April 20, 2018 - 10-Q: Quarterly report [Sections 13 or 15(d)]

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2018

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

For the transition period from to

Commission File Number 001-36722

TRIUMPH BANCORP, INC.

(Exact name of registrant as specified in its charter)

Texas

20-0477066

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

12700 Park Central Drive, Suite 1700

Dallas, Texas 75251

(Address of principal executive offices)

(214) 365-6900

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐ (Do not check if a smaller reporting company)	Smaller reporting company	☐

Emerging growth company	☒

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

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

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

Common Stock — $0.01 par value, 26,242,376 shares, as of April 18, 2018

TRIUMPH BANCORP, INC.

FORM 10-Q

March 31, 2018

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets	2
	Consolidated Statements of Income	3
	Consolidated Statements of Comprehensive Income	4
	Consolidated Statements of Changes in Stockholders’ Equity	5
	Consolidated Statements of Cash Flows	6
	Condensed Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3.	Quantitative and Qualitative Disclosures About Market Risks	63
Item 4.	Controls and Procedures	65

PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	65
Item 1A.	Risk Factors	65
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	65
Item 3.	Defaults Upon Senior Securities	65
Item 4.	Mine Safety Disclosures	65
Item 5.	Other Information	65
Item 6.	Exhibits	66

PART I – FINANCIAL INFORMATION

ITEM 1

FINANCIAL STATEMENTS

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

March 31, 2018 and December 31, 2017

(Dollar amounts in thousands, except per share amounts)

	March 31,			December 31,
	2018			2017
	(Unaudited)
ASSETS
Cash and due from banks	$	45,887		$	59,114
Interest bearing deposits with other banks		60,159			75,015
Total cash and cash equivalents		106,046			134,129
Securities - available for sale		192,916			250,603
Securities - equity investments		4,925			5,006
Securities - held to maturity, fair value of $8,111 and $7,527, respectively		8,614			8,557
Loans, net of allowance for loan and lease losses of $20,022 and $18,748, respectively		2,853,963			2,792,108
Assets held for sale		—			71,362
Federal Home Loan Bank stock, at cost		16,508			16,006
Premises and equipment, net		62,826			62,861
Other real estate owned, net		9,186			9,191
Goodwill		45,373			44,126
Intangible assets, net		18,550			19,652
Bank-owned life insurance		44,534			44,364
Deferred tax assets, net		8,849			8,959
Other assets		32,720			32,109
Total assets	$	3,405,010		$	3,499,033
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Noninterest bearing	$	548,991		$	564,225
Interest bearing		1,984,507			2,057,123
Total deposits		2,533,498			2,621,348
Customer repurchase agreements		6,751			11,488
Federal Home Loan Bank advances		355,000			365,000
Subordinated notes		48,853			48,828
Junior subordinated debentures		38,734			38,623
Other liabilities		19,230			22,048
Total liabilities		3,002,066			3,107,335
Commitments and contingencies - See Note 8 and Note 9
Stockholders' equity - See Note 12
Preferred Stock		9,658			9,658
Common stock, 20,824,509 and 20,820,445 shares outstanding, respectively		209			209
Additional paid-in-capital		265,406			264,855
Treasury stock, at cost		(1,853	)		(1,784	)
Retained earnings		131,234			119,356
Accumulated other comprehensive income (loss)		(1,710	)		(596	)
Total stockholders’ equity		402,944			391,698
Total liabilities and stockholders' equity	$	3,405,010		$	3,499,033

See accompanying condensed notes to consolidated financial statements.

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

For the Three Months Ended March 31, 2018 and 2017

(Dollar amounts in thousands, except per share amounts)

(Unaudited)

	Three Months Ended March 31,
	2018			2017
Interest and dividend income:
Loans, including fees	$	36,883		$	25,185
Factored receivables, including fees		15,303			9,167
Securities		1,310			1,611
FHLB stock		105			42
Cash deposits		517			327
Total interest income		54,118			36,332
Interest expense:
Deposits		4,277			2,869
Subordinated notes		837			835
Junior subordinated debentures		597			465
Other borrowings		1,277			344
Total interest expense		6,988			4,513
Net interest income		47,130			31,819
Provision for loan losses		2,548			7,678
Net interest income after provision for loan losses		44,582			24,141
Noninterest income:
Service charges on deposits		1,145			980
Card income		1,244			827
Net OREO gains (losses) and valuation adjustments		(88	)		11
Net gains (losses) on sale of securities		(272	)		—
Fee income		800			583
Insurance commissions		714			590
Asset management fees		—			1,717
Gain on sale of subsidiary or division		1,071			20,860
Other		558			1,717
Total noninterest income		5,172			27,285
Noninterest expense:
Salaries and employee benefits		19,404			21,958
Occupancy, furniture and equipment		3,054			2,359
FDIC insurance and other regulatory assessments		199			226
Professional fees		1,640			1,968
Amortization of intangible assets		1,117			1,111
Advertising and promotion		1,029			938
Communications and technology		3,359			2,174
Other		4,240			4,103
Total noninterest expense		34,042			34,837
Net income before income tax		15,712			16,589
Income tax expense		3,644			6,116
Net income		12,068			10,473
Dividends on preferred stock		(190	)		(192	)
Net income available to common stockholders	$	11,878		$	10,281
Earnings per common share
Basic	$	0.57		$	0.57
Diluted	$	0.56		$	0.55

See accompanying condensed notes to consolidated financial statements.

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Three Months Ended March 31, 2018 and 2017

(Dollar amounts in thousands, except per share amounts)

(Unaudited)

	Three Months Ended March 31,
	2018			2017
Net income	$	12,068		$	10,473
Other comprehensive income:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period		(1,708	)		335
Reclassification of amount realized through sale of securities		272			—
Tax effect		322			(125	)
Total other comprehensive income (loss)		(1,114	)		210
Comprehensive income	$	10,954		$	10,683

See accompanying condensed notes to consolidated financial statements.

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Three Months Ended March 31, 2018 and 2017

(Dollar amounts in thousands, except per share amounts)

(Unaudited)

	Preferred Stock		Common Stock								Treasury Stock								Accumulated
	Liquidation							Additional											Other			Total
	Preference		Shares			Par		Paid-in-			Shares					Retained			Comprehensive			Stockholders'
	Amount		Outstanding			Amount		Capital			Outstanding		Cost			Earnings			Income (Loss)			Equity
Balance, January 1, 2017	$	9,746		18,078,247		$	182	$	197,157			76,118	$	(1,374	)	$	83,910		$	(276	)	$	289,345
Issuance of restricted stock awards		—		5,174			—		—			—		—			—			—			—
Stock based compensation		—		—			—		702			—		—			—			—			702
Forfeiture of restricted stock awards		—		(251	)		—		7			251		(7	)		—			—			—
Purchase of treasury stock		—		(4,401	)		—		—			4,401		(113	)		—			—			(113	)
Series A Preferred dividends		—		—			—		—			—		—			(90	)		—			(90	)
Series B Preferred dividends		—		—			—		—			—		—			(102	)		—			(102	)
Net income		—		—			—		—			—		—			10,473			—			10,473
Other comprehensive income		—		—			—		—			—		—			—			210			210
Balance, March 31, 2017	$	9,746		18,078,769		$	182	$	197,866			80,770	$	(1,494	)	$	94,191		$	(66	)	$	300,425

Balance, January 1, 2018	$	9,658		20,820,445		$	209	$	264,855			91,951	$	(1,784	)	$	119,356		$	(596	)	$	391,698
Issuance of restricted stock awards		—		5,492			—		—			—		—			—			—			—
Stock based compensation		—		—			—		486			—		—			—			—			486
Forfeiture of restricted stock awards		—		(1,574	)		—		69			1,574		(69	)		—			—			—
Stock options exercised		—		146			—		(4	)		—		—			—			—			(4	)
Series A Preferred dividends		—		—			—		—			—		—			(90	)		—			(90	)
Series B Preferred dividends		—		—			—		—			—		—			(100	)		—			(100	)
Net income		—		—			—		—			—		—			12,068			—			12,068
Other comprehensive income		—		—			—		—			—		—			—			(1,114	)		(1,114	)
Balance, March 31, 2018	$	9,658		20,824,509		$	209	$	265,406			93,525	$	(1,853	)	$	131,234		$	(1,710	)	$	402,944

See accompanying condensed notes to consolidated financial statements.

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended March 31, 2018 and 2017

(Dollar amounts in thousands, except per share amounts)

(Unaudited)

	Three Months Ended March 31,
	2018			2017
Cash flows from operating activities:
Net income	$	12,068		$	10,473
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation		1,216			958
Net accretion on loans and deposits		(1,977	)		(1,080	)
Amortization of subordinated notes issuance costs		25			23
Amortization of junior subordinated debentures		111			100
Net amortization on securities		331			644
Amortization of intangible assets		1,117			1,111
Deferred taxes		439			3,023
Provision for loan losses		2,548			7,678
Stock based compensation		486			702
Net (gains) losses on sale of securities		272			—
Net (gain) loss on loans transferred to loans held for sale		—			46
Net OREO (gains) losses and valuation adjustments		88			(11	)
Gain on sale of subsidiary or division		(1,071	)		(20,860	)
Income from CLO warehouse investments		—			(964	)
(Increase) decrease in other assets		(1,705	)		509
Increase (decrease) in other liabilities		(4,498	)		1,262
Net cash provided by (used in) operating activities		9,450			3,614
Cash flows from investing activities:
Purchases of securities available for sale		—			(4,817	)
Proceeds from sales of securities available for sale		34,196			—
Proceeds from maturities, calls, and pay downs of securities available for sale		21,210			24,706
Proceeds from maturities, calls, and pay downs of securities held to maturity		185			4,109
Proceeds from sale of loans		—			1,919
Net change in loans		(62,509	)		(7,947	)
Purchases of premises and equipment, net		(1,181	)		(405	)
Net proceeds from sale of OREO		—			683
(Purchases) redemptions of FHLB stock, net		(502	)		1,263
Proceeds from sale of subsidiary or division, net		73,849			10,269
Net cash provided by (used in) investing activities		65,248			29,780
Cash flows from financing activities:
Net increase (decrease) in deposits		(87,850	)		8,503
Increase (decrease) in customer repurchase agreements		(4,737	)		(22	)
Increase (decrease) in Federal Home Loan Bank advances		(10,000	)		(30,000	)
Stock option exercises		(4	)		—
Purchase of treasury stock		—			(113	)
Dividends on preferred stock		(190	)		(192	)
Net cash provided by (used in) financing activities		(102,781	)		(21,824	)
Net increase (decrease) in cash and cash equivalents		(28,083	)		11,570
Cash and cash equivalents at beginning of period		134,129			114,514
Cash and cash equivalents at end of period	$	106,046		$	126,084

See accompanying condensed notes to consolidated financial statements.

