Triumph Financial(TFIN) - 2025 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Presents the company's interim financial statements, management's discussion and analysis, and disclosures on market risks and internal controls Item 1. Financial Statements Presents the consolidated balance sheets, income statements, comprehensive income, changes in equity, cash flows, and detailed notes Consolidated Balance Sheets Presents the Company's financial position as of June 30, 2025, and December 31, 2024, showing an increase in total assets, loans, and deposits | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | | :-------------------------- | :----------------------------- | :----------------------------- | :-------------------- | | Total Assets | $6,494,748 | $5,948,975 | $545,773 | | Loans, net | $4,914,479 | $4,506,246 | $408,233 | | Total Deposits | $5,186,098 | $4,820,820 | $365,278 | | Total Stockholders' Equity | $912,382 | $890,919 | $21,463 | | Goodwill | $353,900 | $241,949 | $111,951 | Consolidated Statements of Income Details the Company's revenues and expenses for the three and six months ended June 30, 2025 and 2024, showing an increase in net income for Q2 2025 but a decrease for the six months ended June 30, 2025 compared to the prior year Net Income (Three Months Ended June 30) | Metric | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :------------------ | :------------------ | :-------------------- | :------- | | Total interest income | $109,201 | $107,015 | $2,186 | 2.0% | | Total interest expense | $20,523 | $19,100 | $1,423 | 7.5% | | Net interest income | $88,678 | $87,915 | $763 | 0.9% | | Credit loss expense (benefit) | $(702) | $4,155 | $(4,857) | (116.9)% | | Net income | $4,420 | $2,747 | $1,673 | 60.9% | | Net income available to common stockholders | $3,618 | $1,945 | $1,673 | 86.0% | | Diluted EPS | $0.15 | $0.08 | $0.07 | 87.5% | Net Income (Six Months Ended June 30) | Metric | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :------------------ | :------------------ | :-------------------- | :------- | | Total interest income | $211,471 | $208,962 | $2,509 | 1.2% | | Total interest expense | $38,410 | $35,012 | $3,398 | 9.7% | | Net interest income | $173,061 | $173,950 | $(889) | (0.5)% | | Credit loss expense (benefit) | $628 | $10,051 | $(9,423) | (93.8)% | | Net income | $4,437 | $6,905 | $(2,468) | (35.7)% | | Net income available to common stockholders | $2,834 | $5,302 | $(2,468) | (46.5)% | | Diluted EPS | $0.12 | $0.22 | $(0.10) | (45.5)% | Consolidated Statements of Comprehensive Income Reports the Company's comprehensive income, including net income and other comprehensive income (loss) components, primarily unrealized gains/losses on securities, for the three and six months ended June 30, 2025 and 2024 Comprehensive Income (Three Months Ended June 30) | Metric | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | | :--------------------------------------- | :------------------ | :------------------ | :-------------------- | | Net income | $4,420 | $2,747 | $1,673 | | Change in unrealized gains (losses) on securities, net of tax | $774 | $(262) | $1,036 | | Comprehensive income (loss) | $5,194 | $2,485 | $2,709 | Comprehensive Income (Six Months Ended June 30) | Metric | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | | :--------------------------------------- | :------------------ | :------------------ | :-------------------- | | Net income | $4,437 | $6,905 | $(2,468) | | Change in unrealized gains (losses) on securities, net of tax | $470 | $(469) | $939 | | Comprehensive income (loss) | $4,907 | $6,436 | $(1,529) | Consolidated Statements of Changes in Stockholders' Equity Details the changes in each component of stockholders' equity for the six months ended June 30, 2025 and 2024, including net income, stock-based compensation, and treasury stock transactions - Total Stockholders' Equity increased to $912,382 thousand at June 30, 2025, from $890,919 thousand at January 1, 2025[17] - Key drivers of change in stockholders' equity from January 1 to June 30, 2025, include issuance of common stock ($12,732 thousand), stock-based compensation ($3,430 thousand), net income ($4,420 thousand), other comprehensive income ($774 thousand), and net purchase of treasury stock ($(2,099) thousand)[17] Consolidated Statements of Cash Flows Provides a breakdown of cash flows from operating, investing, and financing activities for the six months ended June 30, 2025 and 2024, showing a net decrease in cash and cash equivalents in 2025 Cash Flow Summary (Six Months Ended June 30) | Metric | 2025 (in thousands) | 2024 (in thousands) | | :--------------------------------------- | :------------------ | :------------------ | | Net cash provided by (used in) operating activities | $6,179 | $11,126 | | Net cash provided by (used in) investing activities | $(566,791) | $(232,985) | | Net cash provided by (used in) financing activities | $512,841 | $435,887 | | Net increase (decrease) in cash and cash equivalents | $(47,771) | $214,028 | | Cash and cash equivalents at end of period | $282,346 | $500,663 | - Investing activities in 2025 included significant net cash paid for acquisitions ($137,517 thousand) and a substantial net change in loans ($(406,345) thousand)[21] - Financing activities in 2025 were primarily driven by a net increase in deposits ($365,278 thousand) and an increase in Federal Home Loan Bank advances ($150,000 thousand)[21] Condensed Notes to Consolidated Financial Statements Provides detailed disclosures and explanations for the financial statements, covering significant accounting policies, acquisitions, securities, loans, goodwill, regulatory matters, and segment information NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Outlines the Company's nature of operations as a financial holding company offering banking, factoring, payments, and intelligence services, its basis of presentation, reportable segments, and the adoption of new accounting standards - Triumph Financial, Inc. is a financial holding company offering diversified banking, factoring, payments, and intelligence services through its subsidiaries, primarily TBK Bank, SSB[26] - The Company has four reportable segments: Banking, Factoring, Payments, and Intelligence[30] - The Intelligence segment, launched