Good morning, and welcome to the Triumph Bancorp Third Quarter 2018 Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, Please note this event is being recorded. I would now like to turn the conference over to Luke Weisz, SVP, Finance and Investor Relations. Please go ahead.
Good morning. Welcome to the Triumph Bancorp conference call to discuss our Q3 2018 financial results. Before we get started, I'd like to remind you that this presentation may include forward looking statements. Those statements are subject to risks and uncertainties that could cause actual and anticipated results to differ. The company undertakes no obligation to publicly revise any forward looking statement.
If you're logged into our webcast, please refer to the slide presentation available online, including our Safe Harbor statement on Slide 2. For those joining by phone, please note that the Safe Harbor statement and presentation are available on our website at www.bryumpbancorp.com. All comments made during today's call are subject to that Safe Harbor statement. I'm joined this morning by Triumph's Vice Chairman and CEO, Aaron Graft our Chief Financial Officer, Bryce Fowler and Dan Karas, our Chief Lending Officer. After the presentation, we'll be happy to address any questions you may have.
At this time, I would like to turn the call over to Aaron. Aaron?
Good morning. For the Q3, we earned net income to common stockholders of $9,000,000 or $0.34 per diluted share, Adjusted for $4,500,000 in after tax transaction costs related to our acquisition of 2 bank holding companies during the quarter, net income to common shareholders was $13,500,000 or $0.51 per diluted share. There are 2 material items this quarter worth mentioning. 1st, on September 8, we closed on the acquisitions of 2 bank holding companies. 1 of these holding companies owned 2 banks, so we acquired 3 banks in all.
The footprint of these acquisitions is in Colorado and New Mexico with combined $753,000,000 in total assets, dollars 288,000,000 in loans and 6.70 $5,000,000 in attractive deposits. This reduced our loan to deposit ratio 16% to 102%. The transactions also increased our branch count to 61 across 6 states and give us 37 locations in Colorado and entry into the New Mexico market. 2nd, on September 20, we announced a $4,000,000 charge off on a single asset based lending relationship for which we carried a $700,000 specific reserve. A substantial portion of the loss resulted from fraudulent conduct believed to against the against the remaining asset based lending portfolio by $2,500,000 as a result of the higher loss factors being incorporated into our allowance for loan loss reserve methodology.
The total provision for loan loss attributed to this single credit decreased earnings per share by 0 point emphatically and unequivocally how disappointing this loss was, not only on the part of the borrower who perpetrated it, but also for our team. Detecting fraud is part of our business. We have to be better than this and we will do our best to be better in the future. In recent weeks, we have performed a review of 100 percent of the remainder of the ABL portfolio and did not identify any additional issues. We have also made changes in our personnel and risk management processes to improve our risk management within our ABL team.
Now let me also say that notwithstanding the real loss due to this fraud, this was our best quarter ever for our core business. If you extract the costs associated with the transactions and the fraud loss discussed above, we were close to hitting our goal of delivering a 1.8% return on average assets. I point this out not to minimize the transaction costs or the loss. Those are real, but to direct your attention to the growing earnings power of our core business. Beyond strong core earnings, our asset trends showed continued improvements.
Net charge offs were 4 $100,000 or 12 basis points of average loans in Q3. Excluding the $4,000,000 fraud related charge off I just outlined, net charge offs for the quarter were approximately $52,000 Year to date net charge offs are 19 basis points of average loans, roughly 6 basis points excluding the ABL fraud loss. The goal for us was to reduce our non performing asset ratio to lower than 1% by year end. We achieved that goal this quarter as non performing assets as a percentage of total assets moved lower by 35 basis points to 93 basis points at September 30. Non performing loans as a percentage of loans were down 30 basis points or 1.13 percent driven by a $6,200,000 decrease in non performing loans and the addition of $288,000,000 of loans from the aforementioned bank acquisitions.
