
Total interest income	$	49,864	$	49,561	$	3,756	$	44	$	103,225
Intersegment interest allocations	2,606		(2,458)		(148)		—		—
Total interest expense	2,924		—		—		2,031		4,955
Net interest income (expense)	49,546		47,103		3,608		(1,987)		98,270
Credit loss expense (benefit)	2,388		(52)		235		75		2,646
Net interest income after credit loss expense	47,158		47,155		3,373		(2,062)		95,624
Noninterest income	6,189		2,941		3,518		20		12,668
Noninterest expense	48,648		22,896		14,066		1,079		86,689
Net income (loss) before income tax expense	$	4,699	$	27,200	$	(7,175)	$	(3,121)	$	21,603


(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
Net income (loss) before income tax expense	$	15,141	$	26,168	$	(5,184)	$	(3,925)	$	32,200


(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

Table of Contents

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 decreased $10.4 million, or 69.0%.

Total interest income increased $3.7 million, or 8.0%, 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 14.2% from $3.299 billion for the three months ended September 30, 2021 to $2.831 billion for the three months ended September 30, 2022. The decrease in 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.

Credit loss expense for off balance sheet credit exposures decreased $0.4 million, from a benefit of $0.2 million for the three months ended September 30, 2021 to a benefit of $0.6 million for the three months ended September 30, 2022, primarily due to the changes in the assumptions used to project the loss rates and changes to outstanding commitments to fund period over period.

Noninterest income at our Banking segment decreased $1.2 million primarily due to a $0.5 million BOLI death benefit paid out during the three months ended September 30, 2021 that did not repeat during the current period and a $0.5 million decrease in service charges on deposits. There were no other significant changes within the components of other noninterest income at our Banking segment.

Noninterest expense increased primarily due to an increase in salaries and employee benefits expense due to merit increases for existing employees, higher health insurance benefit costs, incentive compensation, stock based compensation and 401(k) expense. 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.

Table of Contents

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)	Three Months Ended September 30,
Payments	2022		2021		$ Change		% Change
Total interest income	$	3,756	$	3,295	$	461	14.0	%
Intersegment interest allocations	(148)		(111)		(37)		(33.3)	%
Total interest expense	—		—		—		—	%
Net interest income (expense)	3,608		3,184		424		13.3	%
Credit loss expense (benefit)	235		38		197		518.4	%
Net interest income after credit loss expense	3,373		3,146		227		7.2	%
Noninterest income	3,518		3,086		432		14.0	%
Noninterest expense	14,066		11,416		2,650		23.2	%
Net income (loss) before income tax expense	$	(7,175)	$	(5,184)	$	(1,991)	(38.4)	%


	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 $2.0 million, or 38.4%.

The number of invoices processed by our Payments segment increased 24.3% from 3,760,948 for the three months ended September 30, 2021 to 4,676,249 for the three months ended September 30, 2022, and the amount of payments processed increased 42.0% from $4.191 billion for the three months ended September 30, 2021 to $5.952 billion for the three months ended September 30, 2022.

Table of Contents

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 a $0.5 million increase in payment fees earned by TriumphPay during the three 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.

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)	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.

7168

Table of Contents

The results for the ~~six~~nine months ended ~~June~~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, ~~and gain on sale,~~ net of taxes, we earned adjusted net income of ~~$64.2~~$88.6 million for the ~~six~~nine months ended ~~June~~September 30, 2021. There were no such adjustments during the ~~six~~nine months ended ~~June~~September 30, 2022. The adjusted ~~increase~~decrease in net income for the ~~six~~nine months ended ~~June~~September 30, 2022 compared to the ~~six~~nine months ended ~~June~~September 30, 2021 totaled ~~$4.3~~$3.9 million and was driven by a ~~$31.1 million increase in noninterest income and a $28.2 million increase in net interest income offset by a $38.5~~$52.4 million increase in adjusted noninterest expense, a ~~$13.1~~$16.9 million increase in credit loss expense, and a ~~$3.4~~$1.0 million increase in adjusted income tax ~~expense.~~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

7269

Table of Contents


		Six Months Ended June 30,													Nine Months Ended September 30,
		2022						2021							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	$	308,668	$	915	0.60	%	$	525,641	$	284	0.11	%	Cash and cash equivalents	$	357,016	$	3,522	1.32	%	$	508,279	$	467	0.12	%
Taxable securities	Taxable securities	172,282		2,320		2.72	%	177,531		2,395		2.72	%	Taxable securities	192,325		4,537		3.15	%	169,607		3,343		2.64	%
Tax-exempt securities	Tax-exempt securities	14,582		187		2.59	%	34,081		442		2.62	%	Tax-exempt securities	14,452		278		2.57	%	31,977		620		2.59	%
FHLB and other restricted stock	FHLB and other restricted stock	11,267		110		1.97	%	8,163		103		2.54	%	FHLB and other restricted stock	9,549		175		2.45	%	8,094		131		2.16	%
Loans (1)	Loans (1)	4,783,709		206,210		8.69	%	4,831,068		179,817		7.51	%	Loans (1)	4,639,280		304,455		8.77	%	4,812,985		275,215		7.65	%
Total interest earning assets	Total interest earning assets	5,290,508		209,742		7.99	%	5,576,484		183,041		6.62	%	Total interest earning assets	5,212,622		312,967		8.03	%	5,530,942		279,776		6.76	%
Noninterest earning assets:	Noninterest earning assets:													Noninterest earning assets:
Cash and cash equivalents	Cash and cash equivalents	80,583						84,491						Cash and cash equivalents	89,932						81,419
Other noninterest earning assets	Other noninterest earning assets	489,825						392,851						Other noninterest earning assets	504,379						430,316
Total assets	Total assets	$	5,860,916					$	6,053,826					Total assets	$	5,806,933					$	6,042,677
Interest bearing liabilities:	Interest bearing liabilities:													Interest bearing liabilities:
Deposits:	Deposits:													Deposits:
Interest bearing demand	Interest bearing demand	$	852,554	$	979	0.23	%	$	729,798	$	853	0.24	%	Interest bearing demand	$	861,753	$	1,791	0.28	%	$	746,590	$	1,288	0.23	%
Individual retirement accounts	Individual retirement accounts	82,182		210		0.52	%	89,600		329		0.74	%	Individual retirement accounts	80,437		308		0.51	%	88,579		455		0.69	%
Money market	Money market	542,050		561		0.21	%	398,153		445		0.23	%	Money market	536,130		875		0.22	%	404,651		670		0.22	%
Savings	Savings	513,346		393		0.15	%	457,481		345		0.15	%	Savings	516,972		602		0.16	%	465,041		530		0.15	%
Certificates of deposit	Certificates of deposit	489,682		1,134		0.47	%	714,583		3,112		0.88	%	Certificates of deposit	461,862		1,697		0.49	%	674,284		3,838		0.76	%
Brokered time deposits	Brokered time deposits	60,065		305		1.02	%	152,910		230		0.30	%	Brokered time deposits	102,793		1,052		1.37	%	134,781		259		0.26	%
Other brokered deposits	Other brokered deposits	151,835		685		0.91	%	743,878		528		0.14	%	Other brokered deposits	109,684		685		0.83	%	641,959		750		0.16	%
Total interest bearing deposits	Total interest bearing deposits	2,691,714		4,267		0.32	%	3,286,403		5,842		0.36	%	Total interest bearing deposits	2,669,631		7,010		0.35	%	3,155,885		7,790		0.33	%
Federal Home Loan Bank advances	Federal Home Loan Bank advances	109,972		354		0.65	%	37,597		45		0.24	%	Federal Home Loan Bank advances	83,022		535		0.86	%	37,234		67		0.24	%
Subordinated notes	Subordinated notes	107,151		2,601		4.90	%	87,561		2,699		6.22	%	Subordinated notes	107,261		3,905		4.87	%	96,495		5,148		7.13	%
Junior subordinated debentures	Junior subordinated debentures	40,732		1,010		5.00	%	40,188		888		4.46	%	Junior subordinated debentures	40,805		1,736		5.69	%	40,256		1,331		4.42	%
Other borrowings	Other borrowings	5,469		3		0.11	%	155,184		265		0.34	%	Other borrowings	8,068		4		0.07	%	146,005		367		0.34	%
Total interest bearing liabilities	Total interest bearing liabilities	2,955,038		8,235		0.56	%	3,606,933		9,739		0.54	%	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 liabilities and equity:													Noninterest bearing liabilities and equity:
Noninterest bearing demand deposits	Noninterest bearing demand deposits	1,944,606						1,622,528						Noninterest bearing demand deposits	1,924,556						1,720,213
Other liabilities	Other liabilities	79,540						57,629						Other liabilities	86,093						62,570
Total equity	Total equity	881,732						766,736						Total equity	887,497						784,019
Total liabilities and equity	Total liabilities and equity	$	5,860,916					$	6,053,826					Total liabilities and equity	$	5,806,933					$	6,042,677
Net interest income	Net interest income			$	201,507					$	173,302			Net interest income			$	299,777					$	265,073
Interest spread (2)	Interest spread (2)					7.43	%					6.08	%	Interest spread (2)					7.42	%					6.19	%
Net interest margin (3)	Net interest margin (3)					7.68	%					6.27	%	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.

7370

Table of Contents

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


		Six Months Ended June 30,							Nine Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2022			2021			(Dollars in thousands)	2022			2021
Average Banking loans	Average Banking loans	$	3,023,608		$	3,619,252		Average Banking loans	$	2,958,534		$	3,511,379
Average Factoring receivables	Average Factoring receivables	1,595,230			1,122,492			Average Factoring receivables	1,527,126			1,203,494
Average Payments receivables	Average Payments receivables	164,871			89,324			Average Payments receivables	153,620			98,112
Average total loans	Average total loans	$	4,783,709		$	4,831,068		Average total loans	$	4,639,280		$	4,812,985
Banking yield	Banking yield	5.67		%	5.28		%	Banking yield	5.87		%	5.31		%
Factoring yield	Factoring yield	14.19		%	14.46		%	Factoring yield	14.16		%	14.19		%
Payments Yield	Payments Yield	11.01		%	10.48		%	Payments Yield	11.11		%	10.82		%
Total loan yield	Total loan yield	8.69		%	7.51		%	Total loan yield	8.77		%	7.65		%

We earned net interest income of ~~$201.5~~$299.8 million for the ~~six~~nine months ended ~~June~~September 30, 2022 compared to ~~$173.3~~$265.1 million for the ~~six~~nine months ended ~~June~~September 30, 2021, an increase of ~~$28.2~~$34.7 million, or ~~16.3%~~13.1%, primarily driven by the following factors.

Interest income increased ~~$26.7~~$33.2 million, or ~~14.6%~~11.9%, in spite of a decrease in total average interest earning assets of ~~$286.0~~$318.3 million, or ~~5.1%~~5.8%, and a decrease in average total loans of ~~$47.4~~$173.7 million, or ~~1.0%~~3.6%. The average balance of our higher yielding Factoring factored receivables increased ~~$472.7~~$323.6 million, or ~~42.1%~~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 ~~$595.6~~$552.8 million, or ~~16.5%~~15.7% due to decreases in the average balances of all Banking loan types except for general commercial, ~~real estate, construction, 1-4 family residential, farmland, paycheck protection program, agriculture,~~asset based lending, and liquid ~~credit, consumer and mortgage warehouse loans.~~credit. Interest income from our Banking loans is impacted by our lower yielding mortgage warehouse lending product. The average mortgage warehouse lending balance was ~~$644.1~~$632.9 million for the ~~six~~nine months ended ~~June~~September 30, 2022 compared to ~~$855.0~~$827.1 million for the ~~six~~nine months ended ~~June~~September 30, 2021. A component of interest income consists of discount accretion on acquired loan portfolios. We recognized discount accretion on purchased loans of ~~$5.1~~$6.6 million and ~~$5.7~~$7.6 million for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively.