in Q4 2024, focuses on turning trucking data into actionable insights, supplemented by acquisitions of Isometric Technologies Inc. (Q4 2024) and Greenscreens AI, Inc. (Q2 2025)[35] - A USPS Settlement was reached on June 30, 2025, for $47.5 million, positively impacting pretax net income by $12.4 million for the three months and $11.5 million for the six months ended June 30, 2025[40][42] NOTE 2 — ACQUISITIONS AND DIVESTITURES Details the Company's acquisitions, specifically Greenscreens AI, Inc. in Q2 2025 and Isometric Technologies Inc. in Q4 2024, including consideration paid, assets acquired, and goodwill recognized Greenscreens AI, Inc. Acquisition (May 8, 2025) | Metric | Amount (in thousands) | | :-------------------------- | :-------------------- | | Cash paid | $139,118 | | Stock consideration | $12,732 | | Total consideration | $151,850 | | Goodwill recognized | $111,951 | | Customer relationship intangible assets | $36,380 | | Capitalized software intangible assets | $8,340 | - Goodwill from Greenscreens acquisition was allocated to Factoring ($16,096 thousand), Payments ($15,425 thousand), and Intelligence ($80,430 thousand) segments[46] Isometric Technologies Inc. Acquisition (December 1, 2024) | Metric | Amount (in thousands) | | :-------------------------- | :-------------------- | | Cash paid | $10,000 | | Goodwill recognized | $8,240 | | Capitalized software intangible assets | $1,680 | | Customer relationship intangible assets | $60 | | Trade name intangible assets | $20 | NOTE 3 — SECURITIES Provides a breakdown of the Company's equity and debt securities, including fair values, unrealized gains/losses, and allowance for credit losses, highlighting that unrealized losses on available-for-sale debt securities are due to noncredit-related factors Equity Securities with Readily Determinable Fair Values | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :--------------------------------------- | :----------------------------- | :----------------------------- | | Equity securities with readily determinable fair values | $4,526 | $4,445 | | Unrealized gains (losses) on equity securities held (Six Months Ended June 30, 2025) | $81 | $(66) | Available for Sale Debt Securities (June 30, 2025) | Metric | Fair Value (in thousands) | Gross Unrealized Gains (in thousands) | Gross Unrealized Losses (in thousands) | | :-------------------------- | :------------------------ | :------------------------------------ | :------------------------------------- | | Total available for sale securities | $392,275 | $1,329 | $(4,811) | - Management believes unrealized losses on available for sale debt securities are due to noncredit-related factors, and therefore, no allowance for credit losses was recorded at June 30, 2025[68] Held to Maturity Debt Securities (June 30, 2025) | Metric | Amortized Cost (in thousands) | Allowance for Credit Losses (in thousands) | | :-------------------------- | :---------------------------- | :------------------------------------- | | Total held to maturity securities, net of ACL | $1,782 | $1,399 | | Nonaccrual held to maturity securities | $1,913 | N/A | - During the three months ended March 31, 2025, the Company charged off one CLO fund investment of $2,160 thousand, which was fully reserved in a prior period, having no impact on credit loss expense[69] NOTE 4 — LOANS AND ALLOWANCE FOR CREDIT LOSSES Details the Company's loan portfolio, including loans held for sale and investment, and the allowance for credit losses (ACL), noting changes in loan balances, credit quality, and modification activities Loans Held for Sale | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------- | :----------------------------- | :----------------------------- | | Total loans held for sale | $6,066 | $1,172 | Loans Held for Investment (June 30, 2025) | Loan Type | Amortized Cost (in thousands) | % of Total | | :------------------ | :---------------------------- | :--------- | | Total loans held for investment | $4,968,659 | 100% | | Factored receivables | $1,401,377 | 28.2% | | Mortgage warehouse | $1,209,695 | 24.3% | Allowance for Credit Losses (ACL) on Loans | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------- | :----------------------------- | :----------------------------- | | ACL ending balance | $38,691 | $40,714 | | ACL to total loans ratio | 0.78% | 0.90% | - Net charge-offs for the six months ended June 30, 2025, totaled $13,601 thousand, while credit loss expense was $798 thousand[87][127] Nonperforming Loans | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------- | :----------------------------- | :----------------------------- | | Nonaccrual loans | $54,616 | $90,023 | | Nonperforming factored receivables | $2,893 | $23,289 | | Total nonperforming loans | $57,509 | $113,312 | - Nonperforming loans decreased by $55.8 million (49.2%) from December 31, 2024, primarily due to payoffs, decreases in equipment finance and liquid credit relationships, and a $19.4 million reduction in the Misdirected Payments Receivable[125][412] Loan Modifications to Borrowers Experiencing Financial Difficulty (Six Months Ended June 30, 2025) | Modification Type | Amortized Cost (in thousands) | % of Portfolio | | :---------------- | :---------------------------- | :------------- | | Term Extension | $134,268 | 17.8% | | Term Extension and Payment Delay | $302 | —% | | Payment Delay | $528 | —% | NOTE 5 — GOODWILL AND INTANGIBLE ASSETS Provides a summary of goodwill and intangible assets, including changes due to acquisitions and amortization, showing a significant increase in goodwill and net carrying amount of intangible assets Goodwill and Intangible Assets | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------- | :----------------------------- | :----------------------------- | | Goodwill | $353,900 | $241,949 | | Net Carrying Amount of Intangible Assets | $55,265 | $16,259 | - Acquired goodwill increased by $111,951 thousand and acquired intangible assets by $44,844 thousand during the six months ended June 30, 2025, primarily due to the Greenscreens acquisition[127] - Amortization of intangible assets totaled $(5,800) thousand for the six months ended June 30, 2025[127] NOTE 6 — VARIABLE INTEREST ENTITIES Discusses the Company's investments in Collateralized Loan Obligation (CLO) funds, which