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended March 31, 2018 and 2017

(Dollar amounts in thousands, except per share amounts)

(Unaudited)

	Three Months Ended March 31,
	2018		2017
Supplemental cash flow information:
Interest paid	$	7,562	$	5,269
Income taxes paid (refunds received), net	$	48	$	(917	)
Supplemental noncash disclosures:
Loans transferred to OREO	$	83	$	5,960
Premises transferred to OREO	$	—	$	273
Loans transferred to loans held for sale	$	—	$	1,965
Securities held to maturity purchased, not settled	$	—	$	3,260
Consideration received from sale of subsidiary	$	—	$	12,123

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Triumph Bancorp, Inc. (collectively with its subsidiaries, “Triumph”, or the “Company” as applicable) is a financial holding company headquartered in Dallas, Texas. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries Triumph CRA Holdings, LLC (“TCRA”), TBK Bank, SSB (“TBK Bank”), TBK Bank’s wholly owned subsidiary Advance Business Capital LLC, which currently operates under the d/b/a of Triumph Business Capital (“TBC”), and TBK Bank’s wholly owned subsidiary Triumph Insurance Group, Inc. (“TIG”).

On March 16, 2018, the Company sold the assets of Triumph Healthcare Finance (“THF”) and exited its healthcare asset-based lending line of business. THF operated within the Company’s TBK Bank subsidiary. See Note 2 – Business Combinations and Divestitures for details of the THF sale and its impact on our consolidated financial statements.

On March 31, 2017 the Company sold its membership interests in its wholly owned subsidiary Triumph Capital Advisors, LLC (“TCA”). See Note 2 – Business Combinations and Divestitures for details of the TCA sale and its impact on our consolidated financial statements.

Principles of Consolidation and Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”) for interim financial information and in accordance with guidance provided by the Securities and Exchange Commission. Accordingly, the condensed financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all normal and recurring adjustments considered necessary for a fair presentation. Transactions between the subsidiaries have been eliminated. These condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. Operating results for the three months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.

The Company has three reportable segments consisting of Banking, Factoring, and Corporate. The Company’s Chief Executive Officer uses segment results to make operating and strategic decisions.

Revenue from Contracts with Customers

The Company records revenue from contracts with customers in accordance with Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (“Topic 606”). Under Topic 606, the Company must identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) the Company satisfies a performance obligation. Significant revenue has not been recognized in the current reporting period that results from performance obligations satisfied in previous periods.

The Company’s primary sources of revenue are derived from interest and dividends earned on loans, investment securities, and other financial instruments that are not within the scope of Topic 606. The Company has evaluated the nature of its contracts with customers and determined that further disaggregation of revenue from contracts with customers into more granular categories beyond what is presented in the Consolidated Statements of Income was not necessary. The Company generally fully satisfies its performance obligations on its contracts with customers as services are rendered and the transaction prices are typically fixed; charged either on a periodic basis or based on activity. Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is little judgment involved in applying Topic 606 that significantly affects the determination of the amount and timing of revenue from contracts with customers.

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Income Taxes

On December 22, 2017, the United States enacted tax reform legislation commonly known as the Tax Cuts and Jobs Act (the “Tax Act”), resulting in significant modifications to existing law. Authoritative guidance and interpretation by regulatory bodies is ongoing, and as such, the accounting for the effects of the Tax Act is not final and the full impact of the new regulation is still being evaluated.

Adoption of New Accounting Standards

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU replaces most existing revenue recognition guidance in GAAP. The new standard was effective for the Company on January 1, 2018. Adoption of ASU 2014-09 did not have a material impact on the Company’s consolidated financial statements and related disclosures as the Company’s primary sources of revenues are derived from interest and dividends earned on loans, investment securities, and other financial instruments that are not within the scope of ASU 2014-09. The Company’s revenue recognition pattern for revenue streams within the scope of ASU 2014-09, including but not limited to service charges on deposit accounts and gains/losses on the sale of OREO, did not change significantly from current practice. The standard permits the use of either the full retrospective or modified retrospective transition method. The Company elected to use the modified retrospective transition method which requires application of ASU 2014-09 to uncompleted contracts at the date of adoption however, periods prior to the date of adoption will not be retrospectively revised as the impact of the ASU on uncompleted contracts at the date of adoption was not material.

In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). The guidance affects the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements of financial instruments. ASU 2016-01 was effective for the Company on January 1, 2018 and resulted in separate classification of equity securities previously included in available for sale securities on the consolidated balance sheets with changes in the fair value of the equity securities captured in the consolidated statements of income. See Note 3 – Securities for disclosures related to equity securities. Adoption of the standard also resulted in the use of an exit price rather than an entrance price to determine the fair value of loans not measured at fair value on a non-recurring basis in the consolidated balance sheets. See Note 10 – Fair Value Disclosures for further information regarding the valuation of these loans.

In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,” (“ASU 2017-01”) to improve such definition and, as a result, assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or as business combinations. The definition of a business impacts many areas of accounting including acquisitions, disposals, goodwill and consolidation. ASU 2017-01 was effective for the Company on January 1, 2018 and is to be applied under a prospective approach. The Company expects the adoption of this new guidance to impact the determination of whether future acquisitions are considered business combinations.

Newly Issued, But Not Yet Effective Accounting Standards

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). The FASB issued this ASU to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet by lessees for those leases classified as operating leases under current U.S. GAAP and disclosing key information about leasing arrangements. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Early application of this ASU is permitted for all entities. Adoption of ASU 2016-02 is not expected to have a material impact on the Company’s consolidated financial statements. The Company leases certain properties and equipment under operating leases that will result in the recognition of lease assets and lease liabilities on the Company’s balance sheet under the ASU, however, the majority of the Company’s properties and equipment are owned, not leased. At March 31, 2018, the Company had contractual operating lease commitments of approximately $10,222,000, before considering renewal options that are generally present.

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). Among other things, ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to form their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, ASU 2016-13 amends the accounting for credit losses on debt securities and purchased financial assets with credit deterioration. The amendments in ASU 2016-13 are effective for fiscal years beginning after December 31, 2019, and interim periods within those years for public business entities that are SEC filers. Early adoption is permitted for fiscal years, and interim periods within those years, beginning after December 15, 2018, however, the Company does not currently plan to early adopt the ASU. The Company has formed a cross functional team that is assessing the Company’s data and system needs and evaluating the impact that adoption of this standard will have on the financial condition and results of operations of the Company.

NOTE 2 – Business combinations AND DIVESTITURES

Triumph Healthcare Finance

On January 19, 2018, the Company entered into an agreement to sell the assets (the “Disposal Group”) of Triumph Healthcare Finance (“THF”) and exit its healthcare asset-based lending line of business. At December 31, 2017, the carrying amount of the Disposal Group was transferred to assets held for sale. The sale closed on March 16, 2018.

A summary of the carrying amount of the assets in the Disposal Group and the gain on sale is as follows:

(Dollars in thousands)
Carrying amount of assets in the disposal group:
Loans	$	70,147
Premises and equipment, net		19
Goodwill		1,457
Intangible assets, net		958
Other assets		197
Total carrying amount		72,778
Total consideration received		74,017
Gain on sale of division		1,239
Transaction costs		168
Gain on sale of division, net of transaction costs	$	1,071

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

Valley Bancorp, Inc.

Effective December 9, 2017, the Company acquired Valley Bancorp, Inc. (“Valley”) and its community banking subsidiary, Valley Bank & Trust, in an all-cash transaction. Valley Bank & Trust serves individuals and business customers from seven locations across the northern front range including Brighton, Dacono, Denver, Hudson, Westminster and Strasburg, Colorado. Valley Bank & Trust was merged into TBK Bank upon closing. The acquisition expanding the Company’s market in Colorado and further diversified the Company’s loan, customer, and deposit base.

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

	Initial Values		Measurement
	Recorded at		Period			Adjusted
(Dollars in thousands)	Acquisition Date		Adjustments			Values
Assets acquired:
Cash and cash equivalents	$	38,473	$	—		$	38,473
Securities		97,687		—			97,687
Loans		171,199		—			171,199
FHLB stock		315		—			315
Premises and equipment		6,238		—			6,238
Other real estate owned		2,282		—			2,282
Intangible assets		6,072		—			6,072
Bank-owned life insurance		7,153		—			7,153
Other assets		1,882		—			1,882
		331,301		—			331,301
Liabilities assumed:
Deposits		293,398		—			293,398
Junior subordinated debentures		5,470		—			5,470
Other liabilities		2,881		1,680			4,561
		301,749		1,680			303,429
Fair value of net assets acquired		29,552		(1,680	)		27,872
Consideration transferred		40,075		—			40,075
Goodwill	$	10,523	$	1,680		$	12,203

The Company has recognized goodwill of $12,203,000, which included a measurement period adjustment for a post-retirement benefit obligation related to an acquired split-dollar bank-owned life insurance policy. Goodwill was calculated as the excess of both the consideration exchanged and the liabilities assumed as compared to the fair value of identifiable net assets acquired and was allocated to the Company’s Banking segment. The goodwill in this acquisition resulted from expected synergies and expansion in the Colorado market. The goodwill will be deducted for tax purposes. The intangible assets recognized in the transaction will be amortized utilizing an accelerated method over their ten year estimated useful lives. The initial accounting for the acquisition has not been completed because the fair values of the assets acquired and liabilities assumed have not yet been finalized.

In connection with the acquisition, the Company acquired loans both with and without evidence of credit quality deterioration since origination. The acquired loans were initially recorded at fair value with no carryover of any allowance for loan and lease losses. Acquired loans were segregated between those considered to be purchased credit impaired (“PCI”) loans and those without credit impairment at acquisition. The following table presents details of the estimated fair value of acquired loans at the acquisition date:

	Loans,
	Excluding		PCI		Total
(Dollars in thousands)	PCI Loans		Loans		Loans
Commercial real estate	$	73,273	$	254	$	73,527
Construction, land development, land		19,770		1,199		20,969
1-4 family residential properties		26,264		—		26,264
Farmland		16,934		—		16,934
Commercial		31,893		—		31,893
Factored receivables		—		—		—
Consumer		1,612		—		1,612
Mortgage warehouse		—		—		—
	$	169,746	$	1,453	$	171,199

The operations of Valley are included in the Company’s operating results beginning December 9, 2017.

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Expenses related to the acquisition, including professional fees and other transaction costs, totaling $1,251,000 were recorded in noninterest expense in the consolidated statements of income during the three months ended December 31, 2017.

Independent Bank – Colorado Branches

On October 6, 2017, the Company completed its acquisition of nine branch locations in Colorado from Independent Bank Group, Inc.’s banking subsidiary Independent Bank for an aggregate deposit premium of $6,771,000 or 4.2%. The branches were merged into TBK Bank upon closing. The primary purpose of the acquisition was to improve the Company’s core deposit base and continue to build upon the diversification of the Company’s loan portfolio.