Interest expense decreased $1.5 million, or ~~15.4%~~10.3%, and average interest bearing liabilities decreased ~~$651.9~~$567.1 million, or ~~18.1%~~16.3%. More specifically, average total interest bearing deposits decreased ~~$594.7~~$486.3 million, or ~~18.1%~~15.4%. Average noninterest bearing deposits grew ~~$322.1~~$204.3 million. Average rates on interest bearing liabilities were ~~relatively flat period over period.~~up slightly as discussed below.

Net interest margin increased to ~~7.68%~~7.69% for the ~~six~~nine months ended ~~June~~September 30, 2022 from ~~6.27%~~6.41% for the ~~six~~nine months ended ~~June~~September 30, 2021, an increase of ~~141~~128 basis points, or ~~22.5%~~20.0%.

Our net interest margin was impacted by an increase in yield on our interest earning assets of ~~137~~127 basis points to ~~7.99%~~8.03% for the ~~six~~nine months ended ~~June~~September 30, 2022. This increase was ~~primarily~~ driven by higher yields on loans which increased ~~118~~112 basis points to ~~8.69%~~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 ~~significantly~~ which had a meaningful upward impact on total loan yield. Our transportation factoring balances, which generate a higher yield than our non-transportation factoring balances, increased as a percentage of the overall factoring portfolio to ~~95%~~96% at ~~June~~September 30, 2022 compared to 91% at ~~June~~September 30, 2021. Banking and Payments yields ~~also~~ increased period over period and non-loan yields had little impact on our yield on interest earning assets.

The increase in our net interest margin was minimally impacted by an increase in our average cost of interest bearing liabilities of 24 basis points.

7471

Table of Contents


		Six Months Ended							Nine Months Ended
		June 30, 2022 vs. 2021							September 30, 2022 vs. 2021
		Increase (Decrease) Due to:				Net Increase			Increase (Decrease) Due to:				Net Increase
(Dollars in thousands)	(Dollars in thousands)	Rate		Volume				(Dollars in thousands)	Rate		Volume
Interest earning assets:	Interest earning assets:							Interest earning assets:
Cash and cash equivalents	Cash and cash equivalents	$	1,274	$	(643)	$	631	Cash and cash equivalents	$	4,547	$	(1,492)	$	3,055
Taxable securities	Taxable securities	(4)		(71)		(75)		Taxable securities	658		536		1,194
Tax-exempt securities	Tax-exempt securities	(5)		(250)		(255)		Tax-exempt securities	(5)		(337)		(342)
FHLB and other restricted stock	FHLB and other restricted stock	(23)		30		7		FHLB and other restricted stock	17		27		44
Loans	Loans	28,434		(2,041)		26,393		Loans	40,639		(11,399)		29,240
Total interest income	Total interest income	29,676		(2,975)		26,701		Total interest income	45,856		(12,665)		33,191
Interest bearing liabilities:	Interest bearing liabilities:							Interest bearing liabilities:
Interest bearing demand	Interest bearing demand	(15)		141		126		Interest bearing demand	264		239		503
Individual retirement accounts	Individual retirement accounts	(100)		(19)		(119)		Individual retirement accounts	(116)		(31)		(147)
Money market	Money market	(33)		149		116		Money market	(10)		215		205
Savings	Savings	5		43		48		Savings	12		60		72
Certificates of deposit	Certificates of deposit	(1,457)		(521)		(1,978)		Certificates of deposit	(1,361)		(780)		(2,141)
Brokered time deposits	Brokered time deposits	546		(471)		75		Brokered time deposits	1,120		(327)		793
Other brokered deposits	Other brokered deposits	2,828		(2,671)		157		Other brokered deposits	3,259		(3,324)		(65)
Total interest bearing deposits	Total interest bearing deposits	1,774		(3,349)		(1,575)		Total interest bearing deposits	3,168		(3,948)		(780)
Federal Home Loan Bank advances	Federal Home Loan Bank advances	76		233		309		Federal Home Loan Bank advances	173		295		468
Subordinated notes	Subordinated notes	(574)		476		(98)		Subordinated notes	(1,635)		392		(1,243)
Junior subordinated debentures	Junior subordinated debentures	109		13		122		Junior subordinated debentures	382		23		405
Other borrowings	Other borrowings	(180)		(82)		(262)		Other borrowings	(295)		(68)		(363)
Total interest expense	Total interest expense	1,205		(2,709)		(1,504)		Total interest expense	1,793		(3,306)		(1,513)
Change in net interest income	Change in net interest income	$	28,471	$	(266)	$	28,205	Change in net interest income	$	44,063	$	(9,359)	$	34,704

Credit Loss Expense

The following table presents the major categories of credit loss expense:


		Six Months Ended June 30,									Nine Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2022		2021		$ Change		% Change		(Dollars in thousands)	2022		2021		$ Change		% Change
Credit loss expense on loans	Credit loss expense on loans	$	2,933	$	(8,431)	$	11,364	134.8	%	Credit loss expense on loans	$	6,102	$	(9,390)	$	15,492	165.0	%
Credit loss expense on off balance sheet credit exposures	Credit loss expense on off balance sheet credit exposures	196		(921)		1,117		121.3	%	Credit loss expense on off balance sheet credit exposures	(402)		(1,159)		757		65.3	%
Credit loss expense on held to maturity securities	Credit loss expense on held to maturity securities	273		(299)		572		191.3	%	Credit loss expense on held to maturity securities	348		(289)		637		220.4	%
Credit loss expense on available for sale securities	Credit loss expense on available for sale securities	—		—		—		—		Credit loss expense on available for sale securities	—		—		—		—
Total credit loss expense	Total credit loss expense	$	3,402	$	(9,651)	$	13,053	(135.3)	%	Total credit loss expense	$	6,048	$	(10,838)	$	16,886	155.8	%

7572

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 December 31, 2021 and ~~June~~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 ~~six~~nine months ended ~~June~~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 ~~June~~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 ~~June~~September 30, 2022 and December 31, 2021, the Company carried ~~$6.7~~$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 ~~June~~September 30, 2022 and $2.1 million at December 31, 2021 and we recognized credit loss expense of $0.3 million during the ~~six~~nine months ended ~~June~~September 30, 2022. None of the overcollateralization triggers tied to the CLO securities were tripped as of ~~June~~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 ~~June~~September 30, 2021 and December 31, 2020, the Company carried ~~$7.4~~$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 ~~June~~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 ~~six~~nine months ended ~~June~~September 30, 2021.

Our ACL on loans was ~~$43.4~~$44.1 million as of ~~June~~September 30, 2022, compared to $42.2 million as of December 31, 2021, representing an ACL to total loans ratio of ~~0.98%~~0.99% and 0.87% respectively.

Our credit loss expense on loans increased ~~$11.4~~$15.5 million, or ~~134.8%~~165.0%, for the ~~six~~nine months ended ~~June~~September 30, 2022 compared to the ~~six~~nine months ended ~~June~~September 30, 2021.

The Over-Formula Advances classified as factored receivables and deemed to be purchased credit deteriorated ("PCD") from Covenant had an impact on credit loss expense during the ~~six~~nine months ended ~~June~~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 ~~six~~nine months ended ~~June~~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 which has been paid in full as of ~~June~~September 30, 2022. Given separate developments with the other two Over-Formula Advance clients, we reserved an additional ~~$2.9~~$2.8 million reflected in credit loss expense during the ~~six~~nine months ended ~~June~~September 30, 2021.

During the ~~six~~nine months ended ~~June~~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 ~~$0.9~~$1.3 million. We continue to reserve the full balance of the Over-Formula Advance clients at ~~June~~September 30, 2022 which totals ~~$9.2~~$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 ~~that~~during the ~~Company forecasted over the reasonable and supportable forecast~~prior period ~~to calculate expected losses at June 30, 2021~~ which resulted in a benefit to credit loss expense of ~~$10.1~~$10.3 million for the ~~six~~nine months ended ~~June~~September 30, 2021. During the ~~six~~nine months ended ~~June~~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 ~~$1.7~~$4.2 million for the ~~six~~nine months ended ~~June~~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 ~~$41.6~~$45.3 million for the ~~six~~nine months ended ~~June~~September 30, 2021 and approximately ~~$41.9~~$45.2 million of the gross charge-off balance had been reserved in a prior period.

Table of Contents

Changes in loan volume and mix resulted in a benefit to credit loss expense of ~~$2.1~~$2.7 million during the ~~six~~nine months ended ~~June~~September 30, 2022 compared to a benefit of ~~$0.5~~$0.4 during the same period a year prior.

~~Table of Contents~~

~~Specific reserve activity, including reserves on Over-Formula Advance clients, did not have a material impact on the change in credit loss expense period over period.~~

Credit loss expense for off balance sheet credit exposures increased ~~$1.1~~$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:


		Six Months Ended June 30,									Nine Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2022		2021		$ Change		% Change		(Dollars in thousands)	2022		2021		$ Change		% Change
Service charges on deposits	Service charges on deposits	$	3,627	$	3,644	$	(17)	(0.5	%)	Service charges on deposits	$	5,185	$	5,674	$	(489)	(8.6	%)
Card income	Card income	4,091		4,197		(106)		(2.5	%)	Card income	6,125		6,341		(216)		(3.4	%)
Net OREO gains (losses) and valuation adjustments	Net OREO gains (losses) and valuation adjustments	(114)		(367)		253		68.9	%	Net OREO gains (losses) and valuation adjustments	(133)		(376)		243		64.6	%
Net gains (losses) on sale or call of securities	Net gains (losses) on sale or call of securities	2,514		1		2,513		N/M		Net gains (losses) on sale or call of securities	2,514		5		2,509		N/M
Net gains (losses) on sale of loans	Net gains (losses) on sale of loans	17,203		2,588		14,615		564.7	%	Net gains (losses) on sale of loans	18,310		2,965		15,345		517.5	%
Fee income	Fee income	11,976		6,719		5,257		78.2	%	Fee income	18,096		11,917		6,179		51.9	%
Insurance commissions	Insurance commissions	3,018		2,758		260		9.4	%	Insurance commissions	4,209		3,989		220		5.5	%
Other	Other	16,966		8,647		8,319		96.2	%	Other	17,643		9,727		7,916		81.4	%
Total noninterest income	Total noninterest income	$	59,281	$	28,187	$	31,094	110.3	%	Total noninterest income	$	71,949	$	40,242	$	31,707	78.8	%

Noninterest income increased ~~$31.1~~$31.7 million, or ~~110.3%~~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 ~~six~~nine months ended ~~June~~September 30, 2022.

•Net gains (losses) on sale of loans. Net gains (losses) on sale of loans increased ~~$14.6~~$15.3 million, due to the aforementioned gain on ~~sale~~sales of factored receivables of ~~$13.2~~$14.2 million and gain on sale of equipment loans of $3.9 million during the ~~six~~nine months ended ~~June~~September 30, 2022.

•Fee income. Fee income increased ~~$5.3~~$6.2 million, or ~~78.2%~~51.9% primarily due to a ~~$5.4~~$5.9 million increase in payment fees earned by TriumphPay Audit during the ~~six~~nine months ended ~~June~~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 ~~$1.0~~$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 ~~six~~nine months ended ~~June~~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 ~~$8.3~~$7.9 million, or ~~96.2%~~81.4% primarily due to a gain of $8.9 million on the aforementioned termination of an interest rate swap recognized during the ~~six~~nine months ended ~~June~~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 ~~six~~nine months ended ~~June~~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 ~~$4.7~~$4.2 million gain on our indemnification asset recognized during the ~~six~~nine months ended ~~June~~September 30, 2021 compared to a write off of the indemnification asset of ~~$0.4~~$0.6 million during the same period of the current year. There were no other significant changes within the components of other noninterest income.