are classified as held-to-maturity securities, and the conclusion that the Company is not the primary beneficiary, thus not requiring consolidation CLO Fund Investments | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------- | :----------------------------- | :----------------------------- | | Net carrying amounts of CLO funds | $1,782 | $1,876 | - The Company concluded that it does not have the power to direct the activities that most significantly impact the CLO funds' economic performance, and therefore, is not required to consolidate them[131] NOTE 7 — LEGAL CONTINGENCIES States that various legal claims arise in the normal course of business, but management believes none will have a material effect on the Company's consolidated financial statements as of June 30, 2025 - Management believes that various legal claims arising in the normal course of business will have no material effect on the Company's consolidated financial statements as of June 30, 2025[132] NOTE 8 — OFF-BALANCE SHEET LOAN COMMITMENTS Details the Company's off-balance sheet financial instruments, including commitments to extend credit and standby letters of credit, and the associated allowance for credit losses Off-Balance Sheet Financial Instruments | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------- | :----------------------------- | :----------------------------- | | Unused lines of credit | $605,885 | $590,198 | | Standby letters of credit | $11,644 | $23,950 | | Mortgage warehouse commitments | $599,691 | $810,913 | Allowance for Credit Losses on Off-Balance Sheet Exposures | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------- | :----------------------------- | :----------------------------- | | Allowance for credit losses | $2,481 | $2,701 | | Credit loss expense (benefit) (Six Months Ended June 30) | $(218) | $1,102 | NOTE 9 — FAIR VALUE DISCLOSURES Explains the Company's fair value measurement methodologies (Level 1, 2, 3 inputs) for assets and liabilities, including recurring measurements for securities and non-recurring for collateral-dependent loans, and details changes in indemnification and revenue share assets - Fair value measurements are categorized into Level 1 (quoted prices), Level 2 (observable inputs), and Level 3 (unobservable inputs)[141][142] Assets Measured at Fair Value on a Recurring Basis (June 30, 2025) | Asset Type | Fair Value (in thousands) | Level | | :-------------------------- | :------------------------ | :---- | | Securities available for sale | $392,275 | Level 2 | | Equity securities with readily determinable fair values | $4,526 | Level 1 | | Loans held for sale | $6,066 | Level 2 | | Indemnification asset | $270 | Level 3 | | Revenue share asset | $2,344 | Level 3 | Collateral Dependent Loans Measured at Fair Value on a Non-Recurring Basis (June 30, 2025) | Loan Type | Fair Value (in thousands) | Level | | :------------------ | :------------------------ | :---- | | Commercial | $14,494 | Level 3 | | Factored receivables | $5,515 | Level 3 | | Total | $20,009 | Level 3 | NOTE 10 — REGULATORY MATTERS Details the Company's and TBK Bank's compliance with regulatory capital requirements, confirming they meet "well capitalized" status and outlining the impact of ASU 2016-13 transition adjustments - Triumph Financial, Inc. and TBK Bank, SSB meet all capital adequacy requirements and are categorized as "well capitalized" as of June 30, 2025, and December 31, 2024[161][162] Triumph Financial, Inc. Capital Ratios (June 30, 2025) | Metric | Actual Ratio | Minimum for Capital Adequacy | | :--------------------------------------- | :----------- | :--------------------------- | | Total capital (to risk weighted assets) | 11.9% | 8.0% | | Tier 1 capital (to risk weighted assets) | 10.0% | 6.0% | | Common equity Tier 1 capital (to risk weighted assets) | 8.4% | 4.5% | | Tier 1 capital (to average assets) | 9.5% | 4.0% | - The temporary regulatory capital benefits from ASU 2016-13 were fully reversed after December 31, 2024[166] - The Company's and TBK Bank's risk-based capital exceeded the 2.5% capital conservation buffer at June 30, 2025, and December 31, 2024[169] NOTE 11 — STOCKHOLDERS' EQUITY Provides a summary of the Company's capital structure, including preferred stock and common stock details, such as shares authorized, issued, outstanding, par value, and dividend rates Preferred Stock Series C (June 30, 2025) | Metric | Value | | :-------------------------- | :---- | | Shares outstanding | 45,000 | | Liquidation preference amount | $45,000 thousand | | Dividend rate | 7.125% | Common Stock (June 30, 2025) | Metric | Value | | :-------------------------- | :---- | | Shares authorized | 50,000,000 | | Shares outstanding | 23,727,046 | | Par value per share | $0.01 | NOTE 12 — STOCK BASED COMPENSATION Details the stock-based compensation expense and activity under the Company's Omnibus Incentive Plan and Employee Stock Purchase Plan, including restricted stock awards, restricted stock units, market-based performance stock units, and stock options Stock Based Compensation Expense (Six Months Ended June 30) | Year | Amount (in thousands) | | :--- | :-------------------- | | 2025 | $6,261 | | 2024 | $7,066 | - As of June 30, 2025, unrecognized compensation cost for nonvested Restricted Stock Units (RSUs) was $8,187 thousand (expected over 2.97 years), for Market Based Performance Stock Units (PSUs) was $16,012 thousand (expected over 2.38 years), and for nonvested stock options was $3,240 thousand (expected over 3.20 years)[177][181][185] - Under the Employee Stock Purchase Plan (ESPP), 20,892 shares were issued during the six months ended June 30, 2025, compared to 18,328 shares in the same period of 2024[186] NOTE 13 — EARNINGS PER SHARE Presents the basic and diluted earnings per common share calculations for the three and six months ended June 30, 2025 and 2024, along with the weighted average shares outstanding and dilutive effects of various equity instruments Earnings Per Common Share | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic EPS | $0.15 | $0.08 | $0.12 | $0.23 | | Diluted EPS | $0.15 | $0.08 | $0.12 | $0.22 | - Shares not considered in computing diluted earnings per common share because they were antidilutive for the three months ended June 30, 2025, included 199,859 stock options, 