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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Cautionary Note Regarding 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. 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 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;

•our ability to mitigate our risk exposures;

•our ability to maintain our historical earnings trends;

•changes in management personnel;

•interest rate risk;

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

•credit risk associated with our loan portfolio;

•lack of seasoning in our loan portfolio;

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•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 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;

•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;

•increases in our capital 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.

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 consolidated financial statements and the accompanying notes included elsewhere in this Annual Report on Form 10-K. 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 “Cautionary Note Regarding Forward-Looking Statements” section above.

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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 December 31, 2022, we had consolidated total assets of $5.334 billion, total loans held for investment of $4.120 billion, total deposits of $4.171 billion and total stockholders’ equity of $889.0 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 small to medium sized trucking fleets ("Carriers") at a discount to provide immediate working capital to such Carriers. We commenced these operations in 2012 through the acquisition of our factoring subsidiary, Triumph Financial Services. Triumph 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 quick pay 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.

At December 31, 2022, our business is primarily focused on providing financial services to participants in the for-hire trucking ecosystem in the United States, including Brokers, Shippers, Factors and Carriers. Within such ecosystem, we operate our TriumphPay payments platform, which connects such parties to streamline and optimize the presentment, audit and payment of transportation invoices. We also act as capital provider to the Carrier industry through our factoring subsidiary, Triumph Financial Services LLC. 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 year ended December 31, 2022, our Banking segment generated 47% of our total revenue (comprised of interest and noninterest income), our Factoring segment generated 46% of our total revenue, our Payments segment generated 7% of our total revenue, and our Corporate segment generated less than 1% of our total revenue.

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2022 Overview

Net income available to common stockholders for the year ended December 31, 2022 was $99.1 million, or $3.96 per diluted share, compared to net income available to common stockholders for the year ended December 31, 2021 of $109.8 million, or $4.35 per diluted share. Excluding gains and expenses related to merger and acquisition related activities, including divestitures, adjusted net income to common stockholders was $112.0 million, or $4.44 per diluted share, for the year ended December 31, 2021. There were no such activities during the year ended December 31, 2022. For the year ended December 31, 2022, our return on average common equity was 11.69% and our return on average assets was 1.79%.

At December 31, 2022, we had total assets of $5.334 billion, including gross loans of $4.120 billion, compared to $5.956 billion of total assets and $4.868 billion of gross loans at December 31, 2021. Total loans decreased $747.3 million during the year ended December 31, 2022. Our Banking loans, which constitute 70% of our total loan portfolio at December 31, 2022, decreased from $3.168 billion in aggregate as of December 31, 2021 to $2.883 billion as of December 31, 2022, a decrease of 9.0%. Our Factoring factored receivables, which constitute 28% of our total loan portfolio at December 31, 2022, decreased from $1.546 billion in aggregate as of December 31, 2021 to $1.152 billion as of December 31, 2022, a decrease of 25.5%. 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 2% of our total loan portfolio at December 31, 2022, decreased from $153.2 million in aggregate as of December 31, 2021 to $85.7 million as of December 31, 2022, a decrease of 44.1%.

At December 31, 2022, we had total liabilities of $4.445 billion, including total deposits of $4.171 billion, compared to $5.097 billion of total liabilities and $4.647 billion of total deposits at December 31, 2021. Deposits decreased $475.3 million during the year ended December 31, 2022.

At December 31, 2022, we had total stockholders' equity of $889.0 million. During the year ended December 31, 2022, total stockholders’ equity increased $30.1 million, primarily due to our net income during the period, offset in part by our treasury stock purchases made under our share repurchase program and modified "Dutch auction" tender offer. Capital ratios remained strong with Tier 1 capital and total capital to risk weighted assets ratios of 14.57% and 17.66%, respectively, at December 31, 2022.

The total dollar value of invoices purchased by Triumph Financial Services during the year ended December 31, 2022 was $14.943 billion with an average invoice size of $2,261. The transportation average invoice size for the year was $2,161. This compares to invoice purchase volume of $13.125 billion with an average invoice size of $2,265 and average transportation invoice size of $2,152 during the same period a year ago.

TriumphPay processed 17.7 million invoices paying Carriers a total of $23.263 billion during the year ended December 31, 2022. This compares to processed volume of 13.5 million invoices for a total of $15.162 billion during the same period a year ago.

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 year ended December 31, 2022, we repurchased into treasury stock under the stock repurchase program 709,795 shares at an average price of $70.41 for a total of $50.0 million, completing this stock repurchase program.

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

In December 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.

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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 10 – Derivative Financial Instruments in the accompanying condensed notes to the consolidated financial statements included elsewhere in this report.

Equity Method Investment

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

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

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

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.

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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.

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

For further information on the above transactions, see Note 8 – Equity Method Investment in the accompanying condensed notes to the consolidated financial statements included elsewhere in this report.

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 year ended December 31, 2022.

At December 31, 2022, the carrying value of the acquired over-formula advances was $8.2 million, the total reserve on acquired over-formula advances was $8.2 million and the balance of our indemnification asset, the value of the payment that would be due to us from CVLG in the event that these over-advances are charged off, was $3.9 million.

Misdirected Payments

As of December 31, 2022 we carry a separate $19.4 million receivable (the “Misdirected Payments”) payable by the United States Postal Service (“USPS”) arising from accounts factored to the largest over-formula advance carrier. This amount is separate from the acquired Over-Formula Advances. The amounts represented by this receivable were paid by the USPS directly to such customer in contravention of notices of assignment delivered to, and previously honored by, the USPS, which amount was then not remitted back to us by such customer as required. The USPS disputes their obligation to make such payment, citing purported deficiencies in the notices delivered to them. We have commenced litigation in the United States Court of Federal Claims against the USPS seeking a ruling that the USPS was obligated to make the payments represented by this receivable directly to us. Based on our legal analysis and discussions with our counsel advising us on this matter, we continue to believe it is probable that we will prevail in such action and that the USPS will have the capacity to make payment on such receivable. Consequently, we have not reserved for such balance as of December 31, 2022. The full amount of such receivable is reflected in non-performing and past due factored receivables as of December 31, 2022 in accordance with our policy. As of December 31, 2022, the entire $19.4 million Misdirected Payments amount was greater than 90 days past due.

2021 Items of Note

HubTran, Inc.

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

The acquisition of HubTran enables us to create a payments network that will allow 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, 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 transactions, see Note 2 – Acquisitions and Divestitures in the accompanying notes to the consolidated financial statements included elsewhere in this report.

Macroeconomic Considerations

As a business operating in the bank and non-bank financial services industries, our business and operations are sensitive to general business and economic conditions in the United States. If the U.S. economy weakens, our growth and profitability from our operations, including lending and deposit services, could be constrained.

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During 2020 and 2021, COVID-19 adversely impacted a broad range of industries in which the Company’s customers operated and the virus had an impact on our operations as disclosed in prior filings. Throughout the year ended December 31, 2022, epidemiological conditions remained relatively benign and the Company did not experience any direct material impacts on operations due to COVID-19. If there is a prolonged resurgence in the virus, the Company could experience adverse effects on its business, financial condition, results of operations and cash flows that are not possible to predict at December 31, 2022.

During 2022, the U.S. experienced decades-high inflation and a rising interest rate environment not seen in several years. Such factors could make it more difficult for our borrowers to repay their loans, potentially leading to increased delinquencies, increased volume of loan modifications, and financial losses for the Company. In terms of our borrowers' repayment of loans, we did not experience any of these effects during 2022, and asset quality metrics, including loan delinquencies, nonperforming assets, and charge-offs, remain stable and acceptable at December 31, 2022. Further, while we have not yet experienced deposit run-off that is disproportionate from the banking industry, our ability to retain or grow our deposit base could be hindered by higher market interest rates in the future. The Company did experience the direct impact of inflation and rising costs in the form of higher salaries, general and administrative costs due to wage inflation and price increases throughout the year ended December 31, 2022. While the Company has not yet experienced any material adverse effects, the prolonged impact of a higher interest rate environment and high inflation could cause the Company to experience adverse effects on its business, financial condition, results of operations and cash flows that are not possible to predict at December 31, 2022.