7774

Table of Contents

Noninterest Expense

The following table presents our major categories of noninterest expense:


		Six Months Ended June 30,									Nine Months Ended September 30,
(Dollars in thousands)	(Dollars in thousands)	2022		2021		$ Change		% Change		(Dollars in thousands)	2022		2021		$ Change		% Change
Salaries and employee benefits	Salaries and employee benefits	$	100,541	$	77,638	$	22,903	29.5	%	Salaries and employee benefits	$	149,848	$	121,407	$	28,441	23.4	%
Occupancy, furniture and equipment	Occupancy, furniture and equipment	12,943		11,891		1,052		8.8	%	Occupancy, furniture and equipment	19,769		18,279		1,490		8.2	%
FDIC insurance and other regulatory assessments	FDIC insurance and other regulatory assessments	793		1,477		(684)		(46.3	%)	FDIC insurance and other regulatory assessments	1,179		1,830		(651)		(35.6	%)
Professional fees	Professional fees	7,266		7,597		(331)		(4.4	%)	Professional fees	11,529		9,959		1,570		15.8	%
Amortization of intangible assets	Amortization of intangible assets	6,172		4,403		1,769		40.2	%	Amortization of intangible assets	9,085		7,677		1,408		18.3	%
Advertising and promotion	Advertising and promotion	2,987		2,131		856		40.2	%	Advertising and promotion	4,916		3,534		1,382		39.1	%
Communications and technology	Communications and technology	18,932		11,928		7,004		58.7	%	Communications and technology	30,867		19,018		11,849		62.3	%
Travel and entertainment	Travel and entertainment	2,524		1,373		1,151		83.8	%	Travel and entertainment	3,864		2,725		1,139		41.8	%
Other	Other	15,013		13,252		1,761		13.3	%	Other	22,803		20,074		2,729		13.6	%
Total noninterest expense	Total noninterest expense	$	167,171	$	131,690	$	35,481	26.9	%	Total noninterest expense	$	253,860	$	204,503	$	49,357	24.1	%

Noninterest expense increased ~~$35.5~~$49.4 million, or ~~26.9%~~24.1%. Noninterest expense for the ~~six~~nine months ended ~~June~~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 ~~$128.7~~$201.5 million for the ~~six~~nine months ended ~~June~~September 30, 2021, resulting in an adjusted increase in noninterest expense of ~~$38.5~~$52.4 million, or ~~29.9%~~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 ~~$22.9~~$28.4 million, or ~~29.5%~~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 ~~1,328.2~~1,355.6 and ~~1,164.9~~1,181.8 for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively. ~~Further, accruals~~Accruals for bonus expense were ~~$1.2~~$1.4 million higher period over period ~~reflecting strong operating results through the first half of 2022~~ and stock based compensation expense increased ~~$8.1~~$7.9 million period over period. Additionally, compensation paid to temporary contract labor increased ~~$2.2~~$3.6 million period over period. Sales commissions, primarily related to our operations at Triumph Business Capital and TriumphPay, ~~increased $0.7~~decreased $1.1 million period over period.

•Occupancy, Furniture and Equipment. Occupancy, furniture and equipment expenses increased ~~$1.1~~$1.5 million, or ~~8.8%~~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 ~~46.3%~~35.6%, due to decreased assessments period over period.

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

•Amortization of intangible assets. Amortization of intangible assets increased ~~$1.8~~$1.4 million, or ~~40.2%~~18.3%, ~~primarily~~ due to the additional intangibles recorded through the HubTran acquisition during the prior year.

•Advertising and Promotion. Advertising and promotion increased ~~$0.9~~$1.4 million, or ~~40.2%~~39.1%, ~~primarily~~ due to increased activity in this area period over period.

•Communications and Technology. Communications and technology expenses increased ~~$7.0~~$11.8 million, or ~~58.7%~~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 ~~$1.2~~$1.1 million, or ~~83.8%~~41.8%, primarily due to increased business development activity in this area period over period.

•Other. Other noninterest expense increased ~~$1.8~~$2.7 million or ~~13.3%.~~13.6% despite a ~~$1.0~~$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~~period.

7875

Table of Contents

Income Taxes

Income tax expense increased ~~$4.1~~$1.8 million, or ~~23.6%~~6.9%, from ~~$17.5~~$25.3 million for the ~~six~~nine months ended ~~June~~September 30, 2021 to ~~$21.7~~$27.1 million for the ~~six~~nine months ended ~~June~~September 30, 2022. The effective tax rate was 24% for the ~~six~~nine months ended ~~June~~September 30, 2022 and ~~22%~~23% for the ~~six~~nine months ended ~~June~~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)	(Dollars in thousands)											(Dollars in thousands)
Six Months Ended June 30, 2022		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	$	88,422	$	112,228	$	9,004	$	88	$	209,742	Total interest income	$	138,286	$	161,789	$	12,760	$	132	$	312,967
Intersegment interest allocations	Intersegment interest allocations	4,045		(3,854)		(191)		—		—		Intersegment interest allocations	6,651		(6,312)		(339)		—		—
Total interest expense	Total interest expense	4,623		—		—		3,612		8,235		Total interest expense	7,547		—		—		5,643		13,190
Net interest income (expense)	Net interest income (expense)	87,844		108,374		8,813		(3,524)		201,507		Net interest income (expense)	137,390		155,477		12,421		(5,511)		299,777
Credit loss expense (benefit)	Credit loss expense (benefit)	250		2,013		170		969		3,402		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	87,594		106,361		8,643		(4,493)		198,105		Net interest income after credit loss expense	134,752		153,516		12,016		(6,555)		293,729
Noninterest income	Noninterest income	28,307		17,392		13,551		31		59,281		Noninterest income	34,496		20,333		17,069		51		71,949
Noninterest expense	Noninterest expense	90,093		43,512		31,996		1,570		167,171		Noninterest expense	138,741		66,408		46,062		2,649		253,860
Net income (loss) before income tax expense	Net income (loss) before income tax expense	$	25,808	$	80,241	$	(9,802)	$	(6,032)	$	90,215	Net income (loss) before income tax expense	$	30,507	$	107,441	$	(16,977)	$	(9,153)	$	111,818

7976

Table of Contents


(Dollars in thousands)	(Dollars in thousands)											(Dollars in thousands)
Six Months Ended June 30, 2021		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	$	97,912	$	80,477	$	4,644	$	8	$	183,041	Total interest income	$	144,087	$	127,699	$	7,939	$	51	$	279,776
Intersegment interest allocations	Intersegment interest allocations	5,665		(5,359)		(306)		—		—		Intersegment interest allocations	8,117		(7,700)		(417)		—		—
Total interest expense	Total interest expense	6,152		—		—		3,587		9,739		Total interest expense	8,225		—		—		6,478		14,703
Net interest income (expense)	Net interest income (expense)	97,425		75,118		4,338		(3,579)		173,302		Net interest income (expense)	143,979		119,999		7,522		(6,427)		265,073
Credit loss expense (benefit)	Credit loss expense (benefit)	(16,788)		6,927		510		(300)		(9,651)		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	114,213		68,191		3,828		(3,279)		182,953		Net interest income after credit loss expense	163,166		111,908		6,974		(6,137)		275,911
Noninterest income	Noninterest income	17,768		9,153		1,156		110		28,187		Noninterest income	25,139		10,710		4,242		151		40,242
Noninterest expense	Noninterest expense	81,314		33,327		14,977		2,072		131,690		Noninterest expense	122,497		52,433		26,393		3,180		204,503
Net income (loss) before income tax expense	Net income (loss) before income tax expense	$	50,667	$	44,017	$	(9,993)	$	(5,241)	$	79,450	Net income (loss) before income tax expense	$	65,808	$	70,185	$	(15,177)	$	(9,166)	$	111,650


(Dollars in thousands)	(Dollars in thousands)													(Dollars in thousands)
June 30, 2022		Banking		Factoring		Payments		Corporate		Eliminations		Consolidated
September 30, 2022														September 30, 2022	Banking		Factoring		Payments		Corporate		Eliminations		Consolidated
Total assets	Total assets	$	5,620,770	$	1,614,369	$	340,357	$	1,024,081	$	(2,644,070)	$	5,955,507	Total assets	$	5,162,380	$	1,406,367	$	354,179	$	1,041,293	$	(2,321,769)	$	5,642,450
Gross loans	Gross loans	$	3,990,481	$	1,450,447	$	145,835	$	—	$	(1,151,397)	$	4,435,366	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)	(Dollars in thousands)	Six Months Ended June 30,						% Change		(Dollars in thousands)	Nine Months Ended September 30,						% Change
Banking	Banking	2022		2021		$ Change				Banking	2022		2021		$ Change
Total interest income	Total interest income	$	88,422	$	97,912	$	(9,490)	(9.7	%)	Total interest income	$	138,286	$	144,087	$	(5,801)	(4.0	%)
Intersegment interest allocations	Intersegment interest allocations	4,045		5,665		(1,620)		(28.6	%)	Intersegment interest allocations	6,651		8,117		(1,466)		(18.1	%)
Total interest expense	Total interest expense	4,623		6,152		(1,529)		(24.9	%)	Total interest expense	7,547		8,225		(678)		(8.2	%)
Net interest income	Net interest income	87,844		97,425		(9,581)		(9.8	%)	Net interest income	137,390		143,979		(6,589)		(4.6	%)
Credit loss expense (benefit)	Credit loss expense (benefit)	250		(16,788)		17,038		101.5	%	Credit loss expense (benefit)	2,638		(19,187)		21,825		113.7	%
Net interest income after credit loss expense	Net interest income after credit loss expense	87,594		114,213		(26,619)		(23.3	%)	Net interest income after credit loss expense	134,752		163,166		(28,414)		(17.4	%)
Noninterest income	Noninterest income	28,307		17,768		10,539		59.3	%	Noninterest income	34,496		25,139		9,357		37.2	%
Noninterest expense	Noninterest expense	90,093		81,314		8,779		10.8	%	Noninterest expense	138,741		122,497		16,244		13.3	%
Net income (loss) before income tax expense	Net income (loss) before income tax expense	$	25,808	$	50,667	$	(24,859)	(49.1	%)	Net income (loss) before income tax expense	$	30,507	$	65,808	$	(35,301)	(53.6	%)

Our Banking segment’s operating income decreased ~~$24.9~~$35.3 million, or ~~49.1%~~53.6%.

Total interest income decreased ~~$9.5~~$5.8 million, or ~~9.7%~~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 ~~16.5%~~15.7% from ~~$3.619~~$3.511 billion for the ~~six~~nine months ended ~~June~~September 30, 2021 to ~~$3.024~~$2.959 billion for the ~~six~~nine months ended ~~June~~September 30, 2022. The decrease in interest income was ~~also driven~~partially offset by ~~a decrease~~an increase in yields on interest earning assets at our Banking segment.

Interest expense decreased ~~$1.5~~$0.7 million, or ~~24.9%~~8.2%. Average balance of interest bearing liabilities at our Banking segment decreased overall, and average total interest bearing deposits decreased ~~$594.7~~$486.3 million, or ~~18.1%~~15.4%. Average rates on interest bearing liabilities at our Banking segment were ~~relatively flat~~slightly higher period over period.

8077

Table of Contents

Credit loss expense at our Banking segment is made up of credit loss expense related to loans and credit loss expense related to off balance sheet commitments to lend. Credit loss expense related to loans was ~~$0.1~~$3.0 million for the ~~six~~nine months ended ~~June~~September 30, 2022 compared to a benefit to credit loss expense on loans of ~~$15.9~~$18.0 million for the ~~six~~nine months ended ~~June~~September 30, 2021. The increase in credit loss expense was primarily the result of slower projected prepayment speeds and deterioration of the loss driver assumptions that the Company forecasted over the reasonable and supportable forecast periods to calculate expected losses at our Banking segment. We also recorded more specific reserves at our Banking segment during the nine months ended September 30, 2022 compared to the same period a year ago. Changes in volume and mix also contributed to the increase in provision expense period over period. We ~~also~~ recorded ~~more specific reserves at our Banking segment during the six months ended June 30, 2022 compared to the same period a year ago. We recorded $0.2~~$0.4 million of net charge-offs at our Banking segment during the ~~six~~nine months ended ~~June~~September 30, 2022 compared to ~~a net recovery of $0.4 million~~insignificant charge-offs during the same period a year ago.