5,171 restricted stock units, and 56,311 market-based performance stock units[189] NOTE 14 — REVENUE FROM CONTRACTS WITH CUSTOMERS Describes the Company's revenue recognition policies under Topic 606 for its Banking, Factoring, and Payments segments, detailing how various fees and charges are recognized - The Banking and Factoring segments' revenue from contracts with customers under Topic 606 includes service charges on deposits, card income, net OREO gains/losses, fee income, and insurance commissions[191][192] - The Payments segment earns transaction and network fees, which are subject to Topic 606 and recognized over time as services are rendered for providing access to its payments and audit platforms[195][196][197] Payments Segment Fee Income from External Customers (Six Months Ended June 30) | Metric | 2025 (in thousands) | 2024 (in thousands) | % Change | | :---------------- | :------------------ | :------------------ | :------- | | Broker fee income | $11,621 | $8,507 | 36.6% | | Factor fee income | $2,226 | $2,591 | (14.1)% | | Other fee income | $257 | $154 | 66.9% | | Total fee income | $14,104 | $11,252 | 25.3% | NOTE 15 — LESSOR OPERATING LEASES Reports the Company's revenue from lessor operating leases, disaggregated into fixed and variable payments, and amortization of intangibles Lessor Operating Lease Revenue (Six Months Ended June 30) | Metric | 2025 (in thousands) | 2024 (in thousands) | % Change | | :--------------------------------------- | :------------------ | :------------------ | :------- | | Fixed payments | $682 | $1,095 | (37.7)% | | Variable payments | $436 | $553 | (21.2)% | | Amortization of intangibles included in lease income | $(38) | $(30) | 26.7% | | Total fee income | $1,080 | $1,618 | (33.3)% | NOTE 16 — BUSINESS SEGMENT INFORMATION Provides detailed financial information for the Company's four reportable segments (Banking, Factoring, Payments, Intelligence) and a Corporate and Other category, outlining revenue, expenses, and intersegment allocations - The Company's reportable segments are Banking, Factoring, Payments, and Intelligence. The Intelligence segment was launched in Q4 2024, so no prior period comparative results are available[207] Segment Revenue Contribution (Six Months Ended June 30, 2025) | Segment | % of Total Segment Revenue | | :--------- | :------------------------- | | Banking | 59% | | Factoring | 30% | | Payments | 10% | | Intelligence | 1% | Net Income (Loss) Before Income Tax Expense by Segment (Six Months Ended June 30, 2025) | Segment | Amount (in thousands) | | :---------------- | :-------------------- | | Banking | $53,953 | | Factoring | $26,673 | | Payments | $(3,645) | | Intelligence | $(8,599) | | Corporate and Other | $(60,388) | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Analyzes the company's financial performance, condition, and operational results for the reporting periods, including segment-specific details Overview Provides a high-level description of Triumph Financial, Inc. as a financial holding company, its principal subsidiary TBK Bank, and its diversified services across banking, factoring, payments, and intelligence segments, with a focus on the trucking ecosystem - Triumph Financial, Inc. is a financial holding company offering diversified banking, factoring, payments, and intelligence services, primarily focused on the for-hire trucking ecosystem[229][236] - The Factoring business provides working capital to the trucking industry and launched its Factoring as a Service (FaaS) product in 2024[231] - The Payments business operates a network for the over-the-road trucking industry, connecting Brokers, Shippers, Factors, and Carriers, with a strategic shift towards fee revenue and the introduction of the LoadPay product[232][234] - The Intelligence business, launched in Q4 2024, aims to turn trucking data into actionable insights, enhanced by the acquisitions of Isometric Technologies Inc. and Greenscreens AI, Inc[235] Second Quarter 2025 Overview Presents key financial results and balance sheet highlights for the second quarter and six months ended June 30, 2025, noting increases in net income for the quarter but decreases for the six-month period, alongside growth in assets, loans, and deposits Net Income Available to Common Stockholders | Period | 2025 (in millions) | 2024 (in millions) | Change (in millions) | | :---------------- | :----------------- | :----------------- | :------------------- | | Q2 | $3.6 | $1.9 | $1.7 | | YTD Q2 | $2.8 | $5.3 | $(2.5) | Balance Sheet Highlights (June 30, 2025 vs. December 31, 2024) | Metric | June 30, 2025 (in billions) | December 31, 2024 (in billions) | Change (in billions) | | :-------------------------- | :-------------------------- | :-------------------------- | :------------------- | | Total Assets | $6.495 | $5.949 | $0.546 | | Gross Loans Held for Investment | $4.953 | $4.547 | $0.406 | | Total Deposits | $5.186 | $4.821 | $0.365 | - Gross loans held for investment increased by $406.2 million, with Factoring factored receivables up 13.7% and Payments factored receivables up 32.0%[240] - The Factoring segment purchased $2.874 billion in invoices in Q2 2025, while the Payments segment processed 8.5 million invoices totaling $10.081 billion[243][244] 2025 Items of Note Highlights significant events in 2025, including the acquisition of Greenscreens AI, Inc. and the USPS Settlement, detailing their financial impacts - On May 8, 2025, the Company acquired Greenscreens AI, Inc. for $139.1 million in cash and $12.7 million of common stock, a pricing solution for the logistics industry[245] - A settlement was reached with the USPS on June 30, 2025, for $47.5 million to resolve litigation related to misdirected payments. This settlement had a $12.4 million positive impact on pretax net income for Q2 2025 and $11.5 million for the six months ended June 30, 2025[247][248] - The $47.5 million USPS settlement proceeds were applied to various items, including $11.5 million to a large carrier, $19.4 million to relieve the Misdirected Payments Receivable, $7.9 million for legal expense recovery, and $3.8 million for recovery of previously charged-off advances[249] 2024 Items of Note Covers notable events from 2024, specifically the acquisition of Isometric Technologies Inc. and the purchase of