UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended ~~September~~June 30, ~~2022~~2023


☐			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,~~FINANCIAL, 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, ~~24,478,288~~23,275,655 shares, as of ~~October~~July 17, ~~2022.~~2023.

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~~TFIN

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~~TFINP

NASDAQ Global Select Market

Table of Contents

TRIUMPH ~~BANCORP,~~FINANCIAL, INC.

FORM 10-Q

~~September~~June 30, ~~2022~~2023

TABLE OF CONTENTS

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1

FINANCIAL STATEMENTS

Table of Contents

TRIUMPH ~~BANCORP,~~FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022

(Dollar amounts in thousands)


		September 30, 2022		December 31, 2021			June 30, 2023		December 31, 2022
		(Unaudited)					(Unaudited)
ASSETS	ASSETS					ASSETS
Cash and due from banks	Cash and due from banks	$	139,937	$	122,929	Cash and due from banks	$	78,270	$	133,889
Interest bearing deposits with other banks	Interest bearing deposits with other banks	281,792		260,249		Interest bearing deposits with other banks	339,105		274,293
Total cash and cash equivalents	Total cash and cash equivalents	421,729		383,178		Total cash and cash equivalents	417,375		408,182
Securities - equity investments with readily determinable fair values	Securities - equity investments with readily determinable fair values	4,916		5,504		Securities - equity investments with readily determinable fair values	4,426		5,191
Securities - available for sale	Securities - available for sale	238,434		182,426		Securities - available for sale	303,779		254,504
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
Securities - held to maturity, net of allowance for credit losses of $2,876 and $2,444, respectively, fair value of $4,750 and $5,476, respectively						Securities - held to maturity, net of allowance for credit losses of $2,876 and $2,444, respectively, fair value of $4,750 and $5,476, respectively	3,380		4,077
Loans held for sale	Loans held for sale	78		7,330		Loans held for sale	95		5,641
Loans, net of allowance for credit losses of $44,111 and $42,213, respectively		4,389,193		4,825,359
Loans, net of allowance for credit losses of $34,970 and $42,807, respectively						Loans, net of allowance for credit losses of $34,970 and $42,807, respectively	4,289,788		4,077,484
Federal Home Loan Bank and other restricted stock	Federal Home Loan Bank and other restricted stock	6,213		10,146		Federal Home Loan Bank and other restricted stock	20,099		6,252
Premises and equipment, net	Premises and equipment, net	104,272		105,729		Premises and equipment, net	114,673		103,339
Other real estate owned, net		—		524

Goodwill	Goodwill	233,709		233,727		Goodwill	233,709		233,709
Intangible assets, net	Intangible assets, net	34,895		43,129		Intangible assets, net	29,249		32,058
Bank-owned life insurance	Bank-owned life insurance	41,390		40,993		Bank-owned life insurance	41,702		41,493
Deferred tax asset, net	Deferred tax asset, net	14,663		10,023		Deferred tax asset, net	7,306		16,473
Indemnification asset		4,173		4,786
Other assets	Other assets	144,636		98,449		Other assets	187,140		145,380
Total assets	Total assets	$	5,642,450	$	5,956,250	Total assets	$	5,652,721	$	5,333,783
LIABILITIES AND STOCKHOLDERS' EQUITY	LIABILITIES AND STOCKHOLDERS' EQUITY					LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities	Liabilities					Liabilities
Deposits	Deposits					Deposits
Noninterest bearing	Noninterest bearing	$	1,897,309	$	1,925,370	Noninterest bearing	$	1,608,411	$	1,756,680
Interest bearing	Interest bearing	2,544,045		2,721,309		Interest bearing	2,685,055		2,414,656
Total deposits	Total deposits	4,441,354		4,646,679		Total deposits	4,293,466		4,171,336
Customer repurchase agreements	Customer repurchase agreements	13,463		2,103		Customer repurchase agreements	—		340
Federal Home Loan Bank advances	Federal Home Loan Bank advances	30,000		180,000		Federal Home Loan Bank advances	280,000		30,000
Paycheck Protection Program Liquidity Facility		—		27,144
Subordinated notes	Subordinated notes	107,587		106,957		Subordinated notes	108,234		107,800
Junior subordinated debentures	Junior subordinated debentures	41,016		40,602		Junior subordinated debentures	41,444		41,158
Other liabilities	Other liabilities	117,857		93,901		Other liabilities	96,111		94,178
Total liabilities	Total liabilities	4,751,277		5,097,386		Total liabilities	4,819,255		4,444,812
Commitments and contingencies - See Note 9 and Note 10
Stockholders' equity - See Note 13
Commitments and contingencies - See Note 8 and Note 9						Commitments and contingencies - See Note 8 and Note 9
Stockholders' equity - See Note 12						Stockholders' equity - See Note 12
Preferred stock	Preferred stock	45,000		45,000		Preferred stock	45,000		45,000
Common stock, 24,478,288 and 25,158,879 shares outstanding, respectively		283		283
Common stock, 23,269,885 and 24,053,585 shares outstanding, respectively						Common stock, 23,269,885 and 24,053,585 shares outstanding, respectively	289		283
Additional paid-in-capital	Additional paid-in-capital	529,804		510,939		Additional paid-in-capital	542,565		534,790
Treasury stock, at cost	Treasury stock, at cost	(156,949)		(104,743)		Treasury stock, at cost	(264,916)		(182,658)
Retained earnings	Retained earnings	481,697		399,351		Retained earnings	515,513		498,456
Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)	(8,662)		8,034		Accumulated other comprehensive income (loss)	(4,985)		(6,900)
Total stockholders’ equity	Total stockholders’ equity	891,173		858,864		Total stockholders’ equity	833,466		888,971
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	5,642,450	$	5,956,250	Total liabilities and stockholders' equity	$	5,652,721	$	5,333,783

See accompanying condensed notes to consolidated financial statements.

Table of Contents

TRIUMPH ~~BANCORP,~~FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

For the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022

(Dollar amounts in thousands, except per share amounts)

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Interest and dividend income:	Interest and dividend income:									Interest and dividend income:
Loans, including fees	Loans, including fees	$	44,928	$	44,882	$	129,906	$	139,576	Loans, including fees	$	57,258	$	44,131	$	109,796	$	84,978
Factored receivables, including fees	Factored receivables, including fees	53,317		50,516		174,549		135,639		Factored receivables, including fees	39,819		60,026		80,723		121,232
Securities	Securities	2,308		1,126		4,815		3,963		Securities	5,234		1,329		9,347		2,507
FHLB and other restricted stock	FHLB and other restricted stock	65		28		175		131		FHLB and other restricted stock	219		34		344		110
Cash deposits	Cash deposits	2,607		183		3,522		467		Cash deposits	2,956		787		5,950		915
Total interest income	Total interest income	103,225		96,735		312,967		279,776		Total interest income	105,486		106,307		206,160		209,742
Interest expense:	Interest expense:									Interest expense:
Deposits	Deposits	2,743		1,948		7,010		7,790		Deposits	6,877		2,706		10,079		4,267
Subordinated notes	Subordinated notes	1,304		2,449		3,905		5,148		Subordinated notes	1,312		1,302		2,621		2,601
Junior subordinated debentures	Junior subordinated debentures	726		443		1,736		1,331		Junior subordinated debentures	1,090		556		2,124		1,010
Other borrowings	Other borrowings	182		124		539		434		Other borrowings	4,756		315		6,503		357
Total interest expense	Total interest expense	4,955		4,964		13,190		14,703		Total interest expense	14,035		4,879		21,327		8,235
Net interest income	Net interest income	98,270		91,771		299,777		265,073		Net interest income	91,451		101,428		184,833		201,507
Credit loss expense (benefit)	Credit loss expense (benefit)	2,646		(1,187)		6,048		(10,838)		Credit loss expense (benefit)	2,643		2,901		5,256		3,402
Net interest income after credit loss expense (benefit)	Net interest income after credit loss expense (benefit)	95,624		92,958		293,729		275,911		Net interest income after credit loss expense (benefit)	88,808		98,527		179,577		198,105
Noninterest income:	Noninterest income:									Noninterest income:
Service charges on deposits	Service charges on deposits	1,558		2,030		5,185		5,674		Service charges on deposits	1,769		1,664		3,482		3,627
Card income	Card income	2,034		2,144		6,125		6,341		Card income	2,119		2,080		4,087		4,091
Net OREO gains (losses) and valuation adjustments	Net OREO gains (losses) and valuation adjustments	(19)		(9)		(133)		(376)		Net OREO gains (losses) and valuation adjustments	—		18		—		(114)
Net gains (losses) on sale or call of securities	Net gains (losses) on sale or call of securities	—		4		2,514		5		Net gains (losses) on sale or call of securities	—		2,514		—		2,514
Net gains (losses) on sale of loans	Net gains (losses) on sale of loans	1,107		377		18,310		2,965		Net gains (losses) on sale of loans	87		17,269		3		17,203
Fee income	Fee income	6,120		5,198		18,096		11,917		Fee income	7,462		6,273		13,612		11,976
Insurance commissions	Insurance commissions	1,191		1,231		4,209		3,989		Insurance commissions	1,303		1,346		2,896		3,018
Other	Other	677		1,080		17,643		9,727		Other	(1,229)		16,996		(1,547)		16,966
Total noninterest income	Total noninterest income	12,668		12,055		71,949		40,242		Total noninterest income	11,511		48,160		22,533		59,281
Noninterest expense:	Noninterest expense:									Noninterest expense:
Salaries and employee benefits	Salaries and employee benefits	49,307		43,769		149,848		121,407		Salaries and employee benefits	54,219		54,257		108,905		100,541
Occupancy, furniture and equipment	Occupancy, furniture and equipment	6,826		6,388		19,769		18,279		Occupancy, furniture and equipment	7,292		6,507		13,995		12,943
FDIC insurance and other regulatory assessments	FDIC insurance and other regulatory assessments	386		353		1,179		1,830		FDIC insurance and other regulatory assessments	796		382		1,141		793
Professional fees	Professional fees	4,263		2,362		11,529		9,959		Professional fees	3,035		3,607		6,120		7,266
Amortization of intangible assets	Amortization of intangible assets	2,913		3,274		9,085		7,677		Amortization of intangible assets	3,001		3,064		5,851		6,172
Advertising and promotion	Advertising and promotion	1,929		1,403		4,916		3,534		Advertising and promotion	1,577		1,785		2,921		2,987
Communications and technology	Communications and technology	11,935		7,090		30,867		19,018		Communications and technology	11,397		9,820		22,249		18,932
Other	Other	9,130		8,174		26,667		22,799		Other	9,079		9,185		18,495		17,537
Total noninterest expense	Total noninterest expense	86,689		72,813		253,860		204,503		Total noninterest expense	90,396		88,607		179,677		167,171
Net income before income tax expense	Net income before income tax expense	21,603		32,200		111,818		111,650		Net income before income tax expense	9,923		58,080		22,433		90,215
Income tax expense	Income tax expense	5,374		7,771		27,068		25,316		Income tax expense	2,273		13,888		3,773		21,694
Net income	Net income	$	16,229	$	24,429	$	84,750	$	86,334	Net income	$	7,650	$	44,192	$	18,660	$	68,521
Dividends on preferred stock	Dividends on preferred stock	(801)		(802)		(2,404)		(2,405)		Dividends on preferred stock	(802)		(802)		(1,603)		(1,603)
Net income available to common stockholders	Net income available to common stockholders	$	15,428	$	23,627	$	82,346	$	83,929	Net income available to common stockholders	$	6,848	$	43,390	$	17,057	$	66,918
Earnings per common share	Earnings per common share									Earnings per common share
Basic	Basic	$	0.64	$	0.95	$	3.36	$	3.40	Basic	$	0.30	$	1.78	$	0.73	$	2.72
Diluted	Diluted	$	0.62	$	0.94	$	3.28	$	3.33	Diluted	$	0.29	$	1.74	$	0.72	$	2.66

See accompanying condensed notes to consolidated financial statements.

Table of Contents

TRIUMPH ~~BANCORP,~~FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022

(Dollar amounts in thousands)

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Net income	Net income	$	16,229	$	24,429	$	84,750	$	86,334	Net income	$	7,650	$	44,192	$	18,660	$	68,521
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	(4,806)		(378)		(13,164)		(1,303)		Unrealized holding gains (losses) arising during the period	608		(5,457)		2,354		(8,358)
Tax effect	Tax effect	1,127		89		3,067		300		Tax effect	(69)		1,251		(439)		1,941
Unrealized holding gains (losses) arising during the period, net of taxes	Unrealized holding gains (losses) arising during the period, net of taxes	(3,679)		(289)		(10,097)		(1,003)		Unrealized holding gains (losses) arising during the period, net of taxes	539		(4,206)		1,915		(6,417)
Reclassification of amount realized through sale or call of securities	Reclassification of amount realized through sale or call of securities	—		(4)		(2,514)		(5)		Reclassification of amount realized through sale or call of securities	—		(2,514)		—		(2,514)
Tax effect	Tax effect	—		1		620		1		Tax effect	—		619		—		619
Reclassification of amount realized through sale or call of securities, net of taxes	Reclassification of amount realized through sale or call of securities, net of taxes	—		(3)		(1,894)		(4)		Reclassification of amount realized through sale or call of securities, net of taxes	—		(1,895)		—		(1,895)
Change in unrealized gains (losses) on securities, net of tax	Change in unrealized gains (losses) on securities, net of tax	(3,679)		(292)		(11,991)		(1,007)		Change in unrealized gains (losses) on securities, net of tax	539		(6,101)		1,915		(8,312)

Unrealized gains (losses) on derivative financial instruments:	Unrealized gains (losses) on derivative financial instruments:									Unrealized gains (losses) on derivative financial instruments:
Unrealized holding gains (losses) arising during the period	Unrealized holding gains (losses) arising during the period	—		(9)		3,152		3,062		Unrealized holding gains (losses) arising during the period	—		—		—		3,152
Tax effect	Tax effect	—		2		(754)		(729)		Tax effect	—		—		—		(754)
Unrealized holding gains (losses) arising during the period, net of taxes	Unrealized holding gains (losses) arising during the period, net of taxes	—		(7)		2,398		2,333		Unrealized holding gains (losses) arising during the period, net of taxes	—		—		—		2,398
Reclassification of amount of (gains) losses recognized into income	Reclassification of amount of (gains) losses recognized into income	—		18		(9,316)		70		Reclassification of amount of (gains) losses recognized into income	—		(9,083)		—		(9,316)
Tax effect	Tax effect	—		(4)		2,213		(17)		Tax effect	—		2,144		—		2,213
Reclassification of amount of (gains) losses recognized into income, net of taxes	Reclassification of amount of (gains) losses recognized into income, net of taxes	—		14		(7,103)		53		Reclassification of amount of (gains) losses recognized into income, net of taxes	—		(6,939)		—		(7,103)
Change in unrealized gains (losses) on derivative financial instruments	Change in unrealized gains (losses) on derivative financial instruments	—		7		(4,705)		2,386		Change in unrealized gains (losses) on derivative financial instruments	—		(6,939)		—		(4,705)

Total other comprehensive income (loss)	Total other comprehensive income (loss)	(3,679)		(285)		(16,696)		1,379		Total other comprehensive income (loss)	539		(13,040)		1,915		(13,017)
Comprehensive income	Comprehensive income	$	12,550	$	24,144	$	68,054	$	87,713	Comprehensive income	$	8,189	$	31,152	$	20,575	$	55,504

See accompanying condensed notes to consolidated financial statements.

Table of Contents

TRIUMPH ~~BANCORP,~~FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022

(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
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


	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, 2023	$	45,000	24,053,585	$	283	$	534,790	4,268,131	$	(182,658)	$	498,456	$	(6,900)	$	888,971
Issuance of restricted stock awards	—		6,852	—		—		—	—		—		—		—
Vesting of restricted stock and performance stock units	—		366,892	4		(4)		—	—		—		—		—
Stock option exercises, net	—		758	—		(33)		—	—		—		—		(33)
Issuance of common stock pursuant to the Employee Stock Purchase Plan	—		21,057	—		997		—	—		—		—		997
Stock based compensation	—		—	—		2,881		—	—		—		—		2,881
Forfeiture of restricted stock awards	—		(10,961)	—		610		10,961	(610)		—		—		—
Purchase of treasury stock, net	—		(1,067,668)	—		—		1,067,668	(77,185)		—		—		(77,185)
Dividends on preferred stock	—		—	—		—		—	—		(801)		—		(801)
Net income	—		—	—		—		—	—		11,010		—		11,010
Other comprehensive income (loss)	—		—	—		—		—	—		—		1,376		1,376
Balance, March 31, 2023	$	45,000	23,370,515	$	287	$	539,241	5,346,760	$	(260,453)	$	508,665	$	(5,524)	$	827,216

Vesting of restricted stock and performance stock units	—		233,728	2		(2)		—	—		—		—		—
Stock option exercises, net	—		829	—		(19)		—	—		—		—		(19)
Stock based compensation	—		—	—		3,320		—	—		—		—		3,320
Forfeiture of restricted stock awards	—		(451)	—		25		451	(25)		—		—		—
Purchase of treasury stock, net	—		(334,736)	—		—		334,736	(4,438)		—		—		(4,438)
Dividends on preferred stock	—		—	—		—		—	—		(802)		—		(802)
Net income	—		—	—		—		—	—		7,650		—		7,650
Other comprehensive income (loss)	—		—	—		—		—	—		—		539		539
Balance, June 30, 2023	$	45,000	23,269,885	$	289	$	542,565	5,681,947	$	(264,916)	$	515,513	$	(4,985)	833,466

Table of Contents


		Preferred Stock		Common Stock			Additional Paid-in- Capital				Treasury Stock						Retained Earnings		Accumulated Other Comprehensive Income (Loss)				Total Stockholders' Equity					Preferred Stock			Common Stock			Additional Paid-in- Capital				Treasury Stock					Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders' Equity
		Liquidation Preference Amount		Shares Outstanding	Par Amount				Shares Outstanding			Cost										Liquidation Preference Amount					Shares Outstanding			Par Amount			Shares Outstanding				Cost
Balance, January 1, 2021		$	45,000	24,868,218	$	280			$	489,151		3,083,503			$	(103,052)					$	289,583			$	5,819		$	726,781
Balance, January 1, 2022																										Balance, January 1, 2022		$	45,000		25,158,879	$	283		$	510,939			3,102,801		$	(104,743)		$	399,351		$	8,034		$	858,864
Issuance of restricted stock awards	Issuance of restricted stock awards	—		4,613	—		—				—		—				—		—				—			Issuance of restricted stock awards		—			5,502	—		—				—		—			—			—			—
Stock option exercises, net	Stock option exercises, net	—		10,205	—		191				—		—				—		—				191			Stock option exercises, net		—			2,021	—		(74)				—		—			—			—			(74)
Stock based compensation	Stock based compensation	—		—	—		1,350				—		—				—		—				1,350			Stock based compensation		—			—	—		4,952				—		—			—			—			4,952
Forfeiture of restricted stock awards	Forfeiture of restricted stock awards	—		(107)	—		7				107		(7)				—		—				—			Forfeiture of restricted stock awards		—			(487)	—		46				487		(46)			—			—			—
Issuance of common stock pursuant to the Employee Stock Purchase Plan																										Issuance of common stock pursuant to the Employee Stock Purchase Plan		—			10,585	—		688				—		—			—			—			688
Purchase of treasury stock, net																										Purchase of treasury stock, net		—			(14,810)	—		—				14,810		(1,316)			—			—			(1,316)
Dividends on preferred stock	Dividends on preferred stock	—		—	—		—				—		—				(801)		—				(801)			Dividends on preferred stock		—			—	—		—				—		—			(801)			—			(801)
Net income	Net income	—		—	—		—				—		—				33,923		—				33,923			Net income		—			—	—		—				—		—			24,329			—			24,329
Other comprehensive income (loss)	Other comprehensive income (loss)	—		—	—		—				—		—				—		2,560				2,560			Other comprehensive income (loss)		—			—	—		—				—		—			—			23			23
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)				—		—				—		—				—
Balance, March 31, 2022																										Balance, March 31, 2022		$	45,000		25,161,690	$	283	$	516,551			3,118,098		$	(106,105)		$	422,879		$	8,057		$	886,665

Vesting of restricted stock and performance stock units																										Vesting of restricted stock and performance stock units		—			20,996	—		—				—		—			—			—			—
Stock option exercises, net	Stock option exercises, net	—		18,934	—		(45)				—		—				—		—				(45)			Stock option exercises, net		—			32	—		—				—		—			—			—			—
Stock based compensation	Stock based compensation	—		—	—		3,386				—		—				—		—				3,386			Stock based compensation		—			—	—		7,880				—		—			—			—			7,880
Forfeiture of restricted stock awards	Forfeiture of restricted stock awards	—		(2,278)	—		186				2,278		(186)				—		—				—			Forfeiture of restricted stock awards		—			(2,417)	—		205				2,417		(205)			—			—			—
Purchase of treasury stock		—		(14,169)	—		—				14,169		(1,241)				—		—				(1,241)
Purchase of treasury stock, net																										Purchase of treasury stock, net		—			(722,524)	—		—				722,524		(50,614)			—			—			(50,614)
Dividends on preferred stock	Dividends on preferred stock	—		—	—		—				—		—				(802)		—				(802)			Dividends on preferred stock		—			—	—		—				—		—			(802)			—			(802)
Net income	Net income	—		—	—		—				—		—				27,982		—				27,982			Net income		—			—	—		—				—		—			44,192			—			44,192
Other comprehensive income (loss)	Other comprehensive income (loss)	—		—	—		—				—		—				—		(896)				(896)			Other comprehensive income (loss)		—			—	—		—				—		—			—			(13,040)			(13,040)
Balance, June 30, 2021		$	45,000	25,109,703	$	282	$	494,224			3,100,057		$	(104,486)			$	349,885	$	7,483			$	792,388
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
Balance, June 30, 2022																										Balance, June 30, 2022		$	45,000		24,457,777	$	283	$	524,636			3,843,039		$	(156,924)		$	466,269		$	(4,983)		$	874,281

See accompanying condensed notes to consolidated financial statements.

Table of Contents

TRIUMPH ~~BANCORP,~~FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022

(Dollar amounts in thousands)

(Unaudited)


		Nine Months Ended September 30,					Six Months Ended June 30,
		2022		2021			2023		2022
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	84,750	$	86,334	Net income	$	18,660	$	68,521
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	9,979		8,992		Depreciation	6,567		6,044
Net accretion on loans	Net accretion on loans	(6,631)		(7,615)		Net accretion on loans	(2,800)		(5,092)
Amortization of subordinated notes issuance costs	Amortization of subordinated notes issuance costs	630		1,022		Amortization of subordinated notes issuance costs	434		420
Amortization of junior subordinated debentures	Amortization of junior subordinated debentures	414		395		Amortization of junior subordinated debentures	286		274
Net (accretion) amortization on securities	Net (accretion) amortization on securities	(609)		(465)		Net (accretion) amortization on securities	(435)		(398)
Amortization of intangible assets	Amortization of intangible assets	9,085		7,677		Amortization of intangible assets	5,851		6,172
Deferred taxes	Deferred taxes	524		5,432		Deferred taxes	8,727		943
Credit loss expense (benefit)	Credit loss expense (benefit)	6,048		(10,838)		Credit loss expense (benefit)	5,256		3,402
Stock based compensation	Stock based compensation	17,128		9,181		Stock based compensation	6,201		12,832
Net (gains) losses on sale or call of debt securities	Net (gains) losses on sale or call of debt securities	(2,514)		(5)		Net (gains) losses on sale or call of debt securities	—		(2,514)
Net (gains) losses on equity securities	Net (gains) losses on equity securities	(9,575)		203		Net (gains) losses on equity securities	(18)		(9,709)
Net OREO (gains) losses and valuation adjustments	Net OREO (gains) losses and valuation adjustments	133		376		Net OREO (gains) losses and valuation adjustments	—		114
Origination of loans held for sale	Origination of loans held for sale	(10,402)		(32,645)		Origination of loans held for sale	(1,392)		(6,873)
Purchases of loans held for sale	Purchases of loans held for sale	(6,913)		(19,001)		Purchases of loans held for sale	—		(6,913)
Proceeds from sale of loans originated or purchased for sale	Proceeds from sale of loans originated or purchased for sale	17,673		50,931		Proceeds from sale of loans originated or purchased for sale	1,320		14,145
Net (gains) losses on sale of loans	Net (gains) losses on sale of loans	(18,310)		(2,965)		Net (gains) losses on sale of loans	(3)		(17,203)
Net change in operating leases	Net change in operating leases	272		468		Net change in operating leases	(154)		555
(Increase) decrease in other assets	(Increase) decrease in other assets	(37,308)		(19,275)		(Increase) decrease in other assets	(41,010)		(38,471)
Increase (decrease) in other liabilities	Increase (decrease) in other liabilities	9,107		11,071		Increase (decrease) in other liabilities	1,472		(12,122)
Net cash provided by (used in) operating activities	Net cash provided by (used in) operating activities	63,481		89,273		Net cash provided by (used in) operating activities	8,962		14,127
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Proceeds from sales of equity securities						Proceeds from sales of equity securities	783		—
Purchases of securities available for sale	Purchases of securities available for sale	(117,440)		(18,250)		Purchases of securities available for sale	(69,484)		(79,119)
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	4,000		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	23,562		76,864		Proceeds from maturities, calls, and pay downs of securities available for sale	18,911		20,798
Proceeds from maturities, calls, and pay downs of securities held to maturity	Proceeds from maturities, calls, and pay downs of securities held to maturity	578		762		Proceeds from maturities, calls, and pay downs of securities held to maturity	352		424
Purchases of loans held for investment	Purchases of loans held for investment	(133,674)		(77,571)		Purchases of loans held for investment	(18,842)		(68,908)
Proceeds from sale of loans	Proceeds from sale of loans	207,406		63,028		Proceeds from sale of loans	43,950		207,405
Net change in loans	Net change in loans	285,854		227,650		Net change in loans	(234,158)		215,676
Purchases of premises and equipment, net	Purchases of premises and equipment, net	(8,522)		(9,899)		Purchases of premises and equipment, net	(17,901)		(5,608)
Net proceeds from sale of OREO	Net proceeds from sale of OREO	438		807		Net proceeds from sale of OREO	—		289
(Purchases) redemptions of FHLB and other restricted stock, net	(Purchases) redemptions of FHLB and other restricted stock, net	3,933		1,850		(Purchases) redemptions of FHLB and other restricted stock, net	(13,847)		3,977
Net cash (paid for) received in acquisitions		—		(96,926)

Acquired intangible assets						Acquired intangible assets	(3,042)		—
Proceeds from sale of disposal group	Proceeds from sale of disposal group	85,923		—		Proceeds from sale of disposal group	—		66,918
Net cash provided by (used in) investing activities	Net cash provided by (used in) investing activities	388,221		168,315		Net cash provided by (used in) investing activities	(289,278)		402,015
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	(194,494)		105,975		Net increase (decrease) in deposits	122,130		145,337
Increase (decrease) in customer repurchase agreements	Increase (decrease) in customer repurchase agreements	11,360		8,891		Increase (decrease) in customer repurchase agreements	(340)		9,643
Increase (decrease) in Federal Home Loan Bank advances	Increase (decrease) in Federal Home Loan Bank advances	(150,000)		(75,000)		Increase (decrease) in Federal Home Loan Bank advances	250,000		(150,000)
Proceeds from other borrowings, net		—		294,854

Repayment of other borrowings	Repayment of other borrowings	(27,144)		(370,936)		Repayment of other borrowings	—		(27,144)
Preferred dividends	Preferred dividends	(2,404)		(2,405)		Preferred dividends	(1,603)		(1,603)
Stock option exercises, net	Stock option exercises, net	(74)		196		Stock option exercises, net	(52)		(74)
Proceeds from employee stock purchase plan common stock issuance	Proceeds from employee stock purchase plan common stock issuance	1,548		449		Proceeds from employee stock purchase plan common stock issuance	997		688
Purchase of treasury stock		(51,943)		(1,241)
Purchase of treasury stock, net						Purchase of treasury stock, net	(81,623)		(51,930)
Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	(413,151)		(39,217)		Net cash provided by (used in) financing activities	289,509		(75,083)
Net increase (decrease) in cash and cash equivalents	Net increase (decrease) in cash and cash equivalents	38,551		218,371		Net increase (decrease) in cash and cash equivalents	9,193		341,059
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	408,182		383,178
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	421,729		532,764		Cash and cash equivalents at end of period	417,375		724,237

See accompanying condensed notes to consolidated financial statements.

Table of Contents

TRIUMPH ~~BANCORP,~~FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022

(Dollar amounts in thousands)

(Unaudited)


		Nine Months Ended September 30,					Six Months Ended June 30,
		2022		2021			2023		2022
Supplemental cash flow information:	Supplemental cash flow information:					Supplemental cash flow information:
Interest paid	Interest paid	$	11,416	$	15,551	Interest paid	$	18,924	$	7,296
Income taxes paid, net	Income taxes paid, net	$	45,035	$	36,353	Income taxes paid, net	$	13,979	$	45,035
Cash paid for operating lease liabilities	Cash paid for operating lease liabilities	$	2,691	$	3,440	Cash paid for operating lease liabilities	$	2,763	$	1,903
Supplemental noncash disclosures:	Supplemental noncash disclosures:					Supplemental noncash disclosures:
Loans transferred to OREO	Loans transferred to OREO	$	47	$	644	Loans transferred to OREO	$	—	$	47
Loans held for investment transferred to loans held for sale	Loans held for investment transferred to loans held for sale	$	197,899	$	76,976	Loans held for investment transferred to loans held for sale	$	38,389	$	197,899
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	$	19,404	Lease liabilities arising from obtaining right-of-use assets	$	3,228	$	5,267
Securities available for sale purchased, not settled	Securities available for sale purchased, not settled	$	14,976	$	—	Securities available for sale purchased, not settled	$	—	$	23,370
Indemnification reduction		$	—	$	35,633
Non-cash consideration received from sale of loan portfolio or disposal group	Non-cash consideration received from sale of loan portfolio or disposal group	$	5,529	$	—	Non-cash consideration received from sale of loan portfolio or disposal group	$	—	$	4,502

Table of Contents

TRIUMPH ~~BANCORP,~~FINANCIAL, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Triumph ~~Bancorp,~~Financial, Inc. (collectively with its subsidiaries, ~~“Triumph”~~“Triumph Financial”, 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 factoring subsidiary ~~Advance Business Capital~~Triumph Financial Services LLC ~~which currently operates under the d/b/a of~~ ("Triumph ~~Business Capital (“TBC”~~Financial Services"), 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.~~2022. Operating results for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2022.~~2023.

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~~considers 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,~~Financial, Inc. Management has determined that the Company has four 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~~Triumph Financial Services 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~~(i) 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~~(ii) 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.~~brokers, and (iii) factoring transactions where we purchase receivables payable to such freight brokers from their shipper clients.

The Corporate segment includes holding company financing and investment activities ~~and~~as well as management and administrative expenses tothat support the overall operations of the ~~Company.~~Company such as human resources, accounting, finance, risk management and information technology expense.

For further discussion of management's operating segments and allocation methodology, see Note 16 – Business Segment Information.

Table of Contents

TRIUMPH ~~BANCORP,~~FINANCIAL, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~Newly Issued, But Not Yet Effective~~Adoption of New 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".

The Company adopted 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~~January 1, 2023 on a prospective basis. Adoption of ASU 2022-02 ~~will~~did not have a material impact on ~~its~~the Company's consolidated financial ~~statements and related disclosures.~~statements.

NOTE 2 — ACQUISITIONS AND DIVESTITURES

Equipment Loan Sale

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


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

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

The associated agreement contains a provision that in the event that a sold loan is prepaid in full prior to the due date of the final scheduled contractual payment, the Company will return a pro-rata portion of the premium calculated as of the date of such prepayment in full. As this transaction qualified as a sale of a group of entire financial assets, management must recognize, as proceeds, any assets obtained and liabilities incurred. Thus, management recorded a $708,000 liability for the potential return of premium measured at fair value as of the date of close. Management has elected the fair value option to account for the liability. It is recorded in other liabilities in the Company's Consolidated Balance Sheet and is marked to fair value through earnings at each reporting period. For further discussion of changes in the fair value of the return of premium liability and the period end balance, see Note 10 – Fair Value Disclosures.

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 during the three months ended June 30, 2022 and was allocated to the Banking segment.

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TRIUMPH ~~BANCORP,~~FINANCIAL, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Factored Receivable Disposal Group

On June 30, 2022 and September 6, 2022, the Company entered into and closed two separate agreements to sell two separate portfolios of factored receivables. A summary of the carrying amounts of the assets and liabilities sold and the gains on sale are as follows:


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

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

The June 30, 2022 ~~agreement contains a~~and September 6, 2022 agreements contain revenue share ~~provision~~provisions that ~~entitles~~entitle the Company to ~~an amount~~amounts equal to fifteen percent and a range of fifteen to twenty percent, depending on client, respectively, of the future gross monthly revenue of the clients associated with the sold factored receivable ~~portfolio.~~portfolios. As ~~this transaction~~these transactions qualified as ~~a sale~~sales of a group of entire financial assets, management recognized, as proceeds, the assets obtained and liabilities incurred. Thus, management recorded ~~a $5,210,000 asset~~revenue share assets 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~~close for the June 30, 2022 and September 6, 2022 agreements totaling $5,210,000 and $1,027,000, respectively. These are financial ~~asset~~assets for which management elected the fair value option. ~~It is~~They are recorded in other assets in the Company's Consolidated Balance Sheet and isare 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~~For further discussion 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 electedchanges in the fair value ~~option. It is recorded in other assets in~~of the ~~Company's Consolidated Balance Sheet~~revenue share provisions and ~~will be marked to fair value through earnings at each reporting period.~~the period end balance, see Note 10 – Fair Value Disclosures.

The gains on sale, net of transaction costs, were included in net gains (losses) on sale of loans in the Company’s Consolidated Statements of Income during the three months ended June 30, 2022 and September 30, 2022, respectively, and were allocated to the Factoring segment.

~~HubTran Inc.~~

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

~~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. 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 three large clients (and their affiliated entities) of TFS pursuant to long-term contractual arrangements between the obligor on such contracts and such clients (and their affiliated entities) for services that had not yet been performed.

~~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.

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 $4,173,000 and $4,786,000 at 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 September 30, 2022. At September 30, 2022, Covenant had remaining availability of $9,361,000 on its TBK line of credit available to cover our undiscounted indemnification balance of $4,393,000.

~~During the nine months ended~~ ~~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 $1,291,000 during the nine months ended 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 nine months ended 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 ~~$4,916,000~~$4,426,000 and ~~$5,504,000~~$5,191,000 at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. The gross realized and unrealized gains and losses recognized on equity securities with readily determinable fair values in noninterest income in the Company’s consolidated statements of income were as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	(Dollars in thousands)	2022		2021		2022		2021		(Dollars in thousands)	2023		2022		2023		2022
Unrealized gains (losses) on equity securities held at the reporting date	Unrealized gains (losses) on equity securities held at the reporting date	$	(134)	$	(231)	$	(588)	$	(203)	Unrealized gains (losses) on equity securities held at the reporting date	$	(72)	$	(35)	$	—	$	(454)
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	—		—		18		—
		$	(134)	$	(231)	$	(588)	$	(203)		$	(72)	$	(35)	$	18	$	(454)

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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)	September 30, 2022		December 31, 2021		(Dollars in thousands)	June 30, 2023		December 31, 2022
Equity Securities without readily determinable fair value, at cost	Equity Securities without readily determinable fair value, at cost	$	38,846	$	14,671	Equity Securities without readily determinable fair value, at cost	$	64,282	$	39,019
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		10,163
Equity Securities without readily determinable fair value, carrying value	Equity Securities without readily determinable fair value, carrying value	$	49,009	$	14,671	Equity Securities without readily determinable fair value, carrying value	$	74,445	$	49,182

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,~~sheets. Equity securities without readily determinable fair values also include the Company's investments in the common stock of Trax Group, Inc. and Warehouse Solutions Inc., discussed below, and other investments, which are included in other assets in the Company's consolidated balance sheets.

The gross realized and unrealized gains (losses) recognized on equity securities without readily determinable fair values in noninterest income in the Company’s consolidated statements of income were as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	(Dollars in thousands)	2022		2021		2022		2021		(Dollars in thousands)	2023		2022		2023		2022
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	$	—	Unrealized gains (losses) on equity securities still held at the reporting date	$	—	$	10,163	$	—	$	10,163
Realized gains (losses) on equity securities sold during the period	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~~Trax Group, Inc.

On June 22, 2023, the Company made a $9,700,000 minority investment in Trax Group, Inc. ("Trax"), a leader in transportation spend management solutions. The investment in Trax is accounted for as an equity investment without a readily determinable fair value measured under the measurement alternative and is included in other assets in the Company's consolidated balance sheets.

Warehouse Solutions Inc.

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

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

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

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Separately, the Company ~~adjusted~~also entered into an Amended and Restated Investor Rights Agreement (the “Investor Rights Agreement”). The Investor Rights Agreement eliminated the ~~fair value~~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 ~~security~~method accounting. The investment in WSI’s common stock is now accounted for as an equity investment without a readily determinable fair value ~~upwards due~~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 qualified as an orderly and observable transaction for an identical ~~investment. For further information~~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 ~~this transaction, see Note 6 – Equity Method Investment.~~the Company's consolidated statements of income during the three months ended June 30, 2022. The Company's investment in WSI totaled $38,088,000 at June 30, 2023 and December 31, 2022 and has been allocated to the Payments segment.