Given the nature of the Company's operations, supply chain disruptions do not have a direct impact on the Company; however, such disruptions could make it more difficult for our borrowers to repay their loans potentially leading to increased delinquencies, increased volume of loan modifications, and financial losses for the Company. As previously discussed, we did not experience such adverse effects during the year ended December 31, 2022. Supply chain disruptions most prominently impact our trucking transportation and factoring operations discussed in terms of trucking volume in the following section. While the Company has not yet experienced any material adverse effects, the prolonged impact of supply chain disruptions could cause the Company to experience adverse effects on its business, financial condition, results of operations and cash flows that are not possible to predict at December 31, 2022.

While economic conditions in foreign countries, including impacts related to the war in Ukraine, could affect the stability of global financial markets, which could hinder U.S. economic growth, we did not experience a financial impact due to such conditions during the year ended December 31, 2022. While the Company has not yet experienced any material adverse effects, the prolonged impact of the war in Ukraine, or other global economic events, could cause the Company to experience adverse effects on its business, financial condition, results of operations and cash flows that are not possible to predict at December 31, 2022.

Trucking Transportation and Factoring

The volume of freight in the truckload sector did not experience the typical seasonal bounce during the fourth quarter of 2022 as diesel prices remained high and spot rates (a reflection of real-time balance of carrier supply and shipper demand in the market) continued to edge down. The year ended December 31, 2022 ended with lower spot rates (excluding fuel) than those experienced during the first quarter of the year. The number of small carriers that are leaving the market or sitting on the sidelines increased throughout the year as capacity caught up with demand and spot rates are seen as below breakeven given higher driver wages, cost of insurance, repairs, elevated debt service from elevated equipment purchases and the higher price of diesel. The confluence of these circumstances resulted in a steady decline in invoice prices and costs of new and used equipment throughout the latter half of 2022.

The transportation factoring industry continues to fight headwinds due to higher cost of capital and lower average invoices. That being said, we have sufficient access to capital, low funding costs, and an ability to diversify factoring income. We continue to focus our efforts on technology initiatives to be more efficient, support the enterprise, and enhance our customer experience while delivering various products to strengthen our clients throughout their business lifecycle. Our plan is for managed growth in our factoring segment with a greater emphasis on enhancing efficiency and profitability.

Climate Change

Refer to Item 1. Business for background as it relates to the Company and climate change.

There have been significant completed and pending developments in federal and state legislation and regulation regarding climate change in recent years. Given our size and the nature of our business, the incurred direct impact and expected future direct impact of climate-related regulation is not material, nor expected to be material, to our business, financial condition, or results of operations. Further, we have not experienced any physical effects of climate change on our operations and results.

We recognize that, while not material to our operations to-date, indirect consequences of climate-related regulation could exist that might be associated with our lending to certain types of customers who engage in activity that some could deem potentially harmful to the environment. The Company notes that the climate change landscape is constantly evolving and at this time, it is not possible for us to know or predict the full universe or extent that these indirect effects will have on the Company's future operations.

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While programs and initiatives focused on sustainability and resource conservation have been put in place by the Company, there have been no material past capital expenditures for climate-related projects. We do not plan to have material future capital expenditures for climate-related projects at this time. Additionally, we have not incurred any material compliance costs related to climate change.

Financial Highlights

The following table shows selected financial data for each of the years in the three year period ended December 31, 2022:

As of and for the years ended December 31,

(Dollars in thousands, except per share amounts) 2022 2021 2020

Income Statement Data:

Gain on sale of subsidiary or division — — 9,758

Balance Sheet Data:

Paycheck Protection Program Liquidity Facility — 27,144 191,860

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As of and for the years ended December 31,

Per Share Data:

Basic earnings per common share $ 4.06 $ 4.44 $ 2.56

Diluted earnings per common share $ 3.96 $ 4.35 $ 2.53

Adjusted Per Share Data(1):

Adjusted diluted earnings per common share $ 3.96 $ 4.44 $ 2.26

Performance ratios:

Return on average tangible common equity (1) 17.16 % 21.42 % 13.92 %

Cost of interest -bearing deposits 0.38 % 0.32 % 0.93 %

Net noninterest expense to average assets 4.48 % 3.87 % 2.98 %

Asset Quality ratios(3):

Nonperforming loans to total loans 1.17 % 0.95 % 1.16 %

Nonperforming assets to total assets 1.02 % 0.92 % 1.15 %

Net charge-offs to average loans 0.14 % 0.95 % 0.10 %

Capital ratios:

Common equity Tier 1 capital to risk-weighted assets 12.73 % 9.94 % 9.05 %

Total capital to risk-weighted assets 17.66 % 14.10 % 13.03 %

Total stockholders' equity to total assets 16.67 % 14.42 % 12.24 %

Tangible common stockholders' equity ratio (1) 11.41 % 9.46 % 8.56 %

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

•“Common stockholders’ equity” is defined as total stockholders’ equity at end of period less the liquidation preference value of the preferred stock.

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•“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, net of tax. In our judgment, the adjustments made to net income available to common stockholders allow management and investors to better assess our performance in relation to our core net income by removing the volatility associated with certain acquisition-related items and other discrete items that are unrelated to our core business. Weighted average diluted common shares outstanding are adjusted as a result of changes in their dilutive properties given the gain and expense adjustments described herein.

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

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

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

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

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

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

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

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

For the years ended December 31,

(3)Asset quality ratios exclude loans held for sale

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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:

As of and for the years ended December 31,

(Dollars in thousands, except per share amounts) 2022 2021 2020

Tangible common stockholders' equity ratio 11.41 % 9.46 % 8.56 %

Gain on sale of subsidiary or division — — (9,758)

Transaction related costs — 2,992 827

Tax effect of adjustments — (715) 2,254

Adjusted diluted earnings per common share $ 3.96 $ 4.44 $ 2.26

Return on average tangible common equity 17.16 % 21.42 % 13.92 %

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Years Ended December 31,

(Dollars in thousands, except per share amounts) 2022 2021 2020

Adjusted efficiency ratio:

Gain on sale of subsidiary or division — — (9,758)

Transaction related costs — (2,992) (827)

Adjusted net noninterest expense to average assets ratio:

Transaction related costs — (2,992) (827)

Gain on sale of subsidiary or division — — (9,758)

Adjusted net noninterest expense to average assets ratio 4.48 % 3.82 % 3.14 %

Results of Operations

For discussion of the results of operations for the year ended December 31, 2021 compared with the year ended December 31, 2020, see Triumph’s 2021 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 14, 2022.

Fiscal year ended December 31, 2022 compared with year ended December 31, 2021

Net Income

We earned net income of $102.3 million for the year ended December 31, 2022 compared to $113.0 million for the year ended December 31, 2021, a decrease of $10.7 million.

The results for the year ended December 31, 2021 were impacted by $3.0 million of transaction costs associated with the HubTran acquisition reported as noninterest expense. Excluding the transaction costs, net of taxes, we earned adjusted net income to common stockholders of $112.0 million for the year ended December 31, 2021. There were no such adjustments during the year ended December 31, 2022. The adjusted decrease in net income to common stockholders for the year ended December 31, 2022 compared to the year ended December 31, 2021 totaled $12.9 million and was driven by a $56.1 million increase in adjusted noninterest expense, a $15.8 million increase in credit loss expense, and a $2.0 million increase in adjusted income tax expense partially offset by a $31.4 million increase in net interest income and a $29.6 million increase in noninterest income.

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 deposits and other borrowed funds, referred to as a “rate change.”

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The following table presents the distribution of average assets, liabilities and equity, as well as interest income and fees earned on average interest-earning assets and interest expense paid on average interest-bearing liabilities:

For the years ended December 31,

Interest-earning assets:

Noninterest-earning assets:

Interest-bearing liabilities:

Deposits:

Noninterest-bearing liabilities and equity:

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.

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

For the Years Ended December 31,

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We earned net interest income of $400.5 million for the year ended December 31, 2022 compared to $369.1 million for the year ended December 31, 2021, an increase of $31.4 million, or 8.5%, primarily driven by the following factors.

Interest income increased $31.7 million, or 8.2%, in spite of of a decrease in total average interest earning assets of $370.0 million, or 6.7%, and a decrease in average total loans of $270.2 million, or 5.6%. The average balance of our higher yielding Factoring factored receivables increased $166.7 million, or 12.8%, driving the majority of the increase in interest income along with an increase in average Payments factored receivables. This was partially offset by a decrease in average Banking loans of $469.1 million, or 13.8%; however, our Banking loans benefited from rising rates in the macro economy which cushioned some of the decrease in interest income. Interest income from our Banking loans is impacted by our lower yielding mortgage warehouse lending product. The average mortgage warehouse lending balance was $638.4 million for the year ended December 31, 2022 compared to $792.2 million for the year ended December 31, 2021. A component of interest income consists of discount accretion on acquired loan portfolios; primarily our liquid credit portfolio made up of broadly syndicated national credits. We recognized discount accretion on purchased loans of $8.6 million and $9.3 million for the years ended December 31, 2022 and 2021, respectively.