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

(Dollars in thousands)
Assets acquired:
Cash and cash equivalents	$	1,611
Loans		95,794
Premises and equipment		7,524
Intangible assets		3,255
Other assets		1,644
		109,828
Liabilities assumed:
Deposits		160,702
Other liabilities		249
		160,951
Fair value of net assets acquired		(51,123	)
Cash received from seller, net of $6,771 deposit premium		45,306
Goodwill	$	5,817

The Company has recognized goodwill of $5,817,000, which was calculated as the excess of both the consideration exchanged and the liabilities assumed as compared to the fair value of identifiable net assets acquired and was allocated to the Company’s Banking segment. The goodwill in this acquisition resulted from expected synergies and expansion in the Colorado market. The goodwill will be deducted for tax purposes. The intangible assets recognized in the transaction will be amortized utilizing an accelerated method over their ten year estimated useful lives. The initial accounting for the acquisition has not been completed because the fair values of the assets acquired and liabilities assumed have not yet been finalized.

The following table presents details of the estimated fair value of acquired loans at the acquisition date:

(Dollars in thousands)
Commercial real estate	$	13,382
Construction, land development, land		537
1-4 family residential properties		6,986
Farmland		31,490
Commercial		43,104
Factored receivables		—
Consumer		295
Mortgage warehouse		—
	$	95,794

The operations of the branches acquired are included in the Company’s operating results beginning October 6, 2017.

Expenses related to the acquisition, including professional fees and other transaction costs, totaling $437,000 were recorded in noninterest expense in the consolidated statements of income during the three months ended December 31, 2017.

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Triumph Capital Advisors, LLC

On March 31, 2017, the Company sold its wholly owned asset management subsidiary, Triumph Capital Advisors, LLC, to an unrelated third party. The transaction was completed to enhance shareholder value and provide a platform for TCA to operate without the impact of regulations intended for depository institutions.

A summary of the consideration received and the gain on sale is as follows:

(Dollars in thousands)
Consideration received (fair value):
Cash	$	10,554
Loan receivable		10,500
Revenue share		1,623
Total consideration received		22,677
Carrying value of TCA membership interest		1,417
Gain on sale of subsidiary		21,260
Transaction costs		400
Gain on sale of subsidiary, net of transaction costs	$	20,860

The Company financed a portion of the consideration received with a $10,500,000 term credit facility. Terms of the floating rate credit facility provide for quarterly principal and interest payments with an interest rate floor of 5.50%, maturing on March 31, 2023. The Company received a $25,000 origination fee associated with the term credit facility that was deferred and will be accreted over the contractual life of the loan as a yield adjustment.

In addition, the Company is entitled to receive an annual earn-out payment representing 3% of TCA’s future annual gross revenue, with a total maximum earn-out amount of $2,500,000. The revenue share earn-out is considered contingent consideration which the Company elected to record as an asset at its estimated fair value of $1,623,000 on the date of sale. The fair value of the revenue share asset was $1,737,000 at March 31, 2018.

The Company incurred pre-tax expenses related to the transaction, including professional fees and other direct transaction costs, totaling $400,000 which were netted against the gain on sale of subsidiary in the consolidated statements of income during the three months ended March 31, 2017.

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3 - SECURITIES

Equity Securities

The Company held equity securities with fair values of $4,925,000 and $5,006,000 at March 31, 2018 and December 31, 2017, respectively. During the three months ended March 31, 2018, the Company recognized an unrealized loss of $75,000 on the equity securities held at March 31, 2018, which was recorded in noninterest income in the consolidated statements of income. There were no sales of equity securities during the three months ended March 31, 2018.

Debt Securities

Debt securities have been classified in the financial statements as available for sale or held to maturity. The amortized cost of debt securities and their approximate fair values at March 31, 2018 and December 31, 2017 are as follows:

			Gross		Gross
(Dollars in thousands)	Amortized		Unrealized		Unrealized			Fair
March 31, 2018	Cost		Gains		Losses			Value
Available for sale securities:
U.S. Government agency obligations	$	99,885	$	7	$	(1,157	)	$	98,735
U.S. Treasury notes		1,944		—		(28	)		1,916
Mortgage-backed securities, residential		31,965		227		(445	)		31,747
Asset backed securities		11,292		46		(91	)		11,247
State and municipal		36,806		7		(729	)		36,084
Corporate bonds		9,744		38		(78	)		9,704
SBA pooled securities		3,494		4		(15	)		3,483
Total available for sale securities	$	195,130	$	329	$	(2,543	)	$	192,916

			Gross		Gross
	Amortized		Unrecognized		Unrecognized			Fair
	Cost		Gains		Losses			Value
Held to maturity securities:
CLO securities	$	8,614	$	—	$	(503	)	$	8,111

			Gross		Gross
(Dollars in thousands)	Amortized		Unrealized		Unrealized			Fair
December 31, 2017	Cost		Gains		Losses			Value
Available for sale securities:
U.S. Government agency obligations	$	110,531	$	76	$	(717	)	$	109,890
U.S. Treasury notes		1,940		—		(6	)		1,934
Mortgage-backed securities, residential		33,537		306		(180	)		33,663
Asset backed securities		11,883		47		(85	)		11,845
State and municipal		74,684		150		(443	)		74,391
Corporate bonds		15,271		52		(3	)		15,320
SBA pooled securities		3,535		27		(2	)		3,560
Total available for sale securities	$	251,381	$	658	$	(1,436	)	$	250,603

			Gross		Gross
	Amortized		Unrecognized		Unrecognized			Fair
	Cost		Gains		Losses			Value
Held to maturity securities:
CLO securities	$	8,557	$	—	$	(1,030	)	$	7,527

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The amortized cost and estimated fair value of debt securities at March 31, 2018, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Available for Sale Securities				Held to Maturity Securities
	Amortized		Fair		Amortized		Fair
(Dollars in thousands)	Cost		Value		Cost		Value
Due in one year or less	$	13,901	$	13,874	$	—	$	—
Due from one year to five years		103,224		101,922		—		—
Due from five years to ten years		18,622		18,198		—		—
Due after ten years		12,632		12,445		8,614		8,111
		148,379		146,439		8,614		8,111
Mortgage-backed securities, residential		31,965		31,747		—		—
Asset backed securities		11,292		11,247		—		—
SBA pooled securities		3,494		3,483		—		—
	$	195,130	$	192,916	$	8,614	$	8,111

Proceeds from sales of debt securities and the associated gross gains and losses for the three months ended March 31, 2018 and 2017 are as follows:

	Three Months Ended March 31,
(Dollars in thousands)	2018			2017
Proceeds	$	34,196		$	—
Gross gains	$	5		$	—
Gross losses	$	(277	)	$	—

Debt securities with a carrying amount of approximately $68,550,000 and $85,985,000 at March 31, 2018 and December 31, 2017, respectively, were pledged to secure public deposits, customer repurchase agreements, and for other purposes required or permitted by law.

Information pertaining to debt securities with gross unrealized and unrecognized losses at March 31, 2018 and December 31, 2017, aggregated by investment category and length of time that individual securities have been in a continuous loss position, are summarized as follows:

	Less than 12 Months					12 Months or More					Total
(Dollars in thousands)	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
March 31, 2018	Value		Losses			Value		Losses			Value		Losses
Available for sale securities:
U.S. Government agency obligations	$	59,525	$	(521	)	$	34,271	$	(636	)	$	93,796	$	(1,157	)
U.S. Treasury notes		1,916		(28	)		—		—			1,916		(28	)
Mortgage-backed securities, residential		12,473		(202	)		6,023		(243	)		18,496		(445	)
Asset backed securities		—		—			4,901		(91	)		4,901		(91	)
State and municipal		27,000		(541	)		8,058		(188	)		35,058		(729	)
Corporate bonds		6,142		(76	)		373		(2	)		6,515		(78	)
SBA pooled securities		2,563		(15	)		—		—			2,563		(15	)
	$	109,619	$	(1,383	)	$	53,626	$	(1,160	)	$	163,245	$	(2,543	)

	Less than 12 Months					12 Months or More					Total
(Dollars in thousands)	Fair		Unrecognized			Fair		Unrecognized			Fair		Unrecognized
March 31, 2018	Value		Losses			Value		Losses			Value		Losses
Held to maturity securities:
CLO securities	$	1,701	$	(152	)	$	6,410	$	(351	)	$	8,111	$	(503	)

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

	Less than 12 Months					12 Months or More					Total
(Dollars in thousands)	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
December 31, 2017	Value		Losses			Value		Losses			Value		Losses
Available for sale securities:
U.S. Government agency obligations	$	47,605	$	(166	)	$	40,053	$	(551	)	$	87,658	$	(717	)
U.S. Treasury notes		1,934		(6	)		—		—			1,934		(6	)
Mortgage-backed securities, residential		10,349		(21	)		6,200		(159	)		16,549		(180	)
Asset backed securities		4,898		(85	)		—		—			4,898		(85	)
State and municipal		32,257		(216	)		12,138		(227	)		44,395		(443	)
Corporate bonds		4,073		(2	)		149		(1	)		4,222		(3	)
SBA pooled securities		1,654		(2	)		—		—			1,654		(2	)
	$	102,770	$	(498	)	$	58,540	$	(938	)	$	161,310	$	(1,436	)

	Less than 12 Months					12 Months or More					Total
(Dollars in thousands)	Fair		Unrecognized			Fair		Unrecognized			Fair		Unrecognized
December 31, 2017	Value		Losses			Value		Losses			Value		Losses
Held to maturity securities:
CLO securities	$	1,835	$	(28	)	$	5,692	$	(1,002	)	$	7,527	$	(1,030	)

Management evaluates debt securities for other than temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value.

At March 31, 2018, the Company had 162 debt securities in an unrealized loss position. Management does not have the intent to sell any of these securities and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline. Management does not believe that any of the securities are impaired due to reasons of credit quality. Accordingly, as of March 31, 2018, management believes that the unrealized losses detailed in the previous table are temporary and no other than temporary impairment loss has been recognized in the Company’s consolidated statements of income.