Debt Securities

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


(Dollars in thousands)	(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value		(Dollars in thousands)	Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses				Allowance for Credit Losses				Fair Value
September 30, 2022
June 30, 2023												June 30, 2023	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	$	49,962	$	—	$	(5,287)	$	—	$	44,675	Mortgage-backed securities, residential		$	51,069		$	—		$	(5,240)				$	—			$	45,829
Asset-backed securities	Asset-backed securities	6,501		—		(25)		—		6,476		Asset-backed securities	1,286			—			(34)					—				1,252
State and municipal	State and municipal	14,485		2		(225)		—		14,262		State and municipal	5,283			—			(88)				—				5,195
CLO securities	CLO securities	175,386		25		(5,703)		—		169,708		CLO securities	250,260			481			(1,662)				—				249,079
Corporate bonds	Corporate bonds	1,270		1		(22)		—		1,249		Corporate bonds	769			—			(9)				—				760
SBA pooled securities	SBA pooled securities	2,146		45		(127)		—		2,064		SBA pooled securities	1,773			5			(114)				—				1,664
Total available for sale securities	Total available for sale securities	$	249,750	$	73	$	(11,389)	$	—	$	238,434	Total available for sale securities	$	310,440		$	486		$	(7,147)			$	—			$	303,779


(Dollars in thousands)	(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrecognized Losses		Fair Value		(Dollars in thousands)	Amortized Cost			Gross Unrealized Gains			Gross Unrecognized Losses				Fair Value
September 30, 2022
June 30, 2023										June 30, 2023	Amortized Cost			Gross Unrealized Gains			Gross Unrecognized Losses				Fair Value
Held to maturity securities:	Held to maturity securities:																			Held to maturity securities:
CLO securities	CLO securities	$	6,579	$	455	$	(1,431)	$	5,603	CLO securities		$	6,256		$	284		$	(1,790)			$	4,750
Allowance for credit losses	Allowance for credit losses	(2,430)								Allowance for credit losses	(2,876)
Total held to maturity securities, net of ACL	Total held to maturity securities, net of ACL	$	4,149							Total held to maturity securities, net of ACL	$	3,380

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


(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
December 31, 2021
December 31, 2022												December 31, 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	$	36,885	$	720	$	(156)	$	—	$	37,449	Mortgage-backed securities, residential		$	55,329		$	235		$	(4,931)				$	—			$	50,633
Asset-backed securities	Asset-backed securities	6,763		2		(1)		—		6,764		Asset-backed securities	6,389			—			(58)					—				6,331
State and municipal	State and municipal	26,309		516		—		—		26,825		State and municipal	13,553			1			(116)				—				13,438
CLO Securities	CLO Securities	103,579		3,109		(54)		—		106,634		CLO Securities	185,068			161			(4,218)				—				181,011
Corporate bonds	Corporate bonds	1,992		64		—		—		2,056		Corporate bonds	1,270			1			(8)				—				1,263
SBA pooled securities	SBA pooled securities	2,536		162		—		—		2,698		SBA pooled securities	1,910			29			(111)				—				1,828
Total available for sale securities	Total available for sale securities	$	178,064	$	4,573	$	(211)	$	—	$	182,426	Total available for sale securities	$	263,519		$	427		$	(9,442)			$	—			$	254,504


(Dollars in thousands)	(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrecognized Losses		Fair Value		(Dollars in thousands)	Amortized Cost			Gross Unrealized Gains			Gross Unrecognized Losses				Fair Value
December 31, 2021
December 31, 2022										December 31, 2022	Amortized Cost			Gross Unrealized Gains			Gross Unrecognized Losses				Fair Value
Held to maturity securities:	Held to maturity securities:																			Held to maturity securities:
CLO securities	CLO securities	$	7,029	$	—	$	(1,582)	$	5,447	CLO securities		$	6,521		$	458		$	(1,503)			$	5,476
Allowance for credit losses	Allowance for credit losses	(2,082)								Allowance for credit losses	(2,444)
Total held to maturity securities, net of ACL	Total held to maturity securities, net of ACL	$	4,947							Total held to maturity securities, net of ACL	$	4,077

The amortized cost and estimated fair value of securities at ~~September~~June 30, ~~2022,~~2023, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


		Available for Sale Securities				Held to Maturity Securities					Available for Sale Securities				Held to Maturity Securities
(Dollars in thousands)	(Dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		(Dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	Due in one year or less	$	1,527	$	1,525	$	—	$	—	Due in one year or less	$	1,224	$	1,220	$	—	$	—
Due from one year to five years	Due from one year to five years	3,122		3,067		—		—		Due from one year to five years	2,213		2,175		1,913		2,106
Due from five years to ten years	Due from five years to ten years	53,433		51,539		6,579		5,603		Due from five years to ten years	73,022		72,397		4,343		2,644
Due after ten years	Due after ten years	133,059		129,088		—		—		Due after ten years	179,853		179,242		—		—
		191,141		185,219		6,579		5,603			256,312		255,034		6,256		4,750
Mortgage-backed securities, residential	Mortgage-backed securities, residential	49,962		44,675		—		—		Mortgage-backed securities, residential	51,069		45,829		—		—
Asset-backed securities	Asset-backed securities	6,501		6,476		—		—		Asset-backed securities	1,286		1,252		—		—
SBA pooled securities	SBA pooled securities	2,146		2,064		—		—		SBA pooled securities	1,773		1,664		—		—
		$	249,750	$	238,434	$	6,579	$	5,603		$	310,440	$	303,779	$	6,256	$	4,750

Proceeds from sales of debt securities and the associated gross gains and losses as well as net gains and losses from calls of debt securities are as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	(Dollars in thousands)	2022		2021		2022		2021		(Dollars in thousands)	2023		2022		2023		2022
Proceeds	Proceeds	$	—	$	—	$	40,163	$	—	Proceeds	$	4,000	$	40,163	$	4,000	$	40,163
Gross gains	Gross gains	—		—		2,512		—		Gross gains	—		2,512		—		2,512
Gross losses	Gross losses	—		—		—		—		Gross losses	—		—		—		—
Net gains and losses from calls of securities	Net gains and losses from calls of securities	—		4		2		5		Net gains and losses from calls of securities	—		2		—		2

Debt securities with a carrying amount of approximately ~~$96,198,000~~$35,749,000 and ~~$72,805,000~~$93,813,000 at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively, were pledged to secure public deposits, customer repurchase agreements, and for other purposes required or permitted by law.

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TRIUMPH ~~BANCORP,~~FINANCIAL, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Accrued interest on available for sale securities totaled ~~$1,764,000~~$4,299,000 and ~~$802,000~~$2,593,000 at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, 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 ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021.~~2022.

The following table summarizes available for sale debt securities in an unrealized loss position for which an allowance for credit losses has not been recorded, aggregated by investment category and length of time that individual securities have been in a continuous loss position:


		Less than 12 Months				12 Months or More				Total					Less than 12 Months						12 Months or More						Total
(Dollars in thousands)	(Dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		(Dollars in thousands)	Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value				Unrealized Losses
September 30, 2022
June 30, 2023														June 30, 2023	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	$	44,500	$	(5,287)	$	3	$	—	$	44,503	$	(5,287)	Mortgage-backed securities, residential		$	18,822		$	(574)		$	26,886		$	(4,666)		$	45,708				$	(5,240)
Asset-backed securities	Asset-backed securities	1,479		(21)		4,996		(4)		6,475		(25)		Asset-backed securities	—			—			1,252			(34)			1,252					(34)
State and municipal	State and municipal	12,981		(225)		—		—		12,981		(225)		State and municipal	4,134			(57)			471			(31)			4,605				(88)
CLO securities	CLO securities	140,066		(5,119)		9,666		(584)		149,732		(5,703)		CLO securities	23,028			(49)			107,197			(1,613)			130,225				(1,662)
Corporate bonds	Corporate bonds	748		(22)		—		—		748		(22)		Corporate bonds	759			(9)			—			—			759				(9)
SBA pooled securities	SBA pooled securities	1,380		(127)		—		—		1,380		(127)		SBA pooled securities	223			(3)			1,133			(111)			1,356				(114)
		$	201,154	$	(10,801)	$	14,665	$	(588)	$	215,819	$	(11,389)		$	46,966		$	(692)		$	136,939		$	(6,455)		$	183,905			$	(7,147)


		Less than 12 Months				12 Months or More				Total					Less than 12 Months						12 Months or More						Total
(Dollars in thousands)	(Dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		(Dollars in thousands)	Fair Value			Unrealized Losses			Fair Value			Unrealized Losses			Fair Value				Unrealized Losses
December 31, 2021
December 31, 2022														December 31, 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	$	20,386	$	(155)	$	6	$	(1)	$	20,392	$	(156)	Mortgage-backed securities, residential		$	26,030		$	(1,507)		$	15,828		$	(3,424)		$	41,858				$	(4,931)
Asset-backed securities	Asset-backed securities	37		—		4,999		(1)		5,036		(1)		Asset-backed securities	1,337			(52)			4,994			(6)			6,331					(58)
State and municipal	State and municipal	30		—		—		—		30		—		State and municipal	12,680			(116)			—			—			12,680				(116)
CLO Securities	CLO Securities	22,707		(54)		—		—		22,707		(54)		CLO Securities	151,572			(3,407)			19,439			(811)			171,011				(4,218)
Corporate bonds	Corporate bonds	—		—		—		—		—		—		Corporate bonds	261			(8)			—			—			261				(8)
SBA pooled securities	SBA pooled securities	—		—		—		—		—		—		SBA pooled securities	1,262			(111)			—			—			1,262				(111)
		$	43,160	$	(209)	$	5,005	$	(2)	$	48,165	$	(211)		$	193,142		$	(5,201)		$	40,261		$	(4,241)		$	233,403			$	(9,442)

Management evaluates available for sale debt securities in unrealized loss positions to determine whether the impairment is due to credit-related factors or noncredit-related factors. Consideration is given to (1) the extent to which the fair value is less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value.

At ~~September~~June 30, ~~2022,~~2023, the Company had ~~140~~137 available for sale debt securities in an unrealized loss position without an allowance for credit losses. Management does not have the intent to sell any of these securities and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline. Accordingly, as of ~~September~~June 30, ~~2022,~~2023, 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 the Company carried no allowance for credit losses ~~have been recognized in the Company’s consolidated statements of income.~~on available for sale debt securities at June 30, 2023.

1715

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TRIUMPH ~~BANCORP,~~FINANCIAL, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the activity in the allowance for credit losses for held to maturity debt securities:


(Dollars in thousands)	(Dollars in thousands)	Three Months Ended September 30,				Nine Months Ended September 30,				(Dollars in thousands)	Three Months Ended June 30,				Six Months Ended June 30,
Held to Maturity CLO Securities	Held to Maturity CLO Securities	2022		2021		2022		2021		Held to Maturity CLO Securities	2023		2022		2023		2022
Allowance for credit losses:	Allowance for credit losses:									Allowance for credit losses:
Beginning balance	Beginning balance	$	2,355	$	1,727	$	2,082	$	2,026	Beginning balance	$	2,585	$	2,455	$	2,444	$	2,082
Credit loss expense	Credit loss expense	75		10		348		(289)		Credit loss expense	291		(100)		432		273
Allowance for credit losses ending balance	Allowance for credit losses ending balance	$	2,430	$	1,737	$	2,430	$	1,737	Allowance for credit losses ending balance	$	2,876	$	2,355	$	2,876	$	2,355

The Company’s held to maturity securities are investments in the unrated subordinated notes of collateralized loan obligation funds. These securities are the junior-most in securitization capital structures, and are subject to suspension of distributions if the credit of the underlying loan portfolios deteriorates materially. The ACL on held to maturity securities is estimated at each measurement date on a collective basis by major security type. At ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, 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. Ultimately, the realized cash flows on CLO securities such as these will be driven by a variety of factors, including credit performance of the underlying loan portfolio, adjustments to the portfolio by the asset manager, and the timing of a potential call. At ~~September~~June 30, ~~2022, $5,130,000~~2023, $4,778,000 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)	(Dollars in thousands)	September 30, 2022		December 31, 2021		(Dollars in thousands)	June 30, 2023		December 31, 2022
1-4 family residential	1-4 family residential	$	68	$	712	1-4 family residential	$	89	$	—
Commercial	Commercial	10		6,618		Commercial	6		5,641
Total loans held for sale	Total loans held for sale	$	78	$	7,330	Total loans held for sale	$	95	$	5,641

Loans Held for Investment

Loans

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


		September 30, 2022						December 31, 2021							June 30, 2023						December 31, 2022
(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	$	669,742	$	670,980	$	(1,238)	$	632,775	$	634,319	$	(1,544)	Commercial real estate	$	768,711	$	769,682	$	(971)	$	678,144	$	679,239	$	(1,095)
Construction, land development, land	Construction, land development, land	75,527		75,606		(79)		123,464		123,643		(179)		Construction, land development, land	110,071		110,456		(385)		90,976		91,147		(171)
1-4 family residential	1-4 family residential	122,594		122,804		(210)		123,115		123,443		(328)		1-4 family residential	130,628		130,830		(202)		125,981		126,185		(204)
Farmland	Farmland	66,595		66,838		(243)		77,394		77,905		(511)		Farmland	67,913		68,090		(177)		68,934		69,185		(251)
Commercial	Commercial	1,282,199		1,295,015		(12,816)		1,430,429		1,440,542		(10,113)		Commercial	1,218,892		1,227,039		(8,147)		1,251,110		1,262,493		(11,383)
Factored receivables	Factored receivables	1,449,080		1,453,591		(4,511)		1,699,537		1,703,936		(4,399)		Factored receivables	1,173,794		1,177,702		(3,908)		1,237,449		1,241,032		(3,583)
Consumer	Consumer	9,506		9,509		(3)		10,885		10,883		2		Consumer	8,409		8,411		(2)		8,868		8,871		(3)
Mortgage warehouse	Mortgage warehouse	758,061		758,061		—		769,973		769,973		—		Mortgage warehouse	846,340		846,340		—		658,829		658,829		—
Total loans held for investment	Total loans held for investment	4,433,304		$	4,452,404	$	(19,100)	4,867,572		$	4,884,644	$	(17,072)	Total loans held for investment	4,324,758		$	4,338,550	$	(13,792)	4,120,291		$	4,136,981	$	(16,690)
Allowance for credit losses	Allowance for credit losses	(44,111)						(42,213)						Allowance for credit losses	(34,970)						(42,807)
		$	4,389,193					$	4,825,359						$	4,289,788					$	4,077,484

1816

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TRIUMPH ~~BANCORP,~~FINANCIAL, 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 ~~$14,263,000~~$9,848,000 and ~~$11,723,000~~$13,383,000 at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively, and (2) net deferred origination and factoring fees totaling ~~$4,837,000~~$3,944,000 and ~~$5,349,000~~$3,307,000 at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

Accrued interest on loans, which is excluded from the amortized cost of loans held for investment, totaled ~~$16,159,000~~$23,230,000 and ~~$14,513,000~~$19,279,000 at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively, and was included in other assets on the Company's consolidated balance sheets.

At ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company had ~~$249,729,000~~$198,960,000 and ~~$254,970,000,~~$249,288,000, respectively, of customer reserves associated with factored receivables. These amounts represent customer reserves held to settle any payment disputes or collection shortfalls, may be used to pay customers’ obligations to various third parties as directed by the customer, are periodically released to or withdrawn by customers, and are reported as deposits in the consolidated balance sheets.

At ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 the balance of the Over-Formula Advance Portfolio, acquired from Transport Financial Solutions during 2020, included in factored receivables was ~~$8,785,000~~$4,011,000 and ~~$10,077,000,~~$8,202,000, respectively. These balances were fully reserved as of those respective dates. During the six months ended June 30, 2023, new adverse developments with one of the two remaining 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 $3,330,000; however, this net charge-off had no impact on credit loss expense as the entire amount had been reserved in a prior period. In accordance with the Agreement reached with Covenant, Covenant will reimburse us for $1,665,000 of this charge-off which is reflected as a receivable in other assets on our June 30, 2023 Consolidated Balance Sheet.

At ~~September~~June 30, ~~2022~~2023 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 are a party to litigation in the United States Court of Federal Claims against the USPS seeking a ruling that the USPS was obligated to make the payments represented by this receivable directly to us. Based on our legal analysis and discussions with our counsel advising us on this matter, we continue to believe it is probable that we will prevail in such action and that the USPS will have the capacity to make payment on such receivable. Consequently, we have not reserved for such balance as of ~~September~~June 30, ~~2022.~~2023.

Loans with carrying amounts of ~~$1,416,089,000~~$1,598,726,000 and ~~$1,733,917,000~~$1,356,922,000 at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, 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.

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 September 30, 2022
Three months ended June 30, 2023																Three months ended June 30, 2023			Beginning Balance		Credit Loss Expense				Charge-offs			Recoveries			Ending Balance
Commercial real estate	Commercial real estate			$	5,167			$	(373)			$	—				$	—					$	4,794			Commercial real estate
Construction, land development, land	Construction, land development, land	1,192				(198)		—		1				995		Construction, land development, land			1,139			95				—				1			1,235
1-4 family residential	1-4 family residential	757				(16)		—		1				742		1-4 family residential			1,004		34				—				8			1,046
Farmland	Farmland	490				(23)		—		—				467		Farmland			472		4				—			—			476
Commercial	Commercial	12,738				3,431		(208)		59				16,020		Commercial			16,683		1,368				(5,124)			50			12,977
Factored receivables	Factored receivables	22,212				183		(2,433)		172				20,134		Factored receivables			17,581		1,521				(5,820)			159			13,441
Consumer	Consumer	197				62		(106)		49				202		Consumer			185		44				(133)			70			166
Mortgage warehouse	Mortgage warehouse	654				103		—		—				757		Mortgage warehouse			889		(43)				—			—			846
		$	43,407			$	3,169	$	(2,747)	$	282			$	44,111				$	42,245	$	3,514			$	(11,077)		$	288		$	34,970

1917

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TRIUMPH ~~BANCORP,~~FINANCIAL, 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		(Dollars in thousands)			Beginning Balance		Credit Loss Expense				Charge-offs			Recoveries			Ending Balance
Three months ended September 30, 2021
Three months ended June 30, 2022																Three months ended June 30, 2022			Beginning Balance		Credit Loss Expense				Charge-offs			Recoveries			Ending Balance
Commercial real estate	Commercial real estate			$	4,404			$	(453)			$	(17)				$	2					$	3,936			Commercial real estate
Construction, land development, land	Construction, land development, land	1,490				(434)		—		1				1,057		Construction, land development, land			901			290				—				1			1,192
1-4 family residential	1-4 family residential	545				(64)		(1)		5				485		1-4 family residential			450		305				—				2			757
Farmland	Farmland	669				(59)		—		—				610		Farmland			121		369				—			—			490
Commercial	Commercial	15,674				(1,187)		(211)		—				14,276		Commercial			13,215		(407)				(260)			190			12,738
Factored receivables	Factored receivables	21,823				1,186		(3,597)		239				19,651		Factored receivables			22,471		(120)				(712)			573			22,212
Consumer	Consumer	236				153		(139)		—				250		Consumer			175		77				(96)			41			197
Mortgage warehouse	Mortgage warehouse	853				(101)		—		—				752		Mortgage warehouse			693		(39)				—			—			654
		$	45,694			$	(959)	$	(3,965)	$	247			$	41,017				$	41,553	$	2,069			$	(1,068)		$	853		$	43,407

(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
Nine Months Ended September 30, 2022
Six Months Ended June 30, 2023																Six Months Ended June 30, 2023			Beginning Balance		Credit Loss Expense				Charge-offs			Recoveries			Ending Balance
Commercial real estate	Commercial real estate			$	3,961			$	881			$	(108)				$	60					$	4,794			Commercial real estate
Construction, land development, land	Construction, land development, land	827				165		—		3				995		Construction, land development, land			1,155			78				—				2			1,235
1-4 family residential	1-4 family residential	468				268		—		6				742		1-4 family residential			838		203				(5)				10			1,046
Farmland	Farmland	562				(95)		—		—				467		Farmland			483		(7)				—			—			476
Commercial	Commercial	14,485				2,417		(1,192)		310				16,020		Commercial			15,918		2,315				(5,346)			90			12,977
Factored receivables	Factored receivables	20,915				2,298		(3,853)		774				20,134		Factored receivables			19,121		2,071				(8,113)			362			13,441
Consumer	Consumer	226				180		(313)		109				202		Consumer			175		65				(271)			197			166
Mortgage warehouse	Mortgage warehouse	769				(12)		—		—				757		Mortgage warehouse			658		188				—			—			846
		$	42,213			$	6,102	$	(5,466)	$	1,262			$	44,111				$	42,807	$	5,167			$	(13,735)		$	731		$	34,970

(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
Nine months ended September 30, 2021
Six months ended June 30, 2022																Six months ended June 30, 2022			Beginning Balance		Credit Loss Expense				Charge-offs			Recoveries			Ending Balance
Commercial real estate	Commercial real estate			$	10,182			$	(6,239)			$	(17)				$	10					$	3,936			Commercial real estate
Construction, land development, land	Construction, land development, land	3,418				(2,352)		(12)		3				1,057		Construction, land development, land			827			363				—				2			1,192
1-4 family residential	1-4 family residential	1,225				(804)		(26)		90				485		1-4 family residential			468		284				—				5			757
Farmland	Farmland	832				(222)		—		—				610		Farmland			562		(72)				—			—			490
Commercial	Commercial	22,040				(7,936)		(426)		598				14,276		Commercial			14,485		(1,014)				(984)			251			12,738
Factored receivables	Factored receivables	56,463				8,547		(45,683)		324				19,651		Factored receivables			20,915		2,115				(1,420)			602			22,212
Consumer	Consumer	542				(99)		(285)		92				250		Consumer			226		118				(207)			60			197
Mortgage warehouse	Mortgage warehouse	1,037				(285)		—		—				752		Mortgage warehouse			769		(115)				—			—			654
		$	95,739			$	(9,390)	$	(46,449)	$	1,117			$	41,017				$	42,213	$	2,933			$	(2,719)		$	980		$	43,407

The ~~increase~~decrease in required ACL during the three months ended ~~September~~June 30, ~~2022~~2023 is a function of net charge-offs of ~~$2,465,000~~$10,789,000 and credit loss expense of ~~$3,169,000.~~ $3,514,000.

The ~~increase~~decrease in required ACL during the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 is a function of net charge-offs of ~~$4,204,000~~$13,004,000 and credit loss expense of ~~$6,102,000.~~$5,167,000.

2018

Table of Contents

TRIUMPH ~~BANCORP,~~FINANCIAL, 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~~future interest rate environment. ~~Generally, the~~The impact of these assumed prepayment speeds is lesser in magnitude than the aforementioned loss driver assumptions.

For all DCF models at ~~September~~June 30, ~~2022,~~2023, the Company has determined that four quarters represents a reasonable and supportable forecast period and reverts back to a historical loss rate over eight quarters on a straight-line basis. The Company leverages economic projections from a reputable and independent third party to inform its loss driver forecasts over the four-quarter forecast period. Other internal and external indicators of economic forecasts are also considered by the Company when developing the forecast metrics. At ~~September~~June 30, ~~2022~~2023 as compared to December 31, ~~2021,~~2022, the Company forecasted ~~increasing~~a slight decrease 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~~minimal change in one-year percentage change in national gross domestic product. At ~~September~~June 30, ~~2022~~2023 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~~near-zero level in the first projected quarter followed by a decline to ~~near-zero or~~ negative levels over the last three projected quarters to a level below recent actual periods. For percentage ~~changes~~change in national home price index, ~~and~~the Company projected a negative levels for all four quarters with such negative levels peaking in the third projected quarter. For percentage change in national gross domestic product, ~~the Company~~management projected ~~declines over the last three~~near-zero growth for each projected ~~quarters to negative levels below recent actual periods.~~quarter. At ~~September~~June 30, ~~2022,~~2023, the Company slowed its historical prepayment speeds in response to the ~~rising~~expected interest rate environment in the macro economy.

The Company uses a loss-rate method to estimate expected credit losses for the farmland, liquid credit, factored receivable, and mortgage warehouse loan pools. For each of these loan segments, the Company applies an expected loss ratio based on internal and peer historical losses adjusted as appropriate for qualitative factors. Qualitative loss factors are based on the Company's judgment of company, market, industry or business specific data, changes in underlying loan composition of specific portfolios, trends relating to credit quality, delinquency, non-performing and adversely rated loans, and reasonable and supportable forecasts of economic conditions. Loss factors used to calculate the required ACL on pools that use the loss-rate method reflect the forecasted economic conditions described above.

For the three months ended ~~September~~June 30, ~~2022,~~2023, changes in projected loss drivers and prepayment assumptions over the reasonable and supportable forecast period did not have a ~~significant~~meaningful impact on the required ACL. ~~Changes in net new required specific reserves increased the required ACL at September 30, 2022. Changes~~Likewise, 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~~meaningful impact on the ACL during the period. ~~Non-PCD-related net charge-offs reduced~~Decreases in required specific reserves decreased the required ACL by ~~$3,718,000~~$7,108,000. Net charge-offs during the period were $10,789,000.

For the three months ended ~~September 30, 2021.~~

~~For the nine months ended September~~June 30, 2022, changes in projected loss drivers and prepayment assumptions over the reasonable and supportable forecast period increased the required ACL by ~~$1,487,000. Changes in net new required specific reserves also increased the required ACL at September 30, 2022.~~$2,558,000. Changes in loan volume and mix ~~during the nine months ended September 30, 2022~~ decreased the required ACL ~~during~~by $1,624,000. Increases in required specific reserves increased the ~~period.~~required ACL by $919,000. Net charge-offs during the period were ~~$4,204,000.~~

~~Table of Contents~~

~~TRIUMPH BANCORP, INC. AND SUBSIDIARIES~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

$215,000.

For the ~~nine~~six months ended ~~September~~June 30, ~~2021, in addition to the impact of changes to the ACL on acquired PCD Over-Formula Advances previously discussed,~~2023, changes in projected loss drivers and prepayment assumptions over the reasonable and supportable forecast period did not have a meaningful impact on the required ACL. Likewise, changes in loan volume and mix did not have a meaningful impact on the ACL during the period. Decreases in required specific reserves decreased the required ACL by ~~$10,319,000. Further,~~$8,019,000. Net charge-offs during the ~~Company experienced a net reserve release of specific reserves on non-PCD loans.~~period were $13,004,000.

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 loan volume and mix decreased the required ACL by $2,146,000. Increases in required specific reserves increased the required ACL by $1,798,000. Net charge-offs during the ~~nine months ended September 30, 2021 also decreased the ACL during the period. Non-PCD-related charge-offs reduced the ACL by $4,067,000 during the nine months ended September 30, 2021.~~period were $1,739,000.

Table of Contents

TRIUMPH FINANCIAL, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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


(Dollars in thousands)	(Dollars in thousands)	Real Estate				Accounts Receivable		Equipment				Other		Total				ACL Allocation		(Dollars in thousands)			Real Estate		Accounts Receivable				Equipment		Other				Total			ACL Allocation
September 30, 2022
June 30, 2023																				June 30, 2023			Real Estate		Accounts Receivable				Equipment		Other				Total			ACL Allocation
Commercial real estate	Commercial real estate			$	1,240					$	—					$	—				$	142					$	1,382					$	283			Commercial real estate
Construction, land development, land	Construction, land development, land	151				—		—				—		151				—		Construction, land development, land			—			—				—		—				—				—
1-4 family residential	1-4 family residential	1,663				—		—				47		1,710				80		1-4 family residential			1,059		—				—		26				1,085				126
Farmland	Farmland	196				—		112				106		414				—		Farmland			303		—				—		92				395			—
Commercial	Commercial	208				—		3,256				14,403		17,867				4,330		Commercial			1,045		—				2,652		2,383				6,080			1,990
Factored receivables	Factored receivables	—				47,628		—				—		47,628				13,024		Factored receivables			—		36,951				—		—				36,951			8,004
Consumer	Consumer	—				—		—				154		154				13		Consumer			—		—				—		180				180			—
Mortgage warehouse	Mortgage warehouse	—				—		—				—		—				—		Mortgage warehouse			—		—				—		—				—			—
Total	Total	$	3,458			$	47,628	$	3,368			$	14,852	$	69,306			$	17,730	Total			$	3,616	$	36,951			$	2,831	$	3,484			$	46,882		$	10,152

At ~~September~~June 30, 2023 the balance of the Over-Formula Advance Portfolio included in factored receivables was $4,011,000 and was fully reserved. At June 30, 2023 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, 2022
Commercial real estate	$	1,003	$	—	$	—	$	140	$	1,143	$	283
Construction, land development, land	150		—		—		—		150		—
1-4 family residential	1,342		—		—		49		1,391		108
Farmland	196		—		108		96		400		—
Commercial	193		—		5,334		10,370		15,897		4,737
Factored receivables	—		42,409		—		—		42,409		13,042
Consumer	—		—		—		91		91		—
Mortgage warehouse	—		—		—		—		—		—
Total	$	2,884	$	42,409	$	5,442	$	10,746	$	61,481	$	18,170

At December 31, 2022 the balance of the Over-Formula Advance Portfolio included in factored receivables was ~~$8,785,000~~$8,202,000 and ~~was fully reserved.~~carried an ACL allocation of $8,202,000. At ~~September 30,~~December 31, 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

~~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
September 30, 2022
June 30, 2023																								June 30, 2023			Past Due 30-59 Days		Past Due 60-90 Days				Past Due 90 Days or More		Total Past Due				Current			Total			Past Due 90 Days or More and Accruing
Commercial real estate	Commercial real estate			$	1,465					$	—			$	421					$	1,886				$	667,856					$	669,742					$	—			Commercial real estate
Construction, land development, land	Construction, land development, land	9				—		145				154				75,373		75,527				—		Construction, land development, land			—			—				—		—				110,071				110,071			—
1-4 family residential	1-4 family residential	984				461		819				2,264				120,330		122,594				—		1-4 family residential			783		157				431		1,371				129,257				130,628			—
Farmland	Farmland	—				—		—				—				66,595		66,595				—		Farmland			3,848		231				—		4,079				63,834			67,913			—
Commercial	Commercial	288				178		3,097				3,563				1,278,636		1,282,199				48		Commercial			4,277		5,242				3,773		13,292				1,205,600			1,218,892			—
Factored receivables	Factored receivables	42,637				13,455		38,969				95,061				1,354,019		1,449,080				38,969		Factored receivables			17,787		3,543				26,819		48,149				1,125,645			1,173,794			26,819
Consumer	Consumer	144				28		62				234				9,272		9,506				—		Consumer			13		91				108		212				8,197			8,409			—
Mortgage warehouse	Mortgage warehouse	—				—		—				—				758,061		758,061				—		Mortgage warehouse			—		—				—		—				846,340			846,340			—
Total	Total	$	45,527			$	14,122	$	43,513			$	103,162			$	4,330,142	$	4,433,304			$	39,017	Total			$	26,708	$	9,306			$	31,147	$	67,161			$	4,257,597		$	4,324,758		$	26,819

(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

Table of Contents

TRIUMPH FINANCIAL, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


(Dollars in thousands)	Past Due 30-59 Days		Past Due 60-90 Days		Past Due 90 Days or More		Total Past Due		Current		Total		Past Due 90 Days or More and Accruing
December 31, 2022
Commercial real estate	$	1,301	$	—	$	455	$	1,756	$	676,388	$	678,144	$	—
Construction, land development, land	—		—		145		145		90,831		90,976		—
1-4 family residential	936		531		776		2,243		123,738		125,981		—
Farmland	—		—		—		—		68,934		68,934		—
Commercial	1,630		3,139		2,847		7,616		1,243,494		1,251,110		—
Factored receivables	42,797		12,651		37,142		92,590		1,144,859		1,237,449		37,142
Consumer	52		41		2		95		8,773		8,868		—
Mortgage warehouse	—		—		—		—		658,829		658,829		—
Total	$	46,716	$	16,362	$	41,367	$	104,445	$	4,015,846	$	4,120,291	$	37,142

At ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, total past due Over-Formula Advances recorded in factored receivables was ~~$8,785,000~~$4,011,000 and ~~$10,077,000,~~$8,202,000, respectively, all of which was considered past due 90 days or more. ~~Aging of the Over-Formula Advances is based upon the service month on which the advances were made by TFS prior to acquisition.~~ At ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, 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. Historically, any income recognized on factored receivables that are past due 90 days or more has not been material.

~~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:


		September 30, 2022				December 31, 2021					June 30, 2023				December 31, 2022
(Dollars in thousands)	(Dollars in thousands)	Total Nonaccrual		Nonaccrual With No ACL		Total 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	$	1,108	$	541	$	2,025	$	1,375	Commercial real estate	$	1,933	$	1,818	$	871	$	319
Construction, land development, land	Construction, land development, land	151		151		964		964		Construction, land development, land	—		—		150		150
1-4 family residential	1-4 family residential	1,710		1,604		1,683		1,582		1-4 family residential	1,085		881		1,391		1,238
Farmland	Farmland	414		414		2,044		2,044		Farmland	394		394		400		400
Commercial	Commercial	17,291		3,015		8,078		3,910		Commercial	5,501		1,813		15,393		3,662
Factored receivables	Factored receivables	—		—		—		—		Factored receivables	—		—		—		—
Consumer	Consumer	154		112		240		159		Consumer	180		180		91		91
Mortgage warehouse	Mortgage warehouse	—		—		—		—		Mortgage warehouse	—		—		—		—
		$	20,828	$	5,837	$	15,034	$	10,034		$	9,093	$	5,086	$	18,296	$	5,860

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	(Dollars in thousands)	2022		2021		2022		2021		(Dollars in thousands)	2023		2022		2023		2022
Commercial real estate	Commercial real estate	$	—	$	—	$	—	$	8	Commercial real estate	$	—	$	—	$	16	$	—
Construction, land development, land	Construction, land development, land	—		—		2		—		Construction, land development, land	—		—		—		—
1-4 family residential	1-4 family residential	1		—		1		1		1-4 family residential	6		—		6		—
Farmland	Farmland	—		—		—		6		Farmland	—		—		22		—
Commercial	Commercial	—		—		4		23		Commercial	1		2		8		6
Factored receivables	Factored receivables	—		—		—		—		Factored receivables	—		—		—		—
Consumer	Consumer	—		3		—		3		Consumer	1		—		1		—
Mortgage warehouse	Mortgage warehouse	—		—		—		—		Mortgage warehouse	—		—		—		—
		$	1	$	3	$	7	$	41		$	8	$	2	$	53	$	6

There was no interest earned on nonaccrual loans during the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021.~~2022.

Table of Contents

TRIUMPH FINANCIAL, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents information regarding nonperforming loans:


(Dollars in thousands)	(Dollars in thousands)	September 30, 2022		December 31, 2021		(Dollars in thousands)	June 30, 2023		December 31, 2022
Nonaccrual loans~~(1)~~	Nonaccrual loans~~(1)~~	$	20,828	$	15,034	Nonaccrual loans~~(1)~~	$	9,093	$	18,296
Factored receivables greater than 90 days past due	Factored receivables greater than 90 days past due	30,184		29,057		Factored receivables greater than 90 days past due	22,808		28,940
Other nonperforming factored receivables~~(2)~~(1)	Other nonperforming factored receivables~~(2)~~(1)	4,331		1,428		Other nonperforming factored receivables~~(2)~~(1)	61		491
Troubled debt restructurings accruing interest	Troubled debt restructurings accruing interest	577		765		Troubled debt restructurings accruing interest	—		503
		$	55,920	$	46,284		$	31,962	$	48,230

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

~~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.

~~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 ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, based on the most recent analysis performed, the risk category of loans is as follows:

Revolving
Loans Revolving
Loans
Converted
To Term
Loans Total
(Dollars in thousands) Year of Origination
September 30, 2022 2022 2021 2020 2019 2018 Prior
Commercial real estate
Pass $ 209,979 $ 162,141 $ 201,656 $ 27,482 $ 18,640 $ 38,969 $ 4,442 $ — $ 663,309
Classified 2,634 779 1,883 39 — 1,098 — — 6,433
Total commercial real estate $ 212,613 $ 162,920 $ 203,539 $ 27,521 $ 18,640 $ 40,067 $ 4,442 $ — $ 669,742
Construction, land development, land
Pass $ 46,466 $ 16,185 $ 7,115 $ 4,368 $ 654 $ 578 $ 10 $ — $ 75,376
Classified — — 6 — — 145 — — 151
Total construction, land development, land $ 46,466 $ 16,185 $ 7,121 $ 4,368 $ 654 $ 723 $ 10 $ — $ 75,527
1-4 family residential
Pass $ 19,058 $ 23,089 $ 11,450 $ 3,046 $ 3,787 $ 22,067 $ 38,002 $ 308 $ 120,807
Classified 29 420 156 52 3 1,059 68 — 1,787
Total 1-4 family residential $ 19,087 $ 23,509 $ 11,606 $ 3,098 $ 3,790 $ 23,126 $ 38,070 $ 308 $ 122,594
Farmland
Pass $ 10,092 $ 12,736 $ 10,381 $ 2,738 $ 6,790 $ 21,707 $ 1,370 $ 218 $ 66,032
Classified 199 11 131 112 — 110 — — 563
Total farmland $ 10,291 $ 12,747 $ 10,512 $ 2,850 $ 6,790 $ 21,817 $ 1,370 $ 218 $ 66,595
Commercial
Pass $ 300,479 $ 220,970 $ 181,171 $ 45,579 $ 7,594 $ 13,283 $ 473,205 $ 269 $ 1,242,550
Classified 14,656 10,681 3,701 2,148 110 115 8,238 — 39,649
Total commercial $ 315,135 $ 231,651 $ 184,872 $ 47,727 $ 7,704 $ 13,398 $ 481,443 $ 269 $ 1,282,199
Factored receivables
Pass $ 1,411,243 $ — $ — $ — $ — $ — $ — $ — $ 1,411,243
Classified 17,693 — 20,144 — — — — — 37,837
Total factored receivables $ 1,428,936 $ — $ 20,144 $ — $ — $ — $ — $ — $ 1,449,080
Consumer
Pass $ 3,112 $ 1,590 $ 1,033 $ 361 $ 355 $ 2,760 $ 141 $ — $ 9,352
Classified — 2 2 — — 150 — — 154
Total consumer $ 3,112 $ 1,592 $ 1,035 $ 361 $ 355 $ 2,910 $ 141 $ — $ 9,506
Mortgage warehouse
Pass $ 758,061 $ — $ — $ — $ — $ — $ — $ — $ 758,061
Classified — — — — — — — — —
Total mortgage warehouse $ 758,061 $ — $ — $ — $ — $ — $ — $ — $ 758,061
Total loans
Pass $ 2,758,490 $ 436,711 $ 412,806 $ 83,574 $ 37,820 $ 99,364 $ 517,170 $ 795 $ 4,346,730
Classified 35,211 11,893 26,023 2,351 113 2,677 8,306 — 86,574
Total loans $ 2,793,701 $ 448,604 $ 438,829 $ 85,925 $ 37,933 $ 102,041 $ 525,476 $ 795 $ 4,433,304

2622

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TRIUMPH ~~BANCORP,~~FINANCIAL, 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 $2,611,000 and $4,677,000 as of September 30, 2022 and December 31, 2021, respectively. The Company had allocated $1,104,000 and $1,068,000 of allowance for those loans at September 30, 2022 and December 31, 2021, respectively, and had not committed to lend additional amounts.