Interest expense increased $0.3 million, or 1.7%, while average interest bearing liabilities decreased $505.8 million, or 15.0%. Even though average total interest bearing deposits decreased $429.1 million, or 14.0%, the decrease in average balance was offset by higher average rates discussed below.

Net interest margin increased to 7.82% for the year ended December 31, 2022 from 6.72% for the year ended December 31, 2021, an increase of 110 basis points, or 16.4%.

Our net interest margin was impacted by an increase in yield on our interest earning assets of 113 basis points to 8.18% for the year ended December 31, 2022. This increase was primarily driven by higher yields on loans which increased 97 basis points to 8.88% for the same period. While Factoring yield decreased period over period, average factored receivables as a percentage of the total loan portfolio increased which had a meaningful upward impact on total loan yield. Our transportation factoring balances, which generate a higher yield than our non-transportation factoring balances, increased as a percentage of the overall factoring portfolio to 96% at December 31, 2022 compared to 91% at December 31, 2021. Additionally, Banking and Payments yields increased period over period.

The increase in our net interest margin was also impacted by an increase in our average cost of interest bearing liabilities of 11 basis points. This increase was caused by higher interest rates paid on our interest bearing liabilities driven by changes in interest rates in the macro economy.

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Changes in net interest income due to changes in rates and volume. The following table shows the effects changes in average balances (volume) and average interest rates (rate) had on the interest earned in our interest-earning assets and the interest incurred on our interest-bearing liabilities for the periods indicated.For purposes of this table, changes attributable to both rate and volume which cannot be segregated have been allocated to volume.

Years Ended

Increase (Decrease) Due to: Increase (Decrease) Due to:

(Dollars in thousands) Rate Volume Net Change Rate Volume Net Change

Interest-earning assets:

Interest-bearing liabilities:

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 notes to the financial statements 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 (benefit):

(Dollars in thousands) 2022 2021 2020 $ Change % Change $ Change % Change

Credit loss expense (benefit) on:

Available for sale securities — — — — — % — — %

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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, 2022 and 2021, the Company determined that all impaired available for sale securities experienced a decline in fair value below the amortized cost basis due to noncredit-related factors. Therefore, the Company carried no ACL at those respective dates and there was no credit loss expense recognized by the Company during the years ended December 31, 2022 and 2021.

The ACL on held to maturity securities is estimated at each measurement date on a collective basis by major security type. At December 31, 2022 and 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 December 31, 2022 and 2021, the Company carried $6.5 million and $7.0 million of these HTM securities at amortized cost, respectively. The ACL on these balances was $2.4 million at December 31, 2022 and $2.1 million at December 31, 2021 and we recognized credit loss expense of $0.4 million during the year ended December 31, 2022. None of the overcollateralization triggers tied to the CLO securities were tripped as of December 31, 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 $42.8 million as of December 31, 2022, compared to $42.2 million as of December 31, 2021, representing an ACL to total loans ratio of 1.04% and 0.87% respectively.

Our credit loss expense on loans increased $15.0 million, or 188.4%, for the year ended December 31, 2022 compared to the year ended December 31, 2021.

The Over-Formula Advances classified as factored receivables and deemed to be purchased credit deteriorated ("PCD") from Covenant had an impact on credit loss expense during the year ended December 31, 2021. During that time, new adverse developments with the largest of the three Over-Formula Advance clients caused us to charge-off the entire Over-Formula Advance amount due from that client. This resulted in a net charge-off of $41.3 million; however, this net charge-off had no impact on credit loss expense for the year ended December 31, 2021 as the entire amount had been reserved in a prior period. In accordance with the Agreement reached with Covenant, Covenant reimbursed us for $35.6 million of this charge-off by drawing on its secured line of credit which has been paid in full as of December 31, 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 year ended December 31, 2021.

During the year ended December 31, 2022, we decreased our reserve on Over-Formula Advance clients reflecting payments made during the year. This resulted in a benefit to credit loss expense of $1.9 million. We continue to reserve the full balance of the Over-Formula Advance clients at December 31, 2022 which totals $8.2 million.

The increased credit loss expense for the year ended December 31, 2022 was primarily the result of projected improvement of the loss drivers during the prior year which resulted in a benefit to credit loss expense of $10.4 million for the year ended December 31, 2021. During the year ended December 31, 2022 the Company forecasted some deterioration in the loss factors as well as slower prepayment speeds which resulted in credit loss expense of $1.8 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 $4.2 million of credit loss expense during the year ended December 31, 2022 compared to a benefit to credit loss expense of $2.1 million during the same period a year ago.

Increased credit loss expense was also driven by charge-off activity. Net charge-offs were $6.4 million for the year ended December 31, 2022 and approximately $0.7 million of the gross charge-off balance had been reserved in a prior period. Net charge-offs were $45.6 million for the year ended December 31, 2021 and approximately $41.5 million of the gross charge-off balance had been reserved in a prior period.

Changes in loan volume and mix resulted in a benefit to credit loss expense of $4.6 million during the year ended December 31, 2022 compared to credit loss expense of $0.4 during the same period a year prior.

Credit loss expense for off balance sheet credit exposures increased $0.4 million, primarily due to the changes in the assumptions used to project the loss rates previously discussed as well as changes in the underlying exposures.

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Noninterest Income

The following table presents the major categories of noninterest income:

(Dollars in thousands) 2022 2021 2020 $ Change % Change $ Change % Change

Gain on sale of subsidiary or division — — 9,758 — — % (9,758) (100.0 %)

Noninterest income increased $29.6 million, or 54.3%. Changes in selected components of noninterest income in the above table are discussed below.

•Service Charges on Deposits. Service charges on deposit accounts, including overdraft and non-sufficient fund fees, decreased $0.9 million, or 11.4% consistent with decreased average deposit balances subject to such fees period over period.

•Card income. Card income decreased $0.7 million, or 7.5% primarily due to decreased debit card activity during the year ended December 31, 2022.

•Net gains (losses) on sale or call of securities. Net gains (losses) on sale or call of securities increased $2.5 million due to gains on the sale of certain available for sale CLOs during the year ended December 31, 2022.

•Net gains (losses) on sale of loans. Net gains (losses) on sale of loans increased $15.1 million, or 487.1%, due to the aforementioned gain on sales of factored receivables of $14.2 million and gain on sale of equipment loans of $3.9 million during the year ended December 31, 2022.

•Fee income. Fee income increased $6.6 million, or 37.4% primarily due to a $6.2 million increase in payment fees earned by TriumphPay Audit during the year ended December 31, 2022 compared to the same period a year ago. Additionally, wire fees increased $1.6 million period over period. These increases were partially offset by a decrease of $0.9 million in early termination fees driven by a combined $1.2 million of early termination fees charged to two customers during the year ended December 31, 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 $6.7 million, or 53.4%. primarily due to a gain of $8.9 million on the aforementioned termination of an interest rate swap recognized during the year ended December 31, 2022. During that same period, we recognized a net gain of $7.0 million on the aforementioned termination of WSI warrants and separate additional investment in WSI common stock. These increases were partially offset by a $4.2 million gain on our indemnification asset recognized during the year ended December 31, 2021 compared to a write off of the indemnification asset of $0.9 million during the same period of the current year. Additionally, bank owned life insurance gains decreased $1.2 million period over period due to decreased death benefit payouts during the year ended December 31, 2022. There were no other significant changes within the components of other noninterest income.