Credit loss expense for off balance sheet credit exposures increased ~~$1.1~~$0.8 million from a benefit of ~~$0.9~~$1.2 million for the ~~six~~nine months ended ~~June~~September 30, 2021 to ~~$0.2~~a benefit of $0.4 million for the ~~six~~nine months ended ~~June~~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 ~~six~~nine months ended ~~June~~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 ~~six~~nine months ended ~~June~~September 30, 2021 on an acquired loan that was charged off prior to our acquisition of the originating ~~bank.~~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.

Noninterest expense increased primarily due to an increase in salaries and employee benefits expense due to merit increases for existing employees, higher health insurance benefit costs, incentive compensation, stock based compensation and 401(k) expense. ~~Remaining fluctuations in the individual components of noninterest expense at our Banking segment were insignificant period over period.~~ It should be noted that the majority of our executive leadership team's salary and employee benefits expense as well as other selling, general, and administrative shared services costs, including a significant amount of information technology expense, are allocated to the Banking segment.

~~Factoring~~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) Six Months Ended June 30,
Factoring 2022 2021 $ Change % Change
Total interest income $ 112,228 $ 80,477 $ 31,751 39.5 %
Intersegment interest allocations (3,854) (5,359) 1,505 28.1 %
Total interest expense — — — —
Net interest income 108,374 75,118 33,256 44.3 %
Credit loss expense (benefit) 2,013 6,927 (4,914) (70.9 %)
Net interest income after credit loss expense 106,361 68,191 38,170 56.0 %
Noninterest income 17,392 9,153 8,239 90.0 %
Noninterest expense 43,512 33,327 10,185 30.6 %
Net income (loss) before income tax expense $ 80,241 $ 44,017 $ 36,224 82.3 %


(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

8178

Table of Contents

Six Months Ended June 30,
2022 2021
Factored receivable period end balance $ 1,474,852,000 $ 1,284,314,000
Yield on average receivable balance 14.19 % 14.46 %
Year to date charge-off rate(1)
0.05 % 3.73 %
Factored receivables - transportation concentration 94 % 91 %
Interest income, including fees $ 112,228,000 $ 80,477,000
Non-interest income(2)
17,392,000 4,499,000
Factored receivable total revenue 129,620,000 84,976,000
Average net funds employed 1,430,530,000 1,004,842,000
Yield on average net funds employed 18.27 % 17.05 %
Accounts receivable purchased $ 8,065,452,000 $ 5,560,730,000
Number of invoices purchased 3,329,733 2,590,373
Average invoice size $ 2,422 $ 2,147
Average invoice size - transportation $ 2,284 $ 2,037
Average invoice size - non-transportation $ 5,984 $ 4,738
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 ~~six~~nine months ended ~~June~~September 30, 2021 includes a $41.3 million charge-off related to the TFS acquisition, which contributed approximately ~~3.67%~~3.43% to the net charge-off rate for the period.

(2) Non-interest income for the ~~six~~nine months ended ~~June~~September 30, 2022 includes ~~a $13.2~~$14.2 million ~~gain~~of gains on sale of a portfolio of factored receivables, which contributed ~~1.86%~~1.39% to the yield on average net funds employed for the period.

Non-interest income for the ~~six~~nine months ended ~~June~~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 ~~$36.2~~$37.3 million, or ~~82.3%~~53.1%.

Our average invoice size increased ~~12.8%~~5.6% from ~~$2,147~~$2,204 for the ~~six~~nine months ended ~~June~~September 30, 2021 to ~~$2,422~~$2,328 for the ~~six~~nine months ended ~~June~~September 30, 2022 and the number of invoices purchased increased ~~28.5%~~21.5% period over period.

Net interest income at our Factoring segment increased period over period. Overall average net funds employed (“NFE”) increased ~~42.4%~~26.3% during the ~~six~~nine months ended ~~June~~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.~~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 ~~91%~~90% at ~~June~~September 30, 2021 and ~~94%~~96% at ~~June~~September 30, 2022.

Table of Contents

The period over period decrease in credit loss expense at our Factoring segment is primarily due to decreased charge-off activity and a ~~decrease~~reduction in ~~net new specific reserves required on our~~the period end volume of the factoring portfolio period over period. Such increase in specific reserves for the six months ended June 30, 2021 was impacted by an additional $2.9 million reserve on our Over-Formula Advances during that period. The period over period decrease in credit loss expense at our Factoring segment was also driven by a decreased impact of changes in volume during the ~~comparative~~ periods. ~~Changes in loss assumptions did not have a material impact on the change in credit loss expense period over period.~~ Net charge-offs at our Factoring segment during the ~~six~~nine months ended ~~June~~September 30, 2022 were ~~$0.7~~$3.0 million compared to ~~$41.9~~$45.2 million during the same period a year ago. Net charge-offs during the ~~six~~nine months ended ~~June~~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 ~~$13.2~~$14.2 million gain on sale of factored receivables during the ~~six~~nine months ended ~~June~~September 30, 2022. ~~The increase was~~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 ~~six~~nine months ended ~~June~~September 30, 2021 that did not repeat during the current year. Also offsetting the ~~increase~~increases was a ~~$4.7~~$4.2 million gain on our indemnification asset recognized during the ~~six~~nine months ended ~~June~~September 30, 2021 compared to a write off of the indemnification asset of ~~$0.4~~$0.6 million during the same period of the current year. There were no other material fluctuations in noninterest income at our Factoring segment.

~~Table of Contents~~

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)	(Dollars in thousands)	Six Months Ended June 30,								(Dollars in thousands)	Nine Months Ended September 30,
Payments	Payments	2022		2021		$ Change		% Change		Payments	2022		2021		$ Change		% Change
Total interest income	Total interest income	$	9,004	$	4,644	$	4,360	93.9	%	Total interest income	$	12,760	$	7,939	$	4,821	60.7	%
Intersegment interest allocations	Intersegment interest allocations	(191)		(306)		115		37.6	%	Intersegment interest allocations	(339)		(417)		78		18.7	%
Total interest expense	Total interest expense	—		—		—		—	%	Total interest expense	—		—		—		—	%
Net interest income	Net interest income	8,813		4,338		4,475		103.2	%	Net interest income	12,421		7,522		4,899		65.1	%
Credit loss expense (benefit)	Credit loss expense (benefit)	170		510		(340)		(66.7)	%	Credit loss expense (benefit)	405		548		(143)		(26.1)	%
Net interest income after credit loss expense	Net interest income after credit loss expense	8,643		3,828		4,815		125.8	%	Net interest income after credit loss expense	12,016		6,974		5,042		72.3	%
Noninterest income	Noninterest income	13,551		1,156		12,395		1072.2	%	Noninterest income	17,069		4,242		12,827		302.4	%
Noninterest expense	Noninterest expense	31,996		14,977		17,019		113.6	%	Noninterest expense	46,062		26,393		19,669		74.5	%
Net income (loss) before income tax expense	Net income (loss) before income tax expense	$	(9,802)	$	(9,993)	$	191	1.9	%	Net income (loss) before income tax expense	$	(16,977)	$	(15,177)	$	(1,800)	(11.9)	%


		Six Months Ended					Nine Months Ended
		2022		2021			2022		2021
Factored receivable period end balance	Factored receivable period end balance	$	145,835,000	$	113,985,000	Factored receivable period end balance	$	118,958,000	$	127,039,000

Interest income	Interest income	$	9,004,000	$	4,644,000	Interest income	$	12,760,000	$	7,939,000
Noninterest income	Noninterest income	13,551,000		1,156,000		Noninterest income	17,069,000		4,242,000
Total revenue	Total revenue	$	22,555,000	$	5,800,000	Total revenue	$	29,829,000	$	12,181,000

Operating income (loss)	Operating income (loss)	$	(9,802,000)	$	(9,993,000)	Operating income (loss)	$	(16,977,000)	$	(15,177,000)
Interest expense	Interest expense	191,000		306,000		Interest expense	339,000		417,000
Depreciation and software amortization expense	Depreciation and software amortization expense	211,000		133,000		Depreciation and software amortization expense	331,000		210,000
Intangible amortization expense	Intangible amortization expense	2,967,000		497,000		Intangible amortization expense	4,417,000		1,987,000
Earnings (losses) before interest, taxes, depreciation, and amortization	Earnings (losses) before interest, taxes, depreciation, and amortization	$	(6,433,000)	$	(9,057,000)	Earnings (losses) before interest, taxes, depreciation, and amortization	$	(11,890,000)	$	(12,563,000)
Transaction costs	Transaction costs	$	—	$	2,992,000	Transaction costs	$	—	$	2,992,000
Adjusted earnings (losses) before interest, taxes, depreciation, and amortization(1)	Adjusted earnings (losses) before interest, taxes, depreciation, and amortization(1)	$	(6,433,000)	$	(6,065,000)	Adjusted earnings (losses) before interest, taxes, depreciation, and amortization(1)	$	(11,890,000)	$	(9,571,000)

Number of invoices processed	Number of invoices processed	8,366,885		5,694,792		Number of invoices processed	13,043,134		9,455,740
Amount of payments processed	Amount of payments processed	$	11,734,747,000	$	5,728,440,000	Amount of payments processed	$	17,686,453,000	$	9,919,865,000
Conforming invoice volume	Conforming invoice volume	170,762		—		Conforming invoice volume	315,015		—
Conforming payment volume	Conforming payment volume	$	382,881,000	$	—	Conforming payment volume	$	671,291,000	$	—

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 continues to pursue large factors and brokers with positive traction. Many payments companies begin with a long-term goal of capturing a level of their total addressable market that is less than what we already facilitate in ours. While growth will be non-linear due to the timing nuances and larger volumes of any new large brokers, ~~we see a path to facilitating over 40% of the brokered freight industry’s payment volume exiting 2024. We continue to capture share with a product that lifts an entire industry. Brokers, factors and carriers alike all benefit from improvements in efficiencies, transparency, security, and accuracy.~~

Our Payments segment's operating loss ~~decreased $0.2~~increased $1.8 million, or ~~1.9%~~11.9%.

~~Table of Contents~~

The number of invoices processed by our Payments segment increased ~~46.9%~~37.9% from ~~5,694,792~~9,455,740 for the ~~six~~nine months ended ~~June~~September 30, 2021 to ~~8,366,885~~13,043,134 for the ~~six~~nine months ended ~~June~~September 30, 2022, and the amount of payments processed increased ~~104.9%~~78.3% from ~~$5.728~~$9.920 billion for the ~~six~~nine months ended ~~June~~September 30, 2021 to ~~$11.735~~$17.686 billion for the ~~six~~nine months ended ~~June~~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. ~~In recognition of these benefits, we will charge a network fee tied to conforming transactions.~~ During the ~~six~~nine months ended ~~June~~September 30, 2022, we processed ~~170,762~~315,015 conforming invoices representing a conforming payment volume of ~~$382.9~~$671.3 million.

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

Noninterest income increased due to a ~~$5.4~~$5.9 million increase in payment fees earned by TriumphPay during the ~~six~~nine months ended ~~June~~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 ~~$2.3~~$2.6 million and amortization of the intangible assets acquired in the HubTran acquisition increased ~~$2.5~~$2.4 million. Further, travel and entertainment expenses increased $0.5 million reflecting our emphasis of client growth and business development. These increases were partially offset by a decrease in professional fees of $1.3 million resulting from the acquisition of HubTran in the prior period. We continue to invest heavily in the operations of TriumphPay.