Triumph Financial's new headquarters - On December 1, 2024, the Company acquired Isometric Technologies Inc., a freight technology company, for $10.0 million in cash[250] - On March 20, 2024, the Company purchased a building in Dallas, TX, for $54.6 million to serve as its future headquarters[252] Trucking transportation and factoring Discusses the impact of freight market fluctuations on the Company's Factoring and Payments segments, noting softness in freight, decreased rates, and increased equipment finance delinquencies, while emphasizing the Company's focus on efficiency and technology - The freight market experienced softness during 2023, 2024, and the first half of 2025, characterized by falling volumes and excess capacity, leading to decreased average rates per mile[253] - This market softness has put pressure on the revenue of the Factoring segment and resulted in increased equipment finance delinquencies and loan modifications[253] - The Company is focusing on technology initiatives, including artificial intelligence capabilities, to enhance efficiency and profitability in its factoring segment[254] Financial Highlights Provides a comprehensive overview of the Company's financial performance and condition, including income statement data, per share data, performance ratios, balance sheet data, and asset quality ratios for the three and six months ended June 30, 2025 and 2024, and as of June 30, 2025 and December 31, 2024 Income Statement Data (Three Months Ended June 30) | Metric | 2025 (in thousands) | 2024 (in thousands) | $ Change | % Change | | :--------------------------------- | :------------------ | :------------------ | :------- | :------- | | Net interest income | $88,678 | $87,915 | $763 | 0.9% | | Credit loss expense (benefit) | $(702) | $4,155 | $(4,857) | (116.9)% | | Noninterest income | $19,384 | $17,167 | $2,217 | 12.9% | | Net income available to common stockholders | $3,618 | $1,945 | $1,673 | 86.0% | | Diluted EPS | $0.15 | $0.08 | $0.07 | 87.5% | Income Statement Data (Six Months Ended June 30) | Metric | 2025 (in thousands) | 2024 (in thousands) | $ Change | % Change | | :--------------------------------- | :------------------ | :------------------ | :------- | :------- | | Net interest income | $173,061 | $173,950 | $(889) | (0.5)% | | Credit loss expense (benefit) | $628 | $10,051 | $(9,423) | (93.8)% | | Noninterest income | $36,574 | $32,166 | $4,408 | 13.7% | | Net income available to common stockholders | $2,834 | $5,302 | $(2,468) | (46.5)% | | Diluted EPS | $0.12 | $0.22 | $(0.10) | (45.5)% | Balance Sheet Data (June 30, 2025 vs. Dec 31, 2024) | Metric | June 30, 2025 (in thousands) | Dec 31, 2024 (in thousands) | $ Change | % Change | | :--------------------------------- | :--------------------------- | :-------------------------- | :------- | :------- | | Total assets | $6,494,748 | $5,948,975 | $545,773 | 9.2% | | Loans held for investment, net | $4,914,479 | $4,506,246 | $408,233 | 9.1% | | Total deposits | $5,186,098 | $4,820,820 | $365,278 | 7.6% | | Total stockholders' equity | $912,382 | $890,919 | $21,463 | 2.4% | Asset Quality Ratios (June 30, 2025 vs. Dec 31, 2024) | Metric | June 30, 2025 | Dec 31, 2024 | Change | | :--------------------------------- | :------------ | :------------ | :----- | | Past due to total loans | 2.21% | 3.27% | (1.06)%| | Nonperforming loans to total loans | 1.20% | 2.49% | (1.29)%| | ACL to nonperforming loans | 65.02% | 35.93% | 29.09% | Capital Ratios (June 30, 2025 vs. Dec 31, 2024) | Metric | June 30, 2025 | Dec 31, 2024 | Change | | :--------------------------------- | :------------ | :------------ | :----- | | Tier 1 capital to risk-weighted assets | 9.98% | 13.06% | (3.08)%| | Total capital to risk-weighted assets | 11.95% | 15.23% | (3.28)%| Results of Operations - Three months ended June 30, 2025 compared with three months ended June 30, 2024 Analyzes the Company's financial performance for the three months ended June 30, 2025, compared to the same period in 2024, detailing changes in net income, net interest income, credit loss expense, noninterest income, noninterest expense, and income taxes Net Income Net income increased by $1.7 million (60.9%) for the three months ended June 30, 2025, primarily due to a significant benefit from credit loss expense and increased noninterest income, partially offset by higher interest expense Net Income (Three Months Ended June 30) | Metric | 2025 (in thousands) | 2024 (in thousands) | $ Change | % Change | | :------- | :------------------ | :------------------ | :------- | :------- | | Net income | $4,420 | $2,747 | $1,673 | 60.9% | - Net income before income taxes increased by $4.3 million (121.1%) to $7.9 million in Q2 2025[261] Net Interest Income Net interest income saw a modest increase of 0.9% for Q2 2025, driven by higher interest income from increased average interest-earning assets, particularly loans, but partially offset by increased interest expense and a decrease in net interest margin Net Interest Income (Three Months Ended June 30) | Metric | 2025 (in thousands) | 2024 (in thousands) | $ Change | % Change | | :---------------- | :------------------ | :------------------ | :------- | :------- | | Net interest income | $88,678 | $87,915 | $763 | 0.9% | - Total interest income increased by $2.2 million (2.0%), driven by a $533.3 million (10.7%) increase in average interest-earning assets, including a $529.6 million (12.6%) increase in average total loans[267] - Total interest expense increased by $1.4 million (7.5%), primarily due to a $135.4 million (5.1%) increase in average total interest-bearing deposits[268] - Net interest margin decreased by 64 basis points to 6.43% in Q2 2025 from 7.07% in Q2 2024, mainly due to a 69 basis point decrease in the yield on interest-earning assets[269][270] Credit Loss Expense The Company recognized a credit loss benefit of $0.7 million in Q2 2025, a significant improvement from a $4.2 million expense in Q2 2024, primarily due to net recoveries (including the USPS Settlement) and favorable changes in loss drivers Total Credit Loss Expense (Benefit) (Three Months Ended June 30) | Metric | 2025 (in thousands) | 2024 (in thousands) | $ Change | % Change | | :-------------------------- | :------------------ | :------------------ | :------- | :------- | | Total