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Noninterest Expense

The following table presents the major categories of noninterest expense:

(Dollars in thousands) 2022 2021 2020 $ Change % Change $ Change % Change

Noninterest expense increased $53.1 million, or 18.5%. Noninterest expense for the year ended December 31, 2021 was impacted by $3.0 million of transaction costs associated with the HubTran Acquisition. There were no such adjustments during the year ended December 31, 2022. Excluding the acquisition transactions costs, we incurred adjusted noninterest expense of $284.5 for the year ended December 31, 2021, resulting in an adjusted net increase in noninterest expense of $56.1 million, or 19.7%. 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 $27.5 million, or 15.8%, which is primarily due to increase in the size of our workforce, merit and retention increases for existing employees, higher health insurance benefit costs, incentive compensation, and 401(k) expense. Further, the Company experienced macro trends related to labor market conditions that drove wage increases for some existing employees and employees hired during the year. The size of our workforce increased period over period in part due to the acquisition of HubTran as well as organic growth within the Company. Our average full-time equivalent employees were 1,368.7 and 1,198.3 for the years ended December 31, 2022 and 2021, respectively. Compensation paid to temporary contract labor increased $5.4 million period over period. Our bonus expense was relatively flat period over period, and sales commissions, primarily related to our operations at Triumph Financial Services and TriumphPay, decreased $1.9 million. Additionally, stock based compensation expense increased $0.9 million period over period.

•Occupancy, Furniture and Equipment. Occupancy, furniture and equipment expenses increased $2.3 million, or 9.4%, primarily due to growth in our operations.

•FDIC Insurance and Other Regulatory Assessments. FDIC insurance and other regulatory assessments decreased $0.6 million, or 27.1%, due to decreased assessments period over period.

•Professional Fees. Professional fees, which are primarily comprised of external audit, tax, consulting, and legal fees, increased $3.1 million, or 24.2%, primarily due to higher consulting fees.

•Amortization of intangible assets. Amortization of intangible assets increased $1.0 million, or 9.6%, primarily due to the additional intangibles recorded through the HubTran acquisition during the prior year.

•Advertising and promotion. Advertising and promotion expenses increased $1.0 million, or 9.6%, due to increased activity in this area period over period.

•Communications and Technology. Communications and technology expenses increased $13.4 million, or 49.9%, primarily as a result of increased spending on IT consulting and IT license and software maintenance to develop efficiency in our operations and improve the functionality of the TriumphPay platform period over period.

•Travel and entertainment. Travel and entertainment expenses increased $1.6 million, or 38.9%, primarily due to increased business development activity in this area period over period.

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•Other. Other noninterest expense, which includes loan-related expenses, software amortization, training and recruiting, postage, insurance, and subscription services, increased $2.3 million or 8.5%. despite a $1.4 million decrease in other loan related expenses period over period. There were no other significant increases or decreases in the individual components of other noninterest expense period over period..

Income Taxes

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

Income tax expense increased $2.7 million, or 8.5%, from $32.0 million for the year ended December 31, 2021 to $34.7 million for the year ended December 31, 2022. The increase in income tax expense period over period was driven by an increase in our effective tax rate. The effective tax rate was 25% and 22% for the years ended December 31, 2022 and 2021, respectively. The increase in the effective tax rate period over period was primarily driven by increased state apportionment in a number of larger states, state return to provision impact, a reduced windfall from restricted stock vesting and stock option exercises period over period, and an increase in disallowance of compensation cost to certain highly compensated executives pursuant to the completion of our strategic equity grant.

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 can consist of both invoices where we offer a Carrier a quick pay opportunity to receive payment at a discount in advance of the standard payment term for such invoice in exchange for the assignment of such invoice to us and from offering Brokers the ability to settle their invoices with us on an extended term following our payment to their Carriers as an additional liquidity option for such Brokers.

Reported segments and the financial information of the reported segments are not necessarily comparable with similar information reported by other financial institutions. Additionally, because of the interrelationships of the various segments, the information presented is not indicative of how the segments would perform if they operated as independent entities. Changes in management structure or allocation methodologies and procedures may result in future changes to previously reported segment financial data. The accounting policies of the segments are substantially the same as those described in Note 1 – Summary of Significant Accounting Policies in the accompanying notes to the consolidated financial statements included elsewhere in this report. Transactions between segments consist primarily of borrowed funds. Intersegment interest expense is allocated to the Factoring segment and the Payments segment (when the Payments segment is not self-funded) based on Federal Home Loan Bank advance rates. When the Payments segment is self-funded with funding in excess of its factored receivables, intersegment interest income is allocated based on the Federal Funds effective rate. Credit loss expense is allocated based on the segment’s ACL determination. Noninterest income and expense directly attributable to a segment are assigned accordingly. The majority of salaries and benefits expense for our executive leadership team, as well as other selling, general, and administrative shared services costs, including a significant amount of information technology expense, 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 Triumph Financial Services.

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

(Dollars in thousands)

Year Ended December 31, 2022 Banking Factoring Payments Corporate Consolidated

Intersegment interest allocations 9,567 (9,444) (123) — —

(Dollars in thousands)

Year Ended December 31, 2021 Banking Factoring Payments Corporate Consolidated

(Dollars in thousands)

Year Ended December 31, 2020 Banking Factoring Payments Corporate Consolidated

Gain on sale of subsidiary or division 9,758 — — — 9,758

(Dollars in thousands)

December 31, 2022 Banking Factoring Payments Corporate Eliminations Consolidated

(Dollars in thousands)

December 31, 2021 Banking Factoring Payments Corporate Eliminations Consolidated

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Banking

Gain on sale of subsidiary or division — — 9,758 — — % (9,758) (100.0) %

Our Banking segment’s operating income decreased $27.0 million, or 36.9%.

Interest income increased $6.3 million, or 3.3% due to increased yields on our Banking interest earning assets driven by rising rates in the macro economy. This increase was in spite of a decrease in total average interest earning assets at our bank. Average loans in our Banking segment decreased 13.8% from $3.411 billion for the year ended December 31, 2021 to $2.942 billion for the year ended December 31, 2022. The decrease in average loans at our Banking segment is consistent with our strategy to moderate growth in our banking markets.

Interest expense increased in spite of a decrease in average interest-bearing liabilities at our Banking segment. More specifically, average total interest-bearing deposits decreased $429.1 million, or 14.0%. The increase in interest expense was the result of an increase in our average cost of interest-bearing liabilities driven by changes in interest rates in the macro economy.

Credit loss expense at our Banking segment is made up of credit loss expense related to loans and credit loss expense related to off balance sheet commitments to lend. Credit loss expense related to loans was $3.2 million for the year ended December 31, 2022 compared to a benefit to credit loss expense on loans of $18.1 million for the year ended December 31, 2021. The increase in credit loss expense was primarily the result of slower projected prepayment speeds and deterioration of the loss driver assumptions that the Company forecasted over the reasonable and supportable forecast periods to calculate expected losses at our Banking segment. We also recorded more specific reserves at our Banking segment during the year ended December 31, 2022 compared to the same period a year ago. Changes in volume and mix also contributed to the increase in provision expense period over period; though to a lesser extent. We recorded $0.9 million of net charge-offs at our Banking segment during the year ended December 31, 2022 compared to insignificant charge-offs during the same period a year ago.

Credit loss expense for off balance sheet credit exposures increased $0.4 million from a benefit of $0.9 million for the year ended December 31, 2021 to a benefit of $0.5 million for the year ended December 31, 2022. The increase was primarily due to the changes in the assumptions used to project the loss rates previously discussed as well as changes in the underlying exposures.

Noninterest income at our Banking segment increased due to an increase of $2.5 million on the sales of certain available for sale CLOs as well as the $3.9 million gain on sale of equipment loans during the year ended December 31, 2022. Further, we recognized a gain of $8.9 million on the termination of an interest rate swap during the same period. These increases were partially offset by a $3.0 million decrease in gains on sale of liquid credit and mortgage loans and a $1.2 million decrease in bank owned life insurance gains. 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.

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Generally speaking, high-quality transaction deposits in the Banking segment have been stable, and deposit betas overall remain well-behaved. While rate exception pricing has become more frequent, we do not yet feel the need to raise published rates due to the relative stability of our core deposit base, our current liquidity position and the competitive dynamics of our local markets. We anticipate modest spread widening in the first quarter as the Fed raises rates further, but we expect rate competition for deposits to lower spreads gradually when the Fed eventually pauses. We have seen some modest runoff as households and businesses spend down the excess cash they accumulated during the pandemic but this doesn’t appear to be rate driven. The rate-driven attrition we have seen was mostly attributable to larger commercial relationships.