Loan growth for the quarter was $316,000,000 inclusive of $288,000,000 of loans acquired from the 3 purchased banks. At first glance, organic growth in the quarter appears relatively flat overall at $28,000,000 but excluding our mortgage warehouse business, we grew loans organically by $95,000,000 or 3.3 percent. The period end balance of mortgage warehouse was down at quarter end. However, average balances increased $52,000,000 this quarter to 290,000,000 dollars Asset Based Lending grew $12,000,000 or 4.5 percent, equipment lending grew $34,000,000 or 11.5 percent and factored receivables grew $8,000,000 or 1.2 percent. At Triumph Business Capital, our factoring subsidiary, some of our metrics were impacted by the inclusion of ICC for only 1 month in the prior quarter.
Setting that aside, the core business remains very strong. Total factoring revenue increased $7,100,000 quarter over quarter or 34 percent to $28,400,000 Purchases increased by $340,000,000 or 29 percent to $1,500,000,000 during Q3. The number of invoices purchased climbed 180,000 over Q2 to 837,000 invoices and the average invoice size this quarter increased $25 to $17.96 Average transportation invoices decreased $29 to $16.66 due to normal seasonal patterns. Outstanding transportation invoices comprised approximately 83% of the gross balance of factored receivables at September 30, 2018. Our number of active clients increased by 4 22 clients to a total of 5,932.
This secular growth has been consistent for over 6 years and it shows no sign of abating. We increased our accrued liability for the contingent consideration payable to the sellers of ICC by 487,000 which is reflected as a reduction of other non interest income in the statement of earnings. We have now accrued 20 $500,000 of the maximum $22,000,000 final payment for this business. This accrual is a direct result of the strength of the business. As it relates to TriumphPay, we have 86 clients utilizing the TriumphPay system, up from 70 6 last quarter.
During Q3, TriumphPay processed 66,000 invoices paying 16,000 distinct carriers approximately $96,000,000 For TriumphPay, we are also in the integration and onboarding phase of 1 of the top 20 brokers in the nation, which we expect to complete by the end of the year. We expect additional large brokers to join TriumphPay in 2019. Net interest margin was 6.59 percent, which remains in the top of the industry. Net interest income was up $8,500,000 over Q2. Loan yields were 8 point 33% or 8.18 percent adjusted for purchase discount accretion, which was helped this quarter with the full quarter impact of ICC.
Similarly, with the acquisition of the 3 banks in September, we'd expect to see loan yields and net interest margin contract slightly in Q4 with the full quarter impact of the acquired banks. Net interest margin adjusted to exclude discount accretion was up 53 basis points to 6.45 percent for the quarter, while the total cost of deposits increased 12 basis points to 85 basis points. Our loan to deposit ratio at September 30 decreased to 102%. This ratio was inflated by approximately 8% due to our use of Federal Home Loan Bank advances to fund our mortgage warehouse lending business. Non interest income was up 1 $100,000 from the 2nd quarter to $6,100,000 There are 2 items we should note that are unique to this quarter.
First, card income includes a bonus payment of $398,000 related to the achievement of certain volume related goals in that relationship in the 1st year. This is not expected to continue next quarter and year 2 incentive goals are not as lucrative. 2nd, other income was also negatively impacted by our updates to the Triumph Community Bank brand in the Midwest. We rebranded that region to our standardized TBK Bank brand. This resulted in the write down of signage and other assets in the amount of $324,000 as they were replaced.
Net of these items, the increase in non interest income was led by the addition of 3 banks and strong fee income from Triumph Business Capital. The increase in non interest expense this quarter was driven primarily by the transaction related costs associated with the acquisition of the 3 banks, the full quarter impact of ICC's operating costs and the partial quarter impact of the 3 acquired banks. Transaction costs were $5,900,000 and are reported in the following line items of non interest expense: $1,400,000 in severance and compensation $1,400,000 in legal and consulting professional fees, dollars 3,000,000 in IT related expenses and $50,000 to $100,000 in miscellaneous filing fees, appraisals and other expenses. Our non interest expense for the quarter came in very close to the estimate we provided for the quarter on our last call after adjusting for transaction costs and expenses of the 3 acquired banks. We expect Q4 non interest expense to be $47,000,000 This increase is related to a full quarter of the 3 acquired Bank's operations, technological development and investment in our overall infrastructure.