credit loss expense (benefit) | $(702) | $4,155 | $(4,857) | (116.9)% | - Credit loss expense on loans decreased by $4.6 million (112.7%) to a benefit of $(516) thousand in Q2 2025[278] - The Company recorded a net recovery of $3.0 million in Q2 2025, including a $3.8 million recovery from the USPS Settlement, compared to net charge-offs of $2.7 million in Q2 2024[280] - The Allowance for Credit Losses (ACL) on loans was $38.7 million at June 30, 2025, representing an ACL to total loans ratio of 0.78%[278] Noninterest Income Noninterest income increased by $2.2 million (12.9%) in Q2 2025, mainly driven by higher fee income from the Payments and Intelligence segments, partially offset by decreases in other noninterest income Total Noninterest Income (Three Months Ended June 30) | Metric | 2025 (in thousands) | 2024 (in thousands) | $ Change | % Change | | :---------------- | :------------------ | :------------------ | :------- | :------- | | Total noninterest income | $19,384 | $17,167 | $2,217 | 12.9% | - Fee income increased by $4.2 million, driven by a $1.8 million increase from the Payments segment, a $1.6 million increase from the Intelligence segment (due to Greenscreens acquisition), and a $0.7 million increase from insurance services[285] - Other noninterest income decreased by $1.6 million, primarily due to a $0.5 million gain on equity securities in Q2 2024 not recurring and a $1.4 million decrease in rental income, partially offset by a $0.4 million increase in bank-owned life insurance income[285] Noninterest Expense Noninterest expense increased by $3.5 million (3.6%) in Q2 2025, primarily due to higher salaries and employee benefits, software amortization, and other expenses (including litigation settlement and lease termination payments), partially offset by a significant decrease in professional fees due to the USPS Settlement recovery Total Noninterest Expense (Three Months Ended June 30) | Metric | 2025 (in thousands) | 2024 (in thousands) | $ Change | % Change | | :---------------- | :------------------ | :------------------ | :------- | :------- | | Total noninterest expense | $100,840 | $97,343 | $3,497 | 3.6% | - Salaries and employee benefits increased by $3.9 million (6.9%), driven by higher salaries, payroll taxes, bonuses, and commissions[284] - Professional fees decreased by $4.9 million (107.0%), primarily due to a $7.4 million recovery of legal fees from the USPS Settlement, partially offset by $3.0 million in Greenscreens acquisition-related fees[289] - Software amortization increased by $1.5 million (111.1%) due to additional software assets coming online[289] - Other noninterest expense increased by $4.7 million (84.9%), including a $2.0 million litigation settlement and $1.8 million in lease termination payments[289] Income Taxes Income tax expense increased significantly in Q2 2025, with the effective tax rate rising to 44% due to factors like limited stock-based compensation deductibility, higher state tax rates, and disallowed acquisition costs Income Tax Expense (Three Months Ended June 30) | Metric | 2025 (in thousands) | 2024 (in thousands) | $ Change | % Change | | :---------------- | :------------------ | :------------------ | :------- | :------- | | Income tax expense | $3,504 | $837 | $2,667 | 318.6% | - The effective tax rate was 44% in Q2 2025, up from 23% in Q2 2024, impacted by limited restricted stock-based compensation deductibility, higher state tax rates, and disallowed Greenscreens acquisition costs[287] Operating Segment Results Provides a breakdown of operating results by segment (Banking, Factoring, Payments, Intelligence, and Corporate & Other) for the three months ended June 30, 2025 and 2024, highlighting segment-specific revenue, expenses, and profitability Net Income (Loss) Before Income Tax Expense by Segment (Three Months Ended June 30) | Segment | 2025 (in thousands) | 2024 (in thousands) | $ Change | % Change | | :---------------- | :------------------ | :------------------ | :------- | :------- | | Banking | $26,374 | $30,285 | $(3,911) | (12.9)% | | Factoring | $19,754 | $4,627 | $15,127 | 326.9% | | Payments | $(654) | $(3,973) | $3,319 | 83.5% | | Intelligence | $(5,986) | $0 | $(5,986) | N/A | | Corporate and Other | $(31,564) | $(27,355) | $(4,209) | (15.4)% | Banking Segment The Banking segment's operating income decreased by 12.9% in Q2 2025, primarily due to decreased net interest income from lower yields despite increased loan balances, and higher interest expense, partially offset by increased noninterest income and decreased noninterest expense Banking Segment Operating Income (Three Months Ended June 30) | Metric | 2025 (in thousands) | 2024 (in thousands) | $ Change | % Change | | :---------------- | :------------------ | :------------------ | :------- | :------- | | Operating income (loss) | $26,374 | $30,285 | $(3,911) | (12.9)% | - Net interest income decreased by $5.0 million (8.7%), primarily due to decreased yields despite an 11.4% increase in average loans in the Banking segment[299] - Interest expense increased by $2.1 million (12.6%), driven by higher average interest-bearing liabilities and increased usage of higher-priced brokered time deposits[300] - Total Banking loans increased by $208.9 million (6.3%) to $3.549 billion as of June 30, 2025[305] Factoring Segment The Factoring segment's operating income significantly increased by 326.9% in Q2 2025, driven by higher net interest income from increased average net funds employed and a substantial credit loss benefit (including the USPS Settlement recovery), alongside decreased noninterest expense due to legal fee recovery Factoring Segment Operating Income (Three Months Ended June 30) | Metric | 2025 (in thousands) | 2024 (in thousands) | $ Change | % Change | | :---------------- | :------------------ | :------------------ | :------- | :------- | | Net income (loss) before income tax expense | $19,754 | $4,627 | $15,127 | 326.9% | - Net interest income increased by $3.6 million (14.5%) to $28.8 million, driven by a 22.0% increase in overall average net funds employed[310] - Credit loss expense was a benefit of $(2.9) million in Q2 2025, a 234.0% decrease from Q2 2024, including a $3.8 million recovery from the USPS Settlement[311] - Total noninterest expense decreased by $6.6 million (31.7%), primarily due to a $7.4 million recovery of previously expensed legal fees associated with the USPS Settlement[306][313] - Accounts receivable purchased increased by 13.0% to $2.874 billion, while the average invoice size decreased by 4.6% to $1,693 in Q2 2025[308][309] Payments Segment The Payments segment's operating loss decreased by 83.5% in Q2 2025, driven by increased net interest income from higher average interest-earning assets and increased noninterest income from payment and audit fees, while noninterest expense remained relatively flat Payments Segment Operating Income (Loss) (Three Months Ended June 30) | Metric | 2025 (in thousands) | 2024 (in thousands) | $ Change | % Change | | :---------------- | :------------------ | :------------------ | :------- | :------- | | Net income (loss) before income tax expense | $(654) | $(3,973) | $3,319 | 83.5% | - Net interest income increased by $1.4 million (18.0%) to $9.1 million, due to increased average balance of interest-earning assets and intersegment interest allocation[318] - Noninterest income increased by $1.9 million (31.7%) to $7.7 million, driven by a $1.8 million increase in payment and audit fees[319] - The number of invoices processed increased by 40.2% to 8.5 million, and the amount of payments processed increased by 50.7% to $10.081 billion in Q2 2025[316] Intelligence Segment The Intelligence segment reported an operating loss of $6.0 million in Q2 2025, with the majority of expenses attributed to salaries and benefits and professional fees, largely due to the Greenscreens acquisition. This segment was launched in Q4 2024, so no comparative prior period data is available - The Intelligence segment reported an operating loss of $(5,986) thousand for Q2 2025[322] - The majority of expenses were salaries and benefits ($3,234 thousand) and professional fees ($2,995 thousand), with professional fees largely related to the Greenscreens acquisition[322] - Noninterest income for the Intelligence segment was $1,724 thousand in Q2 2025[322] Corporate and Other The Corporate and Other category reported an increased operating loss of $31.6 million in Q2 2025, driven by higher noninterest expense (salaries, professional fees, other expenses including lease termination payments) and decreased noninterest income (rental income), partially offset by decreased interest expense Corporate and Other Operating Loss (Three Months Ended June 30) | Metric | 2025 (in thousands) | 2024 (in thousands) | $ Change | % Change | | :---------------- | :------------------ | :------------------ | :------- | :------- | | Net income (loss) before income tax expense | $(31,564) | $(27,355) | $(4,209) | (15.4)% | - Total noninterest expense increased by $3.5 million (13.0%), driven by increases in salaries and benefits ($1.3 million), professional fees ($1.1 million), and other noninterest expense ($1.9 million, including $1.8 million in lease termination payments)[324] - Noninterest income decreased by $1.5 million (91.9%), primarily due to a $1.4 million decrease in rental income[323][324] - Interest expense decreased by $0.7 million (28.9%) due to decreased average borrowings[323][324] Results of Operations - Six months ended June 30, 2025 compared with six months ended June 30, 2024 Analyzes the Company's financial performance for the six months ended June 30, 2025, compared to the same period in 2024, detailing changes in net income, net interest income, credit loss expense, noninterest income, noninterest expense, and income taxes Net Income Net income decreased by $2.5 million (35.7%) for the six months ended June 30, 2025, primarily due to higher interest expense, increased noninterest expense, and a higher income tax expense, despite a significant decrease in credit loss expense Net Income (Six Months Ended June 30) | Metric | 2025 (in thousands) | 2024 (in thousands) | $ Change | % Change | | :------- | :------------------ | :------------------ | :------- | :------- | | Net income | $4,437 | $6,905 | $(2,468) | (35.7)% | - Net income before income taxes decreased by $0.4 million (4.3%) to $8.0 million for the six months ended June 30, 2025[326] Net Interest Income Net interest income saw a slight decrease of 0.5% for the six months ended June 30, 2025, as increased interest income from higher average interest-earning assets was largely offset by increased interest expense and a decline in net interest margin Net Interest Income (Six Months Ended June 30) | Metric | 2025 (in thousands) | 2024 (in thousands) | $ Change | % Change | | :---------------- | :------------------ | :------------------ | :------- | :------- | | Net interest income | $173,061 | $173,950 | $(889) | (0.5)% | - Total interest income increased by $2.5 million (1.2%), driven by a $530.1 million (10.9%) increase in average interest-earning assets, including a $478.7 million (11.6%) increase in average total loans[335] - Total interest expense increased by $3.4 million (9.7%), primarily due to a $205.2 million (8.0%) increase in average total interest-bearing deposits[336] - Net interest margin decreased by 72 basis points to 6.46% for the six months ended June 30, 2025, from 7.18% in the prior year, mainly due to a 74 basis point decrease in the yield on interest-earning assets[337][338] Credit Loss Expense Credit loss expense significantly decreased by 93.8% for the six months ended June 30, 2025, primarily due to a decrease in required specific reserves and net charge-offs (including the USPS Settlement recovery), partially offset by changes in loan portfolio volume and mix Total Credit Loss Expense (Six Months Ended June 30) | Metric | 2025 (in thousands) | 2024 (in thousands) | $ Change | % Change | | :---------------- | :------------------ | :------------------ | :------- | :------- | | Total credit loss expense | $628 | $10,051 | $(9,423) | (93.8)% | - Credit loss expense on loans decreased by $8.2 million (91.1%) to $798 thousand for the six months ended June 30, 2025[346] - Net charge-offs on loans for the six months ended June 30, 2025, were $13,601 thousand, including a $3.8 million recovery from the USPS Settlement[348][127] - A $4.1 million decrease in required specific reserves contributed to the lower credit loss expense[348] Noninterest Income Noninterest income increased by $4.4 million (13.7%) for