													Revolving Loans		Revolving Loans Converted To Term Loans		Total
(Dollars in thousands)	Year of Origination
June 30, 2023	2023		2022		2021		2020		2019		Prior
Commercial real estate
Pass	$	81,407	$	189,531	$	155,250	$	188,216	$	24,049	$	41,734	$	80,562	$	174	$	760,923
Classified	872		3,177		732		2,953		38		16		—		—		7,788
Total commercial real estate	$	82,279	$	192,708	$	155,982	$	191,169	$	24,087	$	41,750	$	80,562	$	174	$	768,711
YTD gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Construction, land development, land
Pass	$	39,791	$	54,122	$	6,494	$	3,361	$	3,006	$	392	$	2,905	$	—	$	110,071
Classified	—		—		—		—		—		—		—		—		—
Total construction, land development, land	$	39,791	$	54,122	$	6,494	$	3,361	$	3,006	$	392	$	2,905	$	—	$	110,071
YTD gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

1-4 family residential
Pass	$	14,577	$	23,352	$	20,376	$	8,345	$	2,639	$	22,464	$	37,263	$	182	$	129,198
Classified	317		23		127		5		53		789		116		—		1,430
Total 1-4 family residential	$	14,894	$	23,375	$	20,503	$	8,350	$	2,692	$	23,253	$	37,379	$	182	$	130,628
YTD gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	5	$	—	$	—	$	5

Farmland
Pass	$	6,801	$	14,731	$	6,437	$	8,275	$	2,541	$	21,301	$	1,640	$	172	$	61,898
Classified	4,702		895		—		21		99		298		—		—		6,015
Total farmland	$	11,503	$	15,626	$	6,437	$	8,296	$	2,640	$	21,599	$	1,640	$	172	$	67,913
YTD gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial
Pass	$	191,873	$	273,932	$	112,284	$	102,327	$	35,368	$	14,440	$	467,359	$	816	$	1,198,399
Classified	1,069		9,873		6,490		1,977		33		168		883		—		20,493
Total commercial	$	192,942	$	283,805	$	118,774	$	104,304	$	35,401	$	14,608	$	468,242	$	816	$	1,218,892
YTD gross charge-offs	$	1	$	598	$	4,395	$	342	$	10	$	—	$	—	$	—	$	5,346

Factored receivables
Pass	$	1,138,485	$	—	$	—	$	3,950	$	—	$	—	$	—	$	—	$	1,142,435
Classified	11,937		—		—		19,422		—		—		—		—		31,359
Total factored receivables	$	1,150,422	$	—	$	—	$	23,372	$	—	$	—	$	—	$	—	$	1,173,794
YTD gross charge-offs	$	2,490	$	2,293	$	—	$	3,330	$	—	$	—	$	—	$	—	$	8,113

Consumer
Pass	$	2,277	$	2,064	$	920	$	599	$	209	$	2,109	$	61	$	—	$	8,239
Classified	—		—		99		—		—		71		—		—		170
Total consumer	$	2,277	$	2,064	$	1,019	$	599	$	209	$	2,180	$	61	$	—	$	8,409
YTD gross charge-offs	$	242	$	13	$	11	$	3	$	—	$	2	$	—	$	—	$	271

Mortgage warehouse
Pass	$	846,340	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	846,340
Classified	—		—		—		—		—		—		—		—		—
Total mortgage warehouse	$	846,340	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	846,340
YTD gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Total loans
Pass	$	2,321,551	$	557,732	$	301,761	$	315,073	$	67,812	$	102,440	$	589,790	$	1,344	$	4,257,503
Classified	18,897		13,968		7,448		24,378		223		1,342		999		—		67,255
Total loans	$	2,340,448	$	571,700	$	309,209	$	339,451	$	68,035	$	103,782	$	590,789	$	1,344	$	4,324,758
YTD gross charge-offs	$	2,733	$	2,904	$	4,406	$	3,675	$	10	$	7	$	—	$	—	$	13,735

2723

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TRIUMPH ~~BANCORP,~~FINANCIAL, 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, 2022	2022		2021		2020		2019		2018		Prior
Commercial real estate
Pass	$	231,427	$	156,895	$	198,541	$	28,033	$	17,786	$	35,658	$	3,675	$	—	$	672,015
Classified	3,668		551		1,855		39		—		16		—		—		6,129
Total commercial real estate	$	235,095	$	157,446	$	200,396	$	28,072	$	17,786	$	35,674	$	3,675	$	—	$	678,144

Construction, land development, land
Pass	$	71,236	$	11,328	$	4,535	$	3,186	$	35	$	506	$	—	$	—	$	90,826
Classified	—		—		5		—		—		145		—		—		150
Total construction, land development, land	$	71,236	$	11,328	$	4,540	$	3,186	$	35	$	651	$	—	$	—	$	90,976

1-4 family residential
Pass	$	26,306	$	22,639	$	9,536	$	2,929	$	3,528	$	20,910	$	38,361	$	300	$	124,509
Classified	137		199		7		53		1		1,006		69		—		1,472
Total 1-4 family residential	$	26,443	$	22,838	$	9,543	$	2,982	$	3,529	$	21,916	$	38,430	$	300	$	125,981

Farmland
Pass	$	18,190	$	7,291	$	10,027	$	2,699	$	6,742	$	18,569	$	1,016	$	204	$	64,738
Classified	1,062		2,796		120		108		—		110		—		—		4,196
Total farmland	$	19,252	$	10,087	$	10,147	$	2,807	$	6,742	$	18,679	$	1,016	$	204	$	68,934

Commercial
Pass	$	358,983	$	181,933	$	136,635	$	41,912	$	5,842	$	12,145	$	486,889	$	161	$	1,224,500
Classified	10,721		10,579		3,767		1,038		96		116		293		—		26,610
Total commercial	$	369,704	$	192,512	$	140,402	$	42,950	$	5,938	$	12,261	$	487,182	$	161	$	1,251,110

Factored receivables
Pass	$	1,196,912	$	—	$	7,710	$	—	$	—	$	—	$	—	$	—	$	1,204,622
Classified	12,974		—		19,853		—		—		—		—		—		32,827
Total factored receivables	$	1,209,886	$	—	$	27,563	$	—	$	—	$	—	$	—	$	—	$	1,237,449

Consumer
Pass	$	2,768	$	1,981	$	894	$	304	$	266	$	2,418	$	147	$	—	$	8,778
Classified	—		1		2		—		8		79		—		—		90
Total consumer	$	2,768	$	1,982	$	896	$	304	$	274	$	2,497	$	147	$	—	$	8,868

Mortgage warehouse
Pass	$	658,829	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	658,829
Classified	—		—		—		—		—		—		—		—		—
Total mortgage warehouse	$	658,829	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	658,829

Total loans
Pass	$	2,564,651	$	382,067	$	367,878	$	79,063	$	34,199	$	90,206	$	530,088	$	665	$	4,048,817
Classified	28,562		14,126		25,609		1,238		105		1,472		362		—		71,474
Total loans	$	2,593,213	$	396,193	$	393,487	$	80,301	$	34,304	$	91,678	$	530,450	$	665	$	4,120,291

Table of Contents

TRIUMPH FINANCIAL, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Loan Modifications to Borrowers Experiencing Financial Difficulty

The following table presents the ~~pre- and post-modification recorded investment~~amortized cost basis at the end of the reporting period of the loans modifications to borrowers experiencing financial difficulty:


	Term Extension
	Three Months Ended June 30, 2023				Six Months Ended June 30, 2023
(Dollars in thousands)	Amortized Cost		% of Portfolio		Amortized Cost		% of Portfolio
Commercial real estate	$	116	—	%	$	116	—	%



Commercial	—		—	%	1,218		0.1	%

The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulty:

Term Extension

Three Months Ended June 30, 2023

Six Months Ended June 30, 2023

Commercial real estate

Modification added a weighted average 0.3 years to the life of the modified loans, which did not have a material impact on cash flows.

Commercial

N/A

Modification added a weighted average 0.3 years to the life of the modified loans, which did not have a material impact on cash flows.


	Payment Delay
	Three Months Ended June 30, 2023				Six Months Ended June 30, 2023
(Dollars in thousands)	Amortized Cost		% of Portfolio		Amortized Cost		% of Portfolio
Commercial real estate	$	—	—	%	$	756	0.1	%

The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulty:

Payment Delay

Six Months Ended June 30, 2023

Commercial real estate

Modification allowed for a weighted average 0.5 years of interest only payments with remaining balances due at maturity.

The following table presents the performance of loans that have been modified ~~as troubled debt restructurings. The~~in the last twelve months:


	June 30, 2023
(Dollars in thousands)	Current		Past Due 30-89 Days		Past Due 90 Days or More
Commercial real estate	$	872	$	—	$	—



Commercial	1,218		—		—



	$	2,090	$	—	$	—

At June 30, 2023, the Company ~~did not grant~~had no commitments to lend additional funds to borrowers experiencing financial difficulty for which the Company modified the terms of the loans in the form of principal ~~reductions on any restructured loans.~~

(Dollars in thousands) Extended
Amortization
Period Payment
Deferrals Protective Advances Total
Modifications Number of
Loans
Three months ended September 30, 2022
Commercial $ 45 $ — $ — $ 45 1
$ 45 $ — $ — $ 45 1
Nine months ended September 30, 2022
Commercial $ 45 $ — $ — $ 45 1
$ 45 $ — $ — $ 45 1
Nine months ended September 30, 2021
Commercial real estate $ — $ 741 $ 741 1
$ — $ — $ 741 $ 741 1
forgiveness, an interest rate reduction, an other-than-insignificant payment delay, or a term extension during the current period.

There were no loans ~~modified as troubled debt restructurings~~to borrowers experiencing financial difficulty that had a payment default during the three and six months ended ~~September~~June 30, ~~2021.~~

~~During~~2023 and were modified in the ~~nine months ended September 30, 2022, the Company had two loans modified as troubled debt restructurings with a recorded investment of $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.prior to that default. Default is determined at 90 or more days past due, upon charge-off, or upon foreclosure.

~~The following table summarizes~~ Modified loans in default are individually evaluated for the ~~balance of loans~~allowance for credit losses or if the modified ~~for borrowers impacted by~~loan is deemed uncollectible, the ~~COVID-19 pandemic.~~

Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in thousands) 2022 2021 2022 2021
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~~loan, or a portion 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 in deferralloan, is written off and the ~~accrued interest related to the loans with payments in deferral at December 31, 2021:~~

(Dollars in thousands) Total
Loans Balance of
Loans Currently
in Deferral Percentage
of Portfolio Accrued
Interest
Receivable
December 31, 2021
Commercial real estate $ 632,775 $ 30,212 4.8 % $ 116
Construction, land development, land 123,464 1,340 1.1 % 5
1-4 family residential 123,115 — — % —
Farmland 77,394 338 0.4 % 3
Commercial 1,430,429 — — % —
Factored receivables 1,699,537 — — % —
Consumer 10,885 6 0.1 % —
Mortgage warehouse 769,973 — — % —
Total $ 4,867,572 $ 31,896 0.7 % $ 124
allowance for credit losses is adjusted accordingly.

2825

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TRIUMPH ~~BANCORP,~~FINANCIAL, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Residential Real Estate Loans In Process of Foreclosure

At ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company had ~~$129,000~~$0 and ~~$301,000,~~$129,000, respectively, in 1-4 family residential real estate loans for which formal foreclosure proceedings were in process.

NOTE 5 — GOODWILL AND INTANGIBLE ASSETS

Goodwill and intangible assets consist of the following:


(Dollars in thousands)	(Dollars in thousands)	September 30, 2022		December 31, 2021		(Dollars in thousands)	June 30, 2023		December 31, 2022
Goodwill	Goodwill	$	233,709	$	233,727	Goodwill	$	233,709	$	233,709


		September 30, 2022						December 31, 2021							June 30, 2023						December 31, 2022
(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	$	(34,536)	$	9,042	$	43,578	$	(31,800)	$	11,778	Core deposit intangibles	$	43,578	$	(36,802)	$	6,776	$	43,578	$	(35,347)	$	8,231
Software intangible assets	Software intangible assets	16,932		(5,644)		11,288		16,932		(2,469)		14,463		Software intangible assets	16,932		(8,819)		8,113		16,932		(6,702)		10,230
Other intangible assets	Other intangible assets	30,410		(15,845)		14,565		29,560		(12,672)		16,888		Other intangible assets	33,452		(19,092)		14,360		30,410		(16,813)		13,597
		$	90,920	$	(56,025)	$	34,895	$	90,070	$	(46,941)	$	43,129		$	93,962	$	(64,713)	$	29,249	$	90,920	$	(58,862)	$	32,058

The changes in goodwill and intangible assets during the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 are as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	(Dollars in thousands)	2022		2021		2022		2021		(Dollars in thousands)	2023		2022		2023		2022
Beginning balance	Beginning balance	$	270,666	$	286,567	$	276,856	$	189,922	Beginning balance	$	265,959	$	269,119	$	265,767	$	276,856
Acquired goodwill		—		—		—		73,697

Acquired intangible assets	Acquired intangible assets	851		—		851		27,292		Acquired intangible assets	—		—		3,042		—
Acquired goodwill - measurement period adjustment	Acquired goodwill - measurement period adjustment	—		(3,238)		(18)		(3,179)		Acquired goodwill - measurement period adjustment	—		—		—		(18)

Goodwill transferred to assets held for sale										Goodwill transferred to assets held for sale	—		3,217		—		(3,217)
Intangible assets transferred to assets held for sale										Intangible assets transferred to assets held for sale	—		1,394		—		(1,394)
Goodwill transferred from assets held for sale										Goodwill transferred from assets held for sale	—		—		—		3,217
Intangible assets transferred from assets held for sale										Intangible assets transferred from assets held for sale	—		—		—		1,394
Amortization of intangibles	Amortization of intangibles	(2,913)		(3,274)		(9,085)		(7,677)		Amortization of intangibles	(3,001)		(3,064)		(5,851)		(6,172)
Ending balance	Ending balance	$	268,604	$	280,055	$	268,604	$	280,055	Ending balance	$	262,958	$	270,666	$	262,958	$	270,666

NOTE 6 ~~— EQUITY METHOD INVESTMENT~~

~~Table of Contents~~

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~~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 months ended June 30, 2022.

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

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

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

~~NOTE 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.

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(Unaudited)

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 ~~nine~~three months ended ~~September~~March 31, 2022 and June 30, 2022, the Company reclassified ~~$465,000~~$233,000 and $232,000, respectively, into earnings through interest expense in the consolidated statements of income. ~~On May 4,~~During the three months ended June 30, 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.

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~~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 September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	(Dollars in thousands)	2022		2021		2022		2021		(Dollars in thousands)	2023		2022		2023		2022
Unrealized gains on terminated hedges	Unrealized gains on terminated hedges									Unrealized gains on terminated hedges
Beginning Balance	Beginning Balance	$	—	$	—	$	—	$	—	Beginning Balance	$	—	$	9,083	$	—	$	—
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	—		—		(9,316)		—		Reclassification adjustments for amortization of unrealized (gains) into net income	—		(9,083)		—		(9,316)
Ending Balance	Ending Balance	$	—	$	—	$	—	$	—	Ending Balance	$	—	$	—	$	—	$	—

The Company did not have any derivative financial instruments at ~~September~~June 30, ~~2022. The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Balance Sheet as of~~2023 and 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
2022.

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			Amount of Gain or (Loss) Recognized in OCI on Derivative		Amount of Gain or (Loss) Recognized in OCI Included Component		Location of (Gain) or Loss Recognized from AOCI into Income	Amount of (Gain) or Loss Reclassified from AOCI into Income		Amount of (Gain) or Loss Reclassified from AOCI into Income Included Component
(Dollars in thousands)	(Dollars in thousands)						(Dollars in thousands)
Three Months Ended September 30, 2022

Three Months Ended June 30, 2022												Three Months Ended June 30, 2022
Derivatives in cash flow hedging relationships:	Derivatives in cash flow hedging relationships:											Derivatives in cash flow hedging relationships:
Interest rate swaps	Interest rate swaps	$	—	$	—	Interest Expense, Noninterest Income		$	—	$	—	Interest rate swaps	$	—	$	—	Interest Expense	$	(6,939)	$	(6,939)

Three Months Ended September 30, 2021

Six Months Ended June 30, 2022												Six Months Ended June 30, 2022
Derivatives in cash flow hedging relationships:	Derivatives in cash flow hedging relationships:											Derivatives in cash flow hedging relationships:
Interest rate swaps	Interest rate swaps	$	7	$	7	Interest Expense		$	14	$	14	Interest rate swaps	$	2,398	$	2,398	Interest Expense	$	7,103	$	7,103

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

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~~TRIUMPH BANCORP, INC. AND SUBSIDIARIES~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

NOTE 87 — 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 ~~$4,149,000~~$3,380,000 and ~~$4,947,000~~$4,077,000 at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively, and are classified as held to maturity securities within the Company’s consolidated balance sheets.

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TRIUMPH FINANCIAL, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 98 — LEGAL CONTINGENCIES

Various legal claims have arisen from time to time in the normal course of business which, in the opinion of management as of ~~September~~June 30, ~~2022,~~2023, will have no material effect on the Company’s consolidated financial statements.

NOTE 109 — OFF-BALANCE SHEET LOAN COMMITMENTS

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

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

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


		September 30, 2022						December 31, 2021							June 30, 2023						December 31, 2022
(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	$	3,994	$	442,809	$	446,803	$	26,029	$	523,483	$	549,512	Unused lines of credit	$	6,064	$	577,064	$	583,128	$	1,417	$	487,965	$	489,382
Standby letters of credit	Standby letters of credit	$	13,711	$	4,920	$	18,631	$	11,090	$	5,409	$	16,499	Standby letters of credit	$	17,649	$	8,398	$	26,047	$	12,309	$	4,897	$	17,206
Commitments to purchase loans	Commitments to purchase loans	$	—	$	79,030	$	79,030	$	—	$	108,423	$	108,423	Commitments to purchase loans	$	—	$	37,321	$	37,321	$	—	$	53,572	$	53,572
Mortgage warehouse commitments	Mortgage warehouse commitments	$	—	$	851,939	$	851,939	$	—	$	823,060	$	823,060	Mortgage warehouse commitments	$	—	$	758,651	$	758,651	$	—	$	1,055,117	$	1,055,117

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

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~~TRIUMPH BANCORP, INC. AND SUBSIDIARIES~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

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

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

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

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TRIUMPH FINANCIAL, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company records an allowance for credit losses on off-balance sheet credit exposures through a charge to credit loss expense on the Company’s consolidated statements of income. At ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the allowance for credit losses on off-balance sheet credit exposures totaled ~~$3,680,000~~$3,265,000 and ~~$4,082,000,~~$3,606,000, respectively, and was included in other liabilities on the Company’s consolidated balance sheets. The following table presents credit loss expense for off balance sheet credit exposures:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	(Dollars in thousands)	2022		2021		2022		2021		(Dollars in thousands)	2023		2022		2023		2022
Credit loss expense (benefit)	Credit loss expense (benefit)	$	(598)	$	(238)	$	(402)	$	(1,159)	Credit loss expense (benefit)	$	(1,162)	$	932	$	(343)	$	196

NOTE 1110 — FAIR VALUE DISCLOSURES

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

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

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

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

The methods of determining the fair value of assets and liabilities presented in this note are consistent with the methodologies disclosed in Note 17 of the Company’s ~~2021~~2022 Form 10-K.

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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)	(Dollars in thousands)	Fair Value Measurements Using						Total Fair Value		(Dollars in thousands)	Fair Value Measurements Using						Total Fair Value
December 31, 2021		Level 1		Level 2		Level 3
June 30, 2023										June 30, 2023	Level 1		Level 2		Level 3		Total Fair Value
Assets measured at fair value on a recurring basis	Assets measured at fair value on a recurring basis									Assets measured at fair value on a recurring basis
Securities available for sale	Securities available for sale									Securities available for sale
Mortgage-backed securities, residential	Mortgage-backed securities, residential	$	—	$	37,449	$	—	$	37,449	Mortgage-backed securities, residential	$	—	$	45,829	$	—	$	45,829
Asset-backed securities	Asset-backed securities	—		6,764		—		6,764		Asset-backed securities	—		1,252		—		1,252
State and municipal	State and municipal	—		26,825		—		26,825		State and municipal	—		5,195		—		5,195
CLO Securities		—		106,634		—		106,634
CLO securities										CLO securities	—		249,079		—		249,079
Corporate bonds	Corporate bonds	—		2,056		—		2,056		Corporate bonds	—		760		—		760
SBA pooled securities	SBA pooled securities	—		2,698		—		2,698		SBA pooled securities	—		1,664		—		1,664
		$	—	$	182,426	$	—	$	182,426		$	—	$	303,779	$	—	$	303,779

Equity securities with readily determinable fair values	Equity securities with readily determinable fair values									Equity securities with readily determinable fair values
Mutual fund	Mutual fund	$	5,504	$	—	$	—	$	5,504	Mutual fund	$	4,426	$	—	$	—	$	4,426

Loans held for sale	Loans held for sale	$	—	$	7,330	$	—	$	7,330	Loans held for sale	$	—	$	95	$	—	$	95

Derivative financial instruments (cash flow hedges)
Interest rate swap		$	—	$	6,164	$	—	$	6,164
Indemnification asset										Indemnification asset	$	—	$	—	$	1,905	$	1,905

Indemnification asset		$	—	$	—	$	4,786	$	4,786
Revenue share asset										Revenue share asset	$	—	$	—	$	3,053	$	3,053

Liabilities measured at fair value on a recurring basis										Liabilities measured at fair value on a recurring basis
Return of premium liability										Return of premium liability	$	—	$	—	$	376	$	376

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


(Dollars in thousands)	Fair Value Measurements Using						Total Fair Value
December 31, 2022	Level 1		Level 2		Level 3
Assets measured at fair value on a recurring basis
Securities available for sale
Mortgage-backed securities, residential	$	—	$	50,633	$	—	$	50,633
Asset-backed securities	—		6,331		—		6,331
State and municipal	—		13,438		—		13,438
CLO Securities	—		181,011		—		181,011
Corporate bonds	—		1,263		—		1,263
SBA pooled securities	—		1,828		—		1,828
	$	—	$	254,504	$	—	$	254,504

Equity securities with readily determinable fair values
Mutual fund	$	5,191	$	—	$	—	$	5,191

Loans held for sale	$	—	$	5,641	$	—	$	5,641

Indemnification asset	$	—	$	—	$	3,896	$	3,896

Revenue share asset	$	—	$	—	$	5,515	$	5,515

Liabilities measured at fair value on a recurring basis
Return of premium liability	$	—	$	—	$	575	$	575

There were no transfers between levels during ~~2022~~2023 or ~~2021.~~2022.

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.~~Portfolio acquired during 2020. The cash flows are discounted at a rate to reflect the uncertainty of the timing and receipt of the payments from Covenant. The indemnification asset is reviewed quarterly and changes to the asset are recorded as adjustments to other noninterest income or expense, as appropriate, within the Consolidated Statements of Income. The indemnification asset fair value is considered a Level 3 classification. At ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the estimated cash payments expected to be received from Covenant for probable losses on the covered Over-Formula Advance Portfolio were approximately ~~$4,393,000~~$2,006,000 and ~~$5,038,000,~~$4,101,000, 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 September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	(Dollars in thousands)	2022		2021		2022		2021		(Dollars in thousands)	2023		2022		2023		2022
Beginning balance	Beginning balance	$	4,377	$	5,246	$	4,786	$	36,225	Beginning balance	$	3,691	$	4,582	$	3,896	$	4,786
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	(204)		(460)		(613)		4,194		Change in fair value of indemnification asset recognized in earnings	(121)		(205)		(326)		(409)
Indemnification reduction	Indemnification reduction	—		—		—		(35,633)		Indemnification reduction	(1,665)		—		(1,665)		—
Ending balance	Ending balance	$	4,173	$	4,786	$	4,173	$	4,786	Ending balance	$	1,905	$	4,377	$	1,905	$	4,377

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(Unaudited)

Revenue Share Asset

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

At ~~September~~June 30, 2023 and December 31, 2022, the estimated cash payments expected to be received from the purchaser for the Company's share of future gross monthly revenue as ~~$8,653,000~~$4,060,000 and $7,613,000, respectively, and a discount rate of 10.0% was applied to calculate the present value of the revenue share asset. A reconciliation of the opening balance to the closing balance of the fair value of the revenue share asset is as follows:

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

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~~TRIUMPH BANCORP, INC. AND SUBSIDIARIES~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~


	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	2023		2022		2023		2022
Beginning balance	$	4,532	$	—	$	5,515	$	—
Revenue share asset recognized	—		5,210		—		5,210
Change in fair value of revenue share asset recognized in earnings	(1,169)		—		(1,789)		—
Revenue share payments received	(310)		—		(673)		—
Ending balance	$	3,053	$	5,210	$	3,053	$	5,210

Return of Premium Liability

On June 23, 2022, the Company made the decision to sell and closed on the sale of a portfolio of equipment loans for cash consideration. The associated agreement contains a provision that in the event that a sold loan is prepaid in full prior to the due date of the final scheduled contractual payment, the Company will return a pro-rata portion of the premium calculated as of the date of such prepayment in full. The fair value of the return of premium liability is calculated each reporting period, and changes in the fair value of the return of premium liability are recorded in noninterest income in the consolidated statements of income. The return of premium liability is considered a Level 3 classification. At ~~September~~June 30, 2023 and December 31, 2022, the fair value of the estimated premium expected to be returned to the purchaser for sold loans prepaid in full was calculated as the difference between the discounted cash flows of each sold loan assuming no prepayments and the discounted cash flows of each sold loan assuming an 11.0% and 11.0% prepayment ~~speed;~~speed, respectively; consistent with management's expected prepayment speed. A reconciliation of the opening balance to the closing balance of the fair value of the return of premium liability is as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	(Dollars in thousands)	2022		2021		2022		2021		(Dollars in thousands)	2023		2022		2023		2022
Beginning balance	Beginning balance	$	708	$	—	$	—	$	—	Beginning balance	$	476	$	—	$	575	$	—
Return of premium liability recognized in business combination		—		—		708		—
Return of premium liability recognized										Return of premium liability recognized	—		708		—		708
Change in fair value of return of premium liability recognized in earnings	Change in fair value of return of premium liability recognized in earnings	(104)		—		(104)		—		Change in fair value of return of premium liability recognized in earnings	(100)		—		(199)		—
Return of premium payments made	Return of premium payments made	(34)		—		(34)		—		Return of premium payments made	—		—		—		—
Ending balance	Ending balance	$	570	$	—	$	570	$	—	Ending balance	$	376	$	708	$	376	$	708

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TRIUMPH FINANCIAL, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Assets measured at fair value on a non-recurring basis are summarized in the table below. There were no liabilities measured at fair value on a non-recurring basis at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021.~~2022.


(Dollars in thousands)	(Dollars in thousands)	Fair Value Measurements Using						Total Fair Value		(Dollars in thousands)	Fair Value Measurements Using						Total Fair Value
September 30, 2022		Level 1		Level 2		Level 3
June 30, 2023										June 30, 2023	Level 1		Level 2		Level 3		Total Fair Value
Collateral dependent loans	Collateral dependent loans									Collateral dependent loans
Commercial real estate	Commercial real estate	$	—	$	—	$	283	$	283	Commercial real estate	$	—	$	—	$	84	$	84
1-4 family residential	1-4 family residential	—		—		25		25		1-4 family residential	—		—		79		79
Commercial	Commercial	—		—		9,771		9,771		Commercial	—		—		2,227		2,227
Factored receivables	Factored receivables	—		—		34,604		34,604		Factored receivables	—		—		28,947		28,947
Consumer		—		—		29		29

		$	—	$	—	$	44,712	$	44,712
											$	—	$	—	$	31,337	$	31,337

(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.~~

~~Table of Contents~~

~~TRIUMPH BANCORP, INC. AND SUBSIDIARIES~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~


(Dollars in thousands)	Fair Value Measurements Using						Total Fair Value
December 31, 2022	Level 1		Level 2		Level 3
Collateral dependent loans
Commercial real estate	$	—	$	—	$	269	$	269
1-4 family residential	—		—		46		46
Commercial	—		—		6,994		6,994
Factored receivables	—		—		29,367		29,367





Equity investment without readily determinable fair value	38,088		—		—		38,088
	$	38,088	$	—	$	36,676	$	74,764

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~~Table 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.Contents

TRIUMPH FINANCIAL, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The estimated fair values of the Company’s financial instruments not measured at fair value on a recurring or non-recurring basis at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 were as follows:


(Dollars in thousands)	(Dollars in thousands)	Carrying Amount			Fair Value Measurements Using								Total Fair Value		(Dollars in thousands)	Carrying Amount			Fair Value Measurements Using									Total Fair Value
September 30, 2022				Level 1			Level 2			Level 3
June 30, 2023															June 30, 2023			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	$	421,729		$	421,729		$	—		$	—	$	421,729	Cash and cash equivalents	$	417,375		$	417,375		$	—		$	—		$	417,375
Securities - held to maturity	Securities - held to maturity	4,149			—			—			5,603		5,603		Securities - held to maturity	3,380			—			—			4,750			4,750
Loans not previously presented, gross	Loans not previously presented, gross	4,388,592			228,971			—			4,080,885		4,309,856		Loans not previously presented, gross	4,293,421			146,940			—			4,069,012			4,215,952
FHLB and other restricted stock	FHLB and other restricted stock	6,213			N/A			N/A			N/A		N/A		FHLB and other restricted stock	20,099			N/A			N/A			N/A			N/A
Accrued interest receivable	Accrued interest receivable	18,214			18,214			—			—		18,214		Accrued interest receivable	27,619			27,619			—			—			27,619

Financial liabilities:	Financial liabilities:														Financial liabilities:
Deposits	Deposits	4,441,354			—			4,429,225			—		4,429,225		Deposits	4,293,466			—			4,283,892			—			4,283,892
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	280,000			—			280,000			—			280,000
Subordinated notes	Subordinated notes	107,587			—			106,327			—		106,327		Subordinated notes	108,234			—			91,355			—			91,355
Junior subordinated debentures	Junior subordinated debentures	41,016			—			42,847			—		42,847		Junior subordinated debentures	41,444			—			43,151			—			43,151
Accrued interest payable	Accrued interest payable	2,538			2,538			—			—		2,538		Accrued interest payable	4,514			4,514			—			—			4,514

~~Table of Contents~~

~~TRIUMPH BANCORP, INC. AND SUBSIDIARIES~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~


(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
December 31, 2021				Level 1			Level 2			Level 3
December 31, 2022															December 31, 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	$	383,178		$	383,178		$	—		$	—	$	383,178	Cash and cash equivalents	$	408,182		$	408,182		$	—		$	—		$	408,182
Securities - held to maturity	Securities - held to maturity	4,947			—			—			5,447		5,447		Securities - held to maturity	4,077			—			—			5,476			5,476
Loans not previously presented, gross	Loans not previously presented, gross	4,834,426			142,962			—			4,685,058		4,828,020		Loans not previously presented, gross	4,088,411			187,729			—			3,805,701			3,993,430
FHLB and other restricted stock	FHLB and other restricted stock	10,146			N/A			N/A			N/A		N/A		FHLB and other restricted stock	6,252			N/A			N/A			N/A			N/A
Accrued interest receivable	Accrued interest receivable	15,319			15,319			—			—		15,319		Accrued interest receivable	21,977			21,977			—			—			21,977

Financial liabilities:	Financial liabilities:														Financial liabilities:
Deposits	Deposits	4,646,679			—			4,646,552			—		4,646,552		Deposits	4,171,336			—			4,159,695			—			4,159,695
Customer repurchase agreements	Customer repurchase agreements	2,103			—			2,103			—		2,103		Customer repurchase agreements	340			—			340			—			340
Federal Home Loan Bank advances	Federal Home Loan Bank advances	180,000			—			180,000			—		180,000		Federal Home Loan Bank advances	30,000			—			30,000			—			30,000
Paycheck Protection Program Liquidity Facility		27,144			—			27,144			—		27,144
Subordinated notes	Subordinated notes	106,957			—			110,045			—		110,045		Subordinated notes	107,800			—			104,400			—			104,400
Junior subordinated debentures	Junior subordinated debentures	40,602			—			41,286			—		41,286		Junior subordinated debentures	41,158			—			42,721			—			42,721
Accrued interest payable	Accrued interest payable	1,951			1,951			—			—		1,951		Accrued interest payable	2,830			2,830			—			—			2,830

NOTE 1211 — 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.

Table of Contents

TRIUMPH FINANCIAL, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Quantitative measures established by regulation to ensure capital adequacy require the Company and TBK Bank to maintain minimum amounts and ratios (set forth in the table below) of total, common equity Tier 1, and Tier 1 capital to risk weighted assets, and of Tier 1 capital to average assets. Management believes, as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company and TBK Bank meet all capital adequacy requirements to which they are subject.

As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, TBK Bank’s capital ratios exceeded those levels necessary to be categorized as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized,” TBK Bank must maintain minimum total risk based, common equity Tier 1 risk based, Tier 1 risk based, and Tier 1 leverage ratios as set forth in the table below. There are no conditions or events since ~~September~~June 30, ~~2022~~2023 that management believes have changed TBK Bank’s category.

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~~TRIUMPH BANCORP, INC. AND SUBSIDIARIES~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

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


(Dollars in thousands)	(Dollars in thousands)	Actual			Minimum for Capital Adequacy Purposes			To Be Well Capitalized Under Prompt Corrective Action Provisions			(Dollars in thousands)	Actual			Minimum for Capital Adequacy Purposes			To Be Well Capitalized Under Prompt Corrective Action Provisions
September 30, 2022		Amount		Ratio	Amount		Ratio	Amount		Ratio
June 30, 2023											June 30, 2023	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.		$	831,228	16.6%	$	400,592	8.0%	N/A		N/A
Triumph Financial, Inc.											Triumph Financial, Inc.	$	769,846	15.6%	$	394,793	8.0%	N/A		N/A
TBK Bank, SSB	TBK Bank, SSB	$	781,506	15.7%	$	398,220	8.0%	$	497,775	10.0%	TBK Bank, SSB	$	744,838	15.2%	$	392,020	8.0%	$	490,025	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.		$	685,113	13.6%	$	302,256	6.0%	N/A		N/A
Triumph Financial, Inc.											Triumph Financial, Inc.	$	626,451	12.7%	$	295,961	6.0%	N/A		N/A
TBK Bank, SSB	TBK Bank, SSB	$	744,948	15.0%	$	297,979	6.0%	$	397,306	8.0%	TBK Bank, SSB	$	712,246	14.5%	$	294,722	6.0%	$	392,963	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.		$	599,097	11.9%	$	226,549	4.5%	N/A		N/A
Triumph Financial, Inc.											Triumph Financial, Inc.	$	540,007	10.9%	$	222,939	4.5%	N/A		N/A
TBK Bank, SSB	TBK Bank, SSB	$	744,948	15.0%	$	223,484	4.5%	$	322,811	6.5%	TBK Bank, SSB	$	712,246	14.5%	$	221,042	4.5%	$	319,283	6.5%

Tier 1 capital (to average assets)	Tier 1 capital (to average assets)										Tier 1 capital (to average assets)
Triumph Bancorp, Inc.		$	685,113	12.6%	$	217,496	4.0%	N/A		N/A
Triumph Financial, Inc.											Triumph Financial, Inc.	$	626,451	12.0%	$	208,817	4.0%	N/A		N/A
TBK Bank, SSB	TBK Bank, SSB	$	744,948	13.7%	$	217,503	4.0%	$	271,879	5.0%	TBK Bank, SSB	$	712,246	13.7%	$	207,955	4.0%	$	259,944	5.0%

As of December 31, 2021
As of December 31, 2022											As of December 31, 2022
Total capital (to risk weighted assets)	Total capital (to risk weighted assets)										Total capital (to risk weighted assets)
Triumph Bancorp, Inc.		$	769,475	14.1%	$	436,582	8.0%	N/A		N/A
Triumph Financial, Inc.											Triumph Financial, Inc.	$	829,928	17.7%	$	375,109	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	$	732,785	15.8%	$	371,030	8.0%	$	463,788	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.		$	628,094	11.5%	$	327,701	6.0%	N/A		N/A
Triumph Financial, Inc.											Triumph Financial, Inc.	$	684,381	14.6%	$	281,252	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	$	697,022	15.0%	$	278,809	6.0%	$	371,745	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.		$	542,492	9.9%	$	246,587	4.5%	N/A		N/A
Triumph Financial, Inc.											Triumph Financial, Inc.	$	598,223	12.7%	$	211,969	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	$	697,022	15.0%	$	209,107	4.5%	$	302,043	6.5%

Tier 1 capital (to average assets)	Tier 1 capital (to average assets)										Tier 1 capital (to average assets)
Triumph Bancorp, Inc.		$	628,094	11.1%	$	226,340	4.0%	N/A		N/A
Triumph Financial, Inc.											Triumph Financial, Inc.	$	684,381	13.0%	$	210,579	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	$	697,022	13.2%	$	211,219	4.0%	$	264,023	5.0%

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TRIUMPH FINANCIAL, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As permitted by the interim final rule issued on March 27, 2020 by the federal banking regulatory agencies, the Company 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”) was delayed for two years. After two years, the cumulative amount of the transition adjustments 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.

~~Table of Contents~~

~~TRIUMPH BANCORP, INC. AND SUBSIDIARIES~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

The capital conservation buffer set forth by the Basel III regulatory capital framework was 2.5% at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021.~~2022. The capital conservation buffer is designed to absorb losses during periods of economic stress and requires increased capital levels for the purpose of capital distributions and other payments. Failure to meet the full amount of the buffer will result in restrictions on the Company’s ability to make capital distributions, including dividend payments and stock repurchases, and to pay discretionary bonuses to executive officers. At ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company’s and TBK Bank’s risk based capital exceeded the required capital conservation buffer.

NOTE 1312 — STOCKHOLDERS' EQUITY

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

Preferred Stock Series C


(Dollars in thousands, except per share amounts)	(Dollars in thousands, except per share amounts)	September 30, 2022			December 31, 2021			(Dollars in thousands, except per share amounts)	June 30, 2023			December 31, 2022
Shares authorized	Shares authorized	51,750			51,750			Shares authorized	51,750			51,750
Shares issued	Shares issued	45,000			45,000			Shares issued	45,000			45,000
Shares outstanding	Shares outstanding	45,000			45,000			Shares outstanding	45,000			45,000
Par value per share	Par value per share	$	0.01		$	0.01		Par value per share	$	0.01		$	0.01
Liquidation preference per share	Liquidation preference per share	$	1,000		$	1,000		Liquidation preference per share	$	1,000		$	1,000
Liquidation preference amount	Liquidation preference amount	$	45,000		$	45,000		Liquidation preference amount	$	45,000		$	45,000
Dividend rate	Dividend rate	7.125		%	7.125		%	Dividend rate	7.125		%	7.125		%
Dividend payment dates	Dividend payment dates	Quarterly			Quarterly			Dividend payment dates	Quarterly			Quarterly

Common Stock


		September 30, 2022		December 31, 2021			June 30, 2023		December 31, 2022
Shares authorized	Shares authorized	50,000,000		50,000,000		Shares authorized	50,000,000		50,000,000
Shares issued	Shares issued	28,321,716		28,261,680		Shares issued	28,951,832		28,321,716
Treasury shares	Treasury shares	(3,843,428)		(3,102,801)		Treasury shares	(5,681,947)		(4,268,131)
Shares outstanding	Shares outstanding	24,478,288		25,158,879		Shares outstanding	23,269,885		24,053,585
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~~During the three months ended March 31, 2022, the Company repurchased 14,810 shares into treasury stock under the Company's stock repurchase program ~~was completed during~~at an average price of $88.81, for a total of $1,316,000. During the three months ended June 30, 2022, ~~and on~~the Company repurchased 694,985 shares into treasury stock under the Company's stock repurchase program at an average price of $70.02, for a total of $48,684,000, effectively completing the repurchase program.

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TRIUMPH FINANCIAL, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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. On November 7, 2022, the repurchase authorization was increased to $100,000,000 in connection with the commencement of a modified "Dutch auction" tender offer (the "Tender Offer").

During the three months ended December 31, 2022, the Company repurchased 408,615 shares of its common stock in the Tender Offer at a price of $58.00 per share, for an aggregate cost of $24,772,000, including fees and expenses related to the tender offer of $1,072,000.

On February 1, 2023, the Company entered into an accelerated share repurchase (“ASR”) agreement to repurchase $70,000,000 of the Company’s common stock. The ASR is part of the Company’s previously announced plan to repurchase up to $100,000,000 of the Company’s common stock and is within the remaining amount authorized by the Company’s Board of Directors pursuant to such plan. Under the terms of the ASR agreement, the Company received an initial delivery of 961,373 common shares representing approximately 80% of the expected total to be repurchased. On April 28, 2023, the ASR was completed and the Company received an additional delivery of 247,954 common shares.

In connection with the completion of the ASR, on May 4, 2023, the Company announced that its board of directors had authorized the Company to repurchase up to an additional $50,000,000 of its outstanding common stock in open market transactions or through privately negotiated transactions at the ~~Company’s~~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~~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.~~

time. The ~~following repurchases were made~~Company has not repurchased any shares under the ~~February 7, 2022~~new share repurchase program. ~~No shares have been purchased under the May 23, 2022 program.~~

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

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~~TRIUMPH BANCORP, INC. AND SUBSIDIARIES~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

NOTE 1413 — STOCK BASED COMPENSATION

Stock based compensation expense that has been charged against income was ~~$4,296,000~~$3,320,000 and ~~$4,445,000~~$7,880,000 for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively, and ~~$17,128,000~~$6,201,000 and ~~$9,181,000~~$12,832,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, 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~~2,900,000 shares.

Restricted Stock Awards

A summary of changes in the Company’s nonvested Restricted Stock Awards (“RSAs”) under the Omnibus Incentive Plan for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 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		363,404	67.56
Nonvested at January 1, 2023				Nonvested at January 1, 2023	230,486	70.34
Granted	Granted	12,471	74.42	Granted	6,852	58.25
Vested	Vested	(126,203)	61.74	Vested	(101,101)	60.28
Forfeited	Forfeited	(3,098)	45.60	Forfeited	(11,412)	76.06
Nonvested at September 30, 2022		246,574	71.17
Nonvested at June 30, 2023				Nonvested at June 30, 2023	124,825	77.00

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 ~~September~~June 30, ~~2022,~~2023, there was ~~$7,552,000~~$3,177,000 of unrecognized compensation cost related to the nonvested RSAs. The cost is expected to be recognized over a remaining period of ~~2.52~~1.80 years.