We will continue to invest in the future of our business. The acquisition of the 3 banks resulted in our recording 72,100,000 dollars of goodwill and $14,100,000 of amortizable intangible assets, which will be amortized on an accelerated method. Including the intangible assets recognized through the bank transactions, we expect total amortization expense for all of our intangible assets to be $2,500,000 in Q4 $9,200,000 for the 2019 fiscal year. These amounts are contemplated in the Q4 expense guidance I mentioned previously. In closing, I would state the obvious.
This was a noisy quarter. What encourages me is the core trends in our business. Continue to grow and improve and we are optimistic about the path forward. With that, I'll turn the call back over to the operator for any questions.
Thank you. We will now begin the question and answer session. Our first question comes from Jared Shaw with Wells Fargo Securities. Please go ahead.
Hi, good morning guys.
Good morning, Jared.
It's great to see the movement, the growth in deposits this quarter. Do you think that you have a are you on a better trajectory for deposit growth there? And should we organically be able to see the loan to deposit ratio come down or continue to come down from where we are? Or is it giving you enough funding for the growth that you're contemplating? Or should we be thinking of you as still on the hunt for more deposits?
Well, yes, there's a couple of questions in there. As far as our ability to drive organic growth of the kind of deposits we desire, which would be transactional accounts, yes, I think you will see that organically grow as in Q4 and Q1. We complete the development and the rollout of our treasury management system and some other products and feature sets that we think will help us. That being said, those feature sets alone will not be able to generate deposit growth significant enough to stay up with the growth of our loan portfolio. As a result, we would expect to organically grow our time deposits, which have some value.
We're seeing many new customers come into our branches as a result of our rates being at the top of the some of the markets in which we operate. So I believe that we can fund the growth of this institution organically. However, we continue to remain on the hunt for additional acquisitions, which will improve our overall deposit profile.
Okay. That's helpful. Thanks. And then on the factoring, again, good growth trends there. What will be driving when you look at the transportation factoring average ticket size and the decline this quarter, what's going to be driving average ticket size higher?
Is it going to be a continued tight transportation market? Is it fuel costs? And ultimately, what type of growth should we be looking for in the average ticket size, maybe on a year over year basis?
Yes. If I knew the answer to that question, I wouldn't tell you because we would be speculating and making money other ways. The answer is we don't know. The underlying drivers are of course what you identified, which is how tight the transportation market is and then of course, fuel is a major expense component. Obviously, diesel prices, it feels like are going to go upwards, but we don't we obviously don't know what will happen.
The variation we saw this quarter was a typical seasonal variation, a mix shift between the types of freight our truckers are hauling. We certainly don't see any signs that there's downward pressure throughout the rest of the year. So this is just one man's opinion that it would be flat to the potential to go up for the rest of the year, but there are so many factors that we don't have an institutional view on that. Our institutional view is onboard clients, service them well and drive revenue through that whatever the invoice size is.
Great. Thank you.
Our next question comes from Brad Milsaps with Sandler O'Neill. Please go ahead.
Hey, good morning, Aaron.
Good morning.
Hey, just to follow-up on the factoring, obviously, great growth in clients this quarter, the average invoice was up. And I apologize if I missed it in your opening remarks, but it didn't necessarily translate into a lot of kind of period end growth in factoring. Are the loans turning quicker or is there any other dynamic there? Is it sort of all in the come as you maybe added a lot of those clients late in the quarter, so you maybe you get a bigger upswing in the Q4? Just kind of looking for additional color there.
Yes. So that is a great point. I'm glad you asked. The thing that I would look at would never be the period end balance, the NFE balance because what that doesn't take into account is the velocity in which we turn the portfolio. In this quarter, we drove down the portfolio turned in 34.4 days, which is one day faster than it was in the prior quarters.
And we can't always control that. We can be better about collections, which of course would speed things up, but then you're also dependent upon how quickly account debtors pay you. So what I would look at is the revenue increase. And so our total revenue increase was 34% or $7,100,000 over last quarter. And that was driven on purchases purchase increase of $340,000,000 or 29%.
So it's not it's a business that you got to look at the turn that's happening all quarter long rather than where you sit at the end of any given one specific day on a quarter end. Overall, I would say the business just continues to perform as it has performed in the past. We add net new clients, losses are minimal. Our reserves in this business, we continue to outperform our own expectations at times as far as credit quality. And as we continue to add new clients and they sell us invoices, the business becomes more efficient and obviously creates upward strength in our net interest margin.