The acquisition of HubTran during ~~the six months ended June 30,~~ 2021 allows TriumphPay to create a fully integrated payments network for trucking; servicing brokers and factors. TriumphPay already offered tools and services to increase automation, mitigate fraud, create back-office efficiency and improve the payment experience. Through the acquisition of HubTran, TriumphPay created additional value through the enhancement of its presentment, audit, and payment capabilities for shippers, third party logistics companies (i.e., freight brokers) and their carriers, and factors. The acquisition of HubTran was a meaningful inflection point in the operations of TriumphPay as the TriumphPay strategy has shifted from a capital-intensive on-balance sheet product with a focus on interest income to an open-loop payments network for the trucking industry with a focus on fee revenue. It is for this reason that management believes that earnings before interest, taxes, depreciation, and amortization and the adjustment to that metric enhance investors' overall understanding of the financial performance of the Payments segment. Further, as a result of the HubTran acquisition, management recorded $27.3 million of intangible assets that will lead to meaningful amounts of amortization going forward.

Corporate


(Dollars in thousands)	(Dollars in thousands)	Six Months Ended June 30,						% Change		(Dollars in thousands)	Nine Months Ended September 30,						% Change
Corporate	Corporate	2022		2021		$ Change				Corporate	2022		2021		$ Change
Total interest income	Total interest income	$	88	$	8	$	80	1,000.0	%	Total interest income	$	132	$	51	$	81	158.8	%
Intersegment interest allocations	Intersegment interest allocations	—		—		—		—		Intersegment interest allocations	—		—		—		—
Total interest expense	Total interest expense	3,612		3,587		25		0.7	%	Total interest expense	5,643		6,478		(835)		(12.9	%)
Net interest income (expense)	Net interest income (expense)	(3,524)		(3,579)		55		1.5	%	Net interest income (expense)	(5,511)		(6,427)		916		14.3	%
Credit loss expense (benefit)	Credit loss expense (benefit)	969		(300)		1,269		423.0	%	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	(4,493)		(3,279)		(1,214)		(37.0	%)	Net interest income (expense) after credit loss expense	(6,555)		(6,137)		(418)		(6.8	%)
Noninterest income	Noninterest income	31		110		(79)		(71.8	%)	Noninterest income	51		151		(100)		(66.2	%)
Noninterest expense	Noninterest expense	1,570		2,072		(502)		(24.2	%)	Noninterest expense	2,649		3,180		(531)		(16.7	%)
Net income (loss) before income tax expense	Net income (loss) before income tax expense	$	(6,032)	$	(5,241)	$	(791)	(15.1	%)	Net income (loss) before income tax expense	$	(9,153)	$	(9,166)	$	13	0.1	%

Table of Contents

The Corporate segment reported an operating loss of ~~$6.0~~$9.2 million for the ~~six~~nine months ended ~~June~~September 30, 2022 ~~compared to an operating loss of $5.2 million for the six months ended June 30, 2021. This was primarily due to increased credit~~and 2021, respectively. Credit loss expense on our HTM CLOs previously discussed in the Credit Loss Expense ~~section.~~section increased. Additionally, during the ~~six~~nine months ended ~~June~~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 that carry a lower interest rate than the subordinated notes that they replaced. There were no other significant fluctuations in accounts in our Corporate segment period over period.

~~Table of Contents~~

Financial Condition

Assets

Total assets were ~~$5.956~~$5.642 billion at ~~June~~September 30, 2022, compared to $5.956 billion at December 31, 2021, a decrease of ~~$0.7~~$313.8 million, the components of which are discussed below.

Loan Portfolio

Loans held for investment were ~~$4.435~~$4.433 billion at ~~June~~September 30, 2022, compared with $4.868 billion at December 31, 2021.

The following table shows our total loan portfolio by portfolio segments:


		June 30, 2022				December 31, 2021				$ 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	$	649,280	15	%	$	632,775	13	%			$	16,505				2.6	%	Commercial real estate		$	669,742		15		%	$	632,775		13		%	$	36,967		5.8	%
Construction, land development, land	Construction, land development, land	103,377		2	%	123,464		3	%	(20,087)				(16.3	%)	Construction, land development, land			75,527			2	%		123,464			3	%		(47,937)			(38.8	%)
1-4 family residential	1-4 family residential	126,362		3	%	123,115		3	%	3,247				2.6	%	1-4 family residential			122,594			3	%		123,115			3	%		(521)			(0.4	%)
Farmland	Farmland	70,272		2	%	77,394		2	%	(7,122)				(9.2	%)	Farmland			66,595			2	%		77,394			2	%		(10,799)			(14.0	%)
Commercial	Commercial	1,225,479		28	%	1,430,429		29	%	(204,950)				(14.3	%)	Commercial			1,282,199			29	%		1,430,429			29	%		(148,230)			(10.4	%)
Factored receivables	Factored receivables	1,596,282		35	%	1,699,537		34	%	(103,255)				(6.1	%)	Factored receivables			1,449,080			32	%		1,699,537			34	%		(250,457)			(14.7	%)
Consumer	Consumer	9,709		—	%	10,885		—	%	(1,176)				(10.8	%)	Consumer			9,506			—	%		10,885			—	%		(1,379)			(12.7	%)
Mortgage warehouse	Mortgage warehouse	654,605		15	%	769,973		16	%	(115,368)				(15.0	%)	Mortgage warehouse			758,061			17	%		769,973			16	%		(11,912)			(1.5	%)
Total Loans	Total Loans	$	4,435,366	100	%	$	4,867,572	100	%	$	(432,206)			(8.9	%)	Total Loans			$	4,433,304		100	%		$	4,867,572		100	%		$	(434,268)		(8.9	%)

Commercial Real Estate Loans. Our commercial real estate loans increased ~~$16.5~~$37.0 million, or ~~2.6%~~5.8%, due to new origination activity that outpaced paydowns.

Construction and Development Loans. Our construction and development loans decreased ~~$20.1~~$47.9 million, or ~~16.3%~~38.8%, due 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 ~~increased $3.2~~decreased $0.5 million, or ~~2.6%~~0.4%, due to paydowns that outpaced new origination ~~activity that outpaced paydowns.~~activity.

Farmland Loans. Our farmland loans decreased ~~$7.1~~$10.8 million, or ~~9.2%~~14.0%, due to paydowns that outpaced modest origination activity.

Commercial Loans. Our commercial loans held for investment decreased ~~$205.0~~$148.2 million, or ~~14.3%~~10.4%, due to the sale of $191.2 million of equipment loans during the period. Our other commercial lending products, comprised primarily of general commercial loans originated in our community banking markets, increased ~~$24.0~~$23.4 million, or ~~8.1%~~7.9%.

Table of Contents

The following table shows our commercial loans:


(Dollars in thousands)	(Dollars in thousands)	June 30, 2022		December 31, 2021		$ Change		% Change		(Dollars in thousands)	September 30, 2022		December 31, 2021		$ Change		% Change
Commercial	Commercial									Commercial
Equipment	Equipment	$	431,366	$	621,437	$	(190,071)	(30.6	%)	Equipment	$	439,604	$	621,437	$	(181,833)	(29.3	%)
Asset-based lending	Asset-based lending	239,505		281,659		(42,154)		(15.0	%)	Asset-based lending	238,119		281,659		(43,540)		(15.5	%)
Liquid credit	Liquid credit	170,260		134,347		35,913		26.7	%	Liquid credit	224,991		134,347		90,644		67.5	%
Paycheck Protection Program loans	Paycheck Protection Program loans	4,538		27,197		(22,659)		(83.3	%)	Paycheck Protection Program loans	60		27,197		(27,137)		(99.8	%)
Agriculture	Agriculture	60,150		70,127		(9,977)		(14.2	%)	Agriculture	60,409		70,127		(9,718)		(13.9	%)
Other commercial lending	Other commercial lending	319,660		295,662		23,998		8.1	%	Other commercial lending	319,016		295,662		23,354		7.9	%
Total commercial loans	Total commercial loans	$	1,225,479	$	1,430,429	$	(204,950)	(14.3	%)	Total commercial loans	$	1,282,199	$	1,430,429	$	(148,230)	(10.4	%)

Factored Receivables. Our factored receivables decreased ~~$103.3~~$250.5 million, or ~~6.1%~~14.7% due to the sale of ~~$67.9~~$88.0 million of factored receivables during the ~~period.~~period and a slowing freight market. At ~~June~~September 30, 2022, the balance of the Over-Formula Advance Portfolio included in factored receivables was ~~$9.2~~$8.8 million. At ~~June~~September 30, 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.

~~Table of Contents~~

Consumer Loans. Our consumer loans decreased ~~$1.2~~$1.4 million, or ~~10.8%~~12.7%, due to paydowns that outpaced modest origination activity.

Mortgage Warehouse. Our mortgage warehouse facilities decreased $~~115.4~~11.9 million, or ~~15.0%~~1.5%, due to decreased 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 ~~$651.4~~$610.8 million for the three months ended ~~June~~September 30, 2022 compared to ~~$789.0~~$772.3 million for the three months ended ~~June~~September 30, 2021 and ~~$644.1~~$632.9 million for the ~~six~~nine months ended ~~June~~September 30, 2022 compared to ~~$855.0~~$827.1 million for the ~~six~~nine months ended ~~June~~September 30, 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:


		June 30, 2022											September 30, 2022
(Dollars in thousands)	(Dollars in thousands)	One Year or Less		After One but within Five Years		After Five but within Fifteen Years		After Fifteen Years		Total		(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	Commercial real estate	$	89,049	$	475,448	$	79,260	$	5,523	$	649,280	Commercial real estate	$	135,892	$	453,614	$	75,522	$	4,714	$	669,742
Construction, land development, land	Construction, land development, land	46,161		48,154		8,073		989		103,377		Construction, land development, land	24,508		47,742		3,243		34		75,527
1-4 family residential	1-4 family residential	8,761		30,783		17,070		69,748		126,362		1-4 family residential	8,896		31,273		16,477		65,948		122,594
Farmland	Farmland	14,546		20,194		30,905		4,627		70,272		Farmland	11,688		21,976		28,756		4,175		66,595
Commercial	Commercial	391,459		733,609		100,101		310		1,225,479		Commercial	381,223		778,603		122,063		310		1,282,199
Factored receivables	Factored receivables	1,596,282		—		—		—		1,596,282		Factored receivables	1,449,080		—		—		—		1,449,080
Consumer	Consumer	1,187		7,044		1,469		9		9,709		Consumer	1,273		7,055		1,169		9		9,506
Mortgage warehouse	Mortgage warehouse	654,605		—		—		—		654,605		Mortgage warehouse	758,061		—		—		—		758,061
		$	2,802,050	$	1,315,232	$	236,878	$	81,206	$	4,435,366		$	2,770,621	$	1,340,263	$	247,230	$	75,190	$	4,433,304

Sensitivity of loans to changes in interest rates:	Sensitivity of loans to changes in interest rates:											Sensitivity of loans to changes in interest rates:
Predetermined (fixed) interest rates	Predetermined (fixed) interest rates			$	838,393	$	32,619	$	6,568			Predetermined (fixed) interest rates			$	819,714	$	23,284	$	6,454
Floating interest rates	Floating interest rates			476,839		204,259		74,638				Floating interest rates			520,549		223,946		68,736
Total	Total			$	1,315,232	$	236,878	$	81,206			Total			$	1,340,263	$	247,230	$	75,190

As of ~~June~~September 30, 2022, most of the Company’s non-factoring business activity is with customers located within certain states. The states of Texas ~~(23%~~(21%), Colorado (13%), Illinois (11%~~), Colorado (14%~~), and Iowa (6%) make up ~~54%~~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, 2021, the states of Texas (21%), Illinois (15%), Colorado (15%), and Iowa (6%) made up 57% of the Company’s gross loans, excluding factored receivables.