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Restricted Stock Units

A summary of changes in the Company’s nonvested Restricted Stock Units (“RSUs”) under the Omnibus Incentive Plan for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 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		122,470	52.07
Nonvested at January 1, 2023				Nonvested at January 1, 2023	211,300	59.45
Granted	Granted	91,849	69.44	Granted	121,050	51.25
Vested	Vested	—	—	Vested	(114,509)	43.19
Forfeited	Forfeited	(967)	52.46	Forfeited	(2,551)	67.58
Nonvested at September 30, 2022		213,352	59.55
Nonvested at June 30, 2023				Nonvested at June 30, 2023	215,290	63.39

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 ~~September~~June 30, ~~2022,~~2023, there was ~~$7,688,000~~$9,930,000 of unrecognized compensation cost related to the nonvested RSUs. The cost is expected to be recognized over a remaining period of ~~3.19~~3.18 years.

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~~TRIUMPH BANCORP, INC. AND SUBSIDIARIES~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Market Based Performance Stock Units

A summary of changes in the Company’s nonvested Market Based Performance Stock Units (“Market Based PSUs”) under the Omnibus Incentive Plan for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 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		94,984	$	43.68
Nonvested at January 1, 2023					Nonvested at January 1, 2023	112,486	$	55.57
Granted	Granted	33,276	84.22		Granted	78,872	78.15
Incremental shares earned	Incremental shares earned	8,997	N/A		Incremental shares earned	52,694	N/A
Vested	Vested	(20,996)	33.91		Vested	(122,969)	36.10
Forfeited	Forfeited	(535)	38.57		Forfeited	(155)	38.57
Nonvested at September 30, 2022		115,726	$	56.38
Nonvested at June 30, 2023					Nonvested at June 30, 2023	120,928	$	81.63

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~~groups of peer ~~banks.~~banks and financial technology companies, and with respect to the Company's 2023 awards may include an additional multiplier of up to 200% of the otherwise earned award based on the Company's absolute TSR. Compensation expense for the Market Based PSUs will be recognized over the vesting period of the awards based on the fair value of the award at the grant date. The fair value of Market Based PSUs granted is estimated using a Monte Carlo simulation. Expected volatilities were determined based on the historical volatilities of the Company and the specified peer group. The risk-free interest rate for the performance period was derived from the Treasury constant maturities yield curve on the valuation dates.

The fair value of the Market Based PSUs granted was determined using the following weighted-average assumptions:


		Nine Months Ended September 30,							Six Months Ended June 30,
		2022			2021				2023			2022
Grant date	Grant date	May 1, 2022			May 1, 2021			Grant date	May 1, 2023			May 1, 2022
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	$	51.25		$	69.44
Triumph stock price volatility		55.17		%	51.71		%
Triumph Financial stock price volatility								Triumph Financial stock price volatility	49.33		%	55.17		%
Risk-free rate	Risk-free rate	2.84		%	0.35		%	Risk-free rate	3.76		%	2.84		%

As of ~~September~~June 30, ~~2022,~~2023, there was ~~$3,343,000~~$7,691,000 of unrecognized compensation cost related to the nonvested Market Based PSUs. The cost is expected to be recognized over a remaining period of ~~2.21~~2.55 years.

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Performance Based Performance Stock Units

A summary of changes in the Company’s nonvested Performance Based Performance Stock Units (“Performance Based PSUs”) under the Omnibus Incentive Plan for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 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		259,383	$	39.32
Nonvested at January 1, 2023					Nonvested at January 1, 2023	255,738	$	39.57
Granted	Granted	3,000	69.44		Granted	—	—
Incremental shares earned					Incremental shares earned	107,404	N/A
Vested	Vested	—	—		Vested	(363,142)	40
Forfeited	Forfeited	(6,349)	43.26		Forfeited	—	—
Nonvested at September 30, 2022		256,034	$	39.57
Nonvested at June 30, 2023					Nonvested at June 30, 2023	—	$	—

The Performance Based PSUs granted to employees under the Omnibus Incentive Plan ~~vest~~vested after a three year performance period. ~~The~~Under the terms of the award agreements, the number of shares issued upon vesting ~~will~~could range from 0% to 200% of the shares granted based on the Company’s cumulative diluted earnings per share over the performance period. The performance period for the outstanding Performance Based PSUs ended on December 31, 2022, and the awards subsequently vested at 142% of the target shares granted.

Compensation expense for the Performance Based PSUs ~~will be~~was estimated ~~each~~during the performance period based on the fair value of the stock at the grant date and the most probable outcome of the performance condition at each period end, adjusted for the passage of time within the vesting period of the awards.

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~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

There was no stock based compensation cost related to Performance Based PSUs during the three and six months ended June 30, 2023 and there is no remaining unrecognized compensation cost related to these awards. During the three and ~~nine~~six months ended ~~September~~June 30, 2022, the Company recognized ~~$298,000~~$4,328,000 and ~~$5,433,000,~~$5,135,000, respectively, of stock based compensation ~~expense~~cost related to Performance Based PSUs. As of September 30, 2022, the maximum unrecognized compensation cost related to the nonvested Performance Based PSUs was $7,424,000, and the remaining performance period over which the cost could be recognized was 0.25 years. No compensation cost was recorded during the three and nine months ended September 30, 2021.

Stock Options

A summary of the changes in the Company’s stock options under the Omnibus Incentive Plan for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 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		166,755	$	33.34
Outstanding at January 1, 2023								Outstanding at January 1, 2023	195,398	$	39.48
Granted	Granted	35,939	69.44					Granted	57,930	51.25
Exercised	Exercised	(3,797)	26.12					Exercised	(6,023)	31.61
Forfeited or expired	Forfeited or expired	—	—					Forfeited or expired	—	—
Outstanding at September 30, 2022		198,897	$	40.00	6.41	$	3,976
Outstanding at June 30, 2023								Outstanding at June 30, 2023	247,305	$	42.43	6.59	$	5,280

Fully vested shares and shares expected to vest at September 30, 2022		198,897	$	40.00	6.41	$	3,976
Fully vested shares and shares expected to vest at June 30, 2023								Fully vested shares and shares expected to vest at June 30, 2023	247,305	$	42.43	6.59	$	5,280

Shares exercisable at September 30, 2022		128,958	$	29.10	5.15	$	3,401
Shares exercisable at June 30, 2023								Shares exercisable at June 30, 2023	148,332	$	32.81	4.86	$	4,447

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(Unaudited)

Information related to the stock options for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 was as follows:


		Nine Months Ended September 30,					Six Months Ended June 30,
(Dollars in thousands, except per share amounts)	(Dollars in thousands, except per share amounts)	2022		2021		(Dollars in thousands, except per share amounts)	2023		2022
Aggregate intrinsic value of options exercised	Aggregate intrinsic value of options exercised	$	280	$	2,249	Aggregate intrinsic value of options exercised	$	140	$	280
Cash received from option exercises, net	Cash received from option exercises, net	(74)		196		Cash received from option exercises, net	(52)		(74)
Tax benefit realized from option exercises	Tax benefit realized from option exercises	59		472		Tax benefit realized from option exercises	29		59
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	$	25.20	$	32.15

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~~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:

Nine Months Ended September 30,
2022 2021
Risk-free interest rate 2.77 % 1.16 %
Expected term 6.25 years 6.25 years
Expected stock price volatility 43.33 % 39.26 %
Dividend yield — —

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~~TRIUMPH BANCORP, INC. AND SUBSIDIARIES~~

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~~(Unaudited)~~


	Six Months Ended June 30,
	2023		2022
Risk-free interest rate	3.38	%	2.77	%
Expected term	6.25 years		6.25 years
Expected stock price volatility	45.65	%	43.33	%
Dividend yield	—		—

As of ~~September~~June 30, ~~2022,~~2023, there was ~~$1,059,000~~$1,828,000 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 ~~3.28~~3.30 years.

Employee Stock Purchase Plan

~~On April 1,~~During the year ended December 31, 2019, the Company’s Board of Directors adopted, and the ~~Triumph Bancorp, Inc.~~Company’s stockholders approved, the Company's 2019 Employee Stock Purchase Plan (“ESPP”) ~~and reserved~~. Under the ESPP, 2,500,000 shares of common stock were reserved 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 ~~nine~~six months ended ~~September~~June 30, 2023 and 2022, ~~24,516~~21,057 shares and 10,585 shares, respectively, were issued under the plan. ~~No shares were issued during the nine months ended September 30, 2021.~~

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NOTE 1514 — EARNINGS PER SHARE

The factors used in the earnings per share computation follow:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	(Dollars in thousands)	2022		2021		2022		2021		(Dollars in thousands)	2023		2022		2023		2022
Basic	Basic									Basic
Net income to common stockholders	Net income to common stockholders	$	15,428	$	23,627	$	82,346	$	83,929	Net income to common stockholders	$	6,848	$	43,390	$	17,057	$	66,918
Weighted average common shares outstanding	Weighted average common shares outstanding	24,227,020		24,759,419		24,483,054		24,719,861		Weighted average common shares outstanding	23,138,835		24,427,270		23,249,668		24,612,988
Basic earnings per common share	Basic earnings per common share	$	0.64	$	0.95	$	3.36	$	3.40	Basic earnings per common share	$	0.30	$	1.78	$	0.73	$	2.72
Diluted	Diluted									Diluted
Net income to common stockholders	Net income to common stockholders	$	15,428	$	23,627	$	82,346	$	83,929	Net income to common stockholders	$	6,848	$	43,390	$	17,057	$	66,918
Weighted average common shares outstanding	Weighted average common shares outstanding	24,227,020		24,759,419		24,483,054		24,719,861		Weighted average common shares outstanding	23,138,835		24,427,270		23,249,668		24,612,988
Dilutive effects of:	Dilutive effects of:									Dilutive effects of:
Assumed exercises of stock options	Assumed exercises of stock options	85,239		121,110		95,252		129,149		Assumed exercises of stock options	71,658		89,443		73,884		99,402
Restricted stock awards	Restricted stock awards	122,723		141,204		162,883		146,172		Restricted stock awards	90,645		144,526		113,930		189,492
Restricted stock units	Restricted stock units	97,512		74,268		96,174		71,620		Restricted stock units	65,909		85,934		91,878		91,236
Performance stock units - market based	Performance stock units - market based	117,358		131,346		124,249		131,275		Performance stock units - market based	87,360		115,825		104,203		127,694
Performance stock units - performance based	Performance stock units - performance based	327,016		—		109,005		—		Performance stock units - performance based	—		—		—		—
Employee stock purchase program	Employee stock purchase program	2,389		616		2,245		1,914		Employee stock purchase program	1,064		3,575		780		2,173
Average shares and dilutive potential common shares	Average shares and dilutive potential common shares	24,979,257		25,227,963		25,072,862		25,199,991		Average shares and dilutive potential common shares	23,455,471		24,866,573		23,634,343		25,122,985
Diluted earnings per common share	Diluted earnings per common share	$	0.62	$	0.94	$	3.28	$	3.33	Diluted earnings per common share	$	0.29	$	1.74	$	0.72	$	2.66

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


		Three Months Ended September 30,		Nine Months Ended September 30,			Three Months Ended June 30,		Six Months Ended June 30,
		2022	2021	2022	2021		2023	2022	2023	2022
Stock options	Stock options	52,878	16,939	52,878	16,939	Stock options	107,309	52,878	107,309	52,878
Restricted stock awards	Restricted stock awards	6,348	—	6,348	195,640	Restricted stock awards	4,232	6,348	4,232	6,348
Restricted stock units	Restricted stock units	15,000	—	15,000	17,757	Restricted stock units	11,250	15,000	11,250	15,000
Performance stock units - market based	Performance stock units - market based	45,296	12,020	45,296	12,020	Performance stock units - market based	42,056	45,296	42,056	45,296
Performance stock units - performance based	Performance stock units - performance based	—	259,383	—	259,383	Performance stock units - performance based	—	254,832	—	254,832
Employee stock purchase program	Employee stock purchase program	—	—	—	—	Employee stock purchase program	—	—	—	—

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~~TRIUMPH BANCORP, INC. AND SUBSIDIARIES~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

NOTE 1615 — REVENUE FROM CONTRACTS WITH CUSTOMERS

The Company records revenue from contracts with customers in accordance with Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (“Topic 606”). Under Topic 606, the Company must identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) the Company satisfies a performance obligation. The Company generally fully satisfies its performance obligations on its contracts with customers as services are rendered and the transaction prices are typically fixed; charged either on a periodic basis or based on activity. The Company presents disaggregated revenue from contracts with customers in the consolidated statements of income.

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(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 primarily consists of TriumphPay payment and audit fees. ~~These~~TriumphPay fees included in the Consolidated Statements of Income totaled ~~$3,545,000~~$4,089,000 and ~~$3,095,000~~$3,381,000 for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively, and ~~$10,156,000~~$7,787,000 and ~~$4,251,000~~$6,610,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. These fees are generally 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.

~~Table of Contents~~

~~TRIUMPH BANCORP, INC. AND SUBSIDIARIES~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

NOTE 1716 — BUSINESS SEGMENT INFORMATION

The ~~following table presents~~Company's 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 ~~Company’s operating segments.~~structure and management of various product lines. The ~~accounting policies~~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 Triumph Financial Services with revenue derived from factoring services. The Payments segment includes the operations of 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 Carriers are offered a quickpay opportunity to receive payment at a discount in advance of the ~~reportable segments substantially~~standard payment term for such invoice in exchange for the ~~same as those described in~~assignment of such invoice to the ~~"Summary of Significant Accounting Policies" in Note 1 of~~Company and from offering Brokers the ability to settle their invoices with the Company on an extended term following the Company's ~~2021 Form 10-K. Transactions between segments consist primarily of borrowed funds. Intersegment interest expense is allocated~~payment 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~~their Carriers as an additional liquidity option for ~~credit losses determination. Noninterest income and expense directly attributable~~such Brokers.

Prior to ~~a segment are assigned to it. The~~March 31, 2023, 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~~including human resources, accounting, finance, risk management and a significant amount of information technology expense, were allocated to the Banking segment. During the quarter ended March 31, 2023 management began allocating such shared service costs to its Corporate segment. The Company continues to make considerable investments in shared services that benefit the entire organization and by moving such expenses to the Corporate segment, the Company's chief operating decision maker and investors now have greater visibility into the operating performance of each reportable segment. Prior periods were revised to reflect such allocations and achieve appropriate comparability.

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(Unaudited)

Separately, prior to March 31, 2023, intersegment interest expense was allocated to the Factoring and Payments segments (when the Payments segment is not self-funded) based on a rolling average of Federal Home Loan Bank advance rates. When the Payments segment was self-funded with funding in excess of its factored receivables, intersegment interest income was allocated based on the Federal Funds effective rate. During the quarter ended March 31, 2023, the Company began allocating intersegment interest expense to the Factoring and Payments segments based on one-month term SOFR for their funding needs. When the Payments segment is self-funded, with funding in excess of its factored receivables, intersegment interest income will continue to be allocated based on the Federal Funds effective rate. Management believes that such intersegment interest allocations are more intuitive in the current interest rate environment. Prior periods were revised to reflect such allocations and achieve appropriate comparability.

Transactions between segments consist primarily of borrowed funds, payment network fees, and servicing fees. Intersegment interest expense is allocated to the Factoring and Payments segments as described above. Beginning January 1, 2023, payment network fees are paid by the Factoring segment to the Payments segment for use of the payments network. Beginning prospectively on June 1, 2023, factoring transactions with freight broker clients were transferred from our Factoring segment to our Payments segment to align with TriumphPay's supply chain finance product offerings. 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 with various shared service costs such as human resources, accounting, finance, risk management and information technology expense assigned to the Corporate segment. Taxes are paid on a consolidated basis and are not allocated for segment purposes. The Factoring segment includes only factoring originated by ~~TBC.~~Triumph Financial Services.

(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)
Nine months ended September 30, 2022 Banking Factoring Payments Corporate Consolidated
Total interest income $ 138,286 $ 161,789 $ 12,760 $ 132 $ 312,967
Intersegment interest allocations 6,651 (6,312) (339) — —
Total interest expense 7,547 — — 5,643 13,190
Net interest income (expense) 137,390 155,477 12,421 (5,511) 299,777
Credit loss expense (benefit) 2,638 1,961 405 1,044 6,048
Net interest income after credit loss expense 134,752 153,516 12,016 (6,555) 293,729
Noninterest income 34,496 20,333 17,069 51 71,949
Noninterest expense 138,741 66,408 46,062 2,649 253,860
Net income (loss) before income tax expense $ 30,507 $ 107,441 $ (16,977) $ (9,153) $ 111,818


(Dollars in thousands)
Three months ended June 30, 2023	Banking		Factoring		Payments		Corporate		Consolidated
Total interest income	$	65,624	$	36,367	$	3,451	$	44	$	105,486
Intersegment interest allocations	7,478		(9,358)		1,880		—		—
Total interest expense	11,634		—		—		2,401		14,035
Net interest income (expense)	61,468		27,009		5,331		(2,357)		91,451
Credit loss expense (benefit)	831		1,481		41		290		2,643
Net interest income after credit loss expense	60,637		25,528		5,290		(2,647)		88,808
Noninterest income	6,347		980		4,119		65		11,511
Intersegment noninterest income (expense)(1)	—		(97)		97		—		—
Noninterest expense	31,934		20,218		16,939		21,305		90,396
Net income (loss) before income tax expense	$	35,050	$	6,193	$	(7,433)	$	(23,887)	$	9,923

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TRIUMPH ~~BANCORP,~~FINANCIAL, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


(Dollars in thousands)	(Dollars in thousands)											(Dollars in thousands)
Nine months ended September 30, 2021		Banking		Factoring		Payments		Corporate		Consolidated
Three months ended June 30, 2022												Three months ended June 30, 2022	Banking		Factoring		Payments		Corporate		Consolidated
Total interest income	Total interest income	$	144,087	$	127,699	$	7,939	$	51	$	279,776	Total interest income	$	46,239	$	55,854	$	4,172	$	42	$	106,307
Intersegment interest allocations	Intersegment interest allocations	8,117		(7,700)		(417)		—		—		Intersegment interest allocations	4,246		(3,878)		(368)		—		—
Total interest expense	Total interest expense	8,225		—		—		6,478		14,703		Total interest expense	3,021		—		—		1,858		4,879
Net interest income (expense)	Net interest income (expense)	143,979		119,999		7,522		(6,427)		265,073		Net interest income (expense)	47,464		51,976		3,804		(1,816)		101,428
Credit loss expense (benefit)	Credit loss expense (benefit)	(19,187)		8,091		548		(290)		(10,838)		Credit loss expense (benefit)	3,120		64		(184)		(99)		2,901
Net interest income after credit loss expense	Net interest income after credit loss expense	163,166		111,908		6,974		(6,137)		275,911		Net interest income after credit loss expense	44,344		51,912		3,988		(1,717)		98,527
Noninterest income	Noninterest income	25,139		10,710		4,242		151		40,242		Noninterest income	22,282		15,521		10,309		48		48,160
Intersegment noninterest income (expense)(1)												Intersegment noninterest income (expense)(1)	—		—		—		—		—
Noninterest expense	Noninterest expense	122,497		52,433		26,393		3,180		204,503		Noninterest expense	31,205		23,512		17,663		16,227		88,607
Net income (loss) before income tax expense	Net income (loss) before income tax expense	$	65,808	$	70,185	$	(15,177)	$	(9,166)	$	111,650	Net income (loss) before income tax expense	$	35,421	$	43,921	$	(3,366)	$	(17,896)	$	58,080

(Dollars in thousands)												(Dollars in thousands)
Six months ended June 30, 2023												Six months ended June 30, 2023	Banking		Factoring		Payments		Corporate		Consolidated
Total interest income												Total interest income	$	125,350	$	74,524	$	6,198	$	88	$	206,160
Intersegment interest allocations												Intersegment interest allocations	15,090		(18,512)		3,422		—		—
Total interest expense												Total interest expense	16,582		—		—		4,745		21,327
Net interest income (expense)												Net interest income (expense)	123,858		56,012		9,620		(4,657)		184,833
Credit loss expense (benefit)												Credit loss expense (benefit)	2,754		2,030		41		431		5,256
Net interest income after credit loss expense												Net interest income after credit loss expense	121,104		53,982		9,579		(5,088)		179,577
Noninterest income												Noninterest income	12,020		2,558		7,826		129		22,533
Intersegment noninterest income (expense)(1)												Intersegment noninterest income (expense)(1)	—		(362)		362		—		—
Noninterest expense												Noninterest expense	64,174		41,987		32,356		41,160		179,677
Net income (loss) before income tax expense												Net income (loss) before income tax expense	$	68,950	$	14,191	$	(14,589)	$	(46,119)	$	22,433

(Dollars in thousands)												(Dollars in thousands)
Six months ended June 30, 2022												Six months ended June 30, 2022	Banking		Factoring		Payments		Corporate		Consolidated
Total interest income												Total interest income	$	88,422	$	112,228	$	9,004	$	88	$	209,742
Intersegment interest allocations												Intersegment interest allocations	4,851		(4,430)		(421)		—		—
Total interest expense												Total interest expense	4,624		—		—		3,611		8,235
Net interest income (expense)												Net interest income (expense)	88,649		107,798		8,583		(3,523)		201,507
Credit loss expense (benefit)												Credit loss expense (benefit)	250		2,013		170		969		3,402
Net interest income after credit loss expense												Net interest income after credit loss expense	88,399		105,785		8,413		(4,492)		198,105
Noninterest income												Noninterest income	28,253		17,392		13,551		85		59,281
Intersegment noninterest income (expense)(1)												Intersegment noninterest income (expense)(1)	—		—		—		—		—
Noninterest expense												Noninterest expense	59,817		45,643		31,996		29,715		167,171
Net income (loss) before income tax expense												Net income (loss) before income tax expense	$	56,835	$	77,534	$	(10,032)	$	(34,122)	$	90,215

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TRIUMPH FINANCIAL, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) Intersegment noninterest income (expense) includes:


(Dollars in thousands)	Factoring		Payments
Three Months Ended June 30, 2023
Factoring revenue received from Payments	$	170	$	(170)
Payments revenue received from Factoring	(267)		267
Intersegment noninterest income (expense)	$	(97)	$	97

Three Months Ended June 30, 2022
Factoring revenue received from Payments	$	—	$	—
Payments revenue received from Factoring	—		—
Intersegment noninterest income (expense)	$	—	$	—

Six months ended June 30, 2023
Factoring revenue received from Payments	$	170	$	(170)
Payments revenue received from Factoring	(532)		532
Intersegment noninterest income (expense)	$	(362)	$	362

Six months ended June 30, 2022
Factoring revenue received from Payments	$	—	$	—
Payments revenue received from Factoring	—		—
Intersegment noninterest income (expense)	$	—	$	—

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


(Dollars in thousands)	(Dollars in thousands)													(Dollars in thousands)
September 30, 2022		Banking		Factoring		Payments		Corporate		Eliminations		Consolidated
June 30, 2023														June 30, 2023	Banking		Factoring		Payments		Corporate		Eliminations		Consolidated
Total assets	Total assets	$	5,162,380	$	1,406,367	$	354,179	$	1,041,293	$	(2,321,769)	$	5,642,450	Total assets	$	5,161,837	$	1,084,139	$	447,935	$	1,021,259	$	(2,062,449)	$	5,652,721
Gross loans	Gross loans	$	3,849,962	$	1,330,122	$	118,958	$	—	$	(865,738)	$	4,433,304	Gross loans	$	3,688,130	$	997,842	$	175,952	$	—	$	(537,166)	$	4,324,758


(Dollars in thousands)	(Dollars in thousands)													(Dollars in thousands)
December 31, 2021		Banking		Factoring		Payments		Corporate		Eliminations		Consolidated
December 31, 2022														December 31, 2022	Banking		Factoring		Payments		Corporate		Eliminations		Consolidated
Total assets	Total assets	$	5,568,826	$	1,679,495	$	293,212	$	1,009,998	$	(2,595,281)	$	5,956,250	Total assets	$	4,910,628	$	1,260,209	$	371,948	$	1,061,662	$	(2,270,664)	$	5,333,783
Gross loans	Gross loans	$	4,444,136	$	1,546,361	$	153,176	$	700	$	(1,276,801)	$	4,867,572	Gross loans	$	3,572,716	$	1,151,727	$	85,722	$	—	$	(689,874)	$	4,120,291

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ITEM 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This section presents management’s perspective on our financial condition and results of operations. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Company’s interim consolidated financial statements and the accompanying notes included elsewhere in this Quarterly Report on Form 10-Q and with the consolidated financial statements and accompanying notes and other detailed information appearing in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. 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 ~~September~~June 30, ~~2022,~~2023, we had consolidated total assets of ~~$5.642~~$5.653 billion, total loans held for investment of ~~$4.433~~$4.325 billion, total deposits of ~~$4.441~~$4.293 billion and total stockholders’ equity of ~~$891.2~~$833.5 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 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 medium to large sized trucking fleets ("Carriers") at a discount to provide immediate working capital to such Carriers. We commenced these operations in 2012 through the acquisition of our factoring subsidiary, Triumph ~~Business Capital.~~Financial Services. Triumph ~~Business Capital~~Financial Services 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.

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At ~~September~~June 30, ~~2022,~~2023, 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.~~Financial Services. Our traditional banking operations provide stable, low cost deposits to support our operations, a diversified lending portfolio to add stability to our balance sheet, and a suite of traditional banking products and services to participants in the for-hire trucking ecosystem to deepen our relationship with such clients.

We have determined our reportable segments are Banking, Factoring, Payments and Corporate. For the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, our Banking segment generated ~~45%~~60% of our total revenue (comprised of interest and noninterest income), our Factoring segment generated ~~47%~~34% of our total revenue, our Payments segment generated 8%6% of our total revenue, and our Corporate segment generated less than 1% of our total revenue.

~~Third~~Second Quarter ~~2022~~2023 Overview

Net income available to common stockholders for the three months ended ~~September~~June 30, ~~2022~~2023 was ~~$15.4~~$6.8 million, or ~~$0.62~~$0.29 per diluted share, compared to net income to common stockholders for the three months ended ~~September~~June 30, ~~2021~~2022 of ~~$23.6~~$43.4 million, or ~~$0.94~~$1.74 per diluted share. For the three months ended ~~September~~June 30, ~~2022,~~2023, our return on average common equity was ~~7.17%~~3.45% and our return on average assets was ~~1.13%~~0.56%.

Net income available to common stockholders for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 was ~~$82.3~~$17.1 million, or ~~$3.28~~$0.72 per diluted share, compared to net income available to common stockholders for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 of ~~$83.9~~$66.9 million, or ~~$3.33~~$2.66 per diluted share. Excluding material gains and expenses related to merger and acquisition related activities, including divestitures, adjusted net income to common stockholders was $86.2 million, or $3.42 per diluted share, forFor the ~~nine~~six months ended ~~September~~June 30, ~~2021. There were no such adjustment for the nine months ended September 30, 2022. For the nine months ended September 30, 2022,~~2023, our return on average common equity was ~~13.07%~~4.27% and our return on average assets was ~~1.95%~~0.70%.

At ~~September~~June 30, ~~2022,~~2023, we had total assets of ~~$5.642~~$5.653 billion, including gross loans held for investment of ~~$4.433~~$4.325 billion, compared to ~~$5.956~~$5.334 billion of total assets and ~~$4.868~~$4.120 billion of gross loans held for investment at December 31, ~~2021.~~2022. Total loans held for investment ~~decreased $434.3~~increased $204.5 million during the ~~nine~~six months ended ~~September~~June 30, ~~2022.~~2023. Our Banking loans, which constitute ~~67%~~73% of our total loan portfolio at ~~September~~June 30, ~~2022, decreased~~2023, increased from ~~$3.168~~$2.883 billion in aggregate as of December 31, ~~2021~~2022 to ~~$2.984~~$3.151 billion as of ~~September~~June 30, ~~2022, a decrease~~2023, an increase of ~~5.8%~~9.3%. Our Factoring factored receivables, which constitute ~~30%~~23% of our total loan portfolio at ~~September~~June 30, ~~2022,~~2023, decreased from ~~$1.546~~$1.152 billion in aggregate as of December 31, ~~2021~~2022 to ~~$1.330~~$0.998 billion as of ~~September~~June 30, ~~2022,~~2023, a decrease of ~~14.0%~~13.4%. ~~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%4% of our total loan portfolio at ~~September~~June 30, ~~2022, decreased~~2023, increased from ~~$153.2~~$85.7 million in aggregate as of December 31, ~~2021~~2022 to ~~$119.0~~$176.0 million as of ~~September~~June 30, ~~2022, a decrease~~2023, an increase of ~~22.3%~~105.3%. Approximately $93.7 million of the increase in TriumphPay factored receivables was the result of transferring factoring transactions with freight broker clients from our Factoring segment to our Payments segment, thus aligning such services with TriumphPay's strength; serving freight brokers in the transportation industry.

At ~~September~~June 30, ~~2022,~~2023, we had total liabilities of ~~$4.751~~$4.819 billion, including total deposits of ~~$4.441~~$4.293 billion, compared to ~~$5.097~~$4.445 billion of total liabilities and ~~$4.647~~$4.171 billion of total deposits at December 31, ~~2021.~~2022. Deposits ~~decreased $205.3~~increased $122.1 million during the ~~nine~~six months ended ~~September~~June 30, ~~2022.~~2023.

At ~~September~~June 30, ~~2022,~~2023, we had total stockholders' equity of ~~$891.2~~$833.5 million. During the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, total stockholders’ equity ~~increased $32.3~~decreased $55.5 million, primarily due to ~~our net income during the period, offset in part by our~~ treasury stock purchases made under our accelerated share repurchase ~~program.~~program, offset in part by our net income during the period. Capital ratios remained strong with Tier 1 capital and total capital to risk weighted assets ratios of ~~13.64%~~12.68% and ~~16.56%~~15.59%, respectively, at ~~September~~June 30, ~~2022.~~2023.

The total dollar value of invoices purchased by Triumph ~~Business Capital~~Financial Services during the three months ended ~~September~~June 30, ~~2022~~2023 was ~~$3.600~~$2.733 billion with an average invoice size of ~~$2,141.~~$1,828. The average transportation invoice size for the three months ended ~~September~~June 30, ~~2022~~2023 was ~~$2,073.~~$1,773. This compares to invoice purchase volume of ~~$3.532~~$4.024 billion with an average invoice size of ~~$2,300~~$2,332 and average transportation invoice size of ~~$2,195~~$2,176 during the same period a year ago.

TriumphPay processed ~~4.7~~4.5 million invoices paying Carriers a total of ~~$5.952~~$4.940 billion during the three months ended ~~September~~June 30, ~~2022.~~2023. This compares to processed volume of ~~3.8~~4.4 million invoices for a total of ~~$4.191~~$6.034 billion during the same period a year ago.

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2023 Items of Note

Equity Investment

On June 22, 2023 we made a $9.7 million minority investment in Trax Group, Inc. ("Trax"), a leader in transportation spend management solutions. The investment in Trax is accounted for as an equity investment without a readily determinable fair value measured under the measurement alternative and is included in other assets on our consolidated balance sheet.

Accelerated Share Repurchase and Stock Repurchase Program

On February 1, 2023, we entered into an accelerated share repurchase (“ASR”) agreement to repurchase $70.0 million of our common stock. The ASR is part of our previously announced plan to repurchase up to $100.0 million of our common stock and is within the remaining amount authorized by our Board of Directors pursuant to such plan. During the three months ended March 31, 2023, we received an initial delivery of 961,373 common shares representing approximately 80% of the expected total to be repurchased. On April 28, 2023, the ASR was completed and we received an additional delivery of 247,954 common shares.

In connection with the completion of the ASR, on May 4, 2023, we announced that our board of directors had authorized us to repurchase up to an additional $50.0 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. We have not repurchased any shares under the new share repurchase program.

Items related to our July 2020 acquisition of TFS

As disclosed on our SEC Forms 8-K filed on July 8, 2020 and September 23, 2020, we acquired the transportation factoring assets of TFS, a wholly owned subsidiary of Covenant Logistics Group, Inc. ("CVLG"), and subsequently amended the terms of that transaction. There were no material developments related to that transaction that impacted our operating results for the three months ended June 30, 2023.

During the second quarter, new adverse developments with one of the two remaining 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 $3.3 million; however, this net charge-off had no impact on credit loss expense as the entire amount had been reserved in a prior period. In accordance with the Agreement reached with Covenant, Covenant will reimburse us for $1.7 million of this charge-off which is reflected as a receivable in other assets on our June 30,2023 Consolidated Balance Sheet. At June 30, 2023, the carrying value of the acquired over-formula advances was $4.0 million, the total reserve on acquired over-formula advances was $4.0 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 $1.9 million.

As of June 30, 2023 we carry a separate $19.4 million receivable (the “Misdirected Payments”) payable by the United States Postal Service (“USPS”) arising from accounts factored to the largest over-formula advance carrier. This amount is separate from the acquired Over-Formula Advances. The amounts represented by this receivable were paid by the USPS directly to such customer in contravention of notices of assignment delivered to, and previously honored by, the USPS, which amount was then not remitted back to us by such customer as required. The USPS disputes their obligation to make such payment, citing purported deficiencies in the notices delivered to them. We are a party to litigation in the United States Court of Federal Claims against the USPS seeking a ruling that the USPS was obligated to make the payments represented by this receivable directly to us. Based on our legal analysis and discussions with our counsel advising us on this matter, we continue to believe it is probable that we will prevail in such action and that the USPS will have the capacity to make payment on such receivable. Consequently, we have not reserved for such balance as of June 30, 2023. The full amount of such receivable is reflected in non-performing and past due factored receivables as of June 30, 2023 in accordance with our policy. As of June 30, 2023, the entire $19.4 million Misdirected Payments amount was greater than 90 days past due.

2022 Items of Note

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 months ended March 31, 2022, we repurchased 14,810 shares into treasury stock under our repurchase program at an average price of $88.81, for a total of $1.3 million. During the three months ended June 30, 2022, we repurchased 694,985 shares into treasury stock under our repurchase program at an average price of $70.02, for a total of $48.7 million, effectively completing the repurchase program.

Table of Contents

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.

On November 7, 2022, the repurchase authorization was increased to $100.0 million in connection with the commencement of a modified "Dutch auction" tender offer (the "Tender Offer"). During the three months ended December 31, 2022, we repurchased 408,615 shares of our common stock in the Tender Offer at a price of $58.00 per share, for an aggregate cost of $24.8 million, including fees and expenses related to the tender offer of $1.1 million.

Equipment Loan Sale

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

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

Factored Receivable Disposal Group

During the three months ended June 30, 2022, Factored Receivable Disposal Group factored receivables totaling $67.9 million and customer reserves totaling $9.7 million were sold resulting in a gain on sale of loans of $13.2 million. During the three months ended September 30, 2022, Factored Receivable Disposal Group factored receivables totaling $20.1 million and customer reserves totaling $1.1 million were sold resulting in a gain on sale of loans of $1.0 million.

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

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

Interest rate swap termination

During the three months ended March 31, 2022, we terminated our single derivative with a notional value totaling $200.0 million, resulting in a termination value of $9.3 million. During the three months ended June 30, 2022, we terminated the associated hedged funding, incurring a termination fee of $0.7 million which was recognized through interest expense in the consolidated statements of income, and reclassified the remaining $8.9 million unrealized gain on the terminated derivative into earnings through other noninterest income in the consolidated statements of income.

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

For further information on the above transaction, see Note 76 – Derivative Financial Instruments in the accompanying condensed notes to the consolidated financial statements included elsewhere in this report.

Equity Method Investment

On October 17, 2019, we made a minority equity investment of $8.0 million in Warehouse Solutions Inc. (“WSI”), purchasing 8% of the common stock of WSI and receiving warrants to purchase an additional 10% of the common stock of WSI upon exercise of the warrants at a later date. WSI provides technology solutions to help reduce supply chain costs for a global client base across multiple industries.

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

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

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

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

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

For further information on the above transactions, see Note 63 – ~~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.

~~Items related to our July 2020 acquisition of TFS~~

At September 30, 2022, the carrying value of the acquired over-formula advances was $8.8 million, the total reserve on acquired over-formula advances was $8.8 million and the balance of our indemnification asset, the value of the payment that would be due to us from CVLG in the event that these over-advances are charged off, was $4.2 million.

As of September 30, 2022 we carry a separate $19.4 million receivable (the “Misdirected Payments”) payable by the United States Postal Service (“USPS”) arising from accounts factored to the largest over-formula advance carrier. This amount is separate from the acquired Over-Formula Advances. The amounts represented by this receivable were paid by the USPS directly to such customer in contravention of notices of assignment delivered to, and previously honored by, the USPS, which amount was then not remitted back to us by such customer as required. The USPS disputes their obligation to make such payment, citing purported deficiencies in the notices delivered to them. We are a party to litigation in the United States Court of Federal Claims against the USPS seeking a ruling that the USPS was obligated to make the payments represented by this receivable directly to us. Based on our legal analysis and discussions with our counsel advising us on this matter, we continue to believe it is probable that we will prevail in such action and that the USPS will have the capacity to make payment on such receivable. Consequently, we have not reserved for such balance as of September 30, 2022. The full amount of such receivable is reflected in non-performing and past due factored receivables as of September 30, 2022 in accordance with our policy. As of September 30, 2022, the entire $19.4 million Misdirected Payments amount was greater than 90 days past due.

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~~2021 Items of Note~~

~~HubTran, Inc.~~

On June 1, 2021, we, through TriumphPay, a division of our wholly-owned subsidiary TBK Bank, SSB, entered into a definitive agreement to acquire HubTran, Inc., a cloud-based provider of automation software for the trucking industry's back-office, for $97 million in cash subject to customary purchase price adjustments.

The acquisition of HubTran enables us to create a payments network that will allow freight brokers and factors to lower costs, remove inefficiencies, reduce fraud and add value for their stakeholders. TriumphPay already offered tools and services to increase automation, mitigate fraud, create back-office efficiency and improve the payment experience. Through the acquisition of HubTran, TriumphPay created additional value through the enhancement of its presentment, audit, and payment capabilities for shippers, third party logistics companies (i.e., freight brokers) and their carriers, and factors. The acquisition of HubTran was a meaningful inflection point in the operations of TriumphPay as the TriumphPay strategy has shifted from a capital-intensive on-balance sheet product with a focus on interest income to a payments network for the trucking industry with a focus on fee revenue.

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

Trucking transportation

The largest driver of changes in revenue at our Factoring segment is ~~what is happening~~fluctuation in the freight markets, particularly in brokered freight, which is priced largely off the spot market (a reflection of real-time balance of carrier supply and shipper demand in the market) and subject to variability in diesel ~~prices.The third quarter saw continuing slow reduction~~prices. The softness in freight ~~volume~~is a combination of falling volumes and spot rates. Volume was similar to pre-pandemic years in July and August of 2022, but September did not see the usual increase in volume. While spot rates declined, they remained above 2019 numbers and the third quarter was a good quarter for freight brokers as the differential between contract rates and spot rates remained wide. Flat bed truck activity had decreased the most byexcess capacity. By the end of the ~~third~~first 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 a shift to shorter hauls by this segment, primarily due to diesel prices not supported within~~2023, spot rates had fallen below the cost per mile to operate for many carriers. During the second quarter, average rates per mile began to level off, but spot rates remained at low levels last seen in 2019. As a result, we have observed a number of small and ~~much of~~medium-sized trucking companies either leave the ~~freight has shifted~~market by signing on with larger carriers or electing to ~~contract haulers with a fuel surcharge written into the load tenders.~~sell their fleets or companies and move on to other endeavors.