And so we're very pleased with where it is.
Great. That's helpful. And then just one follow-up on your expense guidance of $47,000,000 for the 4th quarter. Does that include any impact from cost savings, or those on the come? Or is it one of those things where you guys continue to invest?
We might not see those as we get into 2019? Just wanted to get a little more color around kind of what comprises the $47,000,000 number?
Sure. Hey, this is Bryce. And I think that the guidance does include our estimate of the cost saves that we expect to achieve from the banks overall. I think overall, that number we've modeled and had planned it out to kind of be achieved over a 4 quarter period. I think that's still everything's still on track there.
There's a good chunk of that, that we hope to begin to achieve on the next big piece in the next quarter with the conversion of the last bank of Durango overall. So I think we're on track here. Really, overall, the increase is mainly that as the increase in the banks. There's a little bit of tech spend that we have going on in Triumph Business Capital, finishing off some projects there and then just a little bit of modest overall increase in staffing levels is baked into that increase.
Got it. Bryce, is it too early to kind of give any insight on kind of what you guys are thinking from an expense standpoint into 2019?
Yes, I think we're not at that point to communicate that.
Okay. All right, great. Thanks for the color. Our next question comes from Brady Gailey with KBW. Please go ahead.
Hey, good morning, guys.
Good morning, Brady.
So, I mean, you talk about I mean, the core margin was up huge this quarter. You talk about it going back down a little bit in the Q4 just as you have the full impact from the bank deals. Any idea the magnitude of how much the margin could decline in 4Q?
We I mean, we don't know. One big factor will be what happens in our factoring business in Q4 that's historically been a really good quarter for us. Of course, if it grows, that will create some countervailing pressure. But I think our thinking is that it will be our net interest margin will still be easily above 6% in Q4. So maybe looking at 20 basis point, 30 basis point contraction.
But there's some it will be very dependent upon the relative growth of our factoring business visavis the rest of our business.
All right. And then you gave us some color on just the moving pieces in the mortgage warehouse business with the period end being down, but average being up pretty nicely. We've had a couple of your peers here in Texas just talk about that business. They've talked about how competitive it is. They've seen lower yields in the mortgage warehouse business due to the competition.
Maybe just an update on kind of how you guys are thinking about warehouse from here on out?
Hey, good morning, Brady. It's Dan. I think the items you pointed out are the same items that we see impacting our business as well. With the rising rate environment, we haven't seen a lot of pressure on yields. Certainly, competitors forced some yields down earlier in year.
Rising rates have caused a shift from purchase to refinance. We're doing fewer refinances. So volume is going to be impacted going forward. But we continue to operate that business lean with relatively small number of clients. We service them well and we get really good utilization out of that group.
So overall, I think the business is going to continue on the same path, but be subject to lower volume going forward, just as I've heard from other institutions.
And then finally for me, Aaron, I know you've talked about hitting this 180% ROA by the end of next year. But as you said, on a kind of core adjusted basis, you almost hit this quarter. Do you think we can see a $180,000,000 before year end next year?
Well, I don't know. I would remind you there's seasonality in our business. And so Q2 and Q4 are always our strongest quarters from on a seasonal basis or have historically been our strongest quarters on a seasonal basis. If we do, it will be a pleasant surprise. As I look at this quarter, you got net interest income to average assets over 6%.
Our net overhead ratio was like 3.6%. So that $2.40 pretax, pre provision ROA, again, if you normalize out the one fraud loss, we had almost no other credit costs in our portfolio and that gets you above a 1.7% and close to a 1.8%. So can we deliver on that sometime next year? It's possible. I stick to my guidance, which is you can hold us accountable to deliver a core quarter in Q4 of next year in alignment with these goals.
Just so you know, when we talk with our team, what we described to be from a financial metric, a perfect quarter or the ideal quarter we're looking for is a 1.8% ROA or better, nonperforming assets below 1%. And then the other things we talk about are regulatory excellence, maintaining our outstanding CRA designation, and then some team member satisfaction scores. So those five things as we as a management team running this institution for the long term, think about that's what we're looking for. And we're really close. We're over that hump in many of those metrics, really close on some others.