Year to date, our aggregate outstanding balances for our banking products, excluding intercompany loans, has decreased $285.2 million, or 9.0%, to $2.883 billion as of December 31, 2022. The following table sets forth our banking loans:

(Dollars in thousands) December 31,2022 December 31,2021 $ Change % Change

Banking

Factoring

Total interest expense — — — — — — —

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Year Ended December 31,

Year to date charge-off rate(1) 0.32 % 3.49 % 0.42 %

Factored receivables - transportation concentration 96 % 90 % 89 %

Average invoice size - transportation $ 2,161 $ 2,152 $ 1,682

Average invoice size - non-transportation $ 5,945 $ 5,041 $ 4,671

(1) Net charge-offs for the year ended December 31, 2021 includes a $41.3 million charge-off related to the TFS acquisition, which contributed approximately 3.17% to the net charge-off rate for the period. In accordance with the Agreement reached with Covenant, Covenant reimbursed the Company for $35.6 million of the $41.3 million charge-off.

(2) Non-interest income for the year ended December 31, 2022 includes $14.2 million of gains on sale of a portfolio of factored receivables, which contributed 1.09% to the yield on average net funds employed for the period.

Non-interest income for the year ended December 31, 2021 excludes $4.2 million of income recognized on our indemnification asset resulting from the amended TFS acquisition agreement.

Noninterest income for the year ended December 31, 2020 excludes the $10.9 million gain related to CVLG’s delivery of proceeds resulting from the liquidation of its acquired TBK stock and a $5.3 million increase in the value of the indemnification asset resulting from the amended TFS acquisition agreement.

Our Factoring segment’s operating income increased $25.4 million, or 24.4%.

Our average invoice size decreased 0.2% from $2,265 for the year ended December 31, 2021 to $2,261 for the year ended December 31, 2022 and the number of invoices purchased increased 14.0% period over period.

Net interest income at our Factoring segment increased $21.8 million, or 12.4%. Overall average net funds employed (“NFE”) increased 11.8% during the year ended December 31, 2022 compared to the same period in 2021. The increase in average NFE was the result of increased invoice purchase volume. Because average invoice prices were relatively flat, average prices had little impact on the increase in average NFE. See further discussion under the Recent Developments: Trucking Transportation section. The increase in net interest income was partially offset by decreased purchase discount rates driven by greater focus on larger lower priced fleets and competitive pricing pressure; however, those negative factors were somewhat mitigated by high concentration in transportation factoring balances, which typically generate a higher yield than our non-transportation factoring balances. This concentration, calculated based on factored receivables held for investment, was at 96% at December 31, 2022 and 90% at December 31, 2021.

The period over period decrease in credit loss expense at our Factoring segment is primarily due to a reduction in the period end volume of the factoring portfolio during the year ended December 31, 2022 compared to expansion of the factoring portfolio over the same period a year ago. Net charge-offs at our Factoring segment during the year ended December 31, 2022 were $4.7 million compared to $45.4 million during the same period a year ago. Net charge-offs during the year ended December 31, 2021 reflect the aforementioned $41.3 million net charge-off of Over-Formula Advances which was fully reserved in a period prior to charge-off. Changes in specific reserves decreased credit loss expense and loss assumptions did not have a material impact on the change in credit loss expense period over period.

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The increase in noninterest income at our Factoring segment was primarily due to the aforementioned $14.2 million gain on sale of factored receivables during the year ended December 31, 2022. Additionally, wire transfer fees and ACH/check fees increased $1.7 million. These increases were partially offset by a $0.9 million dollar decrease in early termination fees. Also offsetting the increases was a $4.2 million gain on our indemnification asset recognized during the year ended December 31, 2021 compared to a write off of the indemnification asset of $0.9 million during the same period of the current year. There were no other material fluctuations in noninterest income at our Factoring segment.

Noninterest expense at our Factoring segment increased primarily due to an increase in salaries and employee benefits expense due to merit and retention increases for existing employees, higher health insurance benefit costs, incentive compensation, stock based compensation and 401(k) expense. We also generally experienced increases in occupancy expense, professional fees, and communications and technology expense consistent with the increased volume of our operations and headcount. Remaining fluctuations in the individual components of noninterest expense at our Factoring segment were insignificant period over period.

Payments

Total interest expense — — — — — % — — %

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Year Ended December 31,

Total revenue

Intersegment interest income allocation 216,000 — —

Total expense

Transaction costs $ — $ 2,992,000 $ —

Network invoice volume 472,019 — —

(1)Noninterest income for the year ended December 31, 2022 includes a $10.2 million gain on an equity investment and a $3.2 million loss on impairment of warrants.

(2)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 $5.7 million, or 26.9%.

The number of invoices processed by our Payments segment increased 31.0% from 13,483,420 for the year ended December 31, 2021 to 17,658,499 for the year ended December 31, 2022, and the amount of payments processed increased 53.4% from $15.162 billion for the year ended December 31, 2021 to $23.263 billion for the year ended December 31, 2022.

We began processing network transactions (then called 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 “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 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 year ended December 31, 2022, we processed 472,019 network invoices representing a network payment volume of $972.7 million.

Interest income increased due to increased average factored receivable balances at our Payments segment and increased yields period over period.

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Noninterest income increased due to a $6.2 million increase in payment fees earned by TriumphPay during the year ended DEcember 31, 2022 compared to the same period a year ago. The fees were primarily a result of the acquired operations of HubTran during June of the prior year. Additionally, we recognized a net gain of $7.0 million on the aforementioned termination of WSI warrants and additional investment in WSI common stock.

Noninterest expense increased primarily due to an increase in salaries and employee benefits expense driven by increased headcount, merit increases for existing employees, higher health insurance benefit costs, incentive compensation, stock based compensation and 401(k) expense. Additionally at our Payments segment, IT expense increased $3.4 million, travel and entertainment expense increased $1.2 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 the year ended December 31, 2021 allows TriumphPay to create a fully integrated payments network for transportation; servicing Brokers and Factors. TriumphPay already offered tools and services to increase automation, mitigate fraud, create back-office efficiency and improve the payment experience. Through the acquisition of HubTran, TriumphPay created additional value through the enhancement of its presentment, audit, and payment capabilities for Shippers, third party logistics companies (i.e., 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

Intersegment interest allocations — — — — — — —

The Corporate segment reported an operating loss of $12.1 million for the year ended December 31, 2022. Credit loss expense on our HTM CLOs previously discussed in the Credit Loss Expense section increased. Additionally, during the year ended December 31, 2022, management charged off a $0.7 million community reinvestment act loan that carried no reserve from a prior period. Interest expense decreased due to a full year impact of subordinated notes issued August 26, 2021 that carry a lower interest rate than the subordinated notes that they replaced. There were no other significant fluctuations in accounts in our Corporate segment period over period.

Financial Condition

Assets

Total assets were $5.334 billion at December 31, 2022, compared to $5.956 billion at December 31, 2021, a decrease of $622.5 million, the components of which are discussed below.

Loan Portfolio

Loans held for investment were $4.120 billion at December 31, 2022, compared with $4.868 billion at December 31, 2021.

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The following table shows the recorded investment of our loans by portfolio categories as of the dates indicated:

(Dollars in thousands) % of Total % of Total

Commercial Real Estate Loans. Our commercial real estate loans increased $45.4 million, or 7.2%, due to new loan origination activity for the period that outpaced paydowns.

Construction and Development Loans. Our construction and development loans decreased $32.5 million, or 26.3%, due primarily to paydowns and conversions to term loans that were partially offset by modest origination and draw activity.

Residential Real Estate Loans. Our one-to-four family residential loans increased $2.9 million, or 2.3%, due to new loan origination activity for the period that outpaced paydowns.

Farmland Loans. Our farmland loans decreased $8.5 million, or 10.9%, due to paydowns for the period that outpaced new loan origination activity.

Commercial Loans. Our commercial loans held for investment decreased $179.3 million, or 12.5%, due to the sale of $191.2 million of equipment loans during the period as well as decreases in asset-based lending, PPP, and agriculture loans. The decline in commercial loans was offset by increases in liquid credit and other commercial loans. Our other commercial lending products, comprised primarily of general commercial loans originated in our community banking markets, increased $20.7 million, or 7.0%.

The following table shows our commercial loans:

(Dollars in thousands) December 31, 2022 December 31, 2021 $ Change % Change

Commercial

Factored Receivables. Our factored receivables decreased $462.1 million, or 27.2% due to the sale of $88.0 million of factored receivables during the period and a slowing freight market. At December 31, 2022, the balance of the Over-Formula Advance Portfolio included in factored receivables was $8.2 million, and the balance of Misdirected Payments included in factored receivables was $19.4 million. See discussion of our factoring subsidiary in the Operating Segment Results for analysis of the key drivers impacting the change in the ending factored receivables balance during the period.