the six months ended June 30, 2025, driven by higher fee income from the Payments and Intelligence segments, partially offset by decreased insurance commissions and rental income Total Noninterest Income (Six Months Ended June 30) | Metric | 2025 (in thousands) | 2024 (in thousands) | $ Change | % Change | | :---------------- | :------------------ | :------------------ | :------- | :------- | | Total noninterest income | $36,574 | $32,166 | $4,408 | 13.7% | - Fee income increased by $4.7 million (27.1%), driven by the Payments segment ($2.9 million), Intelligence segment ($1.9 million from Greenscreens acquisition), and insurance services ($0.8 million)[352] - Insurance commissions decreased by $0.5 million (17.6%) due to lower volumes of processed policies[352] - Other noninterest income increased by $0.3 million (7.2%), primarily due to higher BOLI income and gains on business asset sales, partially offset by lower revenue share asset gains and rental income[352] Noninterest Expense Noninterest expense increased by $13.3 million (7.1%) for the six months ended June 30, 2025, primarily due to higher salaries and employee benefits, software amortization, and other expenses (including litigation settlement and lease termination payments), partially offset by a decrease in professional fees due to the USPS Settlement recovery Total Noninterest Expense (Six Months Ended June 30) | Metric | 2025 (in thousands) | 2024 (in thousands) | $ Change | % Change | | :---------------- | :------------------ | :------------------ | :------- | :------- | | Total noninterest expense | $201,013 | $187,714 | $13,299 | 7.1% | - Salaries and employee benefits increased by $8.4 million (7.6%), driven by higher salaries, payroll tax, bonuses, commissions, and workforce growth[357] - Professional fees decreased by $2.4 million (29.1%), primarily due to a $6.5 million recovery of legal fees from the USPS Settlement, partially offset by $4.0 million in Greenscreens acquisition-related fees[357] - Software amortization increased by $2.3 million (91.9%) due to additional software assets coming online[357] - Other noninterest expense increased by $5.4 million (48.2%), including a $2.0 million litigation settlement and $2.4 million in lease termination payments[357] Income Taxes Income tax expense increased significantly for the six months ended June 30, 2025, with the effective tax rate rising to 44% due to factors like limited stock-based compensation deductibility, higher state tax rates, and disallowed acquisition costs Income Tax Expense (Six Months Ended June 30) | Metric | 2025 (in thousands) | 2024 (in thousands) | $ Change | % Change | | :---------------- | :------------------ | :------------------ | :------- | :------- | | Income tax expense | $3,557 | $1,446 | $2,111 | 146.0% | - The effective tax rate was 44% for the six months ended June 30, 2025, up from 17% in the prior year, impacted by limited restricted stock-based compensation deductibility, higher state tax rates, and disallowed Greenscreens acquisition costs[355] Operating Segment Results Provides a breakdown of operating results by segment (Banking, Factoring, Payments, Intelligence, and Corporate & Other) for the six months ended June 30, 2025 and 2024, highlighting segment-specific revenue, expenses, and profitability Net Income (Loss) Before Income Tax Expense by Segment (Six Months Ended June 30) | Segment | 2025 (in thousands) | 2024 (in thousands) | $ Change | % Change | | :---------------- | :------------------ | :------------------ | :------- | :------- | | Banking | $53,953 | $58,460 | $(4,507) | (7.7)% | | Factoring | $26,673 | $11,718 | $14,955 | 127.6% | | Payments | $(3,645) | $(8,176) | $4,531 | 55.4% | | Intelligence | $(8,599) | $0 | $(8,599) | N/A | | Corporate and Other | $(60,388) | $(53,651) | $(6,737) | (12.6)% | Banking Segment The Banking segment's operating income decreased by 7.7% for the six months ended June 30, 2025, primarily due to decreased net interest income from lower yields despite increased loan balances, and higher interest expense, partially offset by a significant decrease in credit loss expense and increased noninterest income Banking Segment Operating Income (Six Months Ended June 30) | Metric | 2025 (in thousands) | 2024 (in thousands) | $ Change | % Change | | :---------------- | :------------------ | :------------------ | :------- | :------- | | Net income (loss) before income tax expense | $53,953 | $58,460 | $(4,507) | (7.7)% | - Net interest income decreased by $10.2 million (8.9%), primarily due to decreased yields despite a 10.9% increase in average loans[369] - Interest expense increased by $4.8 million (15.9%), driven by higher average balances in interest-bearing liabilities and increased usage of brokered time deposits[370] - Credit loss expense decreased by $3.8 million (58.0%) to $2.7 million, driven by decreased specific reserves and favorable changes in loss drivers[371] - Total Banking loans increased by $208.9 million (6.3%) to $3.549 billion as of June 30, 2025[375] Factoring Segment The Factoring segment's operating income significantly increased by 127.6% for the six months ended June 30, 2025, driven by higher net interest income from increased average net funds employed and a substantial credit loss benefit (including the USPS Settlement recovery), alongside decreased noninterest expense due to legal fee recovery Factoring Segment Operating Income (Six Months Ended June 30) | Metric | 2025 (in thousands) | 2024 (in thousands) | $ Change | % Change | | :---------------- | :------------------ | :------------------ | :------- | :------- | | Net income (loss) before income tax expense | $26,673 | $11,718 | $14,955 | 127.6% | - Net interest income increased by $5.5 million (11.2%) to $54.4 million, driven by a 17.6% increase in overall average net funds employed[379] - Credit loss expense was a benefit of $(2.4) million in YTD Q2 2025, a 166.7% decrease from YTD Q2 2024, including a $3.8 million recovery from the USPS Settlement[381] - Total noninterest expense decreased by $4.9 million (12.4%), primarily due to a $6.5 million recovery of previously expensed legal fees associated with the USPS Settlement[376][383] - Accounts receivable purchased increased by 11.4% to $5.581 billion, while the average invoice size decreased