And so I don't know if it happens before Q4 of 2019, but I think you can if you dig into this quarter, you can see the business plan is working. And we're going to stick to that plan and then TriumphPay will add on whatever TriumphPay adds on. So we're very excited about where we go from here.
Got it. Thanks, Aaron.
Our next question comes from Steve Moss with B. Riley FBR. Please go ahead.
Hey, good morning, everybody. This is Zach Weistfeld in for Steve today. Thanks for taking my questions. So just quickly back to the factoring business, if you guys could provide commentary on just more so volumes and how we should expect for those to shake out? I know in the Q3, you guys were guiding for about a $6,000,000,000 run rate of accounts receivable purchases and kind of right on there.
Just curious how we should think about that moving
forward? Yes. It's a hard business to predict because you got 2 different things. What I view as our controllable is net client growth. Because if we have a better mousetrap than everyone else in the market and if we're servicing our clients well, you're going to attract more clients.
We think we're the biggest in the industry. We have a lot of name recognition. We can cross sell off our insurance product and our equipment finance offerings that non bank factoring companies. Those are tools they don't generally have in their playbook. So if you look at our annualized client growth of what that's been, I think it was 7% this quarter.
So if you annualize that out, that's 25% to 30% growth. I don't know that you can necessarily extrapolate from that you're going to see 25% to 30% NFE growth or revenue growth because some of those clients are on the smaller end. It's just hard to predict. This business will grow double digits next year. I just feel confident enough to say that.
And beyond that, we'll just have to see how it plays out.
Okay, great. That's helpful. And then if you could provide any commentary just how things are going with TriumphPay. And I missed the first half of what you all said in the prepared remarks in terms of integration of a bigger third party logistics provider partner. So maybe if you could speak to that at all?
And then any idea on when this business could be material to your income?
Sure. So what I said was we are in the onboarding and integration process with a top 20 freight broker at this time. And once that is completed, we will announce it. I would expect that to happen before year end. In addition, we expect several other freight brokers of similar size to come on to the platform in 2019.
As I've said before, what we are focused on right now is creating the ubiquitous payment platform that everyone uses, that carriers use, freight brokers use, even the fact our competitor factoring companies use in order to process payments, handled notification of assignments, all the things that have to happen in the transportation factoring space. And so that is our mindset is to provide a superior technology user experience, price it in such a way that we capture that market. I suspect that you'll start to see in 2019 this be a contributor. But when I talk about our 1.8% ROA objectives, that is not TriumphPay is not included in that because it's too nebulous and too unpredictable of where what it will be at that time. Again, our focus is less about when it starts contributing to the bottom line than it is about becoming the market leader by a wide margin, completing integrations with all the transportation management service companies and having all that done, which we have, which has given us a material leg up on competition.
And using our market strength, the data we have, the relationships we have take a large chunk of this market. That's my focus. And again, I think if we do that, the whatever the value that you would extrapolate from that, I can't quantify for you now, but it's real. And so that's what we're focused on for 2019 rather than being able to point to a specific contribution to the bottom line.
All right. Thank you very much.
Our next question comes from Matt Olney with Stephens. Please go ahead.
Hey, thanks. Good morning, guys.
Good morning.
Aaron, I want to go back to credit level. Remind me what's still in that bucket, legacy assets versus acquired assets? How much is ag versus non ag? Just trying to get a better feel for what's in there and what your expectations are as far as resolutions?
Good morning, Matt. It's Dan. One item that is not in there any longer fortunately is a foundry that I've talked about over the last several quarters. That was one I'd hoped to have resolved in Q2 and it got pushed to Q3. So that was a big win for us to resolve that ex debt credit and not take a loss on it.
But if we look at the balance of what's in there, there is a 90% USDA guaranteed facility. So we show the total exposure, but only have 10% risk. We have a service provider out of our West group, out of the Colorado group that is being managed by ABL. The company is performing well. We're not yet ready to upgrade that.
We have one energy company sitting in equipment finance, and then it's just a handful of small issues. So no major single clients in that that could impact us going forward. They're just normal relationships that we're trying to exit.