Consumer Loans. Our consumer loans decreased $2.0 million, or 18.5%, due to paydowns in excess of new loan origination activity during the period.

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Mortgage Warehouse. Our mortgage warehouse facilitiesdecreased$111.1 million, or14.4%, due to decreased utilization in a rising interest rate environment.Client utilization of mortgage warehouse facilities may experience significant fluctuation on a day-to-day basis given mortgage origination market conditions.Our average mortgage warehouse lending balance was $638.4 million for the year ended December 31, 2022 compared to $792.2 million for the year ended December 31, 2021.

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

Predetermined (fixed) interest rates

Construction, land development, land 7,808 305 —

Factored receivables — — —

Mortgage warehouse — — —

Floating interest rates

Factored receivables — — —

Consumer 78 — —

Mortgage warehouse — — —

As of December 31, 2022, most of the Company’s non-factoring business activity is with customers located within certain states. The states of Texas (23%), Colorado (11%), Illinois (11%), and Iowa (6%) make up 51% of the Company’s gross loans, excluding factored receivables. Therefore, the Company’s exposure to credit risk is affected by changes in the economies in these states. At December 31, 2021, the states of Texas (21%), Colorado (15%), Illinois (15%) and Iowa (6%) made up 57% of the Company’s gross loans, excluding factored receivables.

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Further, a majority (96%) of our factored receivables, representing approximately 29% of our total loan portfolio as of December 31, 2022, are transportation receivables. Although such concentration may cause our future income with respect to our factoring operations to be correlated with demand for the transportation industry in the United States generally, and small-to-mid-sized operators in such industry specifically, we feel the credit risk with respect to our outstanding portfolio is appropriately mitigated as we limit the amount of receivables acquired from individual debtors and creditors thereby achieving diversification across a number of companies and industries. At December 31, 2021, 91% of our factored receivables, representing approximately 32% of our total loan portfolio, were transportation receivables.

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.

Nonperforming loans:

Commercial real estate $ 871 $ 2,025

Construction, land development, land 150 964

Mortgage warehouse — —

Other real estate owned, net — 524

Nonperforming assets to total assets 1.02 % 0.92 %

Nonperforming loans to total loans held for investment 1.17 % 0.95 %

Total past due loans to total loans held for investment 2.53 % 2.86 %

Nonperforming loans increased $1.9 million, or 4.2%, due to the addition of a $7.6 million liquid credit relationship secured by the enterprise value of the borrower. This addition was offset by the removal of a $1.6 million equipment finance loan through payoff, a $1.1 million decrease in nonperforming factored receivables, 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 $0.5 million at December 31, 2022. The entire $19.4 million of Misdirected Payments is included in nonperforming loans (specifically, factored receivables) in accordance with our policy. The remaining activity in nonperforming loans was also impacted by additions and removals of smaller credits to and from nonperforming loans.

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

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As a result of the activity previously described and the change in period end total loans period over period, the ratio of nonperforming loans to total loans held for investment increased to 1.17% at December 31, 2022 from 0.95% December 31, 2021.

Our ratio of nonperforming assets to total assets increased to 1.02% at December 31, 2022 from 0.92% December 31, 2021. This is primarily due to the change in period end total assets period over period as nonperforming assets were relatively flat period over period. In addition to the aforementioned loan activity, the amortized cost basis of our HTM CLO securities considered to be nonaccrual decreased $0.6 million during the year and combined other real estate owned and other repossessed assets decreased $1.6 million during the year.

Past due loans to total loans held for investment decreased to 2.53% at December 31, 2022 from 2.86% at December 31, 2021 as a result of a $34.7 million dollar decrease in loans past due year over year partially offset by a decrease in loans held for investment outstanding year over year. Both the $8.2 million acquired factoring Over-Formula Advance balance and the $19.4 million Misdirected Payments balance are considered greater than 90 days past due at December 31, 2022.

Allowance for Credit Losses on Loans

The ACL is a valuation allowance estimated at each balance sheet date in accordance with 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 – Summary of Significant Accounting Policies in the accompanying 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:

The ACL increased $0.6 million, or 1.4%. This increase reflects net charge-offs of $6.4 million and credit loss expense of $7.0 million. Refer to the Results of Operations: Credit Loss Expense section for discussion of material charge-offs and credit loss expense. At period end, our entire remaining Over-Formula Advance position was down from $10.1 million at December 31, 2021 to $8.2 million at December 31, 2022, and the entire balance at December 31, 2022 was fully reserved. At December 31, 2022, the Misdirected Payments amount was $19.4 million. Based on our legal analysis and discussions with our counsel advising us on this matter, we continue to believe it is probable that we will prevail in such action and that the USPS will have the capacity to make payment on such receivable. Consequently, we have not reserved for such balance as of December 31, 2022.

A driver of the change in ACL is projected deterioration of the loss drivers that the Company forecasted to calculate expected losses at December 31, 2022 as compared to December 31, 2021. The projected deterioration 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 $1.8 million of ACL period over period.

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The Company uses the discounted cash flow (DCF) method to estimate ACL for the commercial real estate, construction, land development, land, 1-4 family residential, commercial (excluding liquid credit and PPP), and consumer loan pools. For all loan pools utilizing the DCF method, the Company utilizes and forecasts national unemployment as a loss driver. The Company also utilizes and forecasts either one-year percentage change in national retail sales (commercial real estate – non multifamily, commercial general, commercial agriculture, commercial asset-based lending, commercial equipment finance, consumer), one-year percentage change in the national home price index (1-4 family residential and construction, land development, land), or one-year percentage change in national gross domestic product (commercial real estate – multifamily) as a second loss driver depending on the nature of the underlying loan pool and how well that loss driver correlates to expected future losses. Consistent forecasts of the loss drivers are used across the loan segments. The Company also forecasts prepayments speeds for use in the DCF models with higher prepayment speeds resulting in lower required ACL levels and vice versa for shorter prepayment speeds. These assumed prepayment speeds are based upon our historical prepayment speeds by loan type adjusted for the expected impact of the current interest rate environment. Generally, the impact of these assumed prepayment speeds is lesser in magnitude than the aforementioned loss driver assumptions.

For all DCF models at December 31, 2022, the Company has determined that four quarters represents a reasonable and supportable forecast period and reverts back to a historical loss rate over eight quarters on a straight-line basis. The Company leverages economic projections from a reputable and independent third party to inform its loss driver forecasts over the four-quarter forecast period. Other internal and external indicators of economic forecasts are also considered by the Company when developing the forecast metrics. At December 31, 2022 as compared to December 31, 2021, the Company there was relatively little change to assumed forecasted national unemployment, a steeper decrease in one-year percentage change in national retail sales, a steeper decrease in one-year percentage change in the national home price index, and a steeper decrease in one-year percentage change in national gross domestic product. At December 31, 2022 for national unemployment, the Company projected a low percentage in the first quarter followed by a gradual rise in the following three quarters. For percentage change in national retail sales, the Company projected a slight increase in the first projected quarter followed by a decline to near-zero or negative levels over the last three projected quarters to a level below recent actual periods. For percentage changes in national home price index and national gross domestic product, the Company projected declines over the last three projected quarters to negative levels below recent actual periods. At December 31, 2022, the Company slowed its historical prepayment speeds in response to the rising interest rate environment in the macro economy.

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

The increase in required ACL was also driven by net new specific reserves of $4.2 million during the year ended December 31, 2022. Changes in loan volume and mix during the year ended December 31, 2022 decreased the required ACL by $4.6 million during the period.

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

December 31,

Allowance for credit losses on loans $ 42,807 $ 42,213

Allowance to total loans held for investment 1.04 % 0.87 %

Nonaccrual loans to total loans held for investment 0.44 % 0.31 %

Allowance for credit losses on loans $ 42,807 $ 42,213

Allowance for credit losses to nonaccrual loans 233.97 % 280.78 %

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Year Ended December 31,

Net loans charged off decreased $39.1 million, or 85.9%, due to the aforementioned charge-off of $41.3 million of PCD Over-Formula Advances classified as factored receivables. Partially offsetting the decrease was a charge-off of $1.0 million on a liquid credit loan classified as Commercial in the table above. Remaining charge-off and recovery activity during the periods was insignificant individually and in the aggregate.