Table of Contents

Further, a majority ~~(95%~~(96%) of our factored receivables, including factored receivables held for sale, representing approximately ~~34%~~31% of our total loan portfolio as of ~~June~~September 30, 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, 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, 2021, 91% of our factored receivables, representing approximately 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.

~~Table of Contents~~

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)	(Dollars in thousands)	June 30, 2022			December 31, 2021			(Dollars in thousands)	September 30, 2022			December 31, 2021
Nonperforming loans:	Nonperforming loans:							Nonperforming loans:
Commercial real estate	Commercial real estate	$	1,906		$	2,025		Commercial real estate	$	1,108		$	2,025
Construction, land development, land	Construction, land development, land	152			964			Construction, land development, land	151			964
1-4 family residential	1-4 family residential	1,494			1,684			1-4 family residential	1,710			1,684
Farmland	Farmland	1,215			2,044			Farmland	414			2,044
Commercial	Commercial	6,524			8,842			Commercial	17,868			8,842
Factored receivables	Factored receivables	30,460			30,485			Factored receivables	34,515			30,485
Consumer	Consumer	183			240			Consumer	154			240
Mortgage warehouse	Mortgage warehouse	—			—			Mortgage warehouse	—			—
Total nonperforming loans	Total nonperforming loans	41,934			46,284			Total nonperforming loans	55,920			46,284
Held to maturity securities	Held to maturity securities	5,258			5,612			Held to maturity securities	5,130			5,612
Assets held for sale		164			—
Other real estate owned, net	Other real estate owned, net	168			524			Other real estate owned, net	—			524
Other repossessed assets	Other repossessed assets	1,874			2,368			Other repossessed assets	1,751			2,368
Total nonperforming assets	Total nonperforming assets	$	49,398		$	54,788		Total nonperforming assets	$	62,801		$	54,788

Nonperforming assets to total assets	Nonperforming assets to total assets	0.83		%	0.92		%	Nonperforming assets to total assets	1.11		%	0.92		%
Nonperforming loans to total loans held for investment	Nonperforming loans to total loans held for investment	0.95		%	0.95		%	Nonperforming loans to total loans held for investment	1.26		%	0.95		%
Total past due loans to total loans held for investment	Total past due loans to total loans held for investment	2.47		%	2.86		%	Total past due loans to total loans held for investment	2.33		%	2.86		%

Nonperforming loans ~~decreased $4.4~~increased $9.6 million, or ~~9.4%~~20.8%, due to the addition of a $12.0 million liquid credit loan secured by the enterprise value of the borrower and a $4.0 million increase in nonperforming factored receivables. These additions were offset by the removal of a $1.6 million equipment finance loan through payoff and consistent decreases in nonperforming loans across ~~all~~several loan types. The portion of the factoring Over-Formula Advances not covered by Covenant's indemnification and thus, considered nonperforming, is ~~$1.0~~$0.8 million at ~~June~~September 30, 2022. The entire $19.4 million of Misdirected Payments is included in nonperforming loans (specifically, factored receivables) in accordance with our policy.

OREO decreased ~~$0.4~~$0.5 million, or ~~67.9%~~100.0%, due to the removal of individually insignificant OREO properties ~~as well as insignificant valuation adjustments made~~ throughout the period.

Table of Contents

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 ~~was flat~~increased to 1.26% at ~~0.95% at June~~September 30, 2022 from 0.95% December 31, 2021.

Our ratio of nonperforming assets to total assets ~~decreased~~increased to ~~0.83%~~1.11% at ~~June~~September 30, 2022 from 0.92% December 31, 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 ~~$0.4~~$0.5 million during the year.

Past due loans to total loans held for investment decreased to ~~2.47%~~2.33% at ~~June~~September 30, 2022 from 2.86% at December 31, 2021, as a result of the aforementioned loan activity and a decrease in past due factored receivables. Both the ~~$9.2~~$8.8 million acquired factoring Over-Formula Advance balance and the $19.4 million Misdirected Payments balance are considered greater than 90 days past due at ~~June~~September 30, 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 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.

~~Table of Contents~~

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.

The following table sets forth the ACL by category of loan:


		June 30, 2022						December 31, 2021							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	$	5,167	15	%	0.80	%	$	3,961	13	%	0.63	%	Commercial real estate	$	4,794	15	%	0.72	%	$	3,961	13	%	0.63	%
Construction, land development, land	Construction, land development, land	1,192		2	%	1.15	%	827		3	%	0.67	%	Construction, land development, land	995		2	%	1.32	%	827		3	%	0.67	%
1-4 family residential	1-4 family residential	757		3	%	0.60	%	468		3	%	0.38	%	1-4 family residential	742		3	%	0.61	%	468		3	%	0.38	%
Farmland	Farmland	490		2	%	0.70	%	562		2	%	0.73	%	Farmland	467		2	%	0.70	%	562		2	%	0.73	%
Commercial	Commercial	12,738		28	%	1.04	%	14,485		29	%	1.01	%	Commercial	16,020		29	%	1.25	%	14,485		29	%	1.01	%
Factored receivables	Factored receivables	22,212		35	%	1.39	%	20,915		34	%	1.23	%	Factored receivables	20,134		32	%	1.39	%	20,915		34	%	1.23	%
Consumer	Consumer	197		—	%	2.03	%	226		—	%	2.08	%	Consumer	202		—	%	2.12	%	226		—	%	2.08	%
Mortgage warehouse	Mortgage warehouse	654		15	%	0.10	%	769		16	%	0.10	%	Mortgage warehouse	757		17	%	0.10	%	769		16	%	0.10	%
Total Loans	Total Loans	$	43,407	100	%	0.98	%	$	42,213	100	%	0.87	%	Total Loans	$	44,111	100	%	0.99	%	$	42,213	100	%	0.87	%

The ACL increased ~~$1.2~~$1.9 million, or ~~2.8%~~4.5%. This increase reflects net charge-offs of ~~$1.7~~$4.2 million and credit loss expense of ~~$2.9~~$6.1 million. Refer to the Results of Operations: Credit Loss Expense section for discussion of material charge-offs and credit loss expense. At quarter end, our entire remaining Over-Formula Advance position was down from $10.1 million at December 31, 2021 to ~~$9.2~~$8.8 million at ~~June~~September 30, 2022 and the entire balance at ~~June~~September 30, 2022 was fully reserved. At ~~June~~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 ~~June~~September 30, 2022.

A driver of the change in ACL is projected deterioration of the loss drivers that the Company forecasted to calculate expected losses at ~~June~~September 30, 2022 as compared to December 31, 2021. It had a negative impact on the Company’s loss drivers and assumptions over the reasonable and supportable forecast period and resulted in an increase of $1.5 million of ACL period over period.

Table of Contents

For all DCF models at ~~June~~September 30, 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 ~~June~~September 30, 2022 as compared to December 31, 2021, the Company forecasted ~~an increase in~~increasing national unemployment, a ~~directionally consistent trend~~steeper decrease in one-year percentage change in national retail sales, a steeper decrease in one-year percentage change in the national home price index, and a steeper decrease in one-year percentage change in national gross domestic product. At ~~June~~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 ~~levels~~level in the first ~~two~~ projected ~~quarters~~quarter followed by a decline to near-zero or negative levels over the last ~~two~~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 declines over the last three projected quarters to negative levels below recent actual periods. At ~~June~~September 30, 2022, the Company slowed its historical prepayment speeds in response to the rising interest rate environment in the macro economy.

~~Table of Contents~~

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 June 30, 2022, the Company carried $4.5 million of PPP loans classified as Commercial loans for reporting purposes. Loans funded through the PPP program are fully guaranteed by the U.S. government. This guarantee exists at the inception of the loans and throughout the lives of the loans and was not entered into separately and apart from the loans. Credit enhancements that mitigate credit losses, such as the U.S. government guarantee on PPP loans, are required to be considered in estimating credit losses. The guarantee is considered “embedded” and, therefore, is considered when estimating credit loss on the PPP loans. Given that the loans are fully guaranteed by the U.S. government and absent any specific loss information about any of our PPP loans, the Company does not carry an ACL on its PPP loans at June 30, 2022.

The following tables show our credit ratios and an analysis of our credit loss expense:


(Dollars in thousands)	(Dollars in thousands)	June 30, 2022			December 31, 2021			(Dollars in thousands)	September 30, 2022			December 31, 2021
Allowance for credit losses on loans	Allowance for credit losses on loans	$	43,407		$	42,213		Allowance for credit losses on loans	$	44,111		$	42,213
Total loans held for investment	Total loans held for investment	$	4,435,366		$	4,867,572		Total loans held for investment	$	4,433,304		$	4,867,572
Allowance to total loans held for investment	Allowance to total loans held for investment	0.98		%	0.87		%	Allowance to total loans held for investment	0.99		%	0.87		%

Nonaccrual loans	Nonaccrual loans	$	10,831		$	15,034		Nonaccrual loans	$	20,828		$	15,034
Total loans held for investment	Total loans held for investment	$	4,435,366		$	4,867,572		Total loans held for investment	$	4,433,304		$	4,867,572
Nonaccrual loans to total loans held for investment	Nonaccrual loans to total loans held for investment	0.24		%	0.31		%	Nonaccrual loans to total loans held for investment	0.47		%	0.31		%

Allowance for credit losses on loans	Allowance for credit losses on loans	$	43,407		$	42,213		Allowance for credit losses on loans	$	44,111		$	42,213
Nonaccrual loans	Nonaccrual loans	$	10,831		$	15,034		Nonaccrual loans	$	20,828		$	15,034
Allowance for credit losses to nonaccrual loans	Allowance for credit losses to nonaccrual loans	400.77		%	280.78		%	Allowance for credit losses to nonaccrual loans	211.79		%	280.78		%

Three Months Ended June 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 $ (46) $ 645,321 (0.01) % $ (3) $ 753,355 — %
Construction, land development, land (1) 120,633 — % (1) 204,688 — %
1-4 family residential (2) 128,222 — % 24 137,108 0.02 %
Farmland — 71,971 — % — 96,174 — %
Commercial 70 1,381,328 0.01 % (194) 1,507,435 (0.01) %
Factored receivables 139 1,739,320 0.01 % 536 1,297,303 0.04 %
Consumer 55 10,077 0.55 % 1 13,698 0.01 %
Mortgage warehouse — 651,369 — % — 788,982 — %
Total Loans $ 215 $ 4,748,241 — % $ 363 $ 4,798,743 0.01 %

Table of Contents


	Three 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	$	—	$	670,912	—	%	$	15	$	675,859	—	%
Construction, land development, land	(1)		84,116		—	%	(1)		182,550		—	%
1-4 family residential	(1)		127,574		—	%	(4)		130,808		—	%
Farmland	—		67,708		—	%	—		86,236		—	%
Commercial	149		1,258,735		0.01	%	211		1,432,667		0.01	%
Factored receivables	2,261		1,524,625		0.15	%	3,358		1,478,257		0.23	%
Consumer	57		9,730		0.59	%	139		12,197		1.14	%
Mortgage warehouse	—		610,844		—	%	—		772,275		—	%
Total Loans	$	2,465	$	4,354,244	0.06	%	$	3,718	$	4,770,849	0.08	%

Quarter to date net loans charged off decreased ~~$0.1~~$1.3 million with no individually significant charge-offs in either period.