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Financial Highlights


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands, except per share amounts)	(Dollars in thousands, except per share amounts)	2022			2021			2022			2021			(Dollars in thousands, except per share amounts)	2023			2022			2023			2022
Income Statement Data:	Income Statement Data:													Income Statement Data:
Interest income	Interest income	$	103,225		$	96,735		$	312,967		$	279,776		Interest income	$	105,486		$	106,307		$	206,160		$	209,742
Interest expense	Interest expense	4,955			4,964			13,190			14,703			Interest expense	14,035			4,879			21,327			8,235
Net interest income	Net interest income	98,270			91,771			299,777			265,073			Net interest income	91,451			101,428			184,833			201,507
Credit loss expense (benefit)	Credit loss expense (benefit)	2,646			(1,187)			6,048			(10,838)			Credit loss expense (benefit)	2,643			2,901			5,256			3,402
Net interest income after credit loss expense (benefit)	Net interest income after credit loss expense (benefit)	95,624			92,958			293,729			275,911			Net interest income after credit loss expense (benefit)	88,808			98,527			179,577			198,105

Noninterest income	Noninterest income	12,668			12,055			71,949			40,242			Noninterest income	11,511			48,160			22,533			59,281
Noninterest expense	Noninterest expense	86,689			72,813			253,860			204,503			Noninterest expense	90,396			88,607			179,677			167,171
Net income (loss) before income taxes	Net income (loss) before income taxes	21,603			32,200			111,818			111,650			Net income (loss) before income taxes	9,923			58,080			22,433			90,215
Income tax expense (benefit)	Income tax expense (benefit)	5,374			7,771			27,068			25,316			Income tax expense (benefit)	2,273			13,888			3,773			21,694
Net income (loss)	Net income (loss)	$	16,229		$	24,429		$	84,750		$	86,334		Net income (loss)	$	7,650		$	44,192		$	18,660		$	68,521
Dividends on preferred stock	Dividends on preferred stock	(801)			(802)			(2,404)			(2,405)			Dividends on preferred stock	(802)			(802)			(1,603)			(1,603)
Net income available (loss) to common stockholders	Net income available (loss) to common stockholders	$	15,428		$	23,627		$	82,346		$	83,929		Net income available (loss) to common stockholders	$	6,848		$	43,390		$	17,057		$	66,918

Per Share Data:	Per Share Data:													Per Share Data:
Basic earnings (loss) per common share	Basic earnings (loss) per common share	$	0.64		$	0.95		$	3.36		$	3.40		Basic earnings (loss) per common share	$	0.30		$	1.78		$	0.73		$	2.72
Diluted earnings (loss) per common share	Diluted earnings (loss) per common share	$	0.62		$	0.94		$	3.28		$	3.33		Diluted earnings (loss) per common share	$	0.29		$	1.74		$	0.72		$	2.66
Weighted average shares outstanding - basic	Weighted average shares outstanding - basic	24,227,020			24,759,419			24,483,054			24,719,861			Weighted average shares outstanding - basic	23,138,835			24,427,270			23,249,668			24,612,988
Weighted average shares outstanding - diluted	Weighted average shares outstanding - diluted	24,979,257			25,227,963			25,072,862			25,199,991			Weighted average shares outstanding - diluted	23,455,471			24,866,573			23,634,343			25,122,985

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

Performance ratios - Annualized:	Performance ratios - Annualized:													Performance ratios - Annualized:
Return on average assets	Return on average assets	1.13		%	1.61		%	1.95		%	1.91		%	Return on average assets	0.56		%	3.02		%	0.70		%	2.36		%
Return on average total equity	Return on average total equity	7.16		%	11.85		%	12.77		%	14.72		%	Return on average total equity	3.64		%	20.08		%	4.43		%	15.67		%
Return on average common equity	Return on average common equity	7.17		%	12.13		%	13.07		%	15.18		%	Return on average common equity	3.45		%	20.78		%	4.27		%	16.13		%
Return on average tangible common equity (1)	Return on average tangible common equity (1)	10.47		%	19.21		%	19.28		%	22.12		%	Return on average tangible common equity (1)	5.16		%	30.63		%	6.37		%	23.91		%
Yield on loans(2)	Yield on loans(2)	8.95		%	7.92		%	8.77		%	7.65		%	Yield on loans(2)	9.14		%	8.79		%	9.18		%	8.69		%
Cost of interest bearing deposits	Cost of interest bearing deposits	0.41		%	0.27		%	0.35		%	0.33		%	Cost of interest bearing deposits	1.13		%	0.41		%	0.85		%	0.32		%
Cost of total deposits	Cost of total deposits	0.24		%	0.16		%	0.20		%	0.21		%	Cost of total deposits	0.68		%	0.23		%	0.50		%	0.19		%
Cost of total funds	Cost of total funds	0.42		%	0.38		%	0.36		%	0.38		%	Cost of total funds	1.23		%	0.40		%	0.97		%	0.34		%
Net interest margin(2)	Net interest margin(2)	7.71		%	6.69		%	7.69		%	6.41		%	Net interest margin(2)	7.57		%	7.68		%	7.82		%	7.68		%
Efficiency ratio	Efficiency ratio	78.14		%	70.13		%	68.29		%	66.98		%	Efficiency ratio	87.80		%	59.23		%	86.65		%	64.10		%
Adjusted efficiency ratio (1)		78.14		%	70.13		%	68.29		%	66.00		%

Net noninterest expense to average assets	Net noninterest expense to average assets	5.15		%	4.00		%	4.19		%	3.63		%	Net noninterest expense to average assets	5.79		%	2.76		%	5.88		%	3.71		%
Adjusted net noninterest expense to average assets (1)		5.15		%	4.00		%	4.19		%	3.57		%

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(Dollars in thousands, except per share amounts)	(Dollars in thousands, except per share amounts)	September 30, 2022			December 31, 2021			(Dollars in thousands, except per share amounts)	June 30, 2023			December 31, 2022
Balance Sheet Data:	Balance Sheet Data:							Balance Sheet Data:
Total assets	Total assets	$	5,642,450		$	5,956,250		Total assets	$	5,652,721		$	5,333,783
Cash and cash equivalents	Cash and cash equivalents	421,729			383,178			Cash and cash equivalents	417,375			408,182
Investment securities	Investment securities	247,499			192,877			Investment securities	311,585			263,772
Loans held for investment, net	Loans held for investment, net	4,389,193			4,825,359			Loans held for investment, net	4,289,788			4,077,484
Total liabilities	Total liabilities	4,751,277			5,097,386			Total liabilities	4,819,255			4,444,812
Noninterest bearing deposits	Noninterest bearing deposits	1,897,309			1,925,370			Noninterest bearing deposits	1,608,411			1,756,680
Interest bearing deposits	Interest bearing deposits	2,544,045			2,721,309			Interest bearing deposits	2,685,055			2,414,656
FHLB advances	FHLB advances	30,000			180,000			FHLB advances	280,000			30,000
Paycheck Protection Program Liquidity Facility		—			27,144
Subordinated notes	Subordinated notes	107,587			106,957			Subordinated notes	108,234			107,800
Junior subordinated debentures	Junior subordinated debentures	41,016			40,602			Junior subordinated debentures	41,444			41,158
Total stockholders’ equity	Total stockholders’ equity	891,173			858,864			Total stockholders’ equity	833,466			888,971
Preferred stockholders' equity	Preferred stockholders' equity	45,000			45,000			Preferred stockholders' equity	45,000			45,000
Common stockholders' equity	Common stockholders' equity	846,173			813,864			Common stockholders' equity	788,466			843,971

Per Share Data:	Per Share Data:							Per Share Data:
Book value per share	Book value per share	$	34.57		$	32.35		Book value per share	$	33.88		$	35.09
Tangible book value per share (1)	Tangible book value per share (1)	$	23.60		$	21.34		Tangible book value per share (1)	$	22.58		$	24.04
Shares outstanding end of period	Shares outstanding end of period	24,478,288			25,158,879			Shares outstanding end of period	23,269,885			24,053,585

Asset Quality ratios(3):	Asset Quality ratios(3):							Asset Quality ratios(3):
Past due to total loans	Past due to total loans	2.33		%	2.86		%	Past due to total loans	1.55		%	2.53		%
Nonperforming loans to total loans	Nonperforming loans to total loans	1.26		%	0.95		%	Nonperforming loans to total loans	0.74		%	1.17		%
Nonperforming assets to total assets	Nonperforming assets to total assets	1.11		%	0.92		%	Nonperforming assets to total assets	0.68		%	1.02		%
ACL to nonperforming loans	ACL to nonperforming loans	78.88		%	91.20		%	ACL to nonperforming loans	109.41		%	88.76		%
ACL to total loans	ACL to total loans	0.99		%	0.87		%	ACL to total loans	0.81		%	1.04		%
Net charge-offs to average loans(4)	Net charge-offs to average loans(4)	0.09		%	0.95		%	Net charge-offs to average loans(4)	0.31		%	0.14		%

Capital ratios:	Capital ratios:							Capital ratios:
Tier 1 capital to average assets	Tier 1 capital to average assets	12.57		%	11.11		%	Tier 1 capital to average assets	12.01		%	13.00		%
Tier 1 capital to risk-weighted assets	Tier 1 capital to risk-weighted assets	13.64		%	11.51		%	Tier 1 capital to risk-weighted assets	12.68		%	14.57		%
Common equity Tier 1 capital to risk-weighted assets	Common equity Tier 1 capital to risk-weighted assets	11.93		%	9.94		%	Common equity Tier 1 capital to risk-weighted assets	10.93		%	12.73		%
Total capital to risk-weighted assets	Total capital to risk-weighted assets	16.56		%	14.10		%	Total capital to risk-weighted assets	15.59		%	17.66		%
Total stockholders' equity to total assets	Total stockholders' equity to total assets	15.79		%	14.42		%	Total stockholders' equity to total assets	14.74		%	16.67		%
Tangible common stockholders' equity ratio (1)	Tangible common stockholders' equity ratio (1)	10.75		%	9.46		%	Tangible common stockholders' equity ratio (1)	9.75		%	11.41		%

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

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

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•"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.

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

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

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

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

(2)Performance ratios include discount accretion on purchased loans for the periods presented as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands, except per share amounts)	(Dollars in thousands, except per share amounts)	2022		2021		2022		2021		(Dollars in thousands, except per share amounts)	2023		2022		2023		2022
Loan discount accretion	Loan discount accretion	$	1,539	$	1,953	$	6,631	$	7,615	Loan discount accretion	$	990	$	3,556	$	2,800	$	5,092

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

(4)Net charge-offs to average loans ratios are for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and the year ended December 31, ~~2021.~~2022.

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GAAP Reconciliation of Non-GAAP Financial Measures

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


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands, except per share amounts)	(Dollars in thousands, except per share amounts)	2022			2021			2022			2021			(Dollars in thousands, except per share amounts)	2023			2022			2023			2022
Net income available to common stockholders		$	15,428		$	23,627		$	82,346		$	83,929
Transaction costs		—			—			—			2,992

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

Average total stockholders' equity	Average total stockholders' equity	$	898,845		$	818,022		$	887,497		$	784,019		Average total stockholders' equity	$	841,979		$	882,505		$	850,002		$	881,732
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	853,845			773,022			842,497			739,019			Average total common stockholders' equity	796,979			837,505			805,002			836,732
Average goodwill and other intangibles	Average goodwill and other intangibles	(269,417)			(284,970)			(271,350)			(231,751)			Average goodwill and other intangibles	(264,544)			(269,319)			(264,930)			(272,332)
Average tangible common equity	Average tangible common equity	$	584,428		$	488,052		$	571,147		$	507,268		Average tangible common equity	$	532,435		$	568,186		$	540,072		$	564,400

Net income available to common stockholders	Net income available to common stockholders	$	15,428		$	23,627		$	82,346		$	83,929		Net income available to common stockholders	$	6,848		$	43,390		$	17,057		$	66,918
Average tangible common equity	Average tangible common equity	584,428			488,052			571,147			507,268			Average tangible common equity	532,435			568,186			540,072			564,400
Return on average tangible common equity	Return on average tangible common equity	10.47		%	19.21		%	19.28		%	22.12		%	Return on average tangible common equity	5.16		%	30.63		%	6.37		%	23.91		%

Adjusted efficiency ratio:

Efficiency ratio:														Efficiency ratio:
Net interest income	Net interest income	$	98,270		$	91,771		$	299,777		$	265,073		Net interest income	$	91,451		$	101,428		$	184,833		$	201,507
Noninterest income	Noninterest income	12,668			12,055			71,949			40,242			Noninterest income	11,511			48,160			22,533			59,281
Operating revenue	Operating revenue	110,938			103,826			371,726			305,315			Operating revenue	102,962			149,588			207,366			260,788
Total noninterest expense														Total noninterest expense	$	90,396		$	88,607		$	179,677		$	167,171
Efficiency ratio														Efficiency ratio	87.80		%	59.23		%	86.65		%	64.10		%

Total noninterest expense		$	86,689		$	72,813		$	253,860		$	204,503
Transaction costs		—			—			—			(2,992)
Adjusted noninterest expense		$	86,689		$	72,813		$	253,860		$	201,511
Adjusted efficiency ratio		78.14		%	70.13		%	68.29		%	66.00		%

Adjusted net noninterest expense to average assets ratio:
Total noninterest expense		$	86,689		$	72,813		$	253,860		$	204,503
Transaction costs		—			—			—			(2,992)
Adjusted noninterest expense		86,689			72,813			253,860			201,511
Total noninterest income		12,668			12,055			71,949			40,242

Net noninterest expense to average assets ratio:														Net noninterest expense to average assets ratio:
Total noninterest expense														Total noninterest expense	$	90,396		$	88,607		$	179,677		$	167,171
Total noninterest income														Total noninterest income	11,511			48,160			22,533			59,281
Net noninterest expenses	Net noninterest expenses	$	74,021		$	60,758		$	181,911		$	161,269		Net noninterest expenses	$	78,885		$	40,447		$	157,144		$	107,890
Average total assets	Average total assets	$	5,700,547		$	6,020,631		$	5,806,933		$	6,042,677		Average total assets	$	5,461,946		$	5,878,320		$	5,386,429		$	5,860,916
Adjusted net noninterest expense to average assets ratio		5.15		%	4.00		%	4.19		%	3.57		%
Net noninterest expense to average assets ratio														Net noninterest expense to average assets ratio	5.79		%	2.76		%	5.88		%	3.71		%

5653

Table of Contents


(Dollars in thousands, except per share amounts)	(Dollars in thousands, except per share amounts)	September 30, 2022			December 31, 2021			(Dollars in thousands, except per share amounts)	June 30, 2023			December 31, 2022
Total stockholders' equity	Total stockholders' equity	$	891,173		$	858,864		Total stockholders' equity	$	833,466		$	888,971
Preferred stock	Preferred stock	(45,000)			(45,000)			Preferred stock	(45,000)			(45,000)
Total common stockholders' equity	Total common stockholders' equity	846,173			813,864			Total common stockholders' equity	788,466			843,971
Goodwill and other intangibles	Goodwill and other intangibles	(268,604)			(276,856)			Goodwill and other intangibles	(262,958)			(265,767)
Tangible common stockholders' equity	Tangible common stockholders' equity	$	577,569		$	537,008		Tangible common stockholders' equity	$	525,508		$	578,204
Common shares outstanding	Common shares outstanding	24,478,288			25,158,879			Common shares outstanding	23,269,885			24,053,585
Tangible book value per share	Tangible book value per share	$	23.60		$	21.34		Tangible book value per share	$	22.58		$	24.04

Total assets at end of period	Total assets at end of period	$	5,642,450		$	5,956,250		Total assets at end of period	$	5,652,721		$	5,333,783
Goodwill and other intangibles	Goodwill and other intangibles	(268,604)			(276,856)			Goodwill and other intangibles	(262,958)			(265,767)
Tangible assets at period end	Tangible assets at period end	$	5,373,846		$	5,679,394		Tangible assets at period end	$	5,389,763		$	5,068,016
Tangible common stockholders' equity ratio	Tangible common stockholders' equity ratio	10.75		%	9.46		%	Tangible common stockholders' equity ratio	9.75		%	11.41		%

Results of Operations

Three months ended ~~September~~June 30, ~~2022~~2023 compared with three months ended ~~September 30, 2021.~~

~~Net Income~~

We earned net income of $16.2 million for the three months ended September 30, 2022 compared to net income of $24.4 million for the three months ended 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~~

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 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~~

The following table shows the effects that changes in average balances (volume) and average interest rates (rate) had on the interest earned on our interest earning assets and the interest incurred on our interest bearing:

Three Months Ended
September 30, 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~~

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 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~~

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

Income tax expense 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~~

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.

~~Table of Contents~~

Reported segments and the financial information of the reported segments are not necessarily comparable with similar information reported by other financial institutions. Additionally, because of the interrelationships of the various segments, the information presented is not indicative of how the segments would perform if they operated as independent entities. Changes in management structure or allocation methodologies and procedures may result in future changes to previously reported segment financial data. The accounting policies of the segments are substantially the same as those described in the “Summary of Significant Accounting Policies” in Note 1 of the Company’s 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 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.

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.

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.

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, professional fees increased $0.5 million. We continue to invest heavily in the operations of TriumphPay.

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

~~Corporate~~

(Dollars in thousands) 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~~$7.7 million for the ~~nine~~three months ended ~~September~~June 30, ~~2022~~2023 compared to ~~$86.3~~net income of $44.2 million for the ~~nine~~three months ended ~~September~~June 30, ~~2021,~~2022, a decrease of ~~$1.6~~$36.5 million. The decrease in net income was driven by a $36.6 million decrease in noninterest income, a $10.0 million decrease in net interest income, and a $1.8 million increase in noninterest expense partially offset by an $11.6 million decrease in income tax expense and a $0.3 million decrease in credit loss expense.

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

Net Interest Income

6854

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	Three Months Ended June 30,
	2023				2022
(Dollars in thousands)	Average Balance	Interest	Average Rate(4)		Average Balance	Interest	Average Rate(4)
Interest earning assets:
Cash and cash equivalents	227,696	2,956	5.21	%	343,210	787	0.92	%
Taxable securities	318,285	5,167	6.51	%	174,489	1,237	2.84	%
Tax-exempt securities	10,399	67	2.58	%	14,378	92	2.57	%
FHLB and other restricted stock	27,071	219	3.24	%	12,526	34	1.09	%
Loans (1)	4,262,170	97,077	9.14	%	4,753,893	104,157	8.79	%
Total interest earning assets	4,845,621	105,486	8.73	%	5,298,496	106,307	8.05	%
Noninterest earning assets:
Cash and cash equivalents	73,176				91,882
Other noninterest earning assets	543,149				487,942
Total assets	5,461,946				5,878,320
Interest bearing liabilities:
Deposits:
Interest bearing demand	804,799	715	0.36	%	876,536	536	0.25	%
Individual retirement accounts	60,171	104	0.69	%	81,678	106	0.52	%
Money market	506,782	1,685	1.33	%	545,508	280	0.21	%
Savings	529,952	475	0.36	%	528,450	201	0.15	%
Certificates of deposit	286,253	902	1.26	%	461,280	550	0.48	%
Brokered time deposits	244,721	2,823	4.63	%	101,270	302	1.20	%
Other brokered deposits	13,188	173	5.26	%	76,155	731	3.85	%
Total interest bearing deposits	2,445,866	6,877	1.13	%	2,670,877	2,706	0.41	%
Federal Home Loan Bank advances	363,901	4,756	5.24	%	155,549	316	0.81	%
Subordinated notes	108,115	1,312	4.87	%	107,263	1,302	4.87	%
Junior subordinated debentures	41,378	1,090	10.57	%	40,802	556	5.47	%
Other borrowings	308	—	—	%	5,844	(1)	(0.07)	%
Total interest bearing liabilities	2,959,568	14,035	1.90	%	2,980,335	4,879	0.66	%
Noninterest bearing liabilities and equity:
Noninterest bearing demand deposits	1,598,733				1,951,725
Other liabilities	61,666				63,755
Total equity	841,979				882,505
Total liabilities and equity	5,461,946				5,878,320
Net interest income		91,451				101,428
Interest spread (2)			6.83	%			7.39	%
Net interest margin (3)			7.57	%			7.68	%

(1)Balance totals include respective nonaccrual assets.

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

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

(4)Ratios have been annualized.

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


	Three Months Ended June 30,
	2023						2022
(Dollars in thousands)	Average Balance		Interest		Average Rate		Average Balance		Interest		Average Rate
Banking loans	$	3,120,594	$	57,258	7.36	%	$	3,014,573	$	44,131	5.87	%
Factoring receivables	1,036,922		36,368		14.07	%	1,576,208		55,854		14.21	%
Payments receivables	104,654		3,451		13.23	%	163,112		4,172		10.26	%
Total loans	$	4,262,170	$	97,077	9.14	%	$	4,753,893	$	104,157	8.79	%

We earned net interest income of $91.5 million for the three months ended June 30, 2023 compared to $101.4 million for the three months ended June 30, 2022, a decrease of $9.9 million, or 9.8%, primarily driven by the following factors.

Interest income decreased $0.8 million, or 0.8%, due to a decrease in average interest earning assets of $452.9 million, or 8.5%, and a decrease in average total loans of $491.7 million, or 10.3%. The average balance of our higher yielding Factoring factored receivables decreased $539.3 million, or 34.2%, driving the decrease in interest income along with a decrease in average Payments factored receivables. Average Banking loans increased $106.0 million, or 3.5% due to increases in the average balances of commercial real estate, residential real estate, general commercial and mortgage warehouse loans. The decrease in average loans was partially offset by higher average balances among other types interest earning assets and higher 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 $848.0 million for the three months ended June 30, 2023 compared to $651.4 million for the three months ended June 30, 2022. 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 $1.0 million and $3.6 million for the three months ended June 30, 2023 and 2022, respectively.

Interest expense increased $9.2 million, or 187.7%, despite a decrease in average interest-bearing liabilities. More specifically, average total interest bearing deposits decreased $225.0 million, or 8.4%. Average noninterest bearing demand deposits decreased $353.0 million. The change in interest expense period over period was also driven by higher average rates discussed below.

Net interest margin decreased to 7.57% for the three months ended June 30, 2023 from 7.68% for the three months ended June 30, 2022, a decrease of 11 basis points or 1.4%.

The decrease in our net interest margin was most impacted by an increase in our average cost of interest bearing liabilities of 124 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.

The decrease in our net interest margin was partially offset by an increase in our yield on interest earning assets of 68 basis points to 8.73% for the three months ended June 30, 2023. This increase was primarily driven by higher yields on loans which increased 35 basis points to 9.14% for the same period. That being said, further growth in loan yield was halted by a decrease in Factoring yield period over period, as well as a decrease in average Factoring factored receivables as a percentage of the total loan portfolio. Our transportation factoring balances, which generally generate a higher yield than our non-transportation factoring balances, were 95% and 94% of our Factoring portfolio at June 30, 2023 and 2022, respectively. Banking and Payments yields increased period over period. Non-loan yields were higher across the board period over period.

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	Three Months Ended
	June 30, 2023 vs. 2022
	Increase (Decrease) Due to:
(Dollars in thousands)	Rate		Volume		Net Increase
Interest earning assets:
Cash and cash equivalents	$	3,669	$	(1,500)	$	2,169
Taxable securities	1,596		2,334		3,930
Tax-exempt securities	1		(26)		(25)
FHLB and other restricted stock	67		118		185
Loans	4,120		(11,200)		(7,080)
Total interest income	9,453		(10,274)		(821)
Interest bearing liabilities:
Interest bearing demand	243		(64)		179
Individual retirement accounts	35		(37)		(2)
Money market	1,534		(129)		1,405
Savings	273		1		274
Certificates of deposit	904		(552)		352
Brokered time deposits	866		1,655		2,521
Other brokered deposits	268		(826)		(558)
Total interest bearing deposits	4,123		48		4,171
Federal Home Loan Bank advances	1,717		2,723		4,440
Subordinated notes	—		10		10
Junior subordinated debentures	519		15		534
Other borrowings	1		—		1
Total interest expense	6,360		2,796		9,156
Change in net interest income	$	3,093	$	(13,070)	$	(9,977)

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 2022 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)	2023		2022		$ Change		% Change
Credit loss expense (benefit) on loans	$	3,514	$	2,069	$	1,445	69.8	%
Credit loss expense (benefit) on off balance sheet credit exposures	(1,162)		932		(2,094)		(224.7)	%
Credit loss expense (benefit) on held to maturity securities	291		(100)		391		391.0	%
Credit loss expense on available for sale securities	—		—		—		—
Total credit loss expense (benefit)	$	2,643	$	2,901	$	(258)	(8.9)	%

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For available for sale debt securities in an unrealized loss position, the Company evaluates the securities at each measurement date to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors. Any impairment that is not credit related is recognized in other comprehensive income, net of applicable taxes. Credit-related impairment is recognized as an ACL on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings via credit loss expense. At June 30, 2023 and March 31, 2023, 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, 2023. 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, 2023 and December 31, 2022, 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, 2023 and March 31, 2023, the Company carried $6.3 million and $6.5 million, respectively, of these HTM securities at amortized cost. The required ACL on these balances was $2.9 million at June 30, 2023 and $2.6 million at March 31, 2023, resulting in $0.3 million of credit loss expense during the current quarter. Credit loss expense during the three months ended June 30, 2022 was a benefit of $0.1 million. None of the overcollateralization triggers tied to the CLO securities were tripped as of June 30, 2023. 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 $35.0 million as of June 30, 2023, compared to $42.8 million as of December 31, 2022, representing an ACL to total loans ratio of 0.81% and 1.04%, respectively.

Our credit loss expense on loans increased $1.4 million, or 69.8%, for the three months ended June 30, 2023 compared to the three months ended June 30, 2022.

During the three months ended June 30, 2023, new adverse developments with one of the two remaining 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 $3.3 million; however, this net charge-off had no impact on credit loss expense as the entire amount had been reserved in a prior period. In accordance with the Agreement reached with Covenant, Covenant will reimburse us for $1.7 million of this charge-off which is reflected as a receivable on our June 30, 2023 Consolidated Balance Sheet. We continue to reserve the full balance of the Over-Formula Advance clients at June 30, 2023 which totals $4.0 million.

The increase in credit loss expense was primarily driven by increased net charge-offs during the period. Including the $3.3 million over-formula advance net charge-off previously discussed, net charge-offs during the three months ended June 30, 2023 were $10.8 million compared to $0.2 million during the same period a year ago. Approximately $8.1 million of the $10.8 million net charge-offs for the three months ended June 30, 2023 were reserved in a prior period while charge-offs during the three months ended June 30, 2022 were fully reserved in a prior period. Such prior period reserves are included in the discussion of changes in specific reserves below.

Changes in volume and mix of the loan portfolio also increased credit loss expense. Such changes created a benefit to credit loss expense of $0.2 million during the three months ended June 30, 2023 compared to a benefit to credit loss expense of $1.6 million during the same period a year ago.

The increased credit loss expense was partially offset by changes in new specific reserves. Such specific reserves decreased $7.1 million during the three months ended June 30, 2023 compared to an increase of $0.9 million during the same period a year ago.

The increase in credit loss expense was also partially offset by changes to projected loss drivers and prepayment speeds that the Company forecasted over the reasonable and supportable forecast period to calculate expected losses. The result of such changes had an insignificant impact to credit loss expense for the three months ended June 30, 2023 compared to credit loss expense of $2.6 million during the same period a year ago.

Credit loss expense for off balance sheet credit exposures decreased $2.1 million, primarily due to decreased underlying outstanding commitments to fund period over period.

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Noninterest Income

The following table presents our major categories of noninterest income:


	Three Months Ended June 30,
(Dollars in thousands)	2023		2022		$ Change		% Change
Service charges on deposits	$	1,769	$	1,664	$	105	6.3	%
Card income	2,119		2,080		39		1.9	%
Net OREO gains (losses) and valuation adjustments	—		18		(18)		(100.0)	%
Net gains (losses) on sale or call of securities	—		2,514		(2,514)		(100.0)	%
Net gains (losses) on sale of loans	87		17,269		(17,182)		(99.5)	%
Fee income	7,462		6,273		1,189		19.0	%
Insurance commissions	1,303		1,346		(43)		(3.2)	%
Other	(1,229)		16,996		(18,225)		(107.2)	%
Total noninterest income	$	11,511	$	48,160	$	(36,649)	(76.1)	%

Noninterest income decreased $36.6 million, or 76.1%. 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 decreased $2.5 million as no securities we sold or called during the three months ended June 30, 2023.

•Net gains (losses) on sale of loans. Net gains (losses) on sale of loans decreased $17.2 million due to the aforementioned $13.2 million gain on sale of factored receivables and the aforementioned $3.9 million gain on sale of equipment loans during the three months ended June 30, 2022. Sales of such magnitude did not repeat during the three months ended June 30, 2023.

•Fee income. Fee income increased $1.2 million, or 19.0%, due to a $0.7 million increase in fees earned by TriumphPay Audit during the three months ended June 30, 2023 compared to the same period a year ago.

•Other. Other noninterest income decreased $18.2 million 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. The decrease was also driven by a write down of our revenue share asset, which is carried at fair value, of $1.2 million during the three months ended June 30, 2023.

Noninterest Expense

The following table presents our major categories of noninterest expense:


	Three Months Ended June 30,
(Dollars in thousands)	2023		2022		$ Change		% Change
Salaries and employee benefits	$	54,219	$	54,257	$	(38)	(0.1)	%
Occupancy, furniture and equipment	7,292		6,507		785		12.1	%
FDIC insurance and other regulatory assessments	796		382		414		108.4	%
Professional fees	3,035		3,607		(572)		(15.9)	%
Amortization of intangible assets	3,001		3,064		(63)		(2.1)	%
Advertising and promotion	1,577		1,785		(208)		(11.7)	%
Communications and technology	11,397		9,820		1,577		16.1	%
Travel and entertainment	1,555		1,423		132		9.3	%
Other	7,524		7,762		(238)		(3.1)	%
Total noninterest expense	$	90,396	$	88,607	$	1,789	2.0	%

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Noninterest expense increased $1.8 million, or 2.0%. 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 were relatively flat period over period. Employee salaries and payroll taxes increased $3.2 million and $0.4 million, respectively, which is primarily due to merit increases for existing employees and growth in our workforce. The size of our workforce increased period over period due to organic growth within the Company. Our average full-time equivalent employees were 1,480.7 and 1,365.3 for the three months ended June 30, 2023 and 2022, respectively. Further, compensation for temporary and/or contract labor increased $0.3 million and sales commissions, primarily related to our operations at Triumph Financial Services and TriumphPay, increased $0.5 million period over period. Accruals for bonus expense were $1.0 million lower period over period and stock based compensation expense included in salaries and employee benefits expense decreased $4.2 million period over period.

•Occupancy, Furniture and Equipment. Occupancy, furniture and equipment expenses increased $0.8 million, or 12.1%, primarily due to growth in our operations period over period.

•Professional Fees. Professional fees decreased $0.6 million, or 15.9%, primarily due to a $0.6 million decrease in legal and consulting fees period over period.

•Communication and Technology. Communication and technology increased $1.6 million, or 16.1%, primarily as a result of increased spending on IT information security and IT license and software maintenance to develop efficiency in our operations and improve the functionality and security 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 decreased $0.2 million, or 3.1%. There were no notable variances in other noninterest expense period over period.

Income Taxes

Income tax expense decreased $11.6 million, from $13.9 million for the three months ended June 30, 2022 to $2.3 million for the three months ended June 30, 2023. The effective tax rate was 23% for the three months ended June 30, 2023, compared to 24% for the three months ended June 30, 2022. There were no notable income tax events in either period.

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 Financial Services 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.

Prior to March 31, 2023, the majority of salaries and benefits expense for our executive leadership team, as well as other selling, general, and administrative shared services costs including human resources, accounting, finance, risk management and a significant amount of information technology expense, were allocated to the Banking segment. During the quarter ended March 31, 2023 management began allocating such shared service costs to its Corporate segment. We continue to make considerable investments in shared services that benefit the entire organization and by moving such expenses to the Corporate segment, our chief operating decision maker and investors now have greater visibility into the operating performance of each reportable segment. Prior periods were revised to reflect such allocations and achieve appropriate comparability.

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Separately, prior to March 31, 2023, intersegment interest expense was allocated to the Factoring and Payments segments (when the Payments segment is not self-funded) based on a rolling average of Federal Home Loan Bank advance rates. When the Payments segment was self-funded with funding in excess of its factored receivables, intersegment interest income was allocated based on the Federal Funds effective rate. During the quarter ended March 31, 2023, we began allocating intersegment interest expense to the Factoring and Payments segments based on one-month term SOFR for their funding needs. When the Payments segment is self-funded, with funding in excess of its factored receivables, intersegment interest income will continue to be allocated based on the Federal Funds effective rate. Management believes that such intersegment interest allocations are more intuitive in the current interest rate environment. Prior periods were revised to reflect such allocations and achieve appropriate comparability.

Transactions between segments consist primarily of borrowed funds, payment network fees, and servicing fees. Intersegment interest expense is allocated to the Factoring and Payments segments as described above. Beginning January 1, 2023, payment network fees are paid by the Factoring segment to the Payments segment for use of the payments network. Beginning prospectively on June 1, 2023, factoring transactions with freight broker clients were transferred from our Factoring segment to our Payments segment to align with TriumphPay's supply chain finance product offerings. Servicing fees are paid by the Payments segment to the Factoring segment for servicing such product. 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 with various shared service costs such as human resources, accounting, finance, risk management and information technology expense assigned to the Corporate segment. Taxes are paid on a consolidated basis and are not allocated for segment purposes. The Factoring segment includes only factoring originated by Triumph Financial Services.

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


(Dollars in thousands)
Three Months Ended June 30, 2023	Banking		Factoring		Payments		Corporate		Consolidated
Total interest income	$	65,624	$	36,367	$	3,451	$	44	$	105,486
Intersegment interest allocations	7,478		(9,358)		1,880		—		—
Total interest expense	11,634		—		—		2,401		14,035
Net interest income (expense)	61,468		27,009		5,331		(2,357)		91,451
Credit loss expense (benefit)	831		1,481		41		290		2,643
Net interest income after credit loss expense	60,637		25,528		5,290		(2,647)		88,808
Noninterest income	6,347		980		4,119		65		11,511
Intersegment noninterest income (expense)(1)	—		(97)		97		—		—
Noninterest expense	31,934		20,218		16,939		21,305		90,396
Net income (loss) before income tax expense	$	35,050	$	6,193	$	(7,433)	$	(23,887)	$	9,923


(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	4,246		(3,878)		(368)		—		—
Total interest expense	3,021		—		—		1,858		4,879
Net interest income (expense)	47,464		51,976		3,804		(1,816)		101,428
Credit loss expense (benefit)	3,120		64		(184)		(99)		2,901
Net interest income after credit loss expense	44,344		51,912		3,988		(1,717)		98,527
Noninterest income	22,282		15,521		10,309		48		48,160
Intersegment noninterest income (expense)(1)	—		—		—		—		—
Noninterest expense	31,205		23,512		17,663		16,227		88,607
Net income (loss) before income tax expense	$	35,421	$	43,921	$	(3,366)	$	(17,896)	$	58,080

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(1) Intersegment noninterest income (expense) includes:


(Dollars in thousands)	Factoring		Payments
Three Months Ended June 30, 2023
Factoring revenue received from Payments	$	170	$	(170)
Payments revenue received from Factoring	(267)		267
Intersegment noninterest income (expense)	$	(97)	$	97

Three Months Ended June 30, 2022
Factoring revenue received from Payments	$	—	$	—
Payments revenue received from Factoring	—		—
Intersegment noninterest income (expense)	$	—	$	—


(Dollars in thousands)
June 30, 2023	Banking		Factoring		Payments		Corporate		Eliminations		Consolidated
Total assets	$	5,161,837	$	1,084,139	$	447,935	$	1,021,259	$	(2,062,449)	$	5,652,721
Gross loans	$	3,688,130	$	997,842	$	175,952	$	—	$	(537,166)	$	4,324,758

(Dollars in thousands)
December 31, 2022	Banking		Factoring		Payments		Corporate		Eliminations		Consolidated
Total assets	$	4,910,628	$	1,260,209	$	371,948	$	1,061,662	$	(2,270,664)	$	5,333,783
Gross loans	$	3,572,716	$	1,151,727	$	85,722	$	—	$	(689,874)	$	4,120,291

Banking


(Dollars in thousands)	Three Months Ended June 30,
Banking	2023		2022		$ Change		% Change
Total interest income	$	65,624	$	46,239	$	19,385	41.9	%
Intersegment interest allocations	7,478		4,246		3,232		76.1	%
Total interest expense	11,634		3,021		8,613		285.1	%
Net interest income (expense)	61,468		47,464		14,004		29.5	%
Credit loss expense (benefit)	831		3,120		(2,289)		(73.4)	%
Net interest income after credit loss expense	60,637		44,344		16,293		36.7	%
Noninterest income	6,347		22,282		(15,935)		(71.5)	%
Noninterest expense	31,934		31,205		729		2.3	%
Operating income (loss)	$	35,050	$	35,421	$	(371)	(1.0)	%

Our Banking segment’s operating income decreased $0.4 million, or 1.0%.

Total interest income increased $19.4 million, or 41.9%, at our Banking segment due to an increase in average interest earning Banking assets. Additionally, the ~~nine~~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, increased 3.5% from $3.015 billion for the three months ended ~~September~~June 30, ~~2021~~2022 to $3.121 billion for the three months ended June 30, 2023, and average balances of other interest earning assets at our Banking segment increased period over period. Intersegment interest income allocated to our Banking segment increased period over period due to an increased interest rate charged to our Factoring segment consistent with increased interest rates experienced in the macro economy period over period.

Interest expense increased $8.6 million, or 285.1%, despite a decrease in average interest-bearing liabilities, including a decrease in average total interest bearing deposits of $225.0 million, or 8.4%, 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.

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Credit loss expense at our Banking segment is made up of credit loss expense related to loans and credit loss expense related to off balance sheet commitments to lend. Credit loss expense related to loans was $2.0 million for the three months ended June 30, 2023 compared to credit loss expense on loans of $2.2 million for the three months ended June 30, 2022. The decrease in credit loss expense was the result of changes to the projected loss drivers and prepayment speeds that the Company forecasted over the reasonable and supportable forecast period and decreased specific reserves period over period. These decreases were ~~impacted~~partially offset by ~~$3.0~~an increase driven by the volume and mix of our portfolio and increased net charge-off activity period over period.

Credit loss expense for off balance sheet credit exposures decreased $2.1 million, from $0.9 million for the three months ended June 30, 2022 to a benefit of $1.2 million for the three months ended June 30, 2023, primarily due to decreased underlying outstanding commitments to fund period over period.

Noninterest income at our Banking segment decreased period over period due to the aforementioned $3.9 million gain on sale of equipment loans, the aforementioned gain of $8.9 million on the termination of an interest rate swap, and a $2.5 million gain on sale of securities during the three months ended June 30, 2022 that did not repeat during the current period.

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, and 401(k) expense. The increase in noninterest expense was also driven by increased communications and information technology spend.