NOTE 4 - LOANS AND ALLOWANCE FOR LOAN AND LEASE LOSSES

The following table presents the recorded investment and unpaid principal for loans at March 31, 2018 and December 31, 2017:

	March 31, 2018								December 31, 2017
	Recorded			Unpaid					Recorded			Unpaid
(Dollars in thousands)	Investment			Principal		Difference			Investment			Principal		Difference
Commercial real estate	$	781,006		$	788,458	$	(7,452	)	$	745,893		$	753,803	$	(7,910	)
Construction, land development, land		143,876			146,493		(2,617	)		134,812			138,045		(3,233	)
1-4 family residential properties		122,979			124,558		(1,579	)		125,827			127,499		(1,672	)
Farmland		184,064			187,585		(3,521	)		180,141			184,006		(3,865	)
Commercial		930,283			932,878		(2,595	)		920,812			924,133		(3,321	)
Factored receivables		397,145			398,911		(1,766	)		374,410			376,046		(1,636	)
Consumer		29,244			29,254		(10	)		31,131			31,144		(13	)
Mortgage warehouse		285,388			285,388		—			297,830			297,830		—
Total		2,873,985		$	2,893,525	$	(19,540	)		2,810,856		$	2,832,506	$	(21,650	)
Allowance for loan and lease losses		(20,022	)							(18,748	)
	$	2,853,963							$	2,792,108

The difference between the recorded investment and the unpaid principal is primarily (1) premiums and discounts associated with acquisition date fair value adjustments on acquired loans (both PCI and non-PCI) totaling $16,746,000 and $18,706,000 at March 31,

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2018 and December 31, 2017, respectively, and (2) net deferred origination and factoring fees totaling $2,794,000 and $2,944,000 at March 31, 2018 and December 31, 2017, respectively.

At March 31, 2018 and December 31, 2017, the Company had $37,174,000 and $32,459,000, respectively, of customer reserves associated with factored receivables. These amounts represent customer reserves held to settle any payment disputes or collection shortfalls, may be used to pay customers’ obligations to various third parties as directed by the customer, are periodically released to or withdrawn by customers, and are reported as deposits in the consolidated balance sheets.

Loans with carrying amounts of $735,632,000 and $596,230,000 at March 31, 2018 and December 31, 2017, respectively, were pledged to secure Federal Home Loan Bank borrowing capacity.

During the three months ended March 31, 2017, loans with carrying amounts of $1,965,000 were transferred to loans held for sale as the Company made the decision to sell the loans. These loans were subsequently sold resulting in proceeds of $1,919,000 and losses on sale of loans of $46,000, which were recorded as other noninterest income in the consolidated statements of income. There were no loans sold during the three months ended March 31, 2018 other than those included in the sale of THF. See Note 2 – Business Combinations and Divestitures for details of the THF sale and its impact on our consolidated financial statements.

Allowance for Loan and Lease Losses

The activity in the allowance for loan and lease losses (“ALLL”) during the three months ended March 31, 2018 and 2017 is as follows:

(Dollars in thousands)	Beginning										Ending
Three months ended March 31, 2018	Balance		Provision			Charge-offs			Recoveries		Balance
Commercial real estate	$	3,435	$	33		$	—		$	—	$	3,468
Construction, land development, land		883		107			—			8		998
1-4 family residential properties		293		(48	)		—			3		248
Farmland		310		308			—			—		618
Commercial		8,150		1,420			(439	)		62		9,193
Factored receivables		4,597		469			(584	)		11		4,493
Consumer		783		271			(443	)		108		719
Mortgage warehouse		297		(12	)		—			—		285
	$	18,748	$	2,548		$	(1,466	)	$	192	$	20,022

(Dollars in thousands)	Beginning										Ending
Three months ended March 31, 2017	Balance		Provision			Charge-offs			Recoveries		Balance
Commercial real estate	$	1,813	$	567		$	(137	)	$	—	$	2,243
Construction, land development, land		465		513			(419	)		7		566
1-4 family residential properties		253		(70	)		(28	)		5		160
Farmland		170		44			—			—		214
Commercial		8,014		5,793			(2,852	)		222		11,177
Factored receivables		4,088		519			(580	)		37		4,064
Consumer		420		372			(299	)		54		547
Mortgage warehouse		182		(60	)		—			—		122
	$	15,405	$	7,678		$	(4,315	)	$	325	$	19,093

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents loans individually and collectively evaluated for impairment, as well as purchased credit impaired (“PCI”) loans, and their respective ALLL allocations:

(Dollars in thousands)	Loan Evaluation								ALLL Allocations
March 31, 2018	Individually		Collectively		PCI		Total loans		Individually		Collectively		PCI		Total ALLL
Commercial real estate	$	881	$	770,376	$	9,749	$	781,006	$	123	$	3,345	$	—	$	3,468
Construction, land development, land		139		139,824		3,913		143,876		21		977		—		998
1-4 family residential properties		2,332		119,570		1,077		122,979		141		107		—		248
Farmland		4,154		179,803		107		184,064		200		418		—		618
Commercial		28,697		900,919		667		930,283		1,636		7,557		—		9,193
Factored receivables		3,742		393,403		—		397,145		484		4,009		—		4,493
Consumer		429		28,815		—		29,244		112		607		—		719
Mortgage warehouse		—		285,388		—		285,388		—		285		—		285
	$	40,374	$	2,818,098	$	15,513	$	2,873,985	$	2,717	$	17,305	$	—	$	20,022

(Dollars in thousands)	Loan Evaluation								ALLL Allocations
December 31, 2017	Individually		Collectively		PCI		Total loans		Individually		Collectively		PCI		Total ALLL
Commercial real estate	$	1,013	$	735,118	$	9,762	$	745,893	$	123	$	3,312	$	—	$	3,435
Construction, land development, land		136		130,732		3,944		134,812		—		883		—		883
1-4 family residential properties		2,638		122,093		1,096		125,827		152		141		—		293
Farmland		3,800		176,232		109		180,141		—		310		—		310
Commercial		26,616		893,509		687		920,812		1,409		6,741		—		8,150
Factored receivables		4,726		369,684		—		374,410		949		3,648		—		4,597
Consumer		384		30,747		—		31,131		80		703		—		783
Mortgage warehouse		—		297,830		—		297,830		—		297		—		297
	$	39,313	$	2,755,945	$	15,598	$	2,810,856	$	2,713	$	16,035	$	—	$	18,748

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following is a summary of information pertaining to impaired loans. PCI loans that have not deteriorated subsequent to acquisition are not considered impaired and therefore do not require an allowance and are excluded from these tables.

	Impaired Loans and Purchased Credit						Impaired Loans
	Impaired Loans With a Valuation Allowance						Without a Valuation Allowance
(Dollars in thousands)	Recorded		Unpaid		Related		Recorded		Unpaid
March 31, 2018	Investment		Principal		Allowance		Investment		Principal
Commercial real estate	$	157	$	157	$	123	$	724	$	741
Construction, land development, land		88		88		21		51		51
1-4 family residential properties		362		374		141		1,970		2,075
Farmland		1,114		1,100		200		3,040		3,342
Commercial		17,065		17,167		1,636		11,632		11,707
Factored receivables		3,742		3,742		484		—		—
Consumer		367		354		112		62		37
Mortgage warehouse		—		—		—		—		—
PCI		—		—		—		—		—
	$	22,895	$	22,982	$	2,717	$	17,479	$	17,953

	Impaired Loans and Purchased Credit						Impaired Loans
	Impaired Loans With a Valuation Allowance						Without a Valuation Allowance
(Dollars in thousands)	Recorded		Unpaid		Related		Recorded		Unpaid
December 31, 2017	Investment		Principal		Allowance		Investment		Principal
Commercial real estate	$	165	$	165	$	123	$	848	$	881
Construction, land development, land		—		—		—		136		136
1-4 family residential properties		237		235		152		2,401		2,519
Farmland		—		—		—		3,800		4,071
Commercial		9,194		9,191		1,409		17,422		17,605
Factored receivables		4,726		4,726		949		—		—
Consumer		271		267		80		113		115
Mortgage warehouse		—		—		—		—		—
PCI		—		—		—		—		—
	$	14,593	$	14,584	$	2,713	$	24,720	$	25,327

The following table presents average impaired loans and interest recognized on impaired loans for the three months ended March 31, 2018 and 2017:

	Three Months Ended				Three Months Ended
	March 31, 2018				March 31, 2017
	Average		Interest		Average		Interest
(Dollars in thousands)	Impaired Loans		Recognized		Impaired Loans		Recognized
Commercial real estate	$	947	$	—	$	1,090	$	—
Construction, land development, land		137		—		389		—
1-4 family residential properties		2,485		2		1,180		1
Farmland		3,977		7		2,127		9
Commercial		27,657		490		29,096		122
Factored receivables		4,234		—		3,452		—
Consumer		406		1		103		—
Mortgage warehouse		—		—		—		—
PCI		—		—		1,613		—
	$	39,843	$	500	$	39,050	$	132

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Past Due and Nonaccrual Loans

The following is a summary of contractually past due and nonaccrual loans at March 31, 2018 and December 31, 2017:

	Past Due		Past Due 90
(Dollars in thousands)	30-89 Days		Days or More
March 31, 2018	Still Accruing		Still Accruing		Nonaccrual		Total
Commercial real estate	$	5,925	$	—	$	881	$	6,806
Construction, land development, land		—		—		139		139
1-4 family residential properties		1,260		—		2,255		3,515
Farmland		1,161		—		3,385		4,546
Commercial		6,300		—		25,172		31,472
Factored receivables		17,823		1,468		—		19,291
Consumer		615		—		404		1,019
Mortgage warehouse		165		—		—		165
PCI		—		—		2,335		2,335
	$	33,249	$	1,468	$	34,571	$	69,288

	Past Due		Past Due 90
(Dollars in thousands)	30-89 Days		Days or More
December 31, 2017	Still Accruing		Still Accruing		Nonaccrual		Total
Commercial real estate	$	1,374	$	—	$	1,012	$	2,386
Construction, land development, land		—		—		136		136
1-4 family residential properties		1,378		62		2,625		4,065
Farmland		250		109		3,412		3,771
Commercial		6,630		39		22,247		28,916
Factored receivables		20,858		1,454		—		22,312
Consumer		947		—		384		1,331
Mortgage warehouse		165		—		—		165
PCI		72		—		2,333		2,405
	$	31,674	$	1,664	$	32,149	$	65,487

The following table presents information regarding nonperforming loans at the dates indicated:

(Dollars in thousands)	March 31, 2018		December 31, 2017
Nonaccrual loans⁽¹⁾	$	34,571	$	32,149
Factored receivables greater than 90 days past due		1,468		1,454
Troubled debt restructurings accruing interest		4,396		5,128
	$	40,435	$	38,731

⁽¹⁾

Includes troubled debt restructurings of $7,648,000 and $14,009,000 at March 31, 2018 and December 31, 2017, respectively.

Credit Quality Information

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

Pass:

Loans classified as pass are loans with low to average risk and not otherwise classified as substandard or doubtful.

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Substandard:

Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the repayment of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful:

Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

PCI:

At acquisition, PCI loans had the characteristics of substandard loans and it was probable, at acquisition, that all contractually required principal and interest payments would not be collected. The Company evaluates these loans on a projected cash flow basis with this evaluation performed quarterly.

