Triumph Financial, Inc. (TFIN) FY 2022 MD&A

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;

50

Table of Contents

•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.

51

Table of Contents

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.

52

Table of Contents

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.

53

Table of Contents

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.

54

Table of Contents

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.

55

Table of Contents

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.

56

Table of Contents

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:

57

Table of Contents

(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.

58

Table of Contents

•“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:

(3)Asset quality ratios exclude loans held for sale

59

Table of Contents

GAAP Reconciliation of Non-GAAP Financial Measures

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

60

Table of Contents

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.”

61

Table of Contents

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

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:

62

Table of Contents

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.

63

Table of Contents

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.

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):

64

Table of Contents

For available for sale debt securities in an unrealized loss position, the Company evaluates the securities at each measurement date to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors. Any impairment that is not credit related is recognized in other comprehensive income, net of applicable taxes. Credit-related impairment is recognized as an ACL on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings via credit loss expense. At December 31, 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.

65

Table of Contents

Noninterest Income

The following table presents the major categories of noninterest income:

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.

66

Table of Contents

Noninterest Expense

The following table presents the major categories of noninterest expense:

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.

67

Table of Contents

•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.

68

Table of Contents

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

69

Table of Contents

Banking

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.

70

Table of Contents

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:

Factoring

71

Table of Contents

(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.

72

Table of Contents

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

73

Table of Contents

(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.

74

Table of Contents

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

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.

75

Table of Contents

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