Securities

As of December 31, 2022, we held equity securities with readily available fair values of $5.2 million, a decrease of $0.3 million from $5.5 million at December 31, 2021. 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 recorded in earnings.

As of December 31, 2022, we held securities classified as available for sale with a fair value of $254.5 million, an increase of $72.1 million from $182.4 million at December 31, 2021. The following table illustrates the changes in our available for sale debt securities:

Available For Sale Debt Securities:

(Dollars in thousands) December 31, 2022 December 31, 2021 $ Change % Change

Our available for sale CLO portfolio consists of investment grade positions in high ranking tranches within their respective securitization structures. As of December 31, 2022, the Company determined that all impaired available for sale securities experienced a decline in fair value below their amortized cost basis due to noncredit-related factors. Therefore, the Company carried no ACL at December 31, 2022. Our available for sale securities can be used for pledging to secure FHLB borrowings and public deposits, or can be sold to meet liquidity needs.

As of December 31, 2022, we held securities classified as held to maturity with an amortized cost, net of ACL, of $4.1 million, a decrease of $0.8 million from $4.9 million at December 31, 2021. The decrease in amortized cost, net of ACL, was primarily driven by paydowns and increases in required ACL throughout the year. 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 December 31, 2022.

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

Maturity as of December 31, 2022

Liabilities

Total liabilities were $4.445 billion as of December 31, 2022, compared to $5.097 billion at December 31, 2021, a decrease of $652.6 million, the components of which are discussed below.

Deposits

The following table summarizes our deposits:

(Dollars in thousands) December 31, 2022 December 31, 2021 $ Change % Change

Our total deposits decreased $475.3 million, or 10.2%, primarily due to decreases in noninterest bearing demand deposits, certificates of deposit, and other brokered deposits. Other brokered deposits were non-maturity deposits obtained from wholesale sources and these deposits were terminated in connection with the terminated interest rate swap during the year ended December 31, 2022. As of December 31, 2022, interest bearing demand deposits, noninterest bearing deposits, money market deposits, other brokered deposits, and savings deposits accounted for 88% of our total deposits, while individual retirement accounts, certificates of deposit, and brokered time deposits made up 12% of total deposits. As of December 31, 2021, interest bearing demand deposits, noninterest bearing deposits, money market deposits, other brokered deposits, and savings deposits accounted for 86% of our total deposits, while individual retirement accounts, certificates of deposit, and brokered time deposits made up 14% of total deposits.

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

At December 31, 2022, we held $58.5 million of time deposits that meet or exceed the Federal Deposit Insurance Corporation ("FDIC") insurance limit. The following table provides information on the maturity distribution of the time deposits exceeding the FDIC insurance limit as of December 31, 2022:

(Dollars in thousands) Over$250,000

Maturity

Other Borrowings

Customer Repurchase Agreements

The following table provides a summary of our customer repurchase agreements as of and for the years ended December 31, 2022, 2021, and 2020:

Amount outstanding at end of period $ 340 $ 2,103 $ 3,099

Weighted average interest rate at end of period 0.03 % 0.03 % 0.03 %

Average daily balance during the period $ 6,701 $ 5,985 $ 6,716

Weighted average interest rate during the period 0.03 % 0.03 % 0.03 %

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

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FHLB Advances

As part of our overall funding and liquidity management program, from time to time we borrow from the Federal Home Loan Bank. The following table provides a summary of our FHLB borrowings as of and for the years ended December 31, 2022, 2021, and 2020:

Weighted average interest rate at end of the year 4.25 % 0.15 % 0.17 %

Weighted average interest rate during the year 1.19 % 0.24 % 0.58 %

Our FHLB advances are collateralized by assets, including a blanket pledge of certain loans. The FHLB borrowings outstanding as of December 31, 2022 were long term borrowings maturing after four but within five years. As of December 31, 2022 and 2021, we had $646.3 million and $798.8 million, respectively, in unused and available advances from the FHLB. The decrease in our total borrowing capacity from December 31, 2021 to December 31, 2022 was primarily the result of decreased outstanding loan balances at the end of 2022 including a decrease in outstanding mortgage warehouse loans held for investment.

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 Paycheck Protection Program. Borrowings under the PPPLF are secured by Paycheck Protection Program Loans (“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 is 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 year ended December 31, 2022, 2021, and 2020:

Amount outstanding at end of period $ — $ 27,144 $ 191,860

Weighted average interest rate at end of period — % 0.35 % 0.35 %

Weighted average interest rate during the period 0.32 % 0.35 % 0.35 %

Highest month end balance during the period — 181,635 223,809

We did not have any PPPLF borrowings outstanding at December 31, 2022.

Subordinated Notes

The following provides a summary of our subordinated notes as of December 31, 2022:

(1) Secured Overnight Financing Rate

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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.

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.

On September 30, 2016, the Company issued $50,000,000 of Fixed-to-Floating Rate Subordinated Notes due 2026 (the “2016 Notes”). The 2016 Notes initially bear interest at 6.50% per annum, payable semi-annually in arrears, to, but excluding, September 30, 2021, and, thereafter and to, but excluding, the maturity date or earlier redemption, interest shall be payable quarterly in arrears, at an annual floating rate equal to three-month LIBOR as determined for the applicable quarterly period, plus 5.345%. The Company redeemed the 2016 Notes in whole on September 30, 2021 at which time $0.8 million in remaining deferred costs were recognized through interest expense.

Junior Subordinated Debentures

The following provides a summary of our junior subordinated debentures as of December 31, 2022:

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 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 discount 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 $41.2 million was allowed in the calculation of Tier I capital as of December 31, 2022.

Liquidity and Capital Resources

Capital Resources

Our stockholders’ equity totaled $889.0 million as of December 31, 2022, compared to $858.9 million as of December 31, 2021, an increase of $30.1 million. Stockholders’ equity increased during this period primarily due to our net income of $102.3 million, offset in part by our treasury stock purchases made under our share repurchase program and modified "Dutch auction" tender offer.

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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 our present position is adequate to meet our current and future liquidity needs.

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

In addition to the liquidity provided by the sources described above, our subsidiary bank maintains correspondent relationships with other banks in order to sell loans or purchase overnight funds should additional liquidity be needed. As of December 31, 2022, TBK Bank had $510.7 million of unused borrowing capacity from the Federal Reserve Bank discount window and unsecured federal funds lines of credit with seven unaffiliated banks totaling $227.5 million, with no amounts advanced against those lines.

Contractual Obligations

The following table summarizes our contractual obligations and other commitments to make future payments as of December 31, 2022. The amount of the obligations presented in the table reflect principal amounts only and exclude the amount of interest we are obligated to pay. Also excluded from the table are a number of obligations to be settled in cash. These excluded items are reflected in our consolidated balance sheet and include deposits with no stated maturity, trade payables, and accrued interest payable.

Payments Due by Period - December 31, 2022

Customer repurchase agreements $ 340 $ 340 $ — $ — $ —

Federal Home Loan Bank advances 30,000 — — 30,000 —

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

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Regulatory Capital Requirements

Our capital management consists of providing equity to support our current and future operations. We are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s or TBK Bank’s financial statements. For further information regarding our regulatory capital requirements, see Note 19 – Regulatory Matters in the accompanying notes to the consolidated financial statements included elsewhere in this report.

Critical Accounting Policies and Estimates

Certain of our accounting estimates are important to the portrayal of our financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates are susceptible to material changes as a result of changes in facts and circumstances. Facts and circumstances which could affect these judgments include, but are not limited to, changes in interest rates, changes in the performance of the economy and changes in the financial condition of borrowers. Management believes that determining the allowance for credit losses on loans is a critical accounting estimate. Our accounting policies are discussed in detail in Note 1 – Summary of Significant Accounting Policies in the accompanying notes to the consolidated financial statements included elsewhere in this report.

Allowance for Credit Losses on Loans. Management considers the policies related to the allowance for credit losses on loans to be critical to the financial statement presentation. The total allowance for credit losses on loans includes activity related to allowances calculated in accordance with Accounting Standards Codification (“ASC”) 326, Financial Instruments – Credit Losses. The allowance for credit losses is established through credit loss expense charged to current earnings. The amount maintained in the allowance reflects management’s continuing evaluation of the credit losses expected to be recognized over the life of the loans in our portfolio. The allowance for credit losses on loans is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the then existing loan portfolio, in light of the factors then prevailing, may result in significant changes in the allowance for credit losses in those future periods. We employ a disciplined process and methodology to establish our allowance for credit losses that has two basic components: first, an asset-specific component involving individual loans that do not share risk characteristics with other loans and the measurement of specific expected credit losses for such individual loans; and second, a general pooled component for estimated expected credit losses for pools of loans that share similar risk characteristics.