~~Table of Contents~~


		Six Months Ended June 30,													Nine Months Ended September 30,
		2022						2021							2022						2021
(Dollars in thousands)	(Dollars in thousands)	Net Charge-Offs		Average Loans HFI		Net Charge-Off Ratio		Net Charge-Offs		Average Loans HFI		Net Charge-Off Ratio		(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	Commercial real estate	$	48	$	639,379	0.01	%	$	(8)	$	760,289	—	%	Commercial real estate	$	48	$	650,006	0.01	%	$	7	$	731,836	—	%
Construction, land development, land	Construction, land development, land	(2)		122,481		—	%	10		212,960		—	%	Construction, land development, land	(3)		109,552		—	%	9		202,712		—	%
1-4 family residential	1-4 family residential	(5)		126,827		—	%	(60)		143,943		(0.04)	%	1-4 family residential	(6)		127,079		—	%	(64)		139,517		(0.05)	%
Farmland	Farmland	—		73,562		—	%	—		98,754		—	%	Farmland	—		71,590		—	%	—		94,536		—	%
Commercial	Commercial	733		1,399,872		0.05	%	(383)		1,519,230		(0.03)	%	Commercial	882		1,352,309		0.07	%	(172)		1,490,058		(0.01)	%
Factored receivables	Factored receivables	818		1,760,101		0.05	%	42,001		1,211,816		3.47	%	Factored receivables	3,079		1,680,746		0.18	%	45,359		1,301,606		3.48	%
Consumer	Consumer	147		10,388		1.42	%	54		14,405		0.37	%	Consumer	204		10,166		2.01	%	193		13,661		1.41	%
Mortgage warehouse	Mortgage warehouse	—		644,080		—	%	—		855,017		—	%	Mortgage warehouse	—		632,879		—	%	—		827,133		—	%
Total Loans	Total Loans	$	1,739	$	4,776,690	0.04	%	$	41,614	$	4,816,414	0.86	%	Total Loans	$	4,204	$	4,634,327	0.09	%	$	45,332	$	4,801,059	0.94	%

Year to date net loans charged off decreased ~~$39.9~~$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.

Securities

As of ~~June~~September 30, 2022 and December 31, 2021, we held equity securities with readily determinable fair values of ~~$5.1~~$4.9 million and $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 ~~June~~September 30, 2022, we held debt securities classified as available for sale with a fair value of ~~$215.9~~$238.4 million, an increase of ~~$33.5~~$56.0 million from $182.4 million at December 31, 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)	June 30, 2022		December 31, 2021		$ Change		% Change		(Dollars in thousands)	September 30, 2022		December 31, 2021		$ Change		% Change
Mortgage-backed securities, residential	Mortgage-backed securities, residential	$	48,638	$	37,449	$	11,189	29.9	%	Mortgage-backed securities, residential	$	44,675	$	37,449	$	7,226	19.3	%
Asset-backed securities	Asset-backed securities	6,551		6,764		(213)		(3.1)	%	Asset-backed securities	6,476		6,764		(288)		(4.3)	%
State and municipal	State and municipal	15,023		26,825		(11,802)		(44.0)	%	State and municipal	14,262		26,825		(12,563)		(46.8)	%
CLO Securities	CLO Securities	142,251		106,634		35,617		33.4	%	CLO Securities	169,708		106,634		63,074		59.1	%
Corporate bonds	Corporate bonds	1,268		2,056		(788)		(38.3)	%	Corporate bonds	1,249		2,056		(807)		(39.3)	%
SBA pooled securities	SBA pooled securities	2,178		2,698		(520)		(19.3)	%	SBA pooled securities	2,064		2,698		(634)		(23.5)	%
		$	215,909	$	182,426	$	33,483	18.4	%		$	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 ~~June~~September 30, 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 ~~June~~September 30, 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 ~~June~~September 30, 2022, we held investments classified as held to maturity with an amortized cost, net of ACL, of ~~$4.3~~$4.1 million, a decrease of ~~$0.6~~$0.8 million from $4.9 million at December 31, 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 ~~June~~September 30, 2022.

~~Table of Contents~~

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


		Maturity as of June 30, 2022																					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
Mortgage-backed securities	Mortgage-backed securities	$	1,921	1.97	%	$	9,057	3.96	%	$	2,590	2.41	%	$	38,174	2.50	%	$	51,742	2.75	%	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	—		—	%	—		—	%	5,000		1.32	%	1,590		2.50	%	6,590		1.61	%	Asset-backed securities	—		—	%	—		—	%	5,000		1.32	%	1,501		3.72	%	6,501		1.88	%
State and municipal	State and municipal	1,372		2.71	%	1,578		3.20	%	2,319		2.70	%	9,726		2.48	%	14,995		2.61	%	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	—		—	%	—		—	%	47,580		3.93	%	98,051		2.25	%	145,631		2.80	%	CLO securities	—		—	%	—		—	%	52,265		5.44	%	123,121		4.15	%	175,386		4.53	%
Corporate bonds	Corporate bonds	500		2.47	%	501		2.74	%	—		—	%	269		5.14	%	1,270		3.11	%	Corporate bonds	500		3.74	%	501		4.23	%	—		—	%	269		5.07	%	1,270		4.20	%
SBA pooled securities	SBA pooled securities	—		—	%	3		3.62	%	20		5.48	%	2,168		4.01	%	2,191		4.02	%	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	$	3,793	2.30	%	$	11,139	3.80	%	$	57,509	3.59	%	$	149,978	2.36	%	$	222,419	2.75	%	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:	$	—	—	%	$	—	—	%	$	6,690	2.44	%	$	—	—	%	$	6,690	2.44	%	Held to maturity securities:	$	—	—	%	$	—	—	%	$	6,579	2.44	%	$	—	—	%	$	6,579	2.44	%

Liabilities

Total liabilities were ~~$5.081~~$4.751 billion as of ~~June~~September 30, 2022, compared to $5.097 billion at December 31, 2021, a decrease of ~~$16.2~~$346.1 million, the components of which are discussed below.

Deposits

The following table summarizes our deposits:


(Dollars in thousands)	(Dollars in thousands)	June 30, 2022		December 31, 2021		$ Change		% Change		(Dollars in thousands)	September 30, 2022		December 31, 2021		$ Change		% Change
Noninterest bearing demand	Noninterest bearing demand	$	2,085,249	$	1,925,370	$	159,879	8.3	%	Noninterest bearing demand	$	1,897,309	$	1,925,370	$	(28,061)	(1.5	%)
Interest bearing demand	Interest bearing demand	879,072		830,019		49,053		5.9	%	Interest bearing demand	883,581		830,019		53,562		6.5	%
Individual retirement accounts	Individual retirement accounts	80,187		83,410		(3,223)		(3.9	%)	Individual retirement accounts	74,423		83,410		(8,987)		(10.8	%)
Money market	Money market	538,966		520,358		18,608		3.6	%	Money market	505,082		520,358		(15,276)		(2.9	%)
Savings	Savings	543,969		504,146		39,823		7.9	%	Savings	546,862		504,146		42,716		8.5	%
Certificates of deposit	Certificates of deposit	437,766		533,206		(95,440)		(17.9	%)	Certificates of deposit	373,734		533,206		(159,472)		(29.9	%)
Brokered time deposits	Brokered time deposits	215,715		40,125		175,590		437.6	%	Brokered time deposits	160,363		40,125		120,238		299.7	%
Other brokered deposits	Other brokered deposits	—		210,045		(210,045)		(100.0	%)	Other brokered deposits	—		210,045		(210,045)		(100.0	%)
Total Deposits	Total Deposits	$	4,780,924	$	4,646,679	$	134,245	2.9	%	Total Deposits	$	4,441,354	$	4,646,679	$	(205,325)	(4.4	%)

Our total deposits ~~increased $134.2~~decreased $205.3 million, or ~~2.9%~~4.4%, primarily due to ~~increases~~decreases in ~~noninterest bearing demand~~other brokered deposits and ~~brokered time deposits.~~certificates of deposit. Other brokered deposits are non-maturity deposits obtained from wholesale sources and these deposits were terminated in connection with the terminated interest rate swap during the ~~six~~nine months ended ~~June~~September 30, 2022. As of ~~June~~September 30, 2022, interest bearing demand deposits, noninterest bearing deposits, money market deposits, other brokered deposits, and savings deposits accounted for ~~85%~~86% of our total deposits, while individual retirement accounts, certificates of deposit, and brokered time deposits made up ~~15%~~14% of total deposits.

Table of Contents

At ~~June~~September 30, 2022 we held ~~$89.7~~$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 exceeding the FDIC insurance limit as of ~~June~~September 30, 2022:


(Dollars in thousands)	Over $250,000
Maturity
3 months or less	$	~~25,840~~23,581
Over 3 through 6 months	~~22,017~~11,467
Over 6 through 12 months	~~23,511~~17,264
Over 12 months	~~5,331~~6,661
	$	~~76,699~~58,973

~~Table of Contents~~

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


		Three Months Ended June 30, 2022						Three Months Ended June 30, 2021							Three Months Ended September 30, 2022						Three Months Ended September 30, 2021

(Dollars in thousands)	(Dollars in thousands)	Average Balance		Weighted Avg Rates		% of Total		Average Balance		Weighted Avg Rates		% 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	$	874,503	0.25	%	19	%	$	757,529	0.25	%	15	%	Interest bearing demand	$	879,851	0.37	%	20	%	$	779,625	0.22	%	16	%
Individual retirement accounts	Individual retirement accounts	81,678		0.52	%	2	%	88,142		0.65	%	2	%	Individual retirement accounts	77,004		0.50	%	2	%	86,571		0.58	%	2	%
Money market	Money market	545,508		0.21	%	12	%	398,290		0.22	%	8	%	Money market	524,483		0.24	%	12	%	417,435		0.21	%	9	%
Savings	Savings	516,924		0.16	%	11	%	468,517		0.15	%	9	%	Savings	524,106		0.16	%	12	%	479,915		0.15	%	10	%
Certificates of deposit	Certificates of deposit	461,280		0.48	%	10	%	664,478		0.70	%	13	%	Certificates of deposit	407,130		0.55	%	9	%	595,001		0.48	%	12	%
Brokered time deposits	Brokered time deposits	101,270		1.20	%	2	%	138,102		0.15	%	3	%	Brokered time deposits	186,856		1.59	%	4	%	99,116		0.12	%	2	%
Other brokered deposits	Other brokered deposits	89,714		3.27	%	2	%	685,397		0.15	%	14	%	Other brokered deposits	26,758		—	%	1	%	441,446		0.20	%	9	%
Total interest bearing deposits	Total interest bearing deposits	2,670,877		0.41	%	58	%	3,200,455		0.31	%	64	%	Total interest bearing deposits	2,626,188		0.41	%	60	%	2,899,109		0.27	%	60	%
Noninterest bearing demand	Noninterest bearing demand	1,951,725		—		42	%	1,749,858		—		36	%	Noninterest bearing demand	1,885,111		—		40	%	1,912,398		—		40	%
Total deposits	Total deposits	$	4,622,602	0.23	%	100	%	$	4,950,313	0.20	%	100	%	Total deposits	$	4,511,299	0.24	%	100	%	$	4,811,507	0.16	%	100	%

		Six Months Ended June 30, 2022						Six Months Ended June 30, 2021							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		(Dollars in thousands)	Average Balance		Weighted Avg Yields		% of Total		Average Balance		Weighted Avg Yields		% of Total
Interest bearing demand	Interest bearing demand	$	852,554	0.23	%	18	%	$	729,798	0.24	%	15	%	Interest bearing demand	$	861,753	0.28	%	19	%	$	746,590	0.23	%	15	%
Individual retirement accounts	Individual retirement accounts	82,182		0.52	%	2	%	89,600		0.74	%	2	%	Individual retirement accounts	80,437		0.51	%	2	%	88,579		0.69	%	2	%
Money market	Money market	542,050		0.21	%	12	%	398,153		0.23	%	8	%	Money market	536,130		0.22	%	12	%	404,651		0.22	%	8	%
Savings	Savings	513,346		0.15	%	11	%	457,481		0.15	%	9	%	Savings	516,972		0.16	%	11	%	465,041		0.15	%	10	%
Certificates of deposit	Certificates of deposit	489,682		0.47	%	11	%	714,583		0.88	%	15	%	Certificates of deposit	461,862		0.49	%	10	%	674,284		0.76	%	14	%
Brokered time deposits	Brokered time deposits	60,065		1.02	%	1	%	152,910		0.30	%	3	%	Brokered time deposits	102,793		1.37	%	2	%	134,781		0.26	%	3	%
Other brokered deposits	Other brokered deposits	151,835		0.91	%	3	%	743,878		0.14	%	15	%	Other brokered deposits	109,684		0.83	%	2	%	641,959		0.16	%	13	%
Total interest bearing deposits	Total interest bearing deposits	2,691,714		0.32	%	58	%	3,286,403		0.36	%	67	%	Total interest bearing deposits	2,669,631		0.35	%	58	%	3,155,885		0.33	%	65	%
Noninterest bearing demand	Noninterest bearing demand	1,944,606		—		42	%	1,622,528		—		33	%	Noninterest bearing demand	1,924,556		—		42	%	1,720,213		—		35	%
Total deposits	Total deposits	$	4,636,320	0.19	%	100	%	$	4,908,931	0.24	%	100	%	Total deposits	$	4,594,187	0.20	%	100	%	$	4,876,098	0.21	%	100	%

Table of Contents

Other Borrowings

Customer Repurchase Agreements

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


(Dollars in thousands)	(Dollars in thousands)	June 30, 2022			December 31, 2021			(Dollars in thousands)	September 30, 2022			December 31, 2021
Amount outstanding at end of period	Amount outstanding at end of period	$	11,746		$	2,103		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	$	4,117		$	5,985		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	$	11,746		$	12,405		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.