Year to date, our aggregate outstanding balances for our banking products, excluding intercompany loans, has increased $268.1 million, or 9.3%, to $3.151 billion as of June 30, 2023. The following table sets forth our banking loans:


(Dollars in thousands)	June 30, 2023		December 31, 2022		$ Change		% Change
Banking
Commercial real estate	$	768,711	$	678,144	$	90,567	13.4	%
Construction, land development, land	110,071		90,976		19,095		21.0	%
1-4 family residential	130,628		125,981		4,647		3.7	%
Farmland	67,913		68,934		(1,021)		(1.5)	%
Commercial - General	295,159		316,364		(21,205)		(6.7)	%
Commercial - Paycheck Protection Program	45		55		(10)		(18.2)	%
Commercial - Agriculture	46,839		48,494		(1,655)		(3.4)	%
Commercial - Equipment	493,763		454,117		39,646		8.7	%
Commercial - Asset-based lending	231,265		229,754		1,511		0.7	%
Commercial - Liquid Credit	151,821		202,326		(50,505)		(25.0)	%
Consumer	8,409		8,868		(459)		(5.2)	%
Mortgage Warehouse	846,340		658,829		187,511		28.5	%
Total banking loans	$	3,150,964	$	2,882,842	$	268,122	9.3	%

Factoring


(Dollars in thousands)	Three Months Ended June 30,
Factoring	2023		2022		$ Change		% Change
Total interest income	$	36,367	$	55,854	$	(19,487)	(34.9)	%
Intersegment interest allocations	(9,358)		(3,878)		(5,480)		(141.3)	%
Total interest expense	—		—		—		—
Net interest income (expense)	27,009		51,976		(24,967)		(48.0)	%
Credit loss expense (benefit)	1,481		64		1,417		2,214.1	%
Net interest income (expense) after credit loss expense	25,528		51,912		(26,384)		(50.8)	%
Noninterest income	980		15,521		(14,541)		(93.7)	%
Intersegment noninterest income (expense)	(97)		—		(97)		(100.0)	%
Noninterest expense	20,218		23,512		(3,294)		(14.0)	%
Net income (loss) before income tax expense	$	6,193	$	43,921	$	(37,728)	(85.9)	%

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	Three Months Ended June 30,
	2023			2022
Factored receivable period end balance	$	997,842,000		$	1,474,852,000
Yield on average receivable balance	14.07		%	14.21		%
Current quarter charge-off rate(1)	0.54		%	—		%
Factored receivables - transportation concentration	95		%	94		%

Interest income, including fees	$	36,367,000		$	55,854,000
Non-interest income	980,000			15,521,000
Intersegment noninterest income	170,000			—
Factored receivable total revenue	37,517,000			71,375,000
Average net funds employed	918,439,000			1,409,312,000
Yield on average net funds employed	16.38		%	20.31		%

Accounts receivable purchased	$	2,732,976,000		$	4,023,569,000
Number of invoices purchased	1,494,963			1,725,721
Average invoice size	$	1,828		$	2,332
Average invoice size - transportation	$	1,773		$	2,176
Average invoice size - non-transportation	$	5,790		$	6,469

Metrics above include assets and deposits held for sale.

(1) June 30, 2023 includes a $3.3 million charge-off of an over-formula advance balance, which contributed approximately 0.32% to the net charge-off rate for the quarter. In accordance with the agreement reached with Covenant, Covenant will reimburse us for $1.7 million of ~~pre-tax~~this charge-off.

Our Factoring segment’s operating income decreased $37.7 million, or 85.9%.

Our average invoice size decreased 21.6% from $2,332 for the three months ended June 30, 2022 to $1,828 for the three months ended June 30, 2023. Additionally, the number of invoices purchased decreased 13.4% period over period.

Net interest income at our Factoring segment decreased period over period. Overall average net funds employed (“NFE”) decreased 34.8% during the three months ended June 30, 2023 compared to the same period in 2022. The decrease in average NFE was the result of decreased invoice purchase volume and decreased average invoice sizes. 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 95% at June 30, 2023 and 94% at June 30, 2022. The aforementioned transfer of freight broker supply chain finance to the Payments segment resulted in a reduction of net interest income at our Factoring segment of $0.5 million.

Credit loss expense at our Factoring segment increased period over period, primarily due to increased net charge-offs, including the fully reserved $3.3 million charge-off of the acquired over-advance factored receivables. This increase was partially offset by a reduction in specific reserves and a reduction of period end volume of the factoring portfolio period over period. Changes in loss assumptions did not have a material impact on the change in credit loss expense period over period.

Noninterest income at our Factoring segment decreased period over period due to the aforementioned $13.2 million gain on sale of factored receivables during the three months ended June 30, 2022. The decrease was also driven by a $1.2 million write down of our revenue share asset, which is carried at fair value, during the three months ended June 30, 2023.

Noninterest expense decreased primarily due to a decrease in salary and benefits expense including a decrease in stock compensation. Additionally, there was a decrease in communications and technology expense period over period.

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Payments


(Dollars in thousands)	Three Months Ended June 30,
Payments	2023		2022		$ Change		% Change
Total interest income	$	3,451	$	4,172	$	(721)	(17.3)	%
Intersegment interest allocations	1,880		(368)		2,248		610.9	%
Total interest expense	—		—		—		—	%
Net interest income (expense)	5,331		3,804		1,527		40.1	%
Credit loss expense (benefit)	41		(184)		225		122.3	%
Net interest income after credit loss expense	5,290		3,988		1,302		32.6	%
Noninterest income	4,119		10,309		(6,190)		(60.0)	%
Intersegment noninterest income (expense)	97		—		97		100.0	%
Noninterest expense	16,939		17,663		(724)		(4.1)	%
Net income (loss) before income tax expense	$	(7,433)	$	(3,366)	$	(4,067)	(120.8)	%


	Three Months Ended June 30,
	2023			2022
Supply chain financing factored receivables	$	93,678,000		$	—
Quickpay and other factored receivables	82,274,000			145,835,000
Factored receivable period end balance	$	175,952,000		$	145,835,000

Interest income	$	3,451,000		$	4,172,000
Intersegment interest income	1,880,000			—
Noninterest income	4,119,000			10,309,000
Intersegment noninterest income	267,000			$	—
Total revenue	$	9,717,000		$	14,481,000

Operating income (loss)	$	(7,433,000)		$	(3,366,000)
Intersegment interest expense	—			368,000
Depreciation and software amortization expense	368,000			103,000
Intangible amortization expense	1,729,000			1,477,000
Earnings (losses) before interest, taxes, depreciation, and amortization	$	(5,336,000)		$	(1,418,000)



EBITDA margin	(55)		%	(10)		%

Number of invoices processed	4,526,629			4,394,351
Amount of payments processed	$	4,940,317,000		$	6,033,898,000
Network invoice volume	181,904			118,580
Network payment volume	$	299,948,000		$	253,312,000

Our Payments segment's operating loss increased $4.1 million, or 120.8%.

The number of invoices processed by our Payments segment increased 3.0% from 4,394,351 for the three months ended June 30, 2022 to 4,526,629 for the three months ended June 30, 2023, and the amount of payments processed decreased 18.1% from $6.034 billion for the three months ended June 30, 2022 to $4.940 billion for the three months ended June 30, 2023 driven by lower average invoice prices.

We began processing network 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 “network transaction.” All network transactions are included in our payment processing volume above. These transactions are facilitated through TriumphPay APIs with parties on both sides of the transaction ~~costs associated~~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 June 30, 2023, we processed 181,904 network invoices representing a network payment volume of $299.9 million. During the three months ended June 30, 2022, we processed 118,580 network invoices representing a network payment volume of $253.3 million.

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Net interest income increased due to increased yields at our Payments segment period over period and intersegment interest allocation. The aforementioned transfer of factoring transactions with freight broker clients to the Payments segment resulted in an increase of net interest income at our Factoring segment of $0.4 million.

Noninterest income decreased due to the $7.0 million net gain on the aforementioned termination of WSI warrants and additional investment in WSI common stock during the three months ended June 30, 2023. The decrease was offset by a $0.7 million increase in payment fees earned by TriumphPay during the three months ended June 30, 2023 compared to the same period a year ago.

Noninterest expense decreased primarily due to a decrease in salaries and employee benefits expense driven by a decrease in employee salaries, temporary and/or contract labor, incentive comp, and stock based compensation at our Payments segment. The decrease was partially offset by an increase in communications and technology expense.

Corporate


(Dollars in thousands)	Three Months Ended June 30,
Corporate	2023		2022		$ Change		% Change
Total interest income	$	44	$	42	$	2	4.8	%
Intersegment interest allocations	—		—		—		—
Total interest expense	2,401		1,858		543		29.2	%
Net interest income (expense)	(2,357)		(1,816)		(541)		(29.8)	%
Credit loss expense (benefit)	290		(99)		389		392.9	%
Net interest income (expense) after credit loss expense	(2,647)		(1,717)		(930)		(54.2)	%
Other noninterest income	65		48		17		35.4	%
Noninterest expense	21,305		16,227		5,078		31.3	%
Net income (loss) before income tax expense	$	(23,887)	$	(17,896)	$	(5,991)	(33.5)	%

The Corporate segment reported asan operating loss of $23.9 million for the three months ended June 30, 2023 compared to an operating loss of $17.9 million for the three months ended June 30, 2022. The increased operating loss was driven by increased noninterest expense which was the result of increased salaries and benefits expense due to due to merit increases for existing employees, higher health insurance benefit costs, incentive compensation, and 401(k) expense. ~~Excluding~~Further, the ~~transaction costs, net~~size of ~~taxes, we~~our workforce increased period over period due to organic growth within the Company. Additionally, occupancy expense and communication and technology expense increased period over period.

Results of Operations

Six months ended June 30, 2023 compared with six months ended June 30, 2022

Net Income

We earned ~~adjusted~~ net income of ~~$88.6~~$18.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021. There were no such adjustments during~~2023 compared to $68.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022.~~2022, a decrease of $49.8 million. The ~~adjusted~~ decrease in net income ~~for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 totaled $3.9 million and~~ was driven by a ~~$52.4~~$36.7 million decrease in noninterest income, a $16.7 million decrease in net interest income, a $12.5 million increase in ~~adjusted~~ noninterest expense, and a ~~$16.9~~$1.9 million increase in credit loss expense ~~and a $1.0 million increase in adjusted income tax expense partially~~ offset by a ~~$34.7 million increase~~$18.0 decrease in ~~net interest~~ income ~~and a $31.7 million increase in noninterest income.~~tax expense.

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

Net Interest Income

~~Table of Contents~~


		Nine Months Ended September 30,													Six Months Ended June 30,
		2022						2021							2023						2022
(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	$	357,016	$	3,522	1.32	%	$	508,279	$	467	0.12	%	Cash and cash equivalents	$	244,012	$	5,950	4.92	%	$	308,668	$	915	0.60	%
Taxable securities	Taxable securities	192,325		4,537		3.15	%	169,607		3,343		2.64	%	Taxable securities	306,883		9,196		6.04	%	172,282		2,320		2.72	%
Tax-exempt securities	Tax-exempt securities	14,452		278		2.57	%	31,977		620		2.59	%	Tax-exempt securities	11,763		151		2.59	%	14,582		187		2.59	%
FHLB and other restricted stock	FHLB and other restricted stock	9,549		175		2.45	%	8,094		131		2.16	%	FHLB and other restricted stock	18,558		344		3.74	%	11,267		110		1.97	%
Loans (1)	Loans (1)	4,639,280		304,455		8.77	%	4,812,985		275,215		7.65	%	Loans (1)	4,186,570		190,519		9.18	%	4,783,709		206,210		8.69	%
Total interest earning assets	Total interest earning assets	5,212,622		312,967		8.03	%	5,530,942		279,776		6.76	%	Total interest earning assets	4,767,786		206,160		8.72	%	5,290,508		209,742		7.99	%
Noninterest earning assets:	Noninterest earning assets:													Noninterest earning assets:
Cash and cash equivalents	Cash and cash equivalents	89,932						81,419						Cash and cash equivalents	83,730						80,583
Other noninterest earning assets	Other noninterest earning assets	504,379						430,316						Other noninterest earning assets	534,913						489,825
Total assets	Total assets	$	5,806,933					$	6,042,677					Total assets	$	5,386,429					$	5,860,916
Interest bearing liabilities:	Interest bearing liabilities:													Interest bearing liabilities:
Deposits:	Deposits:													Deposits:
Interest bearing demand	Interest bearing demand	$	861,753	$	1,791	0.28	%	$	746,590	$	1,288	0.23	%	Interest bearing demand	$	820,467	$	1,285	0.32	%	$	855,756	$	979	0.23	%
Individual retirement accounts	Individual retirement accounts	80,437		308		0.51	%	88,579		455		0.69	%	Individual retirement accounts	62,663		189		0.61	%	82,182		210		0.52	%
Money market	Money market	536,130		875		0.22	%	404,651		670		0.22	%	Money market	502,456		2,815		1.13	%	542,050		561		0.21	%
Savings	Savings	516,972		602		0.16	%	465,041		530		0.15	%	Savings	537,404		784		0.29	%	519,269		393		0.15	%
Certificates of deposit	Certificates of deposit	461,862		1,697		0.49	%	674,284		3,838		0.76	%	Certificates of deposit	292,665		1,457		1.00	%	489,682		1,134		0.47	%
Brokered time deposits	Brokered time deposits	102,793		1,052		1.37	%	134,781		259		0.26	%	Brokered time deposits	172,354		3,373		3.95	%	60,065		305		1.02	%
Other brokered deposits	Other brokered deposits	109,684		685		0.83	%	641,959		750		0.16	%	Other brokered deposits	6,768		176		5.24	%	142,710		685		0.97	%
Total interest bearing deposits	Total interest bearing deposits	2,669,631		7,010		0.35	%	3,155,885		7,790		0.33	%	Total interest bearing deposits	2,394,777		10,079		0.85	%	2,691,714		4,267		0.32	%
Federal Home Loan Bank advances	Federal Home Loan Bank advances	83,022		535		0.86	%	37,234		67		0.24	%	Federal Home Loan Bank advances	251,961		6,503		5.20	%	109,972		354		0.65	%
Subordinated notes	Subordinated notes	107,261		3,905		4.87	%	96,495		5,148		7.13	%	Subordinated notes	108,009		2,621		4.89	%	107,151		2,601		4.90	%
Junior subordinated debentures	Junior subordinated debentures	40,805		1,736		5.69	%	40,256		1,331		4.42	%	Junior subordinated debentures	41,303		2,124		10.37	%	40,732		1,010		5.00	%
Other borrowings	Other borrowings	8,068		4		0.07	%	146,005		367		0.34	%	Other borrowings	1,457		—		—	%	5,469		3		0.11	%
Total interest bearing liabilities	Total interest bearing liabilities	2,908,787		13,190		0.61	%	3,475,875		14,703		0.57	%	Total interest bearing liabilities	2,797,507		21,327		1.54	%	2,955,038		8,235		0.56	%
Noninterest bearing liabilities and equity:	Noninterest bearing liabilities and equity:													Noninterest bearing liabilities and equity:
Noninterest bearing demand deposits	Noninterest bearing demand deposits	1,924,556						1,720,213						Noninterest bearing demand deposits	1,651,463						1,944,606
Other liabilities	Other liabilities	86,093						62,570						Other liabilities	87,457						79,540
Total equity	Total equity	887,497						784,019						Total equity	850,002						881,732
Total liabilities and equity	Total liabilities and equity	$	5,806,933					$	6,042,677					Total liabilities and equity	$	5,386,429					$	5,860,916
Net interest income	Net interest income			$	299,777					$	265,073			Net interest income			$	184,833					$	201,507
Interest spread (2)	Interest spread (2)					7.42	%					6.19	%	Interest spread (2)					7.18	%					7.43	%
Net interest margin (3)	Net interest margin (3)					7.69	%					6.41	%	Net interest margin (3)					7.82	%					7.68	%

Table of Contents

(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:

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


	Six Months Ended June 30,
	2023						2022
(Dollars in thousands)	Average Balance		Interest		Average Rate		Average Balance		Interest		Average Rate
Banking loans	$	3,019,168	$	109,796	7.33	%	$	3,023,608	$	84,978	5.67	%
Factoring receivables	1,073,434		74,525		14.00	%	1,595,230		112,228		14.19	%
Payments receivables	93,968		6,198		13.30	%	164,871		9,004		11.01	%
Total loans	$	4,186,570	$	190,519	9.18	%	$	4,783,709	$	206,210	8.69	%

We earned net interest income of ~~$299.8~~$184.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to ~~$265.1~~$201.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021, an increase~~2022, a decrease of ~~$34.7~~$16.7 million, or ~~13.1%~~8.3%, primarily driven by the following factors.

Interest income ~~increased $33.2~~decreased $3.6 million, or ~~11.9%~~1.7%, ~~in spite of~~due to a decrease in total average interest earning assets of ~~$318.3~~$522.7 million, or ~~5.8%~~9.9%, and a decrease in average total loans of ~~$173.7~~$597.1 million, or ~~3.6%~~12.5%. The average balance of our higher yielding Factoring factored receivables ~~increased $323.6~~decreased $521.8 million, or ~~26.9%~~32.7%, driving the majority of the ~~increase~~decrease in interest income along with ~~an increase~~a decrease in average Payments factored receivables. ~~This~~Additionally, the decrease in interest income was ~~partially offset by~~the result of a decrease in average Banking loans of ~~$552.8~~$4.4 million, or ~~15.7%~~0.1% due to decreases in the average balances of all Banking loan types except for commercial real estate, residential real estate, general commercial, ~~asset based lending,~~liquid credit, and ~~liquid credit.~~mortgage warehouse. Interest income from our Banking loans is impacted by our lower yielding mortgage warehouse lending product. The average mortgage warehouse lending balance was ~~$632.9~~$794.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to ~~$827.1~~$644.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. A component of interest income consists of discount accretion on acquired loan portfolios. We recognized discount accretion on purchased loans of ~~$6.6~~$2.8 million and ~~$7.6~~$5.1 million for the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022, respectively. The decrease in interest income was partially offset by increases in rates discussed below. Further, increased average balances and ~~2021, respectively.~~yields of taxable securtities partially offset the decrease in interest income.

Interest expense ~~decreased $1.5~~increased $13.1 million, or ~~10.3%~~159.0%, ~~and~~due to increased average rates on interest bearing liabilities discussed below. The increase in interest expense was partially offset by a decrease in average interest bearing liabilities ~~decreased $567.1~~of $157.5 million, or ~~16.3%~~5.3%. More specifically, average total interest bearing deposits decreased ~~$486.3~~$296.9 million, or ~~15.4%~~11.0%. Average noninterest bearing deposits ~~grew $204.3~~decreased $293.1 million. ~~Average rates on interest bearing liabilities were up slightly as discussed below.~~

Net interest margin increased to ~~7.69%~~7.82% for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 from ~~6.41%~~7.68% for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, an increase of ~~128~~14 basis points, or ~~20.0%~~1.8%.

Our net interest margin was impacted by an increase in yield on our interest earning assets of ~~127~~73 basis points to ~~8.03%~~8.72% for the ~~nine~~six months ended ~~September~~June 30, ~~2022.~~2023. This increase was driven by higher yields on loans which increased ~~112~~49 basis points to ~~8.77%~~9.18% for the same period. Factoring yield decreased period over ~~period; however,~~period and average Factoring factored receivables as a percentage of the total loan portfolio ~~increased~~also decreased which had a meaningful ~~upward~~downward impact on total loan yield. Our transportation factoring balances, which generate a higher yield than our non-transportation factoring balances, ~~increased~~were flat as a percentage of the overall factoring portfolio toat 96% ~~at September~~for June 30, 2023 and June 30, 2022, ~~compared to 91% at September 30, 2021.~~respectively. Banking and Payments yields increased period over period and non-loan yields ~~had little impact on our yield on interest earning assets.~~also increased over the same period.

The increase in our net interest margin was ~~minimally impacted~~partially offset by an increase in our average cost of interest bearing liabilities of 498 basis points.

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		Nine Months Ended							Six Months Ended
		September 30, 2022 vs. 2021							June 30, 2023 vs. 2022
		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	$	4,547	$	(1,492)	$	3,055	Cash and cash equivalents	$	6,612	$	(1,577)	$	5,035
Taxable securities	Taxable securities	658		536		1,194		Taxable securities	2,843		4,033		6,876
Tax-exempt securities	Tax-exempt securities	(5)		(337)		(342)		Tax-exempt securities	—		(36)		(36)
FHLB and other restricted stock	FHLB and other restricted stock	17		27		44		FHLB and other restricted stock	99		135		234
Loans	Loans	40,639		(11,399)		29,240		Loans	11,483		(27,174)		(15,691)
Total interest income	Total interest income	45,856		(12,665)		33,191		Total interest income	21,037		(24,619)		(3,582)
Interest bearing liabilities:	Interest bearing liabilities:							Interest bearing liabilities:
Interest bearing demand	Interest bearing demand	264		239		503		Interest bearing demand	361		(55)		306
Individual retirement accounts	Individual retirement accounts	(116)		(31)		(147)		Individual retirement accounts	38		(59)		(21)
Money market	Money market	(10)		215		205		Money market	2,476		(222)		2,254
Savings	Savings	12		60		72		Savings	365		26		391
Certificates of deposit	Certificates of deposit	(1,361)		(780)		(2,141)		Certificates of deposit	1,304		(981)		323
Brokered time deposits	Brokered time deposits	1,120		(327)		793		Brokered time deposits	870		2,198		3,068
Other brokered deposits	Other brokered deposits	3,259		(3,324)		(65)		Other brokered deposits	3,026		(3,535)		(509)
Total interest bearing deposits	Total interest bearing deposits	3,168		(3,948)		(780)		Total interest bearing deposits	8,440		(2,628)		5,812
Federal Home Loan Bank advances	Federal Home Loan Bank advances	173		295		468		Federal Home Loan Bank advances	2,484		3,665		6,149
Subordinated notes	Subordinated notes	(1,635)		392		(1,243)		Subordinated notes	(1)		21		20
Junior subordinated debentures	Junior subordinated debentures	382		23		405		Junior subordinated debentures	1,085		29		1,114
Other borrowings	Other borrowings	(295)		(68)		(363)		Other borrowings	(3)		—		(3)
Total interest expense	Total interest expense	1,793		(3,306)		(1,513)		Total interest expense	12,005		1,087		13,092
Change in net interest income	Change in net interest income	$	44,063	$	(9,359)	$	34,704	Change in net interest income	$	9,032	$	(25,706)	$	(16,674)

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~~2022 Form 10-K for detailed discussion regarding ACL methodologies for available for sale debt securities, held to maturity securities and loans held for investment.

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


		Nine Months Ended September 30,									Six Months Ended June 30,
(Dollars in thousands)	(Dollars in thousands)	2022		2021		$ Change		% Change		(Dollars in thousands)	2023		2022		$ Change		% Change
Credit loss expense on loans	Credit loss expense on loans	$	6,102	$	(9,390)	$	15,492	165.0	%	Credit loss expense on loans	$	5,167	$	2,933	$	2,234	76.2	%
Credit loss expense on off balance sheet credit exposures	Credit loss expense on off balance sheet credit exposures	(402)		(1,159)		757		65.3	%	Credit loss expense on off balance sheet credit exposures	(343)		196		(539)		(275.0)	%
Credit loss expense on held to maturity securities	Credit loss expense on held to maturity securities	348		(289)		637		220.4	%	Credit loss expense on held to maturity securities	432		273		159		58.2	%
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	$	6,048	$	(10,838)	$	16,886	155.8	%	Total credit loss expense	$	5,256	$	3,402	$	1,854	54.5	%

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For available for sale debt securities in an unrealized loss position, the Company evaluates the securities at each measurement date to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors. Any impairment that is not credit related is recognized in other comprehensive income, net of applicable taxes. Credit-related impairment is recognized as an ACL on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings via credit loss expense. At December 31, ~~2021~~2022 and ~~September~~June 30, ~~2022,~~2023, the Company determined that all impaired available for sale securities experienced a decline in fair value below the amortized cost basis due to noncredit-related factors. Therefore, the Company carried no ACL at those respective dates and there was no credit loss expense recognized by the Company during the ~~nine~~six months ended ~~September~~June 30, ~~2022.~~2023. The same was true for the same period in the prior year.

The ACL on held to maturity securities is estimated at each measurement date on a collective basis by major security type. At ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, 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~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company carried ~~$6.6~~$6.3 million and ~~$7.0~~$6.5 million of these HTM securities at amortized cost, respectively. The ACL on these balances was ~~$2.4~~$2.9 million at ~~September~~June 30, ~~2022~~2023 and ~~$2.1~~$2.4 million at December 31, ~~2021~~2022 and we recognized credit loss expense of ~~$0.3~~$0.4 million during the ~~nine~~six months ended ~~September~~June 30, ~~2022.~~2023. Credit loss expense during the six months ended June 30, 2022 was $0.3 million. None of the overcollateralization triggers tied to the CLO securities were tripped as of ~~September~~June 30, ~~2022.~~2023. Ultimately, the realized cash flows on CLO securities such as these will be driven by a variety of factors, including credit performance of the underlying loan portfolio, adjustments to the portfolio by the asset manager, and the timing of a potential call.

At September 30, 2021 and December 31, 2020, the Company carried $7.2 million and $7.9 million of these HTM securities at amortized cost, respectively. The ACL on these balances was $1.7 million at September 30, 2021 and $2.0 million at December 31, 2020, and we recognized a benefit to credit loss expense of $0.3 million during the nine months ended September 30, 2021.

Our ACL on loans was ~~$44.1~~$35.0 million as of ~~September~~June 30, ~~2022,~~2023, compared to ~~$42.2~~$42.8 million as of December 31, ~~2021,~~2022, representing an ACL to total loans ratio of ~~0.99%~~0.81% and ~~0.87%~~1.04% respectively.

Our credit loss expense on loans increased ~~$15.5~~$2.2 million, or ~~165.0%~~76.2%, for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022.

~~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~~During the ~~nine~~six months ended ~~September~~June 30, ~~2021. During that time,~~2023, new adverse developments with ~~the largest~~one of the ~~three~~two remaining 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~~$3.3 million; however, this net charge-off had no impact on credit loss expense ~~for the nine months ended September 30, 2021~~ as the entire amount had been reserved in a prior period. In accordance with the Agreement reached with Covenant, Covenant ~~reimbursed~~will reimburse us for ~~$35.6~~$1.7 million of this charge-off ~~by drawing~~which is reflected as a receivable on ~~its secured line of credit which has been paid in full as of September~~our June 30, 2022. Given separate developments with the other two Over-Formula Advance clients, we reserved an additional $2.8 million reflected in credit loss expense during the nine months ended September 30, 2021.

During the nine months ended September 30, 2022, we decreased our reserve on Over-Formula Advance clients reflecting payment made during the quarter. This resulted in a benefit to credit loss expense of $1.3 million.2023 Consolidated Balance Sheet. We continue to reserve the full balance of the Over-Formula Advance clients at ~~September~~June 30, 2023 which totals $4.0 million.

The increase in credit loss expense was primarily driven by increased net charge-offs during the period. Including the $3.3 million over-formula advance net charge-off previously discussed, net charge-offs during the six months ended June 30, 2023 were $13.0 million compared to $1.7 million during the same period a year ago. Approximately $8.5 million of the $13.0 million net charge-offs for the six months ended June 30, 2023 were reserved in a prior period while $0.7 million of the $1.7 million of charge-offs during the six months ended June 30, 2022 ~~which totals $8.8 million.~~were reserved in a prior period. Such prior period reserves are included in the discussion of changes in specific reserves below.

~~The~~Changes in volume and mix of the loan portfolio also increased credit loss ~~expense for the nine months ended September 30, 2022 was primarily the result of projected improvement of the loss drivers during the prior period which resulted in~~expense. Such changes created a benefit to credit loss expense of ~~$10.3~~$0.2 million ~~for~~during the ~~nine~~six months ended ~~September~~June 30, ~~2021. During the nine months ended September 30, 2022 the Company forecasted some deterioration in the loss factors as well as slower prepayment speeds which resulted in~~2023 compared to a benefit to 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~~$2.1 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~~The increased credit loss expense was ~~also driven~~partially offset by ~~charge-off activity. Net charge-offs were $4.2 million for the nine months ended September 30, 2022 and approximately $0.7 million of the gross charge-off balance had been reserved~~changes in ~~a prior period. Net charge-offs were $45.3 million for the nine months ended September 30, 2021 and approximately $45.2 million of the gross charge-off balance had been reserved in a prior period.~~

~~Table of Contents~~

~~Changes in loan volume and mix resulted in a benefit to credit loss expense of $2.7~~new specific reserves. Such specific reserves decreased $8.0 million during the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to ~~a benefit~~an increase of ~~$0.4~~$1.8 million during the same period a year ~~prior.~~ago.

The increase in credit loss expense was also partially offset by changes to projected loss drivers and prepayment speeds that the Company forecasted over the reasonable and supportable forecast period to calculate expected losses. This resulted in credit loss expense of $0.4 million for the six months ended June 30, 2023 compared to credit loss expense of $1.5 million during the same period a year ago.

Credit loss expense for off balance sheet credit exposures ~~increased $0.8~~decreased $0.5 million, primarily due to ~~the changes in the assumptions used to project the loss rates previously discussed and changes~~decreases to outstanding commitments to fund period over period.

Table of Contents

Noninterest Income

The following table presents our major categories of noninterest income:


		Nine Months Ended September 30,									Six Months Ended June 30,
(Dollars in thousands)	(Dollars in thousands)	2022		2021		$ Change		% Change		(Dollars in thousands)	2023		2022		$ Change		% Change
Service charges on deposits	Service charges on deposits	$	5,185	$	5,674	$	(489)	(8.6	%)	Service charges on deposits	$	3,482	$	3,627	$	(145)	(4.0	%)
Card income	Card income	6,125		6,341		(216)		(3.4	%)	Card income	4,087		4,091		(4)		(0.1	%)
Net OREO gains (losses) and valuation adjustments	Net OREO gains (losses) and valuation adjustments	(133)		(376)		243		64.6	%	Net OREO gains (losses) and valuation adjustments	—		(114)		114		100.0	%
Net gains (losses) on sale or call of securities	Net gains (losses) on sale or call of securities	2,514		5		2,509		N/M		Net gains (losses) on sale or call of securities	—		2,514		(2,514)		(100.0	%)
Net gains (losses) on sale of loans	Net gains (losses) on sale of loans	18,310		2,965		15,345		517.5	%	Net gains (losses) on sale of loans	3		17,203		(17,200)		(100.0	%)
Fee income	Fee income	18,096		11,917		6,179		51.9	%	Fee income	13,612		11,976		1,636		13.7	%
Insurance commissions	Insurance commissions	4,209		3,989		220		5.5	%	Insurance commissions	2,896		3,018		(122)		(4.0	%)
Other	Other	17,643		9,727		7,916		81.4	%	Other	(1,547)		16,966		(18,513)		(109.1	%)
Total noninterest income	Total noninterest income	$	71,949	$	40,242	$	31,707	78.8	%	Total noninterest income	$	22,533	$	59,281	$	(36,748)	(62.0	%)

Noninterest income ~~increased $31.7~~decreased $36.7 million, or ~~78.8%~~62.0%. 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~~decreased $2.5 million ~~due to gains on the sale of certain available for sale CLOs~~as no securities we sold or called during the ~~nine~~six months ended ~~September~~June 30, ~~2022.~~2023.

•Net gains (losses) on sale of loans. Net gains (losses) on sale of loans ~~increased $15.3~~decreased $17.2 million, due to the aforementioned $13.2 million gain on ~~sales~~sale of factored receivables ~~of $14.2~~and the $3.9 million ~~and~~ gain on sale of equipment loans ~~of $3.9 million~~ during the ~~nine~~six months ended ~~September~~June 30, 2022. Sales of such magnitude did not repeat during the six months ended June 30, 2023.

•Fee income. Fee income increased ~~$6.2~~$1.6 million, or ~~51.9%~~13.7% primarily due to a ~~$5.9~~$1.2 million increase in payment fees earned by TriumphPay ~~Audit~~ during the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to the same period a year ago. The fees were primarily a result of the acquired operations of HubTran during June of the prior year. Additionally, wire fees increased $1.4 million period over period. These increases were partially offset by a combined $1.2 million of early termination fees charged to two customers during the nine months ended September 30, 2021 that did not repeat during the current year. There were no other significant changes within the components of fee income.

•Other. Other noninterest income ~~increased $7.9~~decreased $18.5 million, or ~~81.4%~~109.1% primarily due to a gain of $8.9 million on the aforementioned termination of an interest rate swap recognized during the ~~nine~~six months ended ~~September~~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~~The decrease was also driven by a ~~$1.5 million recovery during the nine months ended September 30, 2021 on an acquired loan that was charged off prior to~~write down of our ~~acquisition~~revenue share asset, which is carried at fair value, of the originating bank. Also offsetting the increases was a $4.2 million gain on our indemnification asset recognized during the nine months ended September 30, 2021 compared to a write off of the indemnification asset of $0.6$1.8 million during the ~~same period of the current year. There were no other significant changes within the components of other noninterest income.~~six months ended June 30, 2023.

~~Table of Contents~~

Noninterest Expense

The following table presents our major categories of noninterest expense:


		Nine Months Ended September 30,									Six Months Ended June 30,
(Dollars in thousands)	(Dollars in thousands)	2022		2021		$ Change		% Change		(Dollars in thousands)	2023		2022		$ Change		% Change
Salaries and employee benefits	Salaries and employee benefits	$	149,848	$	121,407	$	28,441	23.4	%	Salaries and employee benefits	$	108,905	$	100,541	$	8,364	8.3	%
Occupancy, furniture and equipment	Occupancy, furniture and equipment	19,769		18,279		1,490		8.2	%	Occupancy, furniture and equipment	13,995		12,943		1,052		8.1	%
FDIC insurance and other regulatory assessments	FDIC insurance and other regulatory assessments	1,179		1,830		(651)		(35.6	%)	FDIC insurance and other regulatory assessments	1,141		793		348		43.9	%
Professional fees	Professional fees	11,529		9,959		1,570		15.8	%	Professional fees	6,120		7,266		(1,146)		(15.8	%)
Amortization of intangible assets	Amortization of intangible assets	9,085		7,677		1,408		18.3	%	Amortization of intangible assets	5,851		6,172		(321)		(5.2	%)
Advertising and promotion	Advertising and promotion	4,916		3,534		1,382		39.1	%	Advertising and promotion	2,921		2,987		(66)		(2.2	%)
Communications and technology	Communications and technology	30,867		19,018		11,849		62.3	%	Communications and technology	22,249		18,932		3,317		17.5	%
Travel and entertainment	Travel and entertainment	3,864		2,725		1,139		41.8	%	Travel and entertainment	3,453		2,524		929		36.8	%
Other	Other	22,803		20,074		2,729		13.6	%	Other	15,042		15,013		29		0.2	%
Total noninterest expense	Total noninterest expense	$	253,860	$	204,503	$	49,357	24.1	%	Total noninterest expense	$	179,677	$	167,171	$	12,506	7.5	%

Noninterest expense increased ~~$49.4~~$12.5 million, or ~~24.1%~~7.5%. Noninterest expense for the nine months ended September 30, 2021 was impacted by $3.0 million of transaction costs associated with the HubTran acquisition. Excluding the HubTran acquisition costs, we incurred adjusted noninterest expense of $201.5 million for the nine months ended September 30, 2021, resulting in an adjusted increase in noninterest expense of $52.4 million, or 26.0%, period over period. Details of the more significant changes in the various components of noninterest expense are further discussed below.

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•Salaries and Employee Benefits. Salaries and employee benefits expenses increased ~~$28.4~~$8.4 million, or ~~23.4%~~8.3%, which is primarily due to merit increases for existing employees, higher health insurance benefit costs, incentive compensation, and 401(k) expense. ~~The size of~~Employee salaries and payroll taxes increased $9.8 million and $1.8 million, respectively, and our ~~workforce increased period over period in part due to the acquisition of HubTran as well as organic growth within the Company. Our~~ average full-time equivalent employees were ~~1,355.6~~1,470.3 and ~~1,181.8~~1,328.2 for the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022, respectively. Further, compensation for temporary and/or contract labor increased $2.0 million and ~~2021, respectively. Accruals~~accruals for bonus expense ~~were $1.4 million higher period over period and stock based compensation expense~~ increased ~~$7.9 million period over period. Additionally, compensation paid to temporary contract labor increased $3.6~~$0.4 million period over period. Sales commissions, primarily related to our operations at Triumph ~~Business Capital~~Financial Services and TriumphPay, decreased $1.1 million period over period. Stock based compensation expense decreased $5.9 million period over period.

•Occupancy, Furniture and Equipment. Occupancy, furniture and equipment expenses increased ~~$1.5~~$1.1 million, or ~~8.2%~~8.1%, primarily due to growth in our operations period over period.

•~~FDIC Insurance and Other Regulatory Assessments. FDIC insurance and other regulatory assessments decreased $0.7 million, or 35.6%, due to decreased assessments period over period.~~

•Professional Fees. Professional fees ~~increased $1.6~~decreased $1.1 million, or 15.8%, primarily due to a ~~$1.4~~$1.0 million ~~increase~~decrease in legal and consulting fees ~~period over period.~~

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

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

•Communications and Technology. Communications and technology expenses increased ~~$11.8~~$3.3 million, or ~~62.3%~~17.5%, primarily as a result of increased spending on IT ~~consulting~~information security and IT license and software maintenance to develop efficiency in our operations and improve the functionality and security of ~~the TriumphPay platform~~our technology platforms period over period.

•Travel and entertainment. Travel and entertainment expenses increased ~~$1.1~~$0.9 million, or ~~41.8%~~36.8%, primarily due to increased business development activity in this area period over period.

•Other. Other noninterest expense ~~increased $2.7 million or 13.6%~~includes loan-related expenses, software amortization, training and recruiting, postage, insurance, and subscription services. Other noninterest expense was relatively flat period over period despite a ~~$1.1~~$0.7 million decrease in ~~other loan related expenses period over period.~~correspondent bank charges. There were no other significant increases or decreases in the individual components of other noninterest expense period over period.

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Income Taxes

Income tax expense ~~increased $1.8~~decreased $17.9 million, or ~~6.9%~~82.6%, from ~~$25.3~~$21.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 to ~~$27.1~~$3.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022.~~2023. The effective tax rate was 17% for the six months ended June 30, 2023 and 24% for the ~~nine~~six months ended ~~September~~June 30, ~~2022 and 23% for~~2022. The decrease in the ~~nine months ended September 30, 2021. The prior period~~ effective tax rate period over period was ~~impacted~~primarily driven by ~~restricted~~the performance based performance stock ~~and stock option activity~~units windfall that was recorded during the six months ended June 30, 2023 as ~~well as amended return benefit.~~those related shares vested during the period.

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~~Financial Services with revenue derived from factoring services. The Payments segment includes the operations of the TBK Bank's TriumphPay division, which provides a presentment, audit, and payment solution to ~~shipper, freight broker,~~Shipper, Broker, and ~~factor~~Factor clients in the trucking industry. The Payments segment derives its revenue from transaction fees and interest income on factored receivables related to invoice payments. These factored receivables consist of both invoices where we offer a ~~carrier~~Carrier a quickpay opportunity to receive payment at a discount in advance of the standard payment term for such invoice in exchange for the assignment of such invoice to us and from offering ~~freight brokers~~Brokers the ability to settle their invoices with us on an extended term following our payment to their ~~carriers~~Carriers as an additional liquidity option for such ~~freight brokers.~~Brokers.

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Separately, prior to March 31, 2023, intersegment interest expense was allocated to the Factoring and Payments segments (when the Payments segment is not self-funded) based on a rolling average of Federal Home Loan Bank advance rates. When the Payments segment was self-funded with funding in excess of its factored receivables, intersegment interest income was allocated based on the Federal Funds effective rate. During the quarter ended March 31, 2023, we began allocating intersegment interest expense to the Factoring and Payments segments based on one-month term SOFR for their funding needs. When the Payments segment is self-funded, with funding in excess of its factored receivables, intersegment interest income will continue to be allocated based on the Federal Funds effective rate. Management believes that such intersegment interest allocations are more intuitive in the current interest rate environment. Prior periods were revised to reflect such allocations and achieve appropriate comparability.

Transactions between segments consist primarily of borrowed ~~funds.~~funds, payment network fees, and servicing fees. Intersegment interest expense is allocated to the Factoring and Payments segments ~~based~~as described above. Beginning January 1, 2023, payment network fees are paid by the Factoring segment to the Payments segment for use of the payments network. Beginning prospectively on ~~Federal Home Loan Bank advance rates.~~June 1, 2023, factoring transactions with freight broker clients were transferred from our Factoring segment to our Payments segment to align with TriumphPay's supply chain finance product offerings. Servicing fees are paid by the Payments segment to the Factoring segment for servicing such product. 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~~to it with various shared service costs such as human resources, accounting, finance, risk management and ~~benefits~~information technology expense ~~for our executive leadership team as well as other selling, general, and administrative shared services costs are allocated~~assigned to the ~~Banking~~Corporate segment. Taxes are paid on a consolidated basis and are not allocated for segment purposes. The Factoring segment includes only factoring originated by ~~TBC.~~Triumph Financial Services.