Generally, when a loan moves to nonaccrual status, it is removed from the collective pooled evaluation allowance methodology and is subject to individual evaluation. A specific reserve analysis is prepared for each loan and the net realizable value of the loan is determined. Factors contributing to the determination of specific reserves include the creditworthiness of the borrower, and more specifically, changes in the expected amount and timing of future receipt of principal and interest payments and/or in the value of pledged collateral. A reserve is recorded when the carrying amount of the loan exceeds the discounted estimated cash flows using the loan’s initial effective interest rate, when the carrying amount of the loan exceeds the determined loss rate, or the fair value of the collateral for certain collateral dependent loans.

For purposes of establishing the general reserve, we stratify the loan portfolio into homogeneous groups of loans that possess similar loss potential characteristics andcalculate the net amount expected to be collected over the life of the loansto estimate the credit losses in the loan portfolio.The Company’s methodologies for estimating the allowance for credit losses consider available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts.

The Company uses the discounted cash flow (DCF) method to estimate ACL for the commercial real estate, construction, land development, land, 1-4 family residential, commercial (excluding liquid credit and PPP), and consumer loan pools. For all loan pools utilizing the DCF method, the Company utilizes and forecasts national unemployment as a loss driver. The Company also utilizes and forecasts either one-year percentage change in national retail sales (commercial real estate – non multifamily, commercial general, commercial agriculture, commercial asset-based lending, commercial equipment finance, consumer), one-year percentage change in the national home price index (1-4 family residential and construction, land development, land), or one-year percentage change in national gross domestic product (commercial real estate – multifamily) as a second loss driver depending on the nature of the underlying loan pool and how well that loss driver correlates to expected future losses. Consistent forecasts of the loss drivers are used across the loan segments. The Company also forecasts prepayments speeds for use in the DCF models with higher prepayment speeds resulting in lower required ACL levels and vice versa for shorter prepayment speeds. These assumed prepayment speeds are based upon our historical prepayment speeds by loan type adjusted for the expected impact of the current interest rate environment. Generally, the impact of these assumed prepayment speeds is lesser in magnitude than the aforementioned loss driver assumptions.

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For all DCF models at December 31, 2022, the Company has determined that four quarters represents a reasonable and supportable forecast period and reverts back to a historical loss rate over eight quarters on a straight-line basis. The Company leverages economic projections from a reputable and independent third party to inform its loss driver forecasts over the four-quarter forecast period. Other internal and external indicators of economic forecasts are also considered by the Company when developing the forecast metrics. At December 31, 2022 as compared to December 31, 2021, the Company there was relatively little change to assumed forecasted national unemployment, a steeper decrease in one-year percentage change in national retail sales, a steeper decrease in one-year percentage change in the national home price index, and a steeper decrease in one-year percentage change in national gross domestic product. At December 31, 2022 for national unemployment, the Company projected a low percentage in the first quarter followed by a gradual rise in the following three quarters. For percentage change in national retail sales, the Company projected a slight increase in the first projected quarter followed by a decline to near-zero or negative levels over the last three projected quarters to a level below recent actual periods. For percentage changes in national home price index and national gross domestic product, the Company projected declines over the last three projected quarters to negative levels below recent actual periods. At December 31, 2022, the Company slowed its historical prepayment speeds in response to the rising interest rate environment in the macro economy.

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

Estimating the timing and amounts of future losses through projected cash flows is subject to significant management judgment as these projected cash flows rely upon the estimates discussed above and factors that are reflective of current or future expected conditions. These estimates as well as estimates used under the loss-rate method, in turn, depend on the duration of current overall economic conditions, industry, borrower, or portfolio specific conditions. All of these estimates require significant management judgment and certain assumptions that are highly subjective. Volatility in certain credit metrics and differences between expected and actual outcomes are to be expected.

The provision for (reversal of) credit losses recorded through earnings, and reduced by the charge-off of loan amounts, net of recoveries, is the amount necessary to maintain the allowance for credit losses at the amount of expected credit losses inherent within the loans held for investment portfolio. The amount of expense and the corresponding level of allowance for credit losses for loans are based on our evaluation of the collectability of the loan portfolio based on historical loss experience, reasonable and supportable forecasts, and other significant qualitative and quantitative factors.

Refer to “Allowance for Credit Losses” above, Note 1 – Summary of Significant Accounting Policies, and Note 4 - Loans in the accompanying notes to the consolidated financial statements elsewhere in this report for further discussion of our estimation process and methodology related to the allowance for credit losses.

Adoption of New Accounting Standards

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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.

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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 material foreign exchange 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, reinvestment and replacement of asset and liability cash flows. We also analyze the economic value of equity as a secondary measure of interest rate risk. This is a complementary measure to net interest income where the calculated value is the result of the fair value of assets less the fair value of liabilities. The economic value of equity is a longer term view of interest rate risk because it measures the present value of all future cash flows. The impact of changes in interest rates on this calculation is analyzed for the risk to our future earnings and is used in conjunction with the analyses on net interest income.

The following tables summarizes simulated change in net interest income versus unchanged rates:

Flat rates 0.0 % 0.0 %

Flat rates 0.0 % 0.0 %

The following tables present the change in our economic value of equity, assuming immediate parallel shifts in interest rates:

December 31, 2022 Economic Value of Equity at Risk (%)

Flat rates 0.0 %

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December 31, 2021 Economic Value of Equity at Risk (%)

Flat rates 0.0 %

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.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and the Board of Directors of Triumph Financial, Inc.

Dallas, Texas

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Triumph Financial, Inc (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.

Basis for Opinions

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report on Management’s Assessment of Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses (“ACL”) – Reasonable and Supportable Forecasts

The ACL (as described in Note 1 and presented in Note 4) is an estimate of expected credit losses, measured over the contractual life of an instrument, which considers reasonable and supportable forecasts of future economic conditions in addition to information about past events and current conditions. As of December 31, 2022, the ACL of $42.8 million attributable to loans held for investment consists of 1) an allowance of $18.2 million on collateral dependent loans and 2) an allowance of $24.6 million on loans collectively evaluated (“pool basis”) for impairment.

The Company measures expected credit losses of loans on a pool basis when the loans share similar risk characteristics. Depending on the nature of the pool of loans with similar risk characteristics, the Company uses a discounted cash flow (“DCF”) method or a loss-rate method to estimate expected credit losses. Pools analyzed in the DCF method require more judgment in the forecast assumptions than those used in the loss-rate pools as they are generally of longer duration.

Estimating reasonable and supportable forecasts requires significant judgment. Management leverages economic projections from a third party to inform its forecasts over the forecast period. Other internal and external indicators of economic forecasts are also considered by management when developing the forecasts. We identified auditing the reasonableness of forecasts in the ACL for loans using the DCF method as a critical audit matter as it involves especially subjective auditor judgment.

The primary audit procedures we performed in response to this critical audit matter included:

•Tested the operating effectiveness of controls over the Company’s ACL, including controls over the relevance and reliability of forecast assumptions applied in the DCF methods, the forecast assumptions sensitivity to change, and completeness and accuracy of data used.

•Evaluated the reasonableness and appropriateness of management’s forecasting methodology for suitability under generally accepted accounting principles.

•Performed substantive procedures over the relevance and reliability of forecast assumptions applied within the DCF models.

•Substantively tested the completeness and accuracy of the data used.

/s/ Crowe LLP

We have served as the Company's auditor since 2012.

Franklin, Tennessee

February 15, 2023

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TRIUMPH FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 2022 and 2021

(Dollar amounts in thousands)

ASSETS

Securities - equity investments 5,191 5,504

Federal Home Loan Bank and other restricted stock, at cost 6,252 10,146

Other real estate owned, net — 524

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities

Deposits

Customer repurchase agreements 340 2,103

Paycheck Protection Program Liquidity Facility — 27,144

Commitments and contingencies - See Notes 15 and 16

Stockholders' equity - See Note 20

Accumulated other comprehensive income (6,900) 8,034

See accompanying notes to consolidated financial statements.

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TRIUMPH FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Years Ended December 31, 2022, 2021 and 2020