~~Table of Contents~~

FHLB Advances

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


(Dollars in thousands)	(Dollars in thousands)	June 30, 2022			December 31, 2021			(Dollars in thousands)	September 30, 2022			December 31, 2021
Amount outstanding at end of period	Amount outstanding at end of period	$	30,000		$	180,000		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	1.15		%	0.15		%	Weighted average interest rate at end of period	2.76		%	0.15		%
Average amount outstanding during the period	Average amount outstanding during the period	109,972			37,671			Average amount outstanding during the period	83,022			37,671
Weighted average interest rate during the period	Weighted average interest rate during the period	0.65		%	0.24		%	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	230,000			180,000			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 ~~June~~September 30, 2022 and December 31, 2021, we had ~~$730.4~~$736.0 million and $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.

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


(Dollars in thousands)	(Dollars in thousands)	June 30, 2022			December 31, 2021			(Dollars in thousands)	September 30, 2022			December 31, 2021
Amount outstanding at end of period	Amount outstanding at end of period	$	—		$	27,144		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	1,352			118,880			Average amount outstanding during the period	896			118,880
Weighted average interest rate during the period	Weighted average interest rate during the period	0.32		%	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			Highest month end balance during the period	—			181,635

We did not have any PPPLF borrowings outstanding at ~~June~~September 30, 2022. At December 31, 2021, the PPPLF borrowings were secured by PPP Loans totaling $27.1 million and incurred interest at a fixed rate of 0.35% annually.

Table of Contents

Subordinated Notes

The following provides a summary of our subordinated notes as of ~~June~~September 30, 2022:


(Dollars in thousands)	(Dollars in thousands)	Face Value		Carrying Value		Maturity Date	Current Interest Rate	First Repricing Date	Variable Interest Rate at Repricing Date	Initial Issuance Costs		(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	Subordinated Notes issued November 27, 2019	$	39,500	$	38,702	2029	4.875%	11/27/2024	Three Month LIBOR plus 3.330%	$	1,218	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	Subordinated Notes issued August 26, 2021	70,000		68,675		2031	3.500%	9/01/2026	Three Month SOFR(1) plus 2.860%	$	1,776	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	$	107,377								$	109,500	$	107,587

(1) Secured Overnight Financing Rate

The Subordinated Notes bear interest payable semi-annually in arrears to, but excluding the first repricing date, and thereafter payable quarterly in arrears at an annual floating rate. We may, at our option, beginning on the respective first repricing date and on any scheduled interest payment date thereafter, redeem the Subordinated Notes, in whole or in part, at a redemption price equal to the outstanding principal amount of the Subordinated Notes to be redeemed plus accrued and unpaid interest to, but excluding, the date of redemption.

~~Table of Contents~~

The Subordinated Notes are included on the consolidated balance sheets as liabilities at their carrying values; however, for regulatory purposes, the carrying value of these obligations were 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 balance sheet. The debt issuance costs are being amortized using the effective interest method through maturity 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.

Junior Subordinated Debentures

The following provides a summary of our junior subordinated debentures as of ~~June~~September 30, 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	$	13,418	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		13,297		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		3,720		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		4,826		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		2,899		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		2,716		July 2034	LIBOR + 2.75%	Valley Bancorp Statutory Trust II	3,093		2,722		July 2034	LIBOR + 2.75%
		$	51,031	$	40,876				$	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 ~~$40.9~~$41.0 million was allowed in the calculation of Tier I capital as of ~~June~~September 30, 2022.

Table of Contents

Capital Resources and Liquidity Management

Capital Resources

Our stockholders’ equity totaled ~~$874.3~~$891.2 million as of ~~June~~September 30, 2022, compared to $858.9 million as of December 31, 2021, an increase of ~~$15.4~~$32.3 million. Stockholders’ equity increased during this period primarily due to our net income of ~~$68.5~~$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.

~~Table of Contents~~

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 ~~June~~September 30, 2022, TBK Bank had ~~$615.2~~$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.

Contractual Obligations

The following table summarizes our contractual obligations and other commitments to make future payments as of ~~June~~September 30, 2022. The amount of the obligations presented in the table reflect principal amounts only and 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 - June 30, 2022											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	$	11,746	$	11,746	$	—	$	—	$	—	Customer repurchase agreements	$	13,463	$	13,463	$	—	$	—	$	—
Federal Home Loan Bank advances	Federal Home Loan Bank advances	30,000		—		—		15,000		15,000		Federal Home Loan Bank advances	30,000						30,000
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	43,745		5,937		11,289		10,476		16,043		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	733,668		665,543		59,358		8,767		—		Time deposits with stated maturity dates	608,520		477,072		119,484		10,379		1,585
Total contractual obligations	Total contractual obligations	$	979,690	$	683,226	$	70,647	$	34,243	$	191,574	Total contractual obligations	$	852,475	$	496,135	$	130,007	$	50,130	$	176,203

Table of Contents

Regulatory Capital Requirements

Our capital management consists of providing equity to support our current and future operations. We are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s or TBK Bank’s financial statements. For further information regarding our regulatory capital requirements, see Note 12 – Regulatory Matters in the accompanying condensed notes to the consolidated financial statements included elsewhere in this report.

Off-Balance Sheet Arrangements

In the normal course of business, we enter into various transactions, which, in accordance with GAAP, are not included in our consolidated balance sheets. We enter into these transactions to meet the financing needs of our customers. These transactions include commitments to extend credit and standby and commercial letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. For further information, see Note 10 – Off-Balance Sheet Loan Commitments in the accompanying condensed notes to the consolidated financial statements included elsewhere in this report.

~~Table of Contents~~

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, 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 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.

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;

Table of Contents

•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;

~~Table of Contents~~

•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;

•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.

Table of Contents

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.

~~Table of Contents~~

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.

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


		June 30, 2022				December 31, 2021					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	20.0	%	21.5	%	17.5	%	23.6	%	+400 basis points	17.3	%	19.0	%	17.5	%	23.6	%
+300 basis points	+300 basis points	15.0	%	15.9	%	13.1	%	18.1	%	+300 basis points	12.9	%	14.1	%	13.1	%	18.1	%
+200 basis points	+200 basis points	9.9	%	10.5	%	8.7	%	12.8	%	+200 basis points	8.5	%	9.2	%	8.7	%	12.8	%
+100 basis points	+100 basis points	4.9	%	5.2	%	4.4	%	7.5	%	+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	(5.0	%)	(5.3	%)	(2.7	%)	(1.4	%)	-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 ~~June~~September 30, 2022 and December 31, 2021, assuming immediate parallel shifts in interest rates:


		Economic Value of Equity at Risk (%)					Economic Value of Equity at Risk (%)
		June 30, 2022		December 31, 2021			September 30, 2022		December 31, 2021
+400 basis points	+400 basis points	24.1	%	31.1	%	+400 basis points	19.4	%	31.1	%
+300 basis points	+300 basis points	18.9	%	24.3	%	+300 basis points	15.1	%	24.3	%
+200 basis points	+200 basis points	13.1	%	16.9	%	+200 basis points	10.5	%	16.9	%
+100 basis points	+100 basis points	6.9	%	8.8	%	+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	(7.7	%)	(9.5	%)	-100 basis points	(6.1	%)	(9.5	%)

Table of Contents

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.

~~Table of Contents~~

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 ~~June~~September 30, 2022, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

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 in the United States Court of Federal Claims seeking a ruling that the United States Postal Service (“USPS”) 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”). Although we believe we have valid claims that the USPS is obligated to make payment on such receivable and that the USPS will have the capacity to make such payment, the issues in this litigation are novel issues of law that have little to no precedent and there can be no assurances that a court will agree with our interpretation of the law on these matters. If a court were to rule against us in this litigation, our only recourse would be against our customer, who failed to remit the Misdirected Payments to us as required when received, and who may not have capacity to make such payment to us. Consequently, we could incur losses up to the full amount of the Misdirected Payments in such event, which could be material to our business, financial condition and results of operations.

Item 1A. Risk Factors

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, 2021.

~~Table of Contents~~

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

~~On February 7, 2022, the Company announced that its board~~None.

Table of directors had authorized the repurchase of up to $50.0 million of its outstanding common stock in open market transactions or through privately negotiated transactions for a period of one year. On May 23, 2022, the Company announced that it had completed the $50.0 million stock repurchase program and that its Board of Directors had authorized an additional share repurchase program of up to $75.0 million. The following repurchases were made under this program during the three months ended June 30, 2022:Contents

Period (a)
Total number of shares (or units) purchased (b)
Average price paid per share (or unit) (c)
Total number of shares (or units) purchased as part of publicly announced plans or programs (d)
Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs
April 1, 2022 — April 30, 2022 240,601 $ 70.20 240,601 31,787,000
May 1, 2022 — May 31, 2022 454,384 $ 69.93 454,384 —
June 1, 2022 — June 30, 2022 — $ — — 75,000,000
Total 694,985 $ 70.02 694,985

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

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


3.1						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						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.

3.4						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.

~~10.1~~						~~Employment Agreement between~~ ~~Triumph Bancorp, Inc.~~ ~~and~~ ~~Edward J. Schreyer, dated~~ ~~July~~ ~~1, 2022.~~

~~10.2~~						~~Employment Agreement between~~ ~~Advance Business Capital LLC~~ ~~and~~ ~~Geoffrey P. Brenner, dated July 1, 2022.~~

~~10.3~~						~~Employment Agreement between TBK Bank, SSB and~~ ~~Melissa Forman-Barenblit, dated July 1, 2022.~~

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.

~~100~~

~~Table of Contents~~

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

Date:	~~July 20,~~October 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	4948

Item 3.	Quantitative and Qualitative Disclosures About Market Risks	9795

Item 4.	Controls and Procedures	9996

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	9996

Item 1A.	Risk Factors	9996

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


Period	(a) Total number of shares (or units) purchased	(b) Average price paid per share (or unit)		(c) Total number of shares (or units) purchased as part of publicly announced plans or programs	(d) Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs
April 1, 2022 — April 30, 2022	240,601	$	70.20	240,601	31,787,000
May 1, 2022 — May 31, 2022	454,384	$	69.93	454,384	—
June 1, 2022 — June 30, 2022	—	$	—	—	75,000,000
Total	694,985	$	70.02	694,985