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


(Dollars in thousands)	(Dollars in thousands)											(Dollars in thousands)
Nine Months Ended September 30, 2022		Banking		Factoring		Payments		Corporate		Consolidated
Six Months Ended June 30, 2023												Six Months Ended June 30, 2023	Banking		Factoring		Payments		Corporate		Consolidated
Total interest income	Total interest income	$	138,286	$	161,789	$	12,760	$	132	$	312,967	Total interest income	$	125,350	$	74,524	$	6,198	$	88	$	206,160
Intersegment interest allocations	Intersegment interest allocations	6,651		(6,312)		(339)		—		—		Intersegment interest allocations	15,090		(18,512)		3,422		—		—
Total interest expense	Total interest expense	7,547		—		—		5,643		13,190		Total interest expense	16,582		—		—		4,745		21,327
Net interest income (expense)	Net interest income (expense)	137,390		155,477		12,421		(5,511)		299,777		Net interest income (expense)	123,858		56,012		9,620		(4,657)		184,833
Credit loss expense (benefit)	Credit loss expense (benefit)	2,638		1,961		405		1,044		6,048		Credit loss expense (benefit)	2,754		2,030		41		431		5,256
Net interest income after credit loss expense	Net interest income after credit loss expense	134,752		153,516		12,016		(6,555)		293,729		Net interest income after credit loss expense	121,104		53,982		9,579		(5,088)		179,577
Noninterest income	Noninterest income	34,496		20,333		17,069		51		71,949		Noninterest income	12,020		2,558		7,826		129		22,533
Intersegment noninterest income (expense)(1)												Intersegment noninterest income (expense)(1)	—		(362)		362		—		—
Noninterest expense	Noninterest expense	138,741		66,408		46,062		2,649		253,860		Noninterest expense	64,174		41,987		32,356		41,160		179,677
Net income (loss) before income tax expense	Net income (loss) before income tax expense	$	30,507	$	107,441	$	(16,977)	$	(9,153)	$	111,818	Net income (loss) before income tax expense	$	68,950	$	14,191	$	(14,589)	$	(46,119)	$	22,433

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(Dollars in thousands)	(Dollars in thousands)											(Dollars in thousands)
Nine Months Ended September 30, 2021		Banking		Factoring		Payments		Corporate		Consolidated
Six Months Ended June 30, 2022												Six Months Ended June 30, 2022	Banking		Factoring		Payments		Corporate		Consolidated
Total interest income	Total interest income	$	144,087	$	127,699	$	7,939	$	51	$	279,776	Total interest income	$	88,422	$	112,228	$	9,004	$	88	$	209,742
Intersegment interest allocations	Intersegment interest allocations	8,117		(7,700)		(417)		—		—		Intersegment interest allocations	4,851		(4,430)		(421)		—		—
Total interest expense	Total interest expense	8,225		—		—		6,478		14,703		Total interest expense	4,624		—		—		3,611		8,235
Net interest income (expense)	Net interest income (expense)	143,979		119,999		7,522		(6,427)		265,073		Net interest income (expense)	88,649		107,798		8,583		(3,523)		201,507
Credit loss expense (benefit)	Credit loss expense (benefit)	(19,187)		8,091		548		(290)		(10,838)		Credit loss expense (benefit)	250		2,013		170		969		3,402
Net interest income after credit loss expense	Net interest income after credit loss expense	163,166		111,908		6,974		(6,137)		275,911		Net interest income after credit loss expense	88,399		105,785		8,413		(4,492)		198,105
Noninterest income	Noninterest income	25,139		10,710		4,242		151		40,242		Noninterest income	28,253		17,392		13,551		85		59,281
Intersegment noninterest income (expense)(1)												Intersegment noninterest income (expense)(1)	—		—		—		—		—
Noninterest expense	Noninterest expense	122,497		52,433		26,393		3,180		204,503		Noninterest expense	59,817		45,643		31,996		29,715		167,171
Net income (loss) before income tax expense	Net income (loss) before income tax expense	$	65,808	$	70,185	$	(15,177)	$	(9,166)	$	111,650	Net income (loss) before income tax expense	$	56,835	$	77,534	$	(10,032)	$	(34,122)	$	90,215

(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


(Dollars in thousands)	Factoring		Payments
Six Months Ended June 30, 2023
Factoring revenue received from Payments	$	170	$	(170)
Payments revenue received from Factoring	(532)		532
Intersegment noninterest income (expense)	$	(362)	$	362

Six Months Ended June 30, 2022
Factoring revenue received from Payments	$	—	$	—
Payments revenue received from Factoring	—		—
Intersegment noninterest income (expense)	$	—	$	—


(Dollars in thousands)
June 30, 2023	Banking		Factoring		Payments		Corporate		Eliminations		Consolidated
Total assets	$	5,161,837	$	1,084,139	$	447,935	$	1,021,259	$	(2,062,449)	$	5,652,721
Gross loans	$	3,688,130	$	997,842	$	175,952	$	—	$	(537,166)	$	4,324,758


(Dollars in thousands)
December 31, 2022	Banking		Factoring		Payments		Corporate		Eliminations		Consolidated
Total assets	$	4,910,628	$	1,260,209	$	371,948	$	1,061,662	$	(2,270,664)	$	5,333,783
Gross loans	$	3,572,716	$	1,151,727	$	85,722	$	—	$	(689,874)	$	4,120,291

Banking


(Dollars in thousands)	(Dollars in thousands)	Nine Months Ended September 30,						% Change		(Dollars in thousands)	Six Months Ended June 30,						% Change
Banking	Banking	2022		2021		$ Change				Banking	2023		2022		$ Change
Total interest income	Total interest income	$	138,286	$	144,087	$	(5,801)	(4.0	%)	Total interest income	$	125,350	$	88,422	$	36,928	41.8	%
Intersegment interest allocations	Intersegment interest allocations	6,651		8,117		(1,466)		(18.1	%)	Intersegment interest allocations	15,090		4,851		10,239		211.1	%
Total interest expense	Total interest expense	7,547		8,225		(678)		(8.2	%)	Total interest expense	16,582		4,624		11,958		258.6	%
Net interest income	Net interest income	137,390		143,979		(6,589)		(4.6	%)	Net interest income	123,858		88,649		35,209		39.7	%
Credit loss expense (benefit)	Credit loss expense (benefit)	2,638		(19,187)		21,825		113.7	%	Credit loss expense (benefit)	2,754		250		2,504		1,001.6	%
Net interest income after credit loss expense	Net interest income after credit loss expense	134,752		163,166		(28,414)		(17.4	%)	Net interest income after credit loss expense	121,104		88,399		32,705		37.0	%
Noninterest income	Noninterest income	34,496		25,139		9,357		37.2	%	Noninterest income	12,020		28,253		(16,233)		(57.5	%)
Noninterest expense	Noninterest expense	138,741		122,497		16,244		13.3	%	Noninterest expense	64,174		59,817		4,357		7.3	%
Net income (loss) before income tax expense	Net income (loss) before income tax expense	$	30,507	$	65,808	$	(35,301)	(53.6	%)	Net income (loss) before income tax expense	$	68,950	$	56,835	$	12,115	21.3	%

Our Banking segment’s operating income ~~decreased $35.3~~increased $12.1 million, or ~~53.6%~~21.3%.

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Total interest income ~~decreased $5.8~~increased $36.9 million, or ~~4.0%~~41.8%, primarily as a result of ~~decreases~~increased yields on our interest earning assets at our Banking segment. The increase was also due to increases in the balances of our interest earning ~~assets, primarily loans.~~assets. Average loans in our Banking segment, excluding intersegment loans, decreased ~~15.7%~~0.1% from ~~$3.511~~$3.024 billion for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 to ~~$2.959~~$3.019 billion for the ~~nine~~six months ended ~~September~~June 30, ~~2022. The decrease in interest income was partially offset by an increase in yields on~~2023; however, average balances of certain other interest earning assets at our Banking ~~segment.~~segment increased period over period. Intersegment interest income allocated to our Banking segment increased period over period due to an increased interest rate charged to our Factoring segment consistent with increased interest rates experienced in the macro economy period over period.

Interest expense ~~decreased $0.7~~increased $12.0 million, or ~~8.2%. Average balance of interest bearing~~258.6% despite a decrease in average interest-bearing liabilities ~~at our Banking segment decreased overall, and~~as average total interest bearing deposits decreased ~~$486.3~~$296.9 million, or ~~15.4%~~11.0%. ~~Average~~The increase in interested expense was driven by higher interest rates paid on our interest-bearing liabilities driven by changes in interest ~~bearing liabilities at our Banking segment were slightly higher period over period.~~

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rates in the macro economy.

Credit loss expense at our Banking segment is made up of credit loss expense related to loans and credit loss expense related to off balance sheet commitments to lend. Credit loss expense related to loans was ~~$3.0~~$3.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to ~~a benefit to credit loss expense on loans of $18.0~~$0.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. The ~~increase~~decrease in credit loss expense was ~~primarily~~ the result of ~~slower~~changes to the projected loss drivers and 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~~period and decreased specific reserves ~~at our Banking segment during~~period over period. These decreases were partially offset by an increase driven by 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~~of our portfolio and increased net charge-off activity period over period. ~~We recorded $0.4 million of net charge-offs at our Banking segment during the nine months ended September 30, 2022 compared to insignificant charge-offs during the same period a year ago.~~

Credit loss expense for off balance sheet credit exposures ~~increased $0.8~~decreased $0.5 million from ~~a benefit of $1.2~~$0.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 to a benefit of ~~$0.4~~$0.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, primarily due to ~~the changes in the assumptions used to project the loss rates previously discussed and changes to~~decreased underlying outstanding commitments to fund period over ~~period~~.period.

Noninterest income at our Banking segment ~~increased~~decreased period over period due to ~~$2.5 million of gains on~~ the ~~sales of certain available for sale CLOs as well as the~~aforementioned $3.9 million gain on sale of equipment loans, ~~during~~ the ~~nine months ended September 30, 2022. Further, we recognized a~~aforementioned gain of $8.9 million on the termination of an interest rate swap, during the same period. These increases were partially offset by a $1.5 million recovery during the nine months ended September 30, 2021 on an acquired loan that was charged off prior to our acquisition of the originating bank and a ~~$2.8~~$2.5 million ~~decrease in gains~~gain on sale of ~~liquid credit and mortgage loans. There were no other significant changes within~~securities during the ~~components of other noninterest income at our Banking segment.~~six months ended June 30, 2022 that did not repeat during the current period.

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~~The increase in noninterest expense was also driven by increased communications 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.~~spend.

During the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the aggregate outstanding balances of our banking products ~~decreased $183.8~~increased $268.1 million, or ~~5.8%~~9.3%, to ~~$2.984~~$3.151 billion as of ~~September~~June 30, ~~2022.~~2023. See the Financial Condition section below for further discussion of changes in loan balances:


(Dollars in thousands)	(Dollars in thousands)	September 30, 2022		December 31, 2021		(Dollars in thousands)	June 30, 2023		December 31, 2022
Banking	Banking					Banking
Commercial real estate	Commercial real estate	$	669,742	$	632,775	Commercial real estate	$	768,711	$	678,144
Construction, land development, land	Construction, land development, land	75,527		123,464		Construction, land development, land	110,071		90,976
1-4 family residential	1-4 family residential	122,594		123,115		1-4 family residential	130,628		125,981
Farmland	Farmland	66,595		77,394		Farmland	67,913		68,934
Commercial - General	Commercial - General	319,016		295,662		Commercial - General	295,159		316,364
Commercial - Paycheck Protection Program	Commercial - Paycheck Protection Program	60		27,197		Commercial - Paycheck Protection Program	45		55
Commercial - Agriculture	Commercial - Agriculture	60,409		70,127		Commercial - Agriculture	46,839		48,494
Commercial - Equipment	Commercial - Equipment	439,604		621,437		Commercial - Equipment	493,763		454,117
Commercial - Asset-based lending	Commercial - Asset-based lending	238,119		281,659		Commercial - Asset-based lending	231,265		229,754
Commercial - Liquid Credit	Commercial - Liquid Credit	224,991		134,347		Commercial - Liquid Credit	151,821		202,326
Consumer	Consumer	9,506		10,885		Consumer	8,409		8,868
Mortgage Warehouse	Mortgage Warehouse	758,061		769,973		Mortgage Warehouse	846,340		658,829
Total banking loans	Total banking loans	$	2,984,224	$	3,168,035	Total banking loans	$	3,150,964	$	2,882,842

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Factoring


(Dollars in thousands)	(Dollars in thousands)	Nine Months Ended September 30,								(Dollars in thousands)	Six Months Ended June 30,
Factoring	Factoring	2022		2021		$ Change		% Change		Factoring	2023		2022		$ Change		% Change
Total interest income	Total interest income	$	161,789	$	127,699	$	34,090	26.7	%	Total interest income	$	74,524	$	112,228	$	(37,704)	(33.6	%)
Intersegment interest allocations	Intersegment interest allocations	(6,312)		(7,700)		1,388		18.0	%	Intersegment interest allocations	(18,512)		(4,430)		(14,082)		(317.9	%)
Total interest expense	Total interest expense	—		—		—		—		Total interest expense	—		—		—		—
Net interest income	Net interest income	155,477		119,999		35,478		29.6	%	Net interest income	56,012		107,798		(51,786)		(48.0	%)
Credit loss expense (benefit)	Credit loss expense (benefit)	1,961		8,091		(6,130)		(75.8	%)	Credit loss expense (benefit)	2,030		2,013		17		0.8	%
Net interest income after credit loss expense	Net interest income after credit loss expense	153,516		111,908		41,608		37.2	%	Net interest income after credit loss expense	53,982		105,785		(51,803)		(49.0	%)
Noninterest income	Noninterest income	20,333		10,710		9,623		89.9	%	Noninterest income	2,558		17,392		(14,834)		(85.3	%)
Intersegment noninterest income (expense)										Intersegment noninterest income (expense)	(362)		—		(362)		(100.0	%)
Noninterest expense	Noninterest expense	66,408		52,433		13,975		26.7	%	Noninterest expense	41,987		45,643		(3,656)		(8.0	%)
Net income (loss) before income tax expense	Net income (loss) before income tax expense	$	107,441	$	70,185	$	37,256	53.1	%	Net income (loss) before income tax expense	$	14,191	$	77,534	$	(63,343)	(81.7	%)


		Nine Months Ended September 30,							Six Months Ended June 30,
		2022			2021				2023			2022
Factored receivable period end balance	Factored receivable period end balance	$	1,330,122,000		$	1,479,989,000		Factored receivable period end balance	$	997,842,000		$	1,474,852,000
Yield on average receivable balance	Yield on average receivable balance	14.16		%	14.19		%	Yield on average receivable balance	14.00		%	14.19		%
Year to date charge-off rate(1)	Year to date charge-off rate(1)	0.19		%	3.76		%	Year to date charge-off rate(1)	0.72		%	0.05		%
Factored receivables - transportation concentration	Factored receivables - transportation concentration	96		%	90		%	Factored receivables - transportation concentration	95		%	94		%

Interest income, including fees	Interest income, including fees	$	161,789,000		$	127,699,000		Interest income, including fees	$	74,524,000		$	112,228,000
Non-interest income(2)		20,333,000			6,056,000
Noninterest income(2)								Noninterest income(2)	2,558,000			17,392,000
Intersegment noninterest income								Intersegment noninterest income	170,000			—
Factored receivable total revenue	Factored receivable total revenue	182,122,000			133,755,000			Factored receivable total revenue	77,252,000			129,620,000
Average net funds employed	Average net funds employed	1,367,041,000			1,082,610,000			Average net funds employed	947,241,000			1,430,530,000
Yield on average net funds employed	Yield on average net funds employed	17.81		%	16.52		%	Yield on average net funds employed	16.45		%	18.27		%

Accounts receivable purchased	Accounts receivable purchased	$	11,665,223,000		$	9,092,541,000		Accounts receivable purchased	$	5,660,080,000		$	8,065,452,000
Number of invoices purchased	Number of invoices purchased	5,011,222			4,125,694			Number of invoices purchased	2,986,726			3,329,733
Average invoice size	Average invoice size	$	2,328		$	2,204		Average invoice size	$	1,895		$	2,422
Average invoice size - transportation	Average invoice size - transportation	$	2,213		$	2,096		Average invoice size - transportation	$	1,842		$	2,284
Average invoice size - non-transportation	Average invoice size - non-transportation	$	5,927		$	4,812		Average invoice size - non-transportation	$	5,480		$	5,984

(1) ~~Net charge-offs for the nine months ended September~~June 30, ~~2021~~2023 includes a ~~$41.3~~$3.3 million charge-off ~~related to the TFS acquisition,~~of an over-formula advance balance, which contributed approximately ~~3.43%~~0.31% to the net charge-off rate for the period. In accordance with the agreement reached with Covenant, Covenant will reimburse us for $1.7 million of this charge-off.

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

~~Non-interest income for the nine months ended September 30, 2021 excludes $4.7 million of income recognized on our indemnification asset resulting from the amended TFS acquisition agreement.~~

Our Factoring segment’s operating income ~~increased $37.3~~decreased $63.3 million, or ~~53.1%~~81.7%.

Our average invoice size ~~increased 5.6%~~decreased 21.8% from ~~$2,204~~$2,422 for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 to ~~$2,328~~$1,895 for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and the number of invoices purchased ~~increased 21.5%~~decreased 10.3% period over period.

Net interest income at our Factoring segment ~~increased~~decreased period over period. Overall average net funds employed (“NFE”) ~~increased 26.3%~~decreased 33.8% during the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to the same period in ~~2021.~~2022. The ~~increase~~decrease in average NFE was the result of ~~increased~~decreased invoice purchase volume ~~as well as increased~~and decreased average invoice ~~size.~~sizes. Those, in turn, resulted from ~~historically high freight volume in~~ a ~~reduced capacity market seen during the period.~~softening transportation 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 byWe maintained high concentration in transportation factoring balances, which typically generate a higher yield than our non-transportation factoring balances. This concentration, calculated based on receivables held for investment and held for sale, was at ~~90%~~94% at ~~September~~June 30, ~~2021~~2022 and ~~96%~~95% at ~~September~~June 30, ~~2022.~~2023. The aforementioned transfer of freight broker supply chain finance to the Payments segment resulted in a reduction of net interest income at our Factoring segment of $0.5 million.

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~~The~~Credit loss expense was relatively flat period over ~~period decrease~~period. Increased net charge-offs, including the fully reserved $3.3 million charge-off of the acquired over-advance factored receivables, were offset by a reduction in ~~credit loss expense at our Factoring segment is primarily due to decreased charge-off activity~~specific reserves and a reduction ~~in the~~of period end volume of the factoring portfolio ~~during the periods. Net charge-offs at our Factoring segment during the nine months ended September 30, 2022 were $3.0 million compared to $45.2 million during the same~~ period a year ago. Net charge-offs during the nine months ended September 30, 2021 reflect the aforementioned $41.3 million net charge-off of Over-Formula Advances which was fully reserved in a period prior to charge-off.over period. 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~~decrease in noninterest income at our Factoring segment was primarily due to the aforementioned ~~$14.2~~$13.2 million gain on sale of factored receivables during the ~~nine~~six months ended ~~September~~June 30, 2022. ~~Additionally, wire transfer fees and ACH/check fees increased $1.9 million. These increases were partially offset~~The decrease was also driven by a ~~combined~~ $1.2 million write down of ~~early termination fees charged to two customers~~our revenue share asset, which is carried at fair value, during the ~~nine~~six months ended ~~September~~June 30, 2021 that did not repeat during the current year. Also offsetting the increases was a $4.2 million gain on our indemnification asset recognized during the nine months ended September 30, 2021 compared to a write off of the indemnification asset of $0.6 million during the same period of the current year. There were no other material fluctuations in noninterest income at our Factoring segment.2023.

Noninterest expense ~~increased~~decreased primarily due to ~~an increase~~a decrease in ~~salaries~~salary and ~~employee~~ benefits expense ~~due to merit increases for existing employees, higher health insurance benefit costs, incentive compensation,~~including a decrease in stock ~~based compensation and 401(k) expense.~~compensation. Additionally, there were decreases in 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 insignificantcorrespondent bank charges period over period.

Payments


(Dollars in thousands)	(Dollars in thousands)	Nine Months Ended September 30,								(Dollars in thousands)	Six Months Ended June 30,
Payments	Payments	2022		2021		$ Change		% Change		Payments	2023		2022		$ Change		% Change
Total interest income	Total interest income	$	12,760	$	7,939	$	4,821	60.7	%	Total interest income	$	6,198	$	9,004	$	(2,806)	(31.2)	%
Intersegment interest allocations	Intersegment interest allocations	(339)		(417)		78		18.7	%	Intersegment interest allocations	3,422		(421)		3,843		912.8	%
Total interest expense	Total interest expense	—		—		—		—	%	Total interest expense	—		—		—		—	%
Net interest income	Net interest income	12,421		7,522		4,899		65.1	%	Net interest income	9,620		8,583		1,037		12.1	%
Credit loss expense (benefit)	Credit loss expense (benefit)	405		548		(143)		(26.1)	%	Credit loss expense (benefit)	41		170		(129)		(75.9)	%
Net interest income after credit loss expense	Net interest income after credit loss expense	12,016		6,974		5,042		72.3	%	Net interest income after credit loss expense	9,579		8,413		1,166		13.9	%
Noninterest income	Noninterest income	17,069		4,242		12,827		302.4	%	Noninterest income	7,826		13,551		(5,725)		(42.2)	%
Intersegment noninterest income (expense)										Intersegment noninterest income (expense)	362		—		362		100.0	%
Noninterest expense	Noninterest expense	46,062		26,393		19,669		74.5	%	Noninterest expense	32,356		31,996		360		1.1	%
Net income (loss) before income tax expense	Net income (loss) before income tax expense	$	(16,977)	$	(15,177)	$	(1,800)	(11.9)	%	Net income (loss) before income tax expense	$	(14,589)	$	(10,032)	$	(4,557)	(45.4)	%


		Nine Months Ended					Six Months Ended
		2022		2021			2023			2022
Supply chain financing factored receivables						Supply chain financing factored receivables	$	93,678,000		$	—
Quickpay and other factored receivables						Quickpay and other factored receivables	82,274,000			145,835,000
Factored receivable period end balance	Factored receivable period end balance	$	118,958,000	$	127,039,000	Factored receivable period end balance	$	175,952,000		$	145,835,000

Interest income	Interest income	$	12,760,000	$	7,939,000	Interest income	$	6,198,000		$	9,004,000
Intersegment interest income						Intersegment interest income	3,422,000			—
Noninterest income	Noninterest income	17,069,000		4,242,000		Noninterest income	7,826,000			13,551,000
Intersegment noninterest income						Intersegment noninterest income	$	532,000		$	—
Total revenue	Total revenue	$	29,829,000	$	12,181,000	Total revenue	$	17,978,000		$	22,555,000

Operating income (loss)	Operating income (loss)	$	(16,977,000)	$	(15,177,000)	Operating income (loss)	$	(14,589,000)		$	(10,032,000)
Interest expense	Interest expense	339,000		417,000		Interest expense	—			421,000
Depreciation and software amortization expense	Depreciation and software amortization expense	331,000		210,000		Depreciation and software amortization expense	561,000			211,000
Intangible amortization expense	Intangible amortization expense	4,417,000		1,987,000		Intangible amortization expense	3,277,000			2,967,000
Earnings (losses) before interest, taxes, depreciation, and amortization	Earnings (losses) before interest, taxes, depreciation, and amortization	$	(11,890,000)	$	(12,563,000)	Earnings (losses) before interest, taxes, depreciation, and amortization	$	(10,751,000)		$	(6,433,000)
Transaction costs		$	—	$	2,992,000
Adjusted earnings (losses) before interest, taxes, depreciation, and amortization(1)		$	(11,890,000)	$	(9,571,000)

EBITDA margin						EBITDA margin	(60)		%	(29)		%

Number of invoices processed	Number of invoices processed	13,043,134		9,455,740		Number of invoices processed	8,787,283			8,366,885
Amount of payments processed	Amount of payments processed	$	17,686,453,000	$	9,919,865,000	Amount of payments processed	$	9,970,865,000		$	11,734,747,000
Conforming invoice volume		315,015		—
Conforming payment volume		$	671,291,000	$	—
Network invoice volume						Network invoice volume	341,257			170,762
Network payment volume						Network payment volume	$	589,615,000		$	382,881,000

Our Payments segment's operating loss increased $4.6 million, or 45.4%.

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

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

The number of invoices processed by our Payments segment increased ~~37.9%~~5.0% from ~~9,455,740~~8,366,885 for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 to ~~13,043,134~~8,787,283 for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, and the amount of payments processed ~~increased 78.3%~~decreased 15.0% from ~~$9.920~~$11.735 billion for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 to ~~$17.686~~$9.971 billion for the ~~nine~~six months ended ~~September~~June 30, ~~2022.~~2023.

We began processing ~~conforming~~network 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~~“network transaction.” All ~~conforming~~network transactions are included in our payment processing volume above. These transactions are facilitated through TriumphPay APIs with parties on both sides of the transaction using structured data; similar to how a credit card works at a point-of-sale terminal. The integrations largely automate the process and make it cheaper, faster and safer. During the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, we processed ~~315,015~~341,257 conforming invoices representing a conforming payment volume of ~~$671.3~~$589.6 million. During the six months ended June 30, 2022, we processed 170,762 conforming invoices representing a conforming payment volume of $382.9 million.

Net interest income increased due to increased ~~factoring activity and increased~~ yields at our Payments segment period over ~~period.~~period and intersegment interest allocation. The aforementioned transfer of factoring transactions with freight broker clients to the Payments segment resulted in an increase of net interest income at our Factoring segment of $0.4 million.

Noninterest income ~~increased~~decreased due to ~~a $5.9~~the $7.0 million increase in payment fees earned by TriumphPay during the nine months ended September 30, 2022 compared to the same period a year ago. The fees were primarily a result of the acquired operations of HubTran during June of the prior year. Additionally, we recognized a net gain ~~of $7.0 million~~ on the aforementioned termination of WSI warrants and additional investment in WSI common ~~stock.~~stock during the six months ended June 30, 2023. The decrease was offset by a $1.2 million increase in payment fees earned by TriumphPay during the six months ended June 30, 2023 compared to the same period a year ago.

Noninterest expense increased primarily due to an increase in communication and technology expense. This increase was partially offset by smaller decreases in professional fees, correspondent bank charges, and salaries and ~~employee~~ benefits ~~expense driven by increased headcount, merit increases for existing employees, higher health insurance benefit costs, incentive compensation, stock based compensation and 401(k)~~ expense. Additionally at our Payments segment, IT expense increased $2.6 million and amortization of the intangible assets acquired in the HubTran acquisition increased $2.4 million. We continue to invest heavily in the operations of TriumphPay.

The acquisition of HubTran during 2021 allows TriumphPay to create a fully integrated payments network for trucking; servicing brokers and factors. TriumphPay already offered tools and services to increase automation, mitigate fraud, create back-office efficiency and improve the payment experience. Through the acquisition of HubTran, TriumphPay created additional value through the enhancement of its presentment, audit, and payment capabilities for shippers, third party logistics companies (i.e., freight brokers) and their carriers, and factors. The acquisition of HubTran was a meaningful inflection point in the operations of TriumphPay as the TriumphPay strategy has shifted from a capital-intensive on-balance sheet product with a focus on interest income to an open-loop payments network for the trucking industry with a focus on fee revenue. It is for this reason that management believes that earnings before interest, taxes, depreciation, and amortization and the adjustment to that metric enhance investors' overall understanding of the financial performance of the Payments segment. Further, as a result of the HubTran acquisition, management recorded $27.3 million of intangible assets that will lead to meaningful amounts of amortization going forward. The aforementioned transfer of factoring transactions with freight broker clients to the Payments segment contributed two percentage points to the EBITDA margin at our payments segment for the six months ended June 30, 2023.

Corporate

(Dollars in thousands) Nine Months Ended September 30, % Change
Corporate 2022 2021 $ Change
Total interest income $ 132 $ 51 $ 81 158.8 %
Intersegment interest allocations — — — —
Total interest expense 5,643 6,478 (835) (12.9 %)
Net interest income (expense) (5,511) (6,427) 916 14.3 %
Credit loss expense (benefit) 1,044 (290) 1,334 460.0 %
Net interest income (expense) after credit loss expense (6,555) (6,137) (418) (6.8 %)
Noninterest income 51 151 (100) (66.2 %)
Noninterest expense 2,649 3,180 (531) (16.7 %)
Net income (loss) before income tax expense $ (9,153) $ (9,166) $ 13 0.1 %

~~Table of Contents~~


(Dollars in thousands)	Six Months Ended June 30,						% Change
Corporate	2023		2022		$ Change
Total interest income	$	88	$	88	$	—	—	%
Intersegment interest allocations	—		—		—		—
Total interest expense	4,745		3,611		1,134		31.4	%
Net interest income (expense)	(4,657)		(3,523)		(1,134)		(32.2	%)
Credit loss expense (benefit)	431		969		(538)		(55.5	%)
Net interest income (expense) after credit loss expense	(5,088)		(4,492)		(596)		(13.3	%)
Noninterest income	129		85		44		51.8	%
Noninterest expense	41,160		29,715		11,445		38.5	%
Net income (loss) before income tax expense	$	(46,119)	$	(34,122)	$	(11,997)	(35.2	%)

The Corporate segment reported an operating loss of ~~$9.2~~$46.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022 and 2021, respectively. Credit~~2023 compared to an operating loss ~~expense on our HTM CLOs previously discussed in~~of $34.1 million for the ~~Credit Loss Expense section increased. Additionally, during the nine~~six months ended ~~September~~June 30, ~~2022, management charged off a $0.7 million community reinvestment act loan that carried no reserve from a prior period. Interest~~2022. The increased operating loss was driven by increased noninterest expense ~~decreased due to a full quarter~~which was the result 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 segmentincreased salaries and benefits expense, occupancy expense, communication and technology expense, and travel and entertainment expense period over period.

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Financial Condition

Assets

Total assets were ~~$5.642~~$5.653 billion at ~~September~~June 30, ~~2022,~~2023, compared to ~~$5.956~~$5.334 billion at December 31, ~~2021, a decrease~~2022, an increase of ~~$313.8~~$318.9 million, the components of which are discussed below.

Loan Portfolio

Loans held for investment were ~~$4.433~~$4.325 billion at ~~September~~June 30, ~~2022,~~2023, compared with ~~$4.868~~$4.120 billion at December 31, ~~2021.~~2022.

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


		September 30, 2022				December 31, 2021				$ Change				% Change					June 30, 2023						December 31, 2022						$ 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	$	669,742	15	%	$	632,775	13	%			$	36,967				5.8	%	Commercial real estate		$	768,711		18		%	$	678,144		16		%	$	90,567		13.4	%
Construction, land development, land	Construction, land development, land	75,527		2	%	123,464		3	%	(47,937)				(38.8	%)	Construction, land development, land			110,071			3	%		90,976			2	%		19,095			21.0	%
1-4 family residential	1-4 family residential	122,594		3	%	123,115		3	%	(521)				(0.4	%)	1-4 family residential			130,628			3	%		125,981			3	%		4,647			3.7	%
Farmland	Farmland	66,595		2	%	77,394		2	%	(10,799)				(14.0	%)	Farmland			67,913			2	%		68,934			2	%		(1,021)			(1.5	%)
Commercial	Commercial	1,282,199		29	%	1,430,429		29	%	(148,230)				(10.4	%)	Commercial			1,218,892			28	%		1,251,110			30	%		(32,218)			(2.6	%)
Factored receivables	Factored receivables	1,449,080		32	%	1,699,537		34	%	(250,457)				(14.7	%)	Factored receivables			1,173,794			26	%		1,237,449			31	%		(63,655)			(5.1	%)
Consumer	Consumer	9,506		—	%	10,885		—	%	(1,379)				(12.7	%)	Consumer			8,409			—	%		8,868			—	%		(459)			(5.2	%)
Mortgage warehouse	Mortgage warehouse	758,061		17	%	769,973		16	%	(11,912)				(1.5	%)	Mortgage warehouse			846,340			20	%		658,829			16	%		187,511			28.5	%
Total Loans	Total Loans	$	4,433,304	100	%	$	4,867,572	100	%	$	(434,268)			(8.9	%)	Total Loans			$	4,324,758		100	%		$	4,120,291		100	%		$	204,467		5.0	%

Commercial Real Estate Loans. Our commercial real estate loans increased ~~$37.0~~$90.6 million, or ~~5.8%~~13.4%, due to new origination activity that outpaced paydowns.

Construction and Development Loans. Our construction and development loans ~~decreased $47.9~~increased $19.1 million, or ~~38.8%~~21.0%, due to origination and draw activity that outpaced paydowns and conversions to term ~~loans that were offset by modest origination and draw activity.~~loans.

Residential Real Estate Loans. Our one-to-four family residential loans ~~decreased $0.5~~increased $4.6 million, or ~~0.4%~~3.7%, due to ~~paydowns~~new origination activity that outpaced ~~new origination activity.~~paydowns.

Farmland Loans. Our farmland loans decreased ~~$10.8~~$1.0 million, or ~~14.0%~~1.5%, due to paydowns that outpaced modest origination activity.

Commercial Loans. Our commercial loans held for investment decreased ~~$148.2~~$32.2 million, or ~~10.4%~~2.6%, due to ~~the sale of $191.2 million of~~a decrease in period end liquid credit balances and other commercial lending. The decrease was partially offset by increased equipment ~~loans during the period.~~lending. Our other commercial lending products, comprised primarily of general commercial loans originated in our community banking markets, ~~increased $23.4~~decreased $21.2 million, or ~~7.9%~~6.7%.

~~Table of Contents~~

The following table shows our commercial loans:


(Dollars in thousands)	(Dollars in thousands)	September 30, 2022		December 31, 2021		$ Change		% Change		(Dollars in thousands)	June 30, 2023		December 31, 2022		$ Change		% Change
Commercial	Commercial									Commercial
Equipment	Equipment	$	439,604	$	621,437	$	(181,833)	(29.3	%)	Equipment	$	493,763	$	454,117	$	39,646	8.7	%
Asset-based lending	Asset-based lending	238,119		281,659		(43,540)		(15.5	%)	Asset-based lending	231,265		229,754		1,511		0.7	%
Liquid credit	Liquid credit	224,991		134,347		90,644		67.5	%	Liquid credit	151,821		202,326		(50,505)		(25.0	%)
Paycheck Protection Program loans	Paycheck Protection Program loans	60		27,197		(27,137)		(99.8	%)	Paycheck Protection Program loans	45		55		(10)		(18.2	%)
Agriculture	Agriculture	60,409		70,127		(9,718)		(13.9	%)	Agriculture	46,839		48,494		(1,655)		(3.4	%)
Other commercial lending	Other commercial lending	319,016		295,662		23,354		7.9	%	Other commercial lending	295,159		316,364		(21,205)		(6.7	%)
Total commercial loans	Total commercial loans	$	1,282,199	$	1,430,429	$	(148,230)	(10.4	%)	Total commercial loans	$	1,218,892	$	1,251,110	$	(32,218)	(2.6	%)

Factored Receivables. Our factored receivables decreased ~~$250.5~~$63.7 million, or ~~14.7%~~5.1% due to ~~the sale of $88.0 million of factored receivables during the period and~~ a slowing freight market. At ~~September~~June 30, ~~2022,~~2023, the balance of the Over-Formula Advance Portfolio included in factored receivables was ~~$8.8~~$4.0 million. At ~~September~~June 30, ~~2022,~~2023, the balance of Misdirected Payments included in factored receivables was $19.4 million. See discussion of our factoring subsidiary in the Operating Segment Results for analysis of the key drivers impacting the change in the ending factored receivables balance during the period.

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Consumer Loans. Our consumer loans decreased ~~$1.4~~$0.5 million, or ~~12.7%~~5.2%, due to paydowns that outpaced modest origination activity.

Mortgage Warehouse. Our mortgage warehouse facilities ~~decreased~~increased $~~11.9~~187.5 million, or ~~1.5%~~28.5%, due to ~~decreased utilization in a rising interest rate environment.~~increased utilization. Client utilization of mortgage warehouse facilities may experience significant fluctuation on a day-to-day basis given mortgage origination market conditions. Our average mortgage warehouse lending balance was ~~$610.8~~$848.0 million for the three months ended ~~September~~June 30, ~~2022~~2023 compared to ~~$772.3~~$651.4 million for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~$632.9~~$794.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to ~~$827.1~~$644.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022.

The following tables set forth the contractual maturities, including scheduled principal repayments, of our loan portfolio and the distribution between fixed and floating interest rate loans:


		September 30, 2022											June 30, 2023
(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	$	135,892	$	453,614	$	75,522	$	4,714	$	669,742	Commercial real estate	$	264,867	$	442,446	$	59,610	$	1,788	$	768,711
Construction, land development, land	Construction, land development, land	24,508		47,742		3,243		34		75,527		Construction, land development, land	65,535		40,739		3,797		—		110,071
1-4 family residential	1-4 family residential	8,896		31,273		16,477		65,948		122,594		1-4 family residential	8,226		28,659		14,455		79,288		130,628
Farmland	Farmland	11,688		21,976		28,756		4,175		66,595		Farmland	8,802		30,258		25,211		3,642		67,913
Commercial	Commercial	381,223		778,603		122,063		310		1,282,199		Commercial	353,635		815,724		49,533		—		1,218,892
Factored receivables	Factored receivables	1,449,080		—		—		—		1,449,080		Factored receivables	1,173,794		—		—		—		1,173,794
Consumer	Consumer	1,273		7,055		1,169		9		9,506		Consumer	1,183		6,257		961		8		8,409
Mortgage warehouse	Mortgage warehouse	758,061		—		—		—		758,061		Mortgage warehouse	846,340		—		—		—		846,340
		$	2,770,621	$	1,340,263	$	247,230	$	75,190	$	4,433,304		$	2,722,382	$	1,364,083	$	153,567	$	84,726	$	4,324,758

Sensitivity of loans to changes in interest rates:	Sensitivity of loans to changes in interest rates:											Sensitivity of loans to changes in interest rates:			After One but within Five Years		After Five but within Fifteen Years		After Fifteen Years
Predetermined (fixed) interest rates	Predetermined (fixed) interest rates			$	819,714	$	23,284	$	6,454			Predetermined (fixed) interest rates
Commercial real estate												Commercial real estate			$	264,240	$	4,170	$	502
Construction, land development, land												Construction, land development, land			4,005		297		—
1-4 family residential												1-4 family residential			20,019		7,757		5,634
Farmland												Farmland			21,490		1,011		—
Commercial												Commercial			582,569		39,133		—
Factored receivables												Factored receivables			—		—		—
Consumer												Consumer			6,248		961		8
Mortgage warehouse												Mortgage warehouse			—		—		—
															$	898,571	$	53,329	$	6,144
Floating interest rates	Floating interest rates			520,549		223,946		68,736				Floating interest rates
Commercial real estate												Commercial real estate			$	178,206	$	55,440	$	1,286
Construction, land development, land												Construction, land development, land			36,734		3,500		—
1-4 family residential												1-4 family residential			8,640		6,698		73,654
Farmland												Farmland			8,768		24,200		3,642
Commercial												Commercial			233,155		10,400		—
Factored receivables												Factored receivables			—		—		—
Consumer												Consumer			9		—		—
Mortgage warehouse												Mortgage warehouse			—		—		—
															$	465,512	$	100,238	$	78,582

Total	Total			$	1,340,263	$	247,230	$	75,190			Total			$	1,364,083	$	153,567	$	84,726

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As of ~~September~~June 30, ~~2022,~~2023, most of the Company’s non-factoring business activity is with customers located within certain states. The states of Texas ~~(21%~~(15%), Colorado ~~(13%~~(15%), Illinois (11%), and Iowa (6%) make up ~~51%~~47% 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,~~2022, the states of Texas ~~(21%~~(23%), Illinois ~~(15%~~(11%), Colorado ~~(15%~~(11%), and Iowa (6%) made up ~~57%~~51% of the Company’s gross loans, excluding factored receivables.