As of March 31, 2018 and December 31, 2017, based on the most recent analysis performed, the risk category of loans is as follows:

(Dollars in thousands)
March 31, 2018	Pass		Substandard		Doubtful		PCI		Total
Commercial real estate	$	766,811	$	4,446	$	—	$	9,749	$	781,006
Construction, land development, land		139,824		139		—		3,913		143,876
1-4 family residential		119,505		2,397		—		1,077		122,979
Farmland		178,052		5,905		—		107		184,064
Commercial		887,738		41,878		—		667		930,283
Factored receivables		393,959		2,477		709		—		397,145
Consumer		28,841		403		—		—		29,244
Mortgage warehouse		285,388		—		—		—		285,388
	$	2,800,118	$	57,645	$	709	$	15,513	$	2,873,985

(Dollars in thousands)
December 31, 2017	Pass		Substandard		Doubtful		PCI		Total
Commercial real estate	$	732,175	$	3,956	$	—	$	9,762	$	745,893
Construction, land development, land		130,732		136		—		3,944		134,812
1-4 family residential		122,044		2,687		—		1,096		125,827
Farmland		171,017		9,015		—		109		180,141
Commercial		878,957		41,168		—		687		920,812
Factored receivables		370,839		2,325		1,246		—		374,410
Consumer		30,739		392		—		—		31,131
Mortgage warehouse		297,830		—		—		—		297,830
	$	2,734,333	$	59,679	$	1,246	$	15,598	$	2,810,856

Troubled Debt Restructurings

The Company had a recorded investment in troubled debt restructurings of $12,044,000 and $19,137,000 as of March 31, 2018 and December 31, 2017, respectively. The Company had allocated specific allowances for these loans of $574,000 and $535,000 at March 31, 2018 and December 31, 2017, respectively, and had not committed to lend additional amounts. Troubled debt restructurings are the result of extending amortization periods, reducing contractual interest rates, or a combination thereof. The Company did not grant principal reductions on any restructured loans.

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents loans modified as troubled debt restructurings that occurred during the three months ended March 31, 2018 and 2017:

			Pre-Modification		Post-Modification
			Outstanding		Outstanding
(Dollars in thousands)	Number of		Recorded		Recorded
March 31, 2018	Loans		Investment		Investment
Commercial		2	$	75	$	75
1-4 family residential properties		3	$	110	$	110
		5	$	185	$	185

Pre-Modification

Post-Modification

Outstanding

(Dollars in thousands)

Number of

Recorded

March 31, 2017

Loans

Investment

Commercial

186

During the three months ended March 31, 2018, the Company had one loan modified as a troubled debt restructuring with a recorded investment of $156,000 for which there was a payment default within twelve months following the modification. During the three months ended March 31, 2017, the Company had three loans modified as troubled debt restructurings with a recorded investment of $2,987,000 for which there were payment defaults within twelve months following the modification. The full recorded investment in one of these loans of $2,702,000 was charged off during the period. Default is determined at 90 or more days past due.

Residential Real Estate Loans In Process of Foreclosure

At March 31, 2018, the Company had $316,000 in 1-4 family residential real estate loans for which formal foreclosure proceedings were in process.

Purchased Credit Impaired Loans

The Company has loans that were acquired, for which there was, at acquisition, evidence of deterioration of credit quality since origination and for which it was probable, at acquisition, that all contractually required payments would not be collected. The outstanding contractually required principal and interest and the carrying amount of these loans included in the balance sheet amounts of loans at March 31, 2018 and December 31, 2017, are as follows:

	March 31,		December 31,
	2018		2017
Contractually required principal and interest:
Real estate loans	$	16,150	$	16,360
Commercial loans		3,353		3,501
Outstanding contractually required principal and interest	$	19,503	$	19,861
Gross carrying amount included in loans receivable	$	15,513	$	15,598

The changes in accretable yield during the three months ended March 31, 2018 and 2017 in regard to loans transferred at acquisition for which it was probable that all contractually required payments would not be collected are as follows:

	Three Months Ended March 31,
	2018			2017
Accretable yield, beginning balance	$	2,793		$	4,261
Additions		—			—
Accretion		(384	)		(472	)
Reclassification from nonaccretable to accretable yield		33			83
Disposals		—			(440	)
Accretable yield, ending balance	$	2,442		$	3,432

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5 - GOODWILL AND INTANGIBLE ASSETS

Goodwill and intangible assets consist of the following:

(Dollars in thousands)		March 31, 2018				December 31, 2017
Goodwill		$	45,373			$	44,126

	March 31, 2018							December 31, 2017
	Gross Carrying		Accumulated			Net Carrying		Gross Carrying		Accumulated			Net Carrying
(Dollars in thousands)	Amount		Amortization			Amount		Amount		Amortization			Amount
Core deposit intangibles	$	29,511	$	(12,397	)	$	17,114	$	29,511	$	(11,335	)	$	18,176
Other intangible assets		1,779		(343	)		1,436		1,764		(288	)		1,476
	$	31,290	$	(12,740	)	$	18,550	$	31,275	$	(11,623	)	$	19,652

The changes in goodwill and intangible assets during the three months ended March 31, 2018 and 2017 are as follows:

	Three Months Ended March 31,
(Dollars in thousands)	2018			2017
Beginning balance	$	63,778		$	46,531
Acquired goodwill, measurement period adjustment		1,680			—
Acquired intangibles		15			152
Divestiture		(433	)		(1,339	)
Amortization of intangibles		(1,117	)		(1,111	)
Ending balance	$	63,923		$	44,233

NOTE 6 – Variable Interest Entities

Collateralized Loan Obligation Funds – Closed

The Company, through its subsidiary Triumph Capital Advisors, acted as the asset manager or provided certain middle and back office staffing and services to the asset manager of various CLO funds. TCA earned asset management fees in accordance with the terms of its asset management or staffing and services agreements associated with the CLO funds. TCA earned asset management fees totaling $1,717,000 for the three months ended March 31, 2017. On March 31, 2017 the Company sold its membership interests in TCA as discussed in Note 2 – Business Combinations and Divestitures. As a result of the TCA sale, as of March 31, 2017 the Company no longer acted as asset manager or staffing and services provider for any CLO funds.

The Company holds investments in the subordinated notes of the following closed CLO funds:

	Offering	Offering
(Dollars in thousands)	Date	Amount
Trinitas CLO IV, LTD (Trinitas IV)	June 2, 2016	$	406,650
Trinitas CLO V, LTD (Trinitas V)	September 22, 2016	$	409,000
Trinitas CLO VI, LTD (Trinitas VI)	June 20, 2017	$	717,100

The carrying amounts of the Company’s investments in the subordinated notes of the CLO funds, which represent the Company’s maximum exposure to loss as a result of its involvement with the CLO funds, totaled $8,614,000 and $8,557,000 at March 31, 2018 and December 31, 2017, respectively, and are classified as held to maturity securities within the Company’s consolidated balance sheets.

The Company performed a consolidation analysis to confirm whether the Company was required to consolidate the assets, liabilities, equity or operations of the closed CLO funds in its financial statements. The Company concluded that the closed CLO funds were variable interest entities and that the Company holds variable interests in the entities in the form of its investments in the subordinated

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

notes of entities. However, the Company also concluded that the Company does not have the power to direct the activities that most significantly impact the entities’ economic performance. As a result, the Company was not the primary beneficiary and therefore was not required to consolidate the assets, liabilities, equity, or operations of the closed CLO funds in the Company’s financial statements.

Collateralized Loan Obligation Funds – Warehouse Phase

From time to time, the Company may invest in the subordinated debt of entities formed to be the issuers of CLO offerings during their warehouse phases. The Company’s investments in these CLO funds are repaid when the CLO funds’ warehouse phases are closed and the CLO offerings are issued. The Company’s maximum exposure to loss as a result of its involvement with these CLO funds is limited to the carrying amount of its investments in the subordinated debt of the CLO funds. The Company did not hold any investments in the subordinated debt of CLO funds during their warehouse phase at December 31, 2017 or during the three months ended March 31, 2018. Income from the Company’s investments in CLO warehouse entities totaled $964,000 during the three months ended March 31, 2017, which is included in other noninterest income within the Company’s consolidated statements of income.

The Company performed a consolidation analysis of CLO funds during their warehouse phases and concluded that the CLO funds were variable interest entities and that the Company held a variable interest in the entities that could potentially be significant to the entities in the form of its investments in the subordinated notes of the entities. However, the Company also concluded that the Company does not have the power to direct the activities that most significantly impact the entities’ economic performance. As a result, the Company is not the primary beneficiary and therefore is not required to consolidate the assets, liabilities, equity, or operations of the entities in the Company’s financial statements.

NOTE 7 - Deposits

Deposits at March 31, 2018 and December 31, 2017 are summarized as follows:

(Dollars in thousands)	March 31, 2018		December 31, 2017
Noninterest bearing demand	$	548,991	$	564,225
Interest bearing demand		392,947		403,244
Individual retirement accounts		105,558		108,505
Money market		283,354		283,969
Savings		244,103		235,296
Certificates of deposit		783,651		837,384
Brokered deposits		174,894		188,725
Total Deposits	$	2,533,498	$	2,621,348

At March 31, 2018, scheduled maturities of certificates of deposit, individual retirement accounts and brokered deposits are as follows:

(Dollars in thousands)	March 31, 2018
Within one year	$	789,585
After one but within two years		180,772
After two but within three years		43,229
After three but within four years		31,137
After four but within five years		19,380
After five years		—
Total	$	1,064,103

Time deposits, including individual retirement accounts, certificates of deposit, and brokered deposits, with individual balances of $250,000 and greater totaled $144,874,000 and $158,197,000 at March 31, 2018 and December 31, 2017, respectively.

NOTE 8 - Legal Contingencies

Various legal claims have arisen from time to time in the normal course of business which, in the opinion of management, do not have a material effect on the Company’s consolidated financial statements.

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 9 - OFF-BALANCE SHEET LOAN COMMITMENTS

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

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

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

	March 31, 2018				December 31, 2017
(Dollars in thousands)	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Unused lines of credit	$	117,111	$	247,753	$	133,634	$	242,236
Standby letters of credit		2,486		8,180		1,998		8,169
Mortgage warehouse commitments		28,530		293,325		9,411		230,221

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

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

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

The Company funds an allowance for loan and lease losses on off-balance sheet lending-related commitments through a charge to other noninterest expense on the Company’s consolidated statements of income. At March 31, 2018 and December 31, 2017, the allowance for loan and lease losses on off-balance sheet lending-related commitments totaled $369,000 and $501,000, respectively, and was included in other liabilities on the Company’s consolidated balance sheets.

In addition to the commitments above, the Company had overdraft protection available in the amounts of $2,417,000 and $2,397,000 at March 31, 2018 and December 31, 2017, respectively.