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Further, a majority (96%) of our factored receivables, including factored receivables held for sale, representing approximately ~~31%~~26% of our total loan portfolio as of ~~September~~June 30, ~~2022,~~2023, 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%~~2022, 96% of our factored receivables, representing approximately ~~32%~~29% of our total loan portfolio, were receivables purchased from trucking fleets, owner-operators, and freight brokers in the transportation industry.

Nonperforming Assets

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

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


(Dollars in thousands)	(Dollars in thousands)	September 30, 2022			December 31, 2021			(Dollars in thousands)	June 30, 2023			December 31, 2022
Nonperforming loans:	Nonperforming loans:							Nonperforming loans:
Commercial real estate	Commercial real estate	$	1,108		$	2,025		Commercial real estate	$	1,933		$	871
Construction, land development, land	Construction, land development, land	151			964			Construction, land development, land	—			150
1-4 family residential	1-4 family residential	1,710			1,684			1-4 family residential	1,085			1,391
Farmland	Farmland	414			2,044			Farmland	394			400
Commercial	Commercial	17,868			8,842			Commercial	5,501			15,896
Factored receivables	Factored receivables	34,515			30,485			Factored receivables	22,869			29,431
Consumer	Consumer	154			240			Consumer	180			91
Mortgage warehouse	Mortgage warehouse	—			—			Mortgage warehouse	—			—
Total nonperforming loans	Total nonperforming loans	55,920			46,284			Total nonperforming loans	31,962			48,230
Held to maturity securities	Held to maturity securities	5,130			5,612			Held to maturity securities	4,778			5,051
Other real estate owned, net		—			524
Equity investments without readily determinable fair value								Equity investments without readily determinable fair value	1,170			—

Other repossessed assets	Other repossessed assets	1,751			2,368			Other repossessed assets	750			1,300
Total nonperforming assets	Total nonperforming assets	$	62,801		$	54,788		Total nonperforming assets	$	38,660		$	54,581

Nonperforming assets to total assets	Nonperforming assets to total assets	1.11		%	0.92		%	Nonperforming assets to total assets	0.68		%	1.02		%
Nonperforming loans to total loans held for investment	Nonperforming loans to total loans held for investment	1.26		%	0.95		%	Nonperforming loans to total loans held for investment	0.74		%	1.17		%
Total past due loans to total loans held for investment	Total past due loans to total loans held for investment	2.33		%	2.86		%	Total past due loans to total loans held for investment	1.55		%	2.53		%

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Nonperforming loans ~~increased $9.6~~decreased $16.3 million, or ~~20.8%~~33.7%, due to a $3.4 million nonperforming equipment loan pay-off, a $3.2 million partial charge-off and $4.4 million partial paydown of a nonperforming liquid credit loan, and an $6.6 million reduction in nonperforming factored receivables which includes the aforementioned $3.3 million net charge-off of the fully reserved over-formula advance balance. These decreases were offset by the addition of a ~~$12.0~~$1.4 million ~~liquid credit~~equipment loan securitized by transportation equipment and a $1.1 million commercial real estate 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 several loan types. The portion of the factoring Over-Formula Advances not covered by Covenant's indemnification and thus, considered nonperforming, is $0.8 million at September 30, 2022.real estate. The entire $19.4 million of Misdirected Payments is included in nonperforming loans (specifically, factored receivables) in accordance with our policy.

~~OREO decreased $0.5 million, or 100.0%, due to the removal of individually insignificant OREO properties 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 ~~increased~~decreased to ~~1.26%~~0.74% at ~~September~~June 30, ~~2022~~2023 from ~~0.95%~~1.17% December 31, ~~2021.~~2022.

Our ratio of nonperforming assets to total assets ~~increased~~decreased to ~~1.11%~~0.68% at ~~September~~June 30, ~~2022~~2023 from ~~0.92%~~1.02% December 31, ~~2021.~~2022. This is due to the aforementioned loan activity and changes in our period end total assets. During the six months ended June 30, 2023, we received $1.1 million of equity in a former borrower as part of a partial paydown of a nonperforming loan to said borrower. Such equity is considered a nonperforming asset at June 30, 2023. Additionally, the amortized cost basis of our HTM CLO securities considered to be nonaccrual decreased ~~$0.5~~$0.3 million during the ~~year.~~period.

Past due loans to total loans held for investment decreased to ~~2.33%~~1.55% at ~~September~~June 30, ~~2022~~2023 from ~~2.86%~~2.53% at December 31, ~~2021,~~2022, as a result of the aforementioned loan activity and a decrease in past due factored receivables. Both the ~~$8.8~~$4.0 million acquired factoring Over-Formula Advance balance and the $19.4 million Misdirected Payments balance are considered greater than 90 days past due at ~~September~~June 30, ~~2022.~~2023.

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~~2022 Form 10-K and notes to the consolidated financial statements included elsewhere in this report for discussion of our ACL methodology on loans. Allocations of the ACL may be made for specific loans, but the entire allowance is available for any loan that, in the Company’s judgment, should be charged-off.

Loan loss valuation allowances are recorded on specific at-risk balances, typically consisting of collateral dependent loans and factored invoices greater than 90 days past due with negative cash reserves.

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


		September 30, 2022						December 31, 2021							June 30, 2023						December 31, 2022
(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	$	4,794	15	%	0.72	%	$	3,961	13	%	0.63	%	Commercial real estate	$	4,783	18	%	0.62	%	$	4,459	16	%	0.66	%
Construction, land development, land	Construction, land development, land	995		2	%	1.32	%	827		3	%	0.67	%	Construction, land development, land	1,235		3	%	1.12	%	1,155		2	%	1.27	%
1-4 family residential	1-4 family residential	742		3	%	0.61	%	468		3	%	0.38	%	1-4 family residential	1,046		3	%	0.80	%	838		3	%	0.67	%
Farmland	Farmland	467		2	%	0.70	%	562		2	%	0.73	%	Farmland	476		2	%	0.70	%	483		2	%	0.70	%
Commercial	Commercial	16,020		29	%	1.25	%	14,485		29	%	1.01	%	Commercial	12,977		28	%	1.06	%	15,918		30	%	1.27	%
Factored receivables	Factored receivables	20,134		32	%	1.39	%	20,915		34	%	1.23	%	Factored receivables	13,441		26	%	1.15	%	19,121		31	%	1.55	%
Consumer	Consumer	202		—	%	2.12	%	226		—	%	2.08	%	Consumer	166		—	%	1.97	%	175		—	%	1.97	%
Mortgage warehouse	Mortgage warehouse	757		17	%	0.10	%	769		16	%	0.10	%	Mortgage warehouse	846		20	%	0.10	%	658		16	%	0.10	%
Total Loans	Total Loans	$	44,111	100	%	0.99	%	$	42,213	100	%	0.87	%	Total Loans	$	34,970	100	%	0.81	%	$	42,807	100	%	1.04	%

The ACL ~~increased $1.9~~decreased $7.8 million, or ~~4.5%~~18.3%. This ~~increase~~decrease reflects net charge-offs of ~~$4.2~~$13.0 million and credit loss expense of ~~$6.1~~$5.2 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~~$8.2 million at December 31, ~~2021~~2022 to ~~$8.8~~$4.0 million at ~~September~~June 30, ~~2022~~2023 and the entire balance at ~~September~~June 30, ~~2022~~2023 was fully reserved. At ~~September~~June 30, ~~2022,~~2023, the Misdirected Payments amount was $19.4 million. Based on our legal analysis and discussions with our counsel advising us on this matter, we continue to believe it is probable that we will prevail in such action and that the USPS will have the capacity to make payment on such receivable. Consequently, we have not reserved for such balance as of ~~September~~June 30, ~~2022.~~2023.

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A driver of the change in ACL is slight projected deterioration of the loss drivers that the Company forecasted to calculate expected losses at ~~September~~June 30, ~~2022~~2023 as compared to December 31, ~~2021.~~2022. 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~~$0.4 million of ACL period over period.

~~Table of Contents~~

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


(Dollars in thousands)	(Dollars in thousands)	September 30, 2022			December 31, 2021			(Dollars in thousands)	June 30, 2023			December 31, 2022
Allowance for credit losses on loans	Allowance for credit losses on loans	$	44,111		$	42,213		Allowance for credit losses on loans	$	34,970		$	42,807
Total loans held for investment	Total loans held for investment	$	4,433,304		$	4,867,572		Total loans held for investment	$	4,324,758		$	4,120,291
Allowance to total loans held for investment	Allowance to total loans held for investment	0.99		%	0.87		%	Allowance to total loans held for investment	0.81		%	1.04		%

Nonaccrual loans	Nonaccrual loans	$	20,828		$	15,034		Nonaccrual loans	$	9,093		$	18,296
Total loans held for investment	Total loans held for investment	$	4,433,304		$	4,867,572		Total loans held for investment	$	4,324,758		$	4,120,291
Nonaccrual loans to total loans held for investment	Nonaccrual loans to total loans held for investment	0.47		%	0.31		%	Nonaccrual loans to total loans held for investment	0.21		%	0.44		%

Allowance for credit losses on loans	Allowance for credit losses on loans	$	44,111		$	42,213		Allowance for credit losses on loans	$	34,970		$	42,807
Nonaccrual loans	Nonaccrual loans	$	20,828		$	15,034		Nonaccrual loans	$	9,093		$	18,296
Allowance for credit losses to nonaccrual loans	Allowance for credit losses to nonaccrual loans	211.79		%	280.78		%	Allowance for credit losses to nonaccrual loans	384.58		%	233.97		%

8683

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		Three Months Ended September 30,													Three Months Ended June 30,
		2022						2021							2023						2022
(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	$	—	$	670,912	—	%	$	15	$	675,859	—	%	Commercial real estate	$	—	$	715,484	—	%	$	(46)	$	645,321	(0.01)	%
Construction, land development, land	Construction, land development, land	(1)		84,116		—	%	(1)		182,550		—	%	Construction, land development, land	(1)		101,982		—	%	(1)		120,633		—	%
1-4 family residential	1-4 family residential	(1)		127,574		—	%	(4)		130,808		—	%	1-4 family residential	(8)		129,958		(0.01)	%	(2)		128,222		—	%
Farmland	Farmland	—		67,708		—	%	—		86,236		—	%	Farmland	—		67,797		—	%	—		71,971		—	%
Commercial	Commercial	149		1,258,735		0.01	%	211		1,432,667		0.01	%	Commercial	5,074		1,223,944		0.41	%	70		1,381,328		0.01	%
Factored receivables	Factored receivables	2,261		1,524,625		0.15	%	3,358		1,478,257		0.23	%	Factored receivables	5,661		1,141,580		0.50	%	139		1,739,320		0.01	%
Consumer	Consumer	57		9,730		0.59	%	139		12,197		1.14	%	Consumer	63		9,129		0.69	%	55		10,077		0.55	%
Mortgage warehouse	Mortgage warehouse	—		610,844		—	%	—		772,275		—	%	Mortgage warehouse	—		870,285		—	%	—		651,369		—	%
Total Loans	Total Loans	$	2,465	$	4,354,244	0.06	%	$	3,718	$	4,770,849	0.08	%	Total Loans	$	10,789	$	4,260,159	0.25	%	$	215	$	4,748,241	—	%

Quarter to date net loans charged off ~~decreased $1.3~~increased $10.6 million ~~with no individually significant~~reflecting the aforementioned $3.3 million net charge-off of the fully reserved over-formula advance balance. Net charge-offs ~~in either period.~~of factored receivables excluding the over-formula advance were $2.4 million. The Company also charged off two liquid credit loans carrying balances of $3.2 million and a $1.6 million, respectively, at the time of charge-off.


		Nine Months Ended September 30,													Six Months Ended June 30,
		2022						2021							2023						2022
(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	$	650,006	0.01	%	$	7	$	731,836	—	%	Commercial real estate	$	(70)	$	700,914	(0.01)	%	$	48	$	639,379	0.01	%
Construction, land development, land	Construction, land development, land	(3)		109,552		—	%	9		202,712		—	%	Construction, land development, land	(2)		99,818		—	%	(2)		122,481		—	%
1-4 family residential	1-4 family residential	(6)		127,079		—	%	(64)		139,517		(0.05)	%	1-4 family residential	(5)		129,627		—	%	(5)		126,827		—	%
Farmland	Farmland	—		71,590		—	%	—		94,536		—	%	Farmland	—		68,075		—	%	—		73,562		—	%
Commercial	Commercial	882		1,352,309		0.07	%	(172)		1,490,058		(0.01)	%	Commercial	5,256		1,210,339		0.43	%	733		1,399,872		0.05	%
Factored receivables	Factored receivables	3,079		1,680,746		0.18	%	45,359		1,301,606		3.48	%	Factored receivables	7,751		1,167,402		0.66	%	818		1,760,101		0.05	%
Consumer	Consumer	204		10,166		2.01	%	193		13,661		1.41	%	Consumer	74		9,378		0.79	%	147		10,388		1.42	%
Mortgage warehouse	Mortgage warehouse	—		632,879		—	%	—		827,133		—	%	Mortgage warehouse	—		794,941		—	%	—		644,080		—	%
Total Loans	Total Loans	$	4,204	$	4,634,327	0.09	%	$	45,332	$	4,801,059	0.94	%	Total Loans	$	13,004	$	4,180,494	0.31	%	$	1,739	$	4,776,690	0.04	%

Year to date net loans charged off ~~decreased $41.1~~increased $11.3 million ~~due to~~reflecting the aforementioned $3.3 million net charge-off of ~~$41.3~~the fully reserved over-formula advance balance. Net charge-offs of factored receivables excluding the over-formula advance were $4.5 million. The Company also charged off two liquid credit loans carrying balances of $3.2 million and a $1.6 million, respectively, at the time 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.~~charge-off.

Securities

As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, we held equity securities with readily determinable fair values of ~~$4.9~~$4.4 million and ~~$5.5~~$5.2 million, respectively. These securities represent investments in a publicly traded Community Reinvestment Act mutual fund and are subject to market pricing volatility, with changes in fair value reflected in earnings.

As of ~~September~~June 30, ~~2022,~~2023, we held debt securities classified as available for sale with a fair value of ~~$238.4~~$303.8 million, an increase of ~~$56.0~~$49.3 million from ~~$182.4~~$254.5 million at December 31, ~~2021.~~2022. The following table illustrates the changes in our available for sale debt securities:


		Available For Sale Debt Securities:									Available For Sale Debt Securities:
(Dollars in thousands)	(Dollars in thousands)	September 30, 2022		December 31, 2021		$ Change		% Change		(Dollars in thousands)	June 30, 2023		December 31, 2022		$ Change		% Change
Mortgage-backed securities, residential	Mortgage-backed securities, residential	$	44,675	$	37,449	$	7,226	19.3	%	Mortgage-backed securities, residential	$	45,829	$	50,633	$	(4,804)	(9.5)	%
Asset-backed securities	Asset-backed securities	6,476		6,764		(288)		(4.3)	%	Asset-backed securities	1,252		6,331		(5,079)		(80.2)	%
State and municipal	State and municipal	14,262		26,825		(12,563)		(46.8)	%	State and municipal	5,195		13,438		(8,243)		(61.3)	%
CLO Securities	CLO Securities	169,708		106,634		63,074		59.1	%	CLO Securities	249,079		181,011		68,068		37.6	%
Corporate bonds	Corporate bonds	1,249		2,056		(807)		(39.3)	%	Corporate bonds	760		1,263		(503)		(39.8)	%
SBA pooled securities	SBA pooled securities	2,064		2,698		(634)		(23.5)	%	SBA pooled securities	1,664		1,828		(164)		(9.0)	%
		$	238,434	$	182,426	$	56,008	30.7	%		$	303,779	$	254,504	$	49,275	19.4	%

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Our available for sale CLO portfolio consists of investment grade positions in high ranking tranches within their respective securitization structures. As of ~~September~~June 30, ~~2022,~~2023, the Company determined that all impaired available for sale securities experienced a decline in fair value below their amortized cost basis due to noncredit-related factors. Therefore, the Company carried no ACL at ~~September~~June 30, ~~2022.~~2023. Our available for sale securities can be used for pledging to secure FHLB borrowings and public deposits, or can be sold to meet liquidity needs.

As of ~~September~~June 30, ~~2022,~~2023, we held investments classified as held to maturity with an amortized cost, net of ACL, of ~~$4.1~~$3.4 million, a decrease of ~~$0.8~~$0.7 million from ~~$4.9~~$4.1 million at December 31, ~~2021.~~2022. See previous discussion of Credit Loss Expense related to our held to maturity securities for further details regarding the nature of these securities and the required ACL at ~~September~~June 30, ~~2022.~~2023.

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


		Maturity as of September 30, 2022																					Maturity as of June 30, 2023
		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	$	1,837	1.97	%	$	9,167	3.90	%	$	2,111	2.45	%	$	36,847	3.32	%	$	49,962	3.35	%	Mortgage-backed securities	$	8	3.73	%	$	8,852	4.68	%	$	1,406	2.63	%	$	40,803	3.71	%	$	51,069	3.85	%
Asset-backed securities	Asset-backed securities	—		—	%	—		—	%	5,000		1.32	%	1,501		3.72	%	6,501		1.88	%	Asset-backed securities	—		—	%	—		—	%	—		—	%	1,286		6.43	%	1,286		6.43	%
State and municipal	State and municipal	1,027		2.64	%	2,621		3.06	%	1,168		2.48	%	9,669		2.50	%	14,485		2.61	%	State and municipal	723		2.55	%	2,213		3.11	%	828		2.54	%	1,519		2.40	%	5,283		2.74	%
CLO securities	CLO securities	—		—	%	—		—	%	52,265		5.44	%	123,121		4.15	%	175,386		4.53	%	CLO securities	—		—	%	—		—	%	72,194		7.22	%	178,066		7.25	%	250,260		7.24	%
Corporate bonds	Corporate bonds	500		3.74	%	501		4.23	%	—		—	%	269		5.07	%	1,270		4.20	%	Corporate bonds	501		6.06	%	—		—	%	—		—	%	268		5.14	%	769		5.76	%
SBA pooled securities	SBA pooled securities	—		—	%	2		5.12	%	20		8.77	%	2,124		4.07	%	2,146		4.11	%	SBA pooled securities	—		—	%	—		—	%	473		2.67	%	1,300		4.49	%	1,773		4.00	%
Total available for sale securities	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	%	Total available for sale securities	$	1,232	3.99	%	$	11,065	4.37	%	$	74,901	7.06	%	$	223,242	6.53	%	$	310,440	6.57	%

Held to maturity securities:	Held to maturity securities:	$	—	—	%	$	—	—	%	$	6,579	2.44	%	$	—	—	%	$	6,579	2.44	%	Held to maturity securities:	$	—	—	%	$	1,913	—	%	$	4,343	3.96	%	$	—	—	%	$	6,256	2.44	%

Liabilities

Total liabilities were ~~$4.751~~$4.819 billion as of ~~September~~June 30, ~~2022,~~2023, compared to ~~$5.097~~$4.445 billion at December 31, ~~2021, a decrease~~2022, an increase of ~~$346.1~~$374.4 million, the components of which are discussed below.

Deposits

The following table summarizes our deposits:


(Dollars in thousands)	(Dollars in thousands)	September 30, 2022		December 31, 2021		$ Change		% Change		(Dollars in thousands)	June 30, 2023		December 31, 2022		$ Change		% Change
Noninterest bearing demand	Noninterest bearing demand	$	1,897,309	$	1,925,370	$	(28,061)	(1.5	%)	Noninterest bearing demand	$	1,608,411	$	1,756,680	$	(148,269)	(8.4	%)
Interest bearing demand	Interest bearing demand	883,581		830,019		53,562		6.5	%	Interest bearing demand	778,972		856,512		(77,540)		(9.1	%)
Individual retirement accounts	Individual retirement accounts	74,423		83,410		(8,987)		(10.8	%)	Individual retirement accounts	57,575		68,125		(10,550)		(15.5	%)
Money market	Money market	505,082		520,358		(15,276)		(2.9	%)	Money market	569,318		508,534		60,784		12.0	%
Savings	Savings	546,862		504,146		42,716		8.5	%	Savings	524,210		551,780		(27,570)		(5.0	%)
Certificates of deposit	Certificates of deposit	373,734		533,206		(159,472)		(29.9	%)	Certificates of deposit	270,273		319,150		(48,877)		(15.3	%)
Brokered time deposits	Brokered time deposits	160,363		40,125		120,238		299.7	%	Brokered time deposits	484,666		110,555		374,111		338.4	%
Other brokered deposits	Other brokered deposits	—		210,045		(210,045)		(100.0	%)	Other brokered deposits	41		—		41		100.0	%
Total Deposits	Total Deposits	$	4,441,354	$	4,646,679	$	(205,325)	(4.4	%)	Total Deposits	$	4,293,466	$	4,171,336	$	122,130	2.9	%

Our total deposits ~~decreased $205.3~~increased $122.1 million, or ~~4.4%~~2.9%, primarily due to an increase in brokered time deposits and money market deposits. The Company experienced decreases in ~~other brokered~~interest bearing demand deposits, individual retirement accounts, savings deposits and 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 nine months ended September 30, 2022. As of ~~September~~June 30, ~~2022,~~2023, interest bearing demand deposits, noninterest bearing deposits, money market deposits, other brokered deposits, and savings deposits accounted for ~~86%~~81% of our total deposits, while individual retirement accounts, certificates of deposit, and brokered time deposits made up ~~14%~~19% of total deposits.

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At ~~September~~June 30, ~~2022~~2023 we held ~~$68.5~~$59.1 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 ~~September~~June 30, ~~2022:~~2023:


(Dollars in thousands)	Over $250,000
Maturity
3 months or less	$	~~23,581~~10,712
Over 3 through 6 months	~~11,467~~14,879
Over 6 through 12 months	~~17,264~~15,017
Over 12 months	~~6,661~~10,529
	$	~~58,973~~51,137

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


		Three Months Ended September 30, 2022						Three Months Ended September 30, 2021							Three Months Ended June 30, 2023						Three Months Ended June 30, 2022

(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	$	879,851	0.37	%	20	%	$	779,625	0.22	%	16	%	Interest bearing demand	$	804,799	0.36	%	20	%	$	876,536	0.25	%	19	%
Individual retirement accounts	Individual retirement accounts	77,004		0.50	%	2	%	86,571		0.58	%	2	%	Individual retirement accounts	60,171		0.69	%	1	%	81,678		0.52	%	2	%
Money market	Money market	524,483		0.24	%	12	%	417,435		0.21	%	9	%	Money market	506,782		1.33	%	13	%	545,508		0.21	%	12	%
Savings	Savings	524,106		0.16	%	12	%	479,915		0.15	%	10	%	Savings	529,952		0.36	%	13	%	528,450		0.15	%	11	%
Certificates of deposit	Certificates of deposit	407,130		0.55	%	9	%	595,001		0.48	%	12	%	Certificates of deposit	286,253		1.26	%	7	%	461,280		0.48	%	10	%
Brokered time deposits	Brokered time deposits	186,856		1.59	%	4	%	99,116		0.12	%	2	%	Brokered time deposits	244,721		4.63	%	6	%	101,270		1.20	%	2	%
Other brokered deposits	Other brokered deposits	26,758		—	%	1	%	441,446		0.20	%	9	%	Other brokered deposits	13,188		5.26	%	—	%	76,155		3.85	%	2	%
Total interest bearing deposits	Total interest bearing deposits	2,626,188		0.41	%	60	%	2,899,109		0.27	%	60	%	Total interest bearing deposits	2,445,866		1.13	%	60	%	2,670,877		0.41	%	58	%
Noninterest bearing demand	Noninterest bearing demand	1,885,111		—		40	%	1,912,398		—		40	%	Noninterest bearing demand	1,598,733		—		40	%	1,951,725		—		42	%
Total deposits	Total deposits	$	4,511,299	0.24	%	100	%	$	4,811,507	0.16	%	100	%	Total deposits	$	4,044,599	0.68	%	100	%	$	4,622,602	0.23	%	100	%

		Nine Months Ended September 30, 2022						Nine Months Ended September 30, 2021							Six Months Ended June 30, 2023						Six Months Ended June 30, 2022
(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	$	861,753	0.28	%	19	%	$	746,590	0.23	%	15	%	Interest bearing demand	$	820,467	0.32	%	20	%	$	855,756	0.23	%	18	%
Individual retirement accounts	Individual retirement accounts	80,437		0.51	%	2	%	88,579		0.69	%	2	%	Individual retirement accounts	62,663		0.61	%	2	%	82,182		0.52	%	2	%
Money market	Money market	536,130		0.22	%	12	%	404,651		0.22	%	8	%	Money market	502,456		1.13	%	12	%	542,050		0.21	%	12	%
Savings	Savings	516,972		0.16	%	11	%	465,041		0.15	%	10	%	Savings	537,404		0.29	%	13	%	519,269		0.15	%	11	%
Certificates of deposit	Certificates of deposit	461,862		0.49	%	10	%	674,284		0.76	%	14	%	Certificates of deposit	292,665		1.00	%	7	%	489,682		0.47	%	11	%
Brokered time deposits	Brokered time deposits	102,793		1.37	%	2	%	134,781		0.26	%	3	%	Brokered time deposits	172,354		3.95	%	4	%	60,065		1.02	%	1	%
Other brokered deposits	Other brokered deposits	109,684		0.83	%	2	%	641,959		0.16	%	13	%	Other brokered deposits	6,768		5.24	%	—	%	142,710		0.97	%	3	%
Total interest bearing deposits	Total interest bearing deposits	2,669,631		0.35	%	58	%	3,155,885		0.33	%	65	%	Total interest bearing deposits	2,394,777		0.85	%	58	%	2,691,714		0.32	%	58	%
Noninterest bearing demand	Noninterest bearing demand	1,924,556		—		42	%	1,720,213		—		35	%	Noninterest bearing demand	1,651,463		—		42	%	1,944,606		—		42	%
Total deposits	Total deposits	$	4,594,187	0.20	%	100	%	$	4,876,098	0.21	%	100	%	Total deposits	$	4,046,240	0.50	%	100	%	$	4,636,320	0.19	%	100	%

The Company's deposit base is made up of a high number of customers with accounts spread across 63 locations in six states. Our deposit base is diverse in terms of both geography and industry, comprised largely of retail as well small-to-medium sized business customers. The majority of our deposits are FDIC insured, and the runoff we have seen in the first half of the year appears to be a continuation of the trend we have seen over the past several quarters: the normalizing of pandemic-era surge balances and the movement of rate-sensitive excess balances to other investments.

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Other Borrowings

Customer Repurchase Agreements

The following provides a summary of our customer repurchase agreements as of and for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and the year ended December 31, ~~2021:~~2022:


(Dollars in thousands)	(Dollars in thousands)	September 30, 2022			December 31, 2021			(Dollars in thousands)	June 30, 2023			December 31, 2022
Amount outstanding at end of period	Amount outstanding at end of period	$	13,463		$	2,103		Amount outstanding at end of period	$	—		$	340
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	$	7,171		$	5,985		Average daily balance during the period	$	1,457		$	6,701
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	$	13,463		$	12,405		Maximum month-end balance during the period	$	3,208		$	13,463

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

FHLB Advances

The following provides a summary of our FHLB advances as of and for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and the year ended December 31, ~~2021:~~2022:


(Dollars in thousands)	(Dollars in thousands)	September 30, 2022			December 31, 2021			(Dollars in thousands)	June 30, 2023			December 31, 2022
Amount outstanding at end of period	Amount outstanding at end of period	$	30,000		$	180,000		Amount outstanding at end of period	$	280,000		$	30,000
Weighted average interest rate at end of period	Weighted average interest rate at end of period	2.76		%	0.15		%	Weighted average interest rate at end of period	5.18		%	4.25		%
Average amount outstanding during the period	Average amount outstanding during the period	83,022			37,671			Average amount outstanding during the period	251,961			69,658
Weighted average interest rate during the period	Weighted average interest rate during the period	0.86		%	0.24		%	Weighted average interest rate during the period	5.20		%	1.19		%
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	530,000			230,000

Our FHLB advances are collateralized by assets, including a blanket pledge of certain loans. At ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, we had ~~$736.0~~$613.1 million and ~~$798.8~~$646.3 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 nine months ended September 30, 2022 and the year ended December 31, 2021:~~

(Dollars in thousands) September 30, 2022 December 31, 2021
Amount outstanding at end of period $ — $ 27,144
Weighted average interest rate at end of period — % 0.35 %
Average amount outstanding during the period 896 118,880
Weighted average interest rate during the period 0.32 % 0.35 %
Highest month end balance during the period — 181,635

We did not have any PPPLF borrowings outstanding at 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 ~~September~~June 30, ~~2022:~~2023:


(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	$	38,780	2029	4.875%	11/27/2024	Three Month LIBOR plus 3.330%	$	1,218	Subordinated Notes issued November 27, 2019	$	39,500	$	39,017	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		68,807		2031	3.500%	9/01/2026	Three Month SOFR(1) plus 2.860%	$	1,776	Subordinated Notes issued August 26, 2021	70,000		69,217		2031	3.500%	9/01/2026	Three Month SOFR(1) plus 2.860%	$	1,776
		$	109,500	$	107,587								$	109,500	$	108,234

(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.

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.

Table of Contents

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 ~~September~~June 30, ~~2022:~~2023:


(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	$	13,452	September 2033	LIBOR + 3.00%	National Bancshares Capital Trust II	$	15,464	$	13,559	September 2033	LIBOR + 3.00%
National Bancshares Capital Trust III	National Bancshares Capital Trust III	17,526		13,353		July 2036	LIBOR + 1.64%	National Bancshares Capital Trust III	17,526		13,522		July 2036	LIBOR + 1.64%
ColoEast Capital Trust I	ColoEast Capital Trust I	5,155		3,739		September 2035	LIBOR + 1.60%	ColoEast Capital Trust I	5,155		3,797		September 2035	LIBOR + 1.60%
ColoEast Capital Trust II	ColoEast Capital Trust II	6,700		4,847		March 2037	LIBOR + 1.79%	ColoEast Capital Trust II	6,700		4,913		March 2037	LIBOR + 1.79%
Valley Bancorp Statutory Trust I	Valley Bancorp Statutory Trust I	3,093		2,903		September 2032	LIBOR + 3.40%	Valley Bancorp Statutory Trust I	3,093		2,914		September 2032	LIBOR + 3.40%
Valley Bancorp Statutory Trust II	Valley Bancorp Statutory Trust II	3,093		2,722		July 2034	LIBOR + 2.75%	Valley Bancorp Statutory Trust II	3,093		2,739		July 2034	LIBOR + 2.75%
		$	51,031	$	41,016				$	51,031	$	41,444

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 ~~$41.0~~$41.4 million was allowed in the calculation of Tier I capital as of ~~September~~June 30, ~~2022.~~

2023.

~~Table of Contents~~

Capital Resources and Liquidity Management

Capital Resources

Our stockholders’ equity totaled ~~$891.2~~$833.5 million as of ~~September~~June 30, ~~2022,~~2023, compared to ~~$858.9~~$889.0 million as of December 31, ~~2021, an increase~~2022, a decrease of ~~$32.3~~$55.5 million. Stockholders’ equity ~~increased~~decreased during this period primarily due to treasury stock purchases made under our accelerated share repurchase program, offset in part by our net income of ~~$84.8 million, offset in part by shares purchased into treasury stock under our share repurchase program of $50.0~~$18.7 million.

Liquidity Management

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

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

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

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In addition to the liquidity provided by the sources described above, our subsidiary bank maintains correspondent relationships with other banks in order to sell loans or purchase overnight funds should additional liquidity be needed. As of ~~September~~June 30, ~~2022,~~2023, TBK Bank had ~~$518.1~~$549.1 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. Additionally, as of June 30, 2023, we had $613.1 million in unused and available advances from the FHLB.We routinely utilize FHLB advances to support the fluctuating and sometimes unpredictable balances in our mortgage warehouse lending portfolio, and we will continue to do so.

Contractual Obligations

The following table summarizes our contractual obligations and other commitments to make future payments as of ~~September~~June 30, ~~2022.~~2023. 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 - September 30, 2022
(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 $ 13,463 $ 13,463 $ — $ — $ —
Federal Home Loan Bank advances 30,000 30,000
Subordinated notes 109,500 — — — 109,500
Junior subordinated debentures 51,031 — — — 51,031
Operating lease agreements 39,961 5,600 10,523 9,751 14,087
Time deposits with stated maturity dates 608,520 477,072 119,484 10,379 1,585
Total contractual obligations $ 852,475 $ 496,135 $ 130,007 $ 50,130 $ 176,203

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	Payments Due by Period - June 30, 2023
(Dollars in thousands)	Total		One Year or Less		After One but within Three Years		After Three but within Five Years		After Five Years

Federal Home Loan Bank advances	$	280,000	$	250,000	$	—	$	30,000	$	—
Subordinated notes	109,500		—		—		—		109,500
Junior subordinated debentures	51,031		—		—		—		51,031
Operating lease agreements	39,079		6,546		12,166		9,437		10,930
Time deposits with stated maturity dates	812,514		755,293		48,525		8,145		551
Total contractual obligations	$	1,292,124	$	1,011,839	$	60,691	$	47,582	$	172,012

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 1211 – 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 109 – Off-Balance Sheet Loan Commitments in the accompanying condensed notes to the consolidated financial statements included elsewhere in this report.

Critical Accounting Policies and Estimates

Our accounting policies are fundamental to understanding our management’s discussion and analysis of our results of operations and financial condition. We have identified certain significant accounting policies which involve a higher degree of judgment and complexity in making certain estimates and assumptions that affect amounts reported in our consolidated financial statements. The significant accounting policy which we believe to be the most critical in preparing our consolidated financial statements is the determination of the allowance for credit losses. Since December 31, ~~2021,~~2022, 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~~2022 Form 10-K.

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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;

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•our ability to maintain our historical earnings trends;

•changes in management personnel;

•interest rate risk;

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

•credit risk associated with our loan portfolio;

•lack of seasoning in our loan portfolio;

•deteriorating asset quality and higher loan charge-offs;

•time and effort necessary to resolve nonperforming assets;

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

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

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

•lack of liquidity;

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

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

•our risk management strategies;

•environmental liability associated with our lending activities;

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

•the accuracy of our financial statements and related disclosures;

•material weaknesses in our internal control over financial reporting;

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•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.~~requirements and;

•the impact of COVID-19 on our business.

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

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ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Asset/Liability Management and Interest Rate Risk

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

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

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

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

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The following table summarizes simulated change in net interest income versus unchanged rates as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021:~~2022:


		September 30, 2022				December 31, 2021					June 30, 2023				December 31, 2022
		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	17.3	%	19.0	%	17.5	%	23.6	%	+400 basis points	18.4	%	22.1	%	19.4	%	24.9	%
+300 basis points	+300 basis points	12.9	%	14.1	%	13.1	%	18.1	%	+300 basis points	13.7	%	16.4	%	14.5	%	18.5	%
+200 basis points	+200 basis points	8.5	%	9.2	%	8.7	%	12.8	%	+200 basis points	9.1	%	10.9	%	9.7	%	12.2	%
+100 basis points	+100 basis points	4.2	%	4.5	%	4.4	%	7.5	%	+100 basis points	4.5	%	5.4	%	4.8	%	6.1	%
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	(4.3	%)	(4.7	%)	(2.7	%)	(1.4	%)	-100 basis points	(4.7	%)	(5.7	%)	(5.0	%)	(6.2	%)
-200 basis points										-200 basis points	(9.8	%)	(11.7	%)	(10.4	%)	(13.0	%)

The following table presents the change in our economic value of equity as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, assuming immediate parallel shifts in interest rates:

Economic Value of Equity at Risk (%)
September 30, 2022 December 31, 2021
+400 basis points 19.4 % 31.1 %
+300 basis points 15.1 % 24.3 %
+200 basis points 10.5 % 16.9 %
+100 basis points 5.4 % 8.8 %
Flat rates 0.0 % 0.0 %
-100 basis points (6.1 %) (9.5 %)

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	Economic Value of Equity at Risk (%)
	June 30, 2023		December 31, 2022
+400 basis points	19.1	%	20.0	%
+300 basis points	15.2	%	15.7	%
+200 basis points	10.7	%	10.9	%
+100 basis points	5.8	%	5.8	%
Flat rates	0.0	%	0.0	%
-100 basis points	(6.3	%)	(6.4	%)
-200 basis points	(13.4	%)	(13.7	%)

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

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

ITEM 4

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended ~~September~~June 30, ~~2022,~~2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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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~~hauled 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 to us 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.~~2022.

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

~~None.~~On February 1, 2023, the Company entered into an accelerated share repurchase (“ASR”) agreement to repurchase $70,000,000 of the Company’s common stock. The ASR is part of the Company’s previously announced plan to repurchase up to $100,000,000 of the Company’s common stock and is within the remaining amount authorized by the Company’s Board of Directors pursuant to such plan. Under the terms of the ASR agreement, the Company received an initial delivery of 961,373 common shares representing approximately 80% of the expected total to be repurchased. On April 28, 2023, the ASR was completed and we received an additional delivery of 247,954 common shares.

The following repurchases were made under stock repurchase programs during the three months ended June 30, 2023:


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, 2023 — April 30, 2023	247,954	$	57.88	247,954	50,000,000
May 1, 2023 — May 31, 2023	—	$	—	—	50,000,000
June 1, 2023 — June 30, 2023	—	$	—	—	50,000,000
Total	247,954	$	58.25	247,954

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Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

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Not applicable.

Item 5. Other Information

~~None.~~Insider Trading Arrangements and Policies

On June 15, 2023, Mr. Aaron Graft, the Company’s Vice Chairman and Chief Executive Officer, adopted a written plan for the sale of our common stock that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act (the “Trading Plan”). The Trading Plan covers the sale of up to 75,000 shares of the Company’s common stock in several transactions over a period commencing after the later of (1) 90 days from the execution of the Trading Plan and (2) the second trading day following the public disclosure of the Company’s financial results on Form 10-Q for the quarter ended June 30, 2023, and will cease upon the earlier of June 11, 2024 or the sale of all shares subject to the Trading Plan.

During the second quarter of 2023, none of our other directors or executive officers adopted Rule 10b5-1 trading plans and none of our directors or executive officers terminated a Rule 10b5-1 trading plan or adopted or terminated a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K).

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						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 December 1, 2022.

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

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

3.6						Amendment No. 2 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 December 1, 2022.

10.1†						Form of Restricted Stock Unit Award Agreement under Triumph Financial, Inc. 2014 Omnibus Incentive Plan .

10.2†						Form of Performance Restricted Stock Unit Award Agreement (Bank) under Triumph Financial, Inc. 2014 Omnibus Incentive Plan.

10.3†						Form of Performance Restricted Stock Unit Award Agreement (FinTech) under Triumph Financial, Inc. 2014 Omnibus Incentive Plan .

10.4†						Form of Nonqualified Option Agreement under Triumph Financial, Inc. 2014 Omnibus Incentive Plan.

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

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

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

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

101.SCH						Inline XBRL Taxonomy Extension Schema Document.

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document.

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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.

9795

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SIGNATURES

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


		TRIUMPH ~~BANCORP,~~FINANCIAL INC.
		(Registrant)

Date:	~~October 19, 2022~~July 20, 2023	/s/ Aaron P. Graft
		Aaron P. Graft President and Chief Executive Officer

Date:	~~October 19, 2022~~July 20, 2023	/s/ W. Bradley Voss
		W. Bradley Voss Chief Financial Officer

9896


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	4846

Item 3.	Quantitative and Qualitative Disclosures About Market Risks	9591

Item 4.	Controls and Procedures	9692

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	9693

Item 1A.	Risk Factors	9693

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	9693

Item 3.	Defaults Upon Senior Securities	9793

Item 4.	Mine Safety Disclosures	9793

Item 5.	Other Information	9794

Item 6.	Exhibits	9794


(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


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


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

Nine months ended September 30, 2022



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






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



	$	—	$	—	$	741	$	741	1


(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