NOTE 10 - Fair Value Disclosures

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

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

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

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(Unaudited)

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

The methods of determining the fair value of assets and liabilities presented in this note are consistent with our methodologies disclosed in Note 15 of the Company’s 2017 Form 10-K, except for the valuation of loans held for investment which was impact by the adoption of ASU 2016-01. In accordance with ASU 2016-01, the fair value of loans held for investment, excluding previously presented impaired loans measured at fair value on a non-recurring basis, is estimated using discounted cash flow analyses. The discount rates used to determine fair value use interest rate spreads that reflect factors such as liquidity, credit, and nonperformance risk of the loans. Loans are considered a Level 3 classification.

Assets measured at fair value on a recurring basis are summarized in the table below. There were no liabilities measured at fair value on a recurring basis at March 31, 2018 and December 31, 2017.

(Dollars in thousands)	Fair Value Measurements Using						Total
March 31, 2018	Level 1		Level 2		Level 3		Fair Value
Securities available for sale
U.S. Government agency obligations	$	—	$	98,735	$	—	$	98,735
U.S. Treasury notes		—		1,916		—		1,916
Mortgage-backed securities, residential		—		31,747		—		31,747
Asset backed securities		—		11,247		—		11,247
State and municipal		—		36,084		—		36,084
Corporate bonds		—		9,704		—		9,704
SBA pooled securities		—		3,483		—		3,483
	$	—	$	192,916	$	—	$	192,916
Equity securities
Mutual fund	$	4,925	$	—	$	—	$	4,925

(Dollars in thousands)	Fair Value Measurements Using						Total
December 31, 2017	Level 1		Level 2		Level 3		Fair Value
Securities available for sale
U.S. Government agency obligations	$	—	$	109,890	$	—	$	109,890
U.S. Treasury notes		—	$	1,934		—		1,934
Mortgage-backed securities, residential		—		33,663		—		33,663
Asset backed securities		—		11,845		—		11,845
State and municipal		—		74,391		—		74,391
Corporate bonds		—		15,320		—		15,320
SBA pooled securities		—		3,560		—		3,560
	$	—	$	250,603	$	—	$	250,603
Equity securities
Mutual fund	$	5,006	$	—	$	—	$	5,006

There were no transfers between levels during 2018 or 2017.

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Assets measured at fair value on a non-recurring basis are summarized in the table below. There were no liabilities measured at fair value on a non-recurring basis at March 31, 2018 and December 31, 2017.

(Dollars in thousands)	Fair Value Measurements Using						Total
March 31, 2018	Level 1		Level 2		Level 3		Fair Value
Impaired loans
Commercial real estate	$	—	$	—	$	34	$	34
Construction, land development, land		—		—		67		67
1-4 family residential properties		—		—		221		221
Farmland		—		—		914		914
Commercial		—		—		15,429		15,429
Factored receivables		—		—		3,258		3,258
Consumer		—		—		255		255
Other real estate owned⁽¹⁾
Commercial		—		—		5,582		5,582
	$	—	$	—	$	25,760	$	25,760

(Dollars in thousands)	Fair Value Measurements Using						Total
December 31, 2017	Level 1		Level 2		Level 3		Fair Value
Impaired loans
Commercial real estate	$	—	$	—	$	42	$	42
1-4 family residential properties		—		—		85		85
Commercial		—		—		7,785		7,785
Factored receivables		—		—		3,777		3,777
Consumer		—		—		191		191
Other real estate owned⁽¹⁾
Commercial		—		—		138		138
Construction, land development, land		—		—		202		202
	$	—	$	—	$	12,220	$	12,220

⁽¹⁾ Represents the fair value of OREO that was adjusted during the period and subsequent to its initial classification as OREO

Impaired Loans with Specific Allocation of ALLL: A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due pursuant to the contractual terms of the loan agreement. Impairment is measured by estimating the fair value of the loan based on the present value of expected cash flows, the market price of the loan, or the underlying fair value of the loan’s collateral. For real estate loans, fair value of the impaired loan’s collateral is determined by third party appraisals, which are then adjusted for the estimated selling and closing costs related to liquidation of the collateral. For this asset class, the actual valuation methods (income, sales comparable, or cost) vary based on the status of the project or property. For example, land is generally based on the sales comparable method while construction is based on the income and/or sales comparable methods. The unobservable inputs may vary depending on the individual assets with no one of the three methods being the predominant approach. The Company reviews the third party appraisal for appropriateness and adjusts the value downward to consider selling and closing costs, which typically range from 5% to 8% of the appraised value. For non-real estate loans, fair value of the impaired loan’s collateral may be determined using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business.

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

The estimated fair values of the Company’s financial instruments not measured at fair value on a recurring or non-recurring basis at March 31, 2018 and December 31, 2017 were as follows:

(Dollars in thousands)	Carrying		Fair Value Measurements Using						Total
March 31, 2018	Amount		Level 1		Level 2		Level 3		Fair Value
Financial assets:
Cash and cash equivalents	$	106,046	$	106,046	$	—	$	—	$	106,046
Securities - held to maturity		8,614		—		—		8,111		8,111
Loans not previously presented, gross		2,851,090		—		—		2,838,892		2,838,892
FHLB stock		16,508	N/A		N/A		N/A		N/A
Accrued interest receivable		14,036		14,036		—		—		14,036

Financial liabilities:
Deposits		2,533,498		—		2,526,007		—		2,526,007
Customer repurchase agreements		6,751		—		6,751		—		6,751
Federal Home Loan Bank advances		355,000		—		355,000		—		355,000
Subordinated notes		48,853		—		50,980		—		50,980
Junior subordinated debentures		38,734		—		40,638		—		40,638
Accrued interest payable		2,613		2,613		—		—		2,613

(Dollars in thousands)	Carrying		Fair Value Measurements Using						Total
December 31, 2017	Amount		Level 1		Level 2		Level 3		Fair Value
Financial assets:
Cash and cash equivalents	$	134,129	$	134,129	$	—	$	—	$	134,129
Securities - held to maturity		8,557		—		—		7,527		7,527
Loans not previously presented, net		2,780,228		—		—		2,800,362		2,800,362
Loans included in assets held for sale, net		68,668		—		—		69,268		69,268
FHLB stock		16,006	N/A		N/A		N/A		N/A
Accrued interest receivable		15,517		15,517		—		—		15,517

Financial liabilities:
Deposits		2,621,348		—		2,616,034		—		2,616,034
Customer repurchase agreements		11,488		—		11,488		—		11,488
Federal Home Loan Bank advances		365,000		—		365,000		—		365,000
Subordinated notes		48,828		—		52,310		—		52,310
Junior subordinated debentures		38,623		—		41,563		—		41,563
Accrued interest payable		3,323		3,323		—		—		3,323

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 11 - Regulatory Matters

The Company (on a consolidated basis) and TBK Bank are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s or TBK Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and TBK Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and TBK Bank to maintain minimum amounts and ratios (set forth in the table below) of total, common equity Tier 1, and Tier 1 capital to risk weighted assets, and of Tier 1 capital to average assets. Management believes, as of March 31, 2018 and December 31, 2017, the Company and TBK Bank meet all capital adequacy requirements to which they are subject.

As of March 31, 2018 and December 31, 2017, TBK Bank’s capital ratios exceeded those levels necessary to be categorized as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized,” TBK Bank must maintain minimum total risk based, common equity Tier 1 risk based, Tier 1 risk based, and Tier 1 leverage ratios as set forth in the table below. There are no conditions or events since March 31, 2018 that management believes have changed TBK Bank’s category.

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The actual capital amounts and ratios for the Company and TBK Bank as of March 31, 2018 and December 31, 2017 are presented in the following table.

								To Be Well
								Capitalized Under
				Minimum for Capital				Prompt Corrective
(Dollars in thousands)	Actual			Adequacy Purposes				Action Provisions
As of March 31, 2018	Amount		Ratio	Amount		Ratio		Amount		Ratio
Total capital (to risk weighted assets)
Triumph Bancorp, Inc.	$	444,789	13.7%	$	260,439		8.0%	N/A		N/A
TBK Bank, SSB	$	372,889	11.9%	$	250,546		8.0%	$	313,183		10.0%

Tier 1 capital (to risk weighted assets)
Triumph Bancorp, Inc.	$	375,545	11.5%	$	195,330		6.0%	N/A		N/A
TBK Bank, SSB	$	352,600	11.3%	$	187,910		6.0%	$	250,546		8.0%

Common equity Tier 1 capital (to risk weighted assets)
Triumph Bancorp, Inc.	$	327,153	10.0%	$	146,497		4.5%	N/A		N/A
TBK Bank, SSB	$	352,600	11.3%	$	140,932		4.5%	$	203,569		6.5%

Tier 1 capital (to average assets)
Triumph Bancorp, Inc.	$	375,545	12.1%	$	124,559		4.0%	N/A		N/A
TBK Bank, SSB	$	352,600	10.6%	$	132,470		4.0%	$	165,588		5.0%

As of December 31, 2017
Total capital (to risk weighted assets)
Triumph Bancorp, Inc.	$	436,036	13.2%	$	264,026		8.0%	N/A		N/A
TBK Bank, SSB	$	361,068	11.4%	$	254,139		8.0%	$	317,674		10.0%

Tier 1 capital (to risk weighted assets)
Triumph Bancorp, Inc.	$	367,958	11.1%	$	198,019		6.0%	N/A		N/A
TBK Bank, SSB	$	341,910	10.8%	$	190,603		6.0%	$	254,137		8.0%

Common equity Tier 1 capital (to risk weighted assets)
Triumph Bancorp, Inc.	$	320,265	9.7%	$	148,514		4.5%	N/A		N/A
TBK Bank, SSB	$	341,910	10.8%	$	142,952		4.5%	$	206,486		6.5%

Tier 1 capital (to average assets)
Triumph Bancorp, Inc.	$	367,958	11.8%	$	124,754		4.0%	N/A		N/A
TBK Bank, SSB	$	341,910	11.1%	$	123,088		4.0%	$	153,860		5.0%

Dividends paid by banks are limited to, without prior regulatory approval, current year earnings and earnings less dividends paid during the preceding two years.

Beginning in January 2016, the implementation of the capital conservation buffer set forth by the Basel III regulatory capital framework was effective for the company starting at 0.625% of risk weighed assets above the minimum risk based capital ratio requirements and increasing 0.625% each year thereafter, until it reaches 2.5% on January 1, 2019. The capital conservation buffer was 1.875% and 1.25% at March 31, 2018 and December 31, 2017, respectively. The capital conservation buffer is designed to absorb losses during periods of economic stress and requires increased capital levels for the purpose of capital distributions and other payments. Failure to meet the full amount of the buffer will result in restrictions on the Company’s ability to make capital distributions, including dividend payments and stock repurchases, and to pay discretionary bonuses to executive officers. At March 31, 2018 and December 31, 2017, the Company’s and TBK Bank’s risk based capital exceeded the required capital conservation buffer.

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 12 – STOCKHOLDERS’ EQUITY

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

Common Stock

	Common Stock
	March 31, 2018			December 31, 2017
Shares authorized		50,000,000			50,000,000
Shares issued		20,918,034			20,912,396
Treasury shares		(93,525	)		(91,951	)
Shares outstanding		20,824,509			20,820,445
Par value per share	$	0.01		$	0.01

Preferred Stock

	Preferred Stock
	Series A						Series B
(Dollars in thousands, except per share amounts)	March 31, 2018			December 31, 2017			March 31, 2018			December 31, 2017
Shares authorized		50,000			50,000			115,000			115,000
Shares issued		45,500			45,500			51,076			51,076
Shares outstanding		45,500			45,500			51,076			51,076
Par value per share	$	0.01		$	0.01		$	0.01		$	0.01
Liquidation preference per share	$	100		$	100		$	100		$	100
Liquidation preference amount	$	4,550		$	4,550		$	5,108		$	5,108
Dividend rate	Prime + 2%			Prime + 2%				8.00	%		8.00	%
Dividend rate - floor		8.00	%		8.00	%	N/A			N/A
Subsequent dividend payment dates	Quarterly			Quarterly			Quarterly			Quarterly
Convertible to common stock	Yes			Yes			Yes			Yes
Conversion period	Anytime			Anytime			Anytime			Anytime
Conversion ratio - preferred to common	6.94008			6.94008			6.94008			6.94008

NOTE 13 – STOCK BASED COMPENSATION

Stock based compensation expense that has been charged against income was $486,000 and $702,000 for the three months ended March 31, 2018 and 2017, respectively.

2014 Omnibus Incentive Plan

The Company’s 2014 Omnibus Incentive Plan (“Omnibus Incentive Plan”) provides for the grant of nonqualified and incentive stock options, stock appreciation rights, restricted stock awards, restricted stock units, and other awards that may be settled in, or based upon the value of, the Company’s common stock. The aggregate number of shares of common stock available for issuance under the Omnibus Incentive Plan is 1,200,000 shares.

Restricted Stock Awards

A summary of changes in the Company’s nonvested Restricted Stock Awards (“RSAs”) under the Omnibus Incentive Plan for the three months ended March 31, 2018 were as follows:

				Weighted-Average
				Grant-Date
Nonvested RSAs	Shares			Fair Value
Nonvested at January 1, 2018		102,776		$	18.68
Granted		5,492			38.50
Vested		(5,492	)		38.50
Forfeited		(1,574	)		20.61
Nonvested at March 31, 2018		101,202		$	18.65

RSAs granted to employees under the Omnibus Incentive Plan typically vest over three to four years. Compensation expense for RSAs granted under the Omnibus Incentive Program will be recognized over the vesting period of the awards based on the fair value of the

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

stock at the issue date. As of March 31, 2018, there was $572,000 of unrecognized compensation cost related to nonvested RSAs granted under the Omnibus Incentive Plan. The cost is expected to be recognized over a remaining period of 2.74 years.

Stock Options

A summary of the changes in the Company’s stock options under the Omnibus Incentive Plan as of and for the three months ended March 31, 2018 were as follows:

						Weighted-Average
						Remaining		Aggregate
				Weighted-Average		Contractual Term		Intrinsic Value
Stock Options	Shares			Exercise Price		(In Years)		(In Thousands)
Outstanding at January 1, 2018		185,328		$	18.97
Granted		—			—
Exercised		(374	)		15.87
Forfeited or expired		(3,186	)		18.98
Outstanding at March 31, 2018		181,768		$	18.98		8.32	$	4,039

Fully vested shares and shares expected to vest at March 31, 2018		181,768		$	18.98		8.32	$	4,039

Shares exercisable at March 31, 2018		31,368		$	15.87		8.01	$	795

	Three Months Ended March 31,
(Dollars in thousands, except per share amounts)	2018		2017
Aggregate intrinsic value of options exercised	$	10	$	—
Cash received from option exercises	$	—	$	—
Tax benefit realized from option exercises	$	2	$	—
Weighted average fair value of options granted	$	—	$	—

Stock options awarded to employees under the Omnibus Incentive Plan are generally granted with an exercise price equal to the market price of the Company’s common stock at the date of grant, vest over four years, and have ten year contractual terms. Contractual terms of exercisable options may be shortened due to termination of a participant’s employment. The fair value of stock options granted is estimated at the date of grant using the Black-Scholes option-pricing model. Expected volatilities are determined based on a blend of the Company’s historical volatility and historical volatilities of a peer group of companies with a similar size, industry, stage of life cycle, and capital structure. The expected term of options granted is determined based on the SEC simplified method, which calculates the expected term as the mid-point between the weighted average time to vesting and the contractual term. The risk-free interest rate for the expected term of options is derived from the Treasury constant maturity yield curve on the valuation date.

As of March 31, 2018, there was $387,000 of unrecognized compensation cost related to nonvested stock options granted under the Omnibus Incentive Plan. The cost is expected to be recognized over a remaining period of 2.62 years.

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 14 – EARNINGS PER SHARE

The factors used in the earnings per share computation follow:

	Three Months Ended March 31,
(Dollars in thousands)	2018		2017
Basic
Net income to common stockholders	$	11,878	$	10,281
Weighted average common shares outstanding		20,721,363		17,955,144
Basic earnings per common share	$	0.57	$	0.57
Diluted
Net income to common stockholders	$	11,878	$	10,281
Dilutive effect of preferred stock		190		192
Net income to common stockholders - diluted	$	12,068	$	10,473
Weighted average common shares outstanding		20,721,363		17,955,144
Add: Dilutive effects of restricted stock		85,045		87,094
Add: Dilutive effects of assumed exercises of stock warrants		—		145,896
Add: Dilutive effects of assumed exercises of stock options		83,872		47,873
Add: Dilutive effects of assumed conversion of Preferred A		315,773		315,773
Add: Dilutive effects of assumed conversion of Preferred B		354,471		360,578
Average shares and dilutive potential common shares		21,560,524		18,912,358
Diluted earnings per common share	$	0.56	$	0.55

There were no antidilutive shares for the three months ended March 31, 2018 and 2017.

NOTE 15 – BUSINESS SEGMENT INFORMATION

The following table presents the Company’s operating segments. The accounting policies of the segments are substantially similar to those described in the “Summary of Significant Accounting Policies” in Note 1 of the Company’s 2017 Form 10-K. Transactions between segments consist primarily of borrowed funds. Intersegment interest expense is allocated to the Factoring segment based on the Company’s prime rate. The provision for loan loss is allocated based on the segment’s allowance for loan loss determination. Noninterest income and expense directly attributable to a segment are assigned to it. Taxes are paid on a consolidated basis but not allocated for segment purposes. The Factoring segment includes only factoring originated by TBC. General factoring services not originated through TBC are included in the Banking segment. On March 31, 2017, the Company sold its 100% membership interest in Triumph Capital Advisors, LLC (“TCA”) and discontinued fee based asset management services. TCA operations were not material during the year ended December 31, 2017 and are reflected in the Corporate segment, along with the gain on sale of the Company’s membership interest in TCA.

(Dollars in thousands)
Three Months Ended March 31, 2018	Banking		Factoring			Corporate			Consolidated
Total interest income	$	38,905	$	14,780		$	433		$	54,118
Intersegment interest allocations		2,932		(2,932	)		—			—
Total interest expense		5,554		—			1,434			6,988
Net interest income (expense)		36,283		11,848			(1,001	)		47,130
Provision for loan losses		2,144		393			11			2,548
Net interest income after provision		34,139		11,455			(1,012	)		44,582
Gain on sale of subsidiary or division		1,071		—			—			1,071
Other noninterest income		3,588		590			(77	)		4,101
Noninterest expense		26,538		6,854			650			34,042
Operating income (loss)	$	12,260	$	5,191		$	(1,739	)	$	15,712

TRIUMPH BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands)
Three Months Ended March 31, 2017	Banking		Factoring			Corporate			Consolidated
Total interest income	$	27,499	$	8,705		$	128		$	36,332
Intersegment interest allocations		1,289		(1,289	)		—			—
Total interest expense		3,214		—			1,299			4,513
Net interest income (expense)		25,574		7,416			(1,171	)		31,819
Provision for loan losses		7,021		582			75			7,678
Net interest income after provision		18,553		6,834			(1,246	)		24,141
Gain on sale of subsidiary or division		—		—			20,860			20,860
Other noninterest income		3,531		670			2,224			6,425
Noninterest expense		21,969		5,595			7,273			34,837
Operating income (loss)	$	115	$	1,909		$	14,565		$	16,589

(Dollars in thousands)
March 31, 2018	Banking		Factoring		Corporate		Eliminations			Consolidated
Total assets	$	3,346,394	$	386,610	$	514,144	$	(842,138	)	$	3,405,010
Gross loans	$	2,766,383	$	372,771	$	11,582	$	(276,751	)	$	2,873,985

(Dollars in thousands)
December 31, 2017	Banking		Factoring		Corporate		Eliminations			Consolidated
Total assets	$	3,444,322	$	360,922	$	504,656	$	(810,867	)	$	3,499,033
Gross loans	$	2,784,147	$	346,293	$	11,936	$	(331,520	)	$	2,810,856

NOTE 16 – SUBSEQUENT EVENTS

On April 9, 2018 the Company entered into agreements to acquire (i) First Bancorp of Durango, Inc. and its community banking subsidiaries, First National Bank of Durango and Bank of New Mexico and (ii) Southern Colorado Corp. and its community banking subsidiary, Citizens Bank of Pagosa Springs. At December 31, 2017, First Bancorp of Durango, Inc. had $646,000,000 in assets, including $271,000,000 in loans, and $574,000,000 in deposits, and Southern Colorado Corp. had $88,000,000 in assets, including $37,000,000 in loans, and $79,000,000 in deposits.

On April 9, 2018 the Company entered into an agreement to acquire the transportation factoring assets of Interstate Capital Corporation. At December 31, 2017, Interstate Capital Corporation had $112,000,000 in gross factored receivables.

On April 12, 2018 the Company completed a public offering of 5,405,000 shares of the Company’s common stock, including 705,000 shares sold pursuant to the underwriters’ full exercise of their option to purchase additional shares, at $37.50 per share for total gross proceeds of $202,688,000. Net proceeds from the offering, after deducting the underwriting discount and offering expenses, were approximately $192,100,000.

item 2

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

This section presents management’s perspective on our financial condition and results of operations. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Company’s interim consolidated financial statements and the accompanying notes included elsewhere in this Quarterly Report on Form 10-Q and with the consolidated financial statements and accompanying notes and other detailed information appearing in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. To the extent that this discussion describes prior performance, the descriptions relate only to the periods listed, which may not be indicative of our future financial outcomes. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause results to differ materially from management’s expectations. See the “Forward-Looking Statements” section of this discussion for further information on forward-looking statements.

Company Overview

We are a financial holding company headquartered in Dallas, Texas and registered under the Bank Holding Company Act. Through our wholly owned bank subsidiary, TBK Bank, we offer traditional banking services as well as commercial finance product lines focused on businesses that require specialized financial solutions. Our banking operations include a full suite of lending and deposit products and services focused on our local market areas. These activities generate a stable source of core deposits and a diverse asset base to support our overall operations. Our commercial finance product lines include factoring, asset based lending, equipment lending and premium finance products offered on a nationwide basis. These product offerings supplement the asset generation capacity in our community banking markets and enhance the overall yield of our loan portfolio, enabling us to earn attractive risk-adjusted net interest margins. We believe our integrated business model distinguishes us from other banks and non-bank financial services companies in the markets in which we operate. As of March 31, 2018, we had consolidated total assets of $3.405 billion, total loans held for investment of $2.874 billion, total deposits of $2.533 billion and total stockholders’ equity of $402.9 million.

Most of our products and services share basic processes and have similar economic characteristics. However, our factoring subsidiary operates in a highly specialized niche and earns substantially higher yields on its factored accounts receivable portfolio than our other lending products. This business also has a legacy and structure as a standalone company. As a result, we have determined our reportable segments are Banking, Factoring, and Corporate. For the three months ended March 31, 2018, our Banking segment generated 73% of our total revenue (comprised of interest and noninterest income), our Factoring segment generated 26% of our total revenue, and our Corporate segment generated 1% of our total revenue. On March 31, 2017, we sold our 100% membership interest in Triumph Capital Advisors, LLC (“TCA”) and discontinued fee based asset management services. TCA operations were not material during the year ended December 31, 2017 and are reflected in our Corporate segment, along with the gain on sale of our membership interest in TCA.

First Quarter 2018 Overview

Net income available to common stockholders for the three months ended March 31, 2018 was $11.9 million, or $0.56 per diluted share, compared to net income available to common stockholders for the three months ended March 31, 2017 of $10.3 million, or $0.55 per diluted share. Excluding material gains and expenses related to merger and acquisition related activities, including divestitures, adjusted net income to common stockholders was $11.1 million, or $0.52 per diluted share, for the three months ended March 31, 2018 and $0.3 million, or $0.02 per diluted share, for the three months ended March 31, 2017. For the three months ended March 31, 2018, our return on average common equity was 12.30% and our return on average assets was 1.43%.

At March 31, 2018, we had total assets of $3.405 billion, including gross loans held for sale of $2.874 billion, compared to $3.499 billion of total assets and $2.811 billion of gross loans held for sale at December 31, 2017. Organic loan growth totaled $63.1 million, or 2.2%, during the three months ended March 31, 2018. Our commercial finance product lines increased to $936.5 million in aggregate as of March 31, 2018, from $897.5 million as of December 31, 2017, an increase of 4%, and constitute 33% of our total loan portfolio at March 31, 2018.

At March 31, 2018, we had total liabilities of $3.002 billion, including total deposits of $2.533 billion, compared to $3.107 billion of total liabilities and $2.621 billion of total deposits at December 31, 2017. Deposits decreased $87.9 million during the three months ended March 31, 2018.

At March 31, 2018, we had total stockholders' equity of $402.9 million. During the three months ended March 31, 2018, total stockholders’ equity increased $11.2 million, primarily due to our net income for the period. Capital ratios remained strong with Tier 1 capital and total capital to risk weighted assets ratios of 11.54% and 13.66%, respectively, at March 31, 2018.

Triumph Healthcare Finance

On January 19, 2018, we entered into an agreement to sell the assets (the “Disposal Group”) of Triumph Healthcare Finance (“THF”) and exit the healthcare asset-based lending line of business. The decision to sell THF was made prior to the end of the fourth quarter, and at December 31, 2017, the fair value of the Disposal Group exceeded its carrying amount. As a result of this decision, the $71.4 million carrying amount of the Disposal Group was transferred to assets held for sale as of December 31, 2017. The sale was finalized on March 16, 2018 and resulted in a net pre-tax contribution to earnings for the three months ended March 31, 2018 of $1.1 million, or approximately $0.8 million net of tax.

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

First Bancorp of Durango, Inc. and Southern Colorado Corp.

On April 9, 2018 we entered into agreements to acquire First Bancorp of Durango, Inc. and Southern Colorado Corp. At December 31, 2017, First Bancorp of Durango, Inc. and Southern Colorado Corp. had a combined $734 million in assets, including $308 million in loans, and $653 million in deposits.

Interstate Capital Corporation

On April 9, 2018 we entered into an agreement to acquire the transportation factoring assets of Interstate Capital Corporation. At December 31, 2017, Interstate Capital Corporation had $112 million in gross factored receivables.

Common Stock Offerings

On April 12, 2018, we completed an underwritten common stock offering issuing 5.4 million shares of our common stock, including 0.7 million shares sold pursuant to the underwriters' full exercise of their option to purchase additional shares, at $37.50 per share for total gross proceeds of $202.7 million. Net proceeds after underwriting discounts and offering expenses were approximately $192.1 million. We intend to use a significant portion of the net proceeds of this offering to fund the consideration payable in the pending acquisitions of First Bancorp of Durango, Inc., Southern Colorado Corp., and Interstate Capital Corporation, as well as, for general corporate purposes.

On August 1, 2017, we completed an underwritten common stock offering issuing 2.53 million shares of our common stock, including 0.33 million shares sold pursuant to the underwriters' full exercise of their option to purchase additional shares, at $27.50 per share for total gross proceeds of $69.6 million. Net proceeds after underwriting discounts and offering expenses were $65.5 million. We used a significant portion of the net proceeds of the offering to fund the acquisition of Valley Bancorp, Inc. and for general corporate purposes.

Valley Bancorp, Inc.

Effective December 9, 2017, we acquired Valley Bancorp, Inc. (“Valley”) and its community banking subsidiary, Valley Bank & Trust, which was merged into TBK Bank upon closing, in an all-cash transaction for $40.1 million. As part of the Valley acquisition, we acquired $171.2 million of loans, assumed $293.4 million of deposits associated with Valley and recorded $6.1 million of core deposit intangible assets and $10.5 million of goodwill.

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

Independent Bank – Colorado Branches

On October 6, 2017, we, through our subsidiary TBK Bank, completed our acquisition of nine branch locations in Colorado from Independent Bank Group, Inc.’s banking subsidiary Independent Bank (the “Acquired Branches”) for an aggregate deposit premium of approximately $6.8 million or 4.2%. As part of the acquisition, we acquired $95.8 million of loans, assumed $160.7 million of deposits associated with the branches and recorded $3.3 million of core deposit intangible assets and $5.8 million of goodwill.

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

Triumph Capital Advisors

On March 31, 2017, we sold our 100% membership interest in Triumph Capital Advisors, LLC (“TCA”). The TCA sale resulted in a net pre-tax contribution to earnings for the three months ended March 31, 2017 of $15.7 million, or approximately $10.0 million net of tax. Consideration received included a seller financed loan receivable in the amount of $10.5 million.

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

Commercial Finance Product Lines

A key element of our strategy is to supplement the asset generation capacity in our community banking markets with commercial finance product lines which are offered on a nationwide basis and which serve to enhance the overall yield of our portfolio. These products include our factoring services, provided principally in the transportation sector, and our asset based lending, equipment finance, and premium finance products. Our aggregate outstanding balances for these products increased $39.0 million, or 4.3%, to $936.5 million as of March 31, 2018. These increases were driven by organic growth.

The following table sets forth our commercial finance product lines:

	March 31,		December 31,
(Dollars in thousands)	2018		2017
Commercial finance
Equipment	$	260,502	$	254,119
Asset based lending (general)		230,314		213,471
Premium finance		48,561		55,520
Factored receivables		397,145		374,410
Total commercial finance loans	$	936,522	$	897,520

Financial Highlights

	Three Months Ended March 31,
(Dollars in thousands, except per share amounts)	2018			2017
Income Statement Data:
Interest income	$	54,118		$	36,332
Interest expense		6,988			4,513
Net interest income		47,130			31,819
Provision for loan losses		2,548			7,678
Net interest income after provision		44,582			24,141
Gain on sale of subsidiary or division		1,071			20,860
Other noninterest income		4,101			6,425
Noninterest income		5,172			27,285
Noninterest expense		34,042			34,837
Net income before income taxes		15,712			16,589
Income tax expense		3,644			6,116
Net income		12,068			10,473
Dividends on preferred stock		(190	)		(192	)
Net income available to common stockholders	$	11,878		$	10,281

Per Share Data:
Basic earnings per common share	$	0.57		$	0.57
Diluted earnings per common share	$	0.56		$	0.55
Weighted average shares outstanding - basic		20,721,363			17,955,144
Weighted average shares outstanding - diluted		21,560,524			18,912,358

Adjusted Per Share Data⁽¹⁾:
Adjusted diluted earnings per common share	$	0.52		$	0.02
Adjusted weighted average shares outstanding - diluted		21,560,524			18,236,005

Performance ratios - Annualized:
Return on average assets		1.43	%		1.62	%
Return on average total equity		12.20	%		14.44	%
Return on average common equity		12.30	%		14.66	%
Return on average tangible common equity⁽¹⁾		14.75	%		17.49	%
Yield on loans		7.65	%		7.15	%
Adjusted yield on loans⁽¹⁾		7.36	%		6.93	%
Cost of interest bearing deposits		0.86	%		0.71	%
Cost of total deposits		0.68	%		0.58	%
Cost of total funds		0.95	%		0.79	%
Net interest margin		6.06	%		5.37	%
Adjusted net interest margin⁽¹⁾		5.81	%		5.19	%
Efficiency ratio		65.09	%		58.94	%
Adjusted efficiency ratio⁽¹⁾		66.45	%		77.65	%
Net noninterest expense to average assets		3.43	%		1.17	%
Adjusted net noninterest expense to average assets⁽¹⁾		3.56	%		3.60	%

	March 31,		December 31,
(Dollars in thousands, except per share amounts)	2018		2017
Balance Sheet Data:
Total assets	$	3,405,010	$	3,499,033
Cash and cash equivalents		106,046		134,129
Investment securities		206,455		264,166
Loans held for investment, net		2,853,963		2,792,108
Total liabilities		3,002,066		3,107,335
Noninterest bearing deposits		548,991		564,225
Interest bearing deposits		1,984,507		2,057,123
FHLB advances		355,000		365,000
Subordinated notes		48,853		48,828
Junior subordinated debentures		38,734		38,623
Total stockholders’ equity		402,944		391,698
Preferred stockholders' equity		9,658		9,658
Common stockholders' equity		393,286		382,040

Per Share Data:
Book value per share	$	18.89	$	18.35
Tangible book value per share⁽¹⁾	$	15.82	$	15.29
Shares outstanding end of period		20,824,509		20,820,445

Asset Quality ratios⁽²⁾:
Past due to total loans		2.41

Form: 10-Q

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