Okay. Thanks for that, Dan. And on the deposit growth, Aaron, you sound more confident about your ability to fund organic loan growth without any additional M and A. Am I reading this right? And if so, what are some of the channels you're having success on, on the deposit front?
Yes. Matt, so we think about the world, there's 2 different kinds of deposits and they overlap. But I mean, of course, what we're all pursuing are transactional accounts. Non interest bearing, of course, or interest bearing demand accounts, those are, as we all know, in a rising rate environment, very valuable. And so we're trying to use the lending relationships we have with the recent, and actually forthcoming treasury management upgrades we have in order to capture more of that from our lending clients.
Setting that aside, I mean we have a 63 branch network that covers 5 states. We can drive people into those branches and drive deposit growth through rate and service. We are reticent to do that preemptively because in doing that, you also reprice your entire existing deposit franchise. And so the absolute answer is yes, We can fund ourselves organically through our deposit franchise. We don't want to do too much of that just through time deposits because we'll end up compressing our margins.
And in many of the markets in which we operate, what the prevailing market rates are very different than where we operate in Dallas, which is one of the great, we think one of the our strategic advantages with the way we've built this company. So yes, I don't think you're going you're not going to see us pass up the opportunity to do smart risk adjusted profitable lending because of a lack of deposits. We'll do that organically if we need to. While we do that, we certainly remain focused on strategic acquisitions, which generally are going to be focused on the right hand side of the balance sheet and improving our footprint in many of the markets in which we're in. So we can do it organically, but you should not be surprised to see us do an acquisition in 2019, 1 or 2 acquisitions that are targeted towards improving our deposit franchise.
Okay. Thanks, guys.
Our next question comes from Gary Tenner with D. A. Davidson. Please go ahead.
Thanks. Good morning.
Good morning. Just want to ask a couple
of questions. I guess, first just to clarify that the $1,100,000 accrual for the payout of ICC that was part of the $5,900,000 of total transaction costs or is that over and above that?
This is Bryce. The accrual for the contingent payout was not part of the transaction costs. Transaction costs were total of $5,900,000 Those are all in operating expenses. The accrual this quarter for the continued payout was there's reduction of other non interest income.
Okay. Thank you. And then just as it relates one more question on the factoring business. With the size of the business now and the speed with which it turns, that $1,500,000,000 of invoices purchased in the quarter sounds like it's basically the run rate just to keep balances flat. So adding clients and purchasing incremental invoices quarter by quarter is still the driver of overall volume and balance sheet growth.
Is that fair?
Absolutely correct. Okay.
All right. And then just as it relates to kind of the questions regarding M and A and deposits, As you think about kind of what your map looks like on Slide 4 and where your community bank business is, Any changes to where you'd be targeting? And maybe an update on your thoughts and plans for the Dallas market?
Well, I'll take that one first. The Dallas branch, which we've talked about previously, which doesn't yet have a physical location as we're working through the permitting and then followed by the construction process, has about $175,000,000 in deposits in it already through relationships we have. So I mean, I think we were our presumption that we would be able to generate core deposits in Dallas was correct, and we've done it without even the deposit building, yet. So I still believe Dallas will be I think we'll I believe I've shared in the past, I think it'll be a $500,000,000 branch with some very large customers in that branch, very different than the rest of our footprint, but very valuable in its own way. As far as future acquisitions, of course, we focus on Colorado, New Mexico, Texas, Kansas, far Western Kansas.
That remains an area of focus. We would, of course, do an end market deal in Iowa and or Illinois, that fit within those footprints as they exist. And then we also remain open to looking a strategic large opportunity that would take us into a new market, but it would have to be on the right pricing metrics with the right deposit franchise for us. And those are out there, but harder and less likely to do.
Thanks, Aaron. And then just as it relates to that and last question for me. In terms of the treasury management system upgrade, I'd imagine that's probably a little more slated towards the prospects of the Dallas customer base maybe than the rest of your customer base, but can you talk about the timing and when you think you'd launch the new offering?
I think it comes pieces of it come online in Q4, but let's say that it will be completely done and turned on by Q1 of 2019, which as you maybe heard me allude to, it's one of about 30 initiatives here, many of them technological that we've done and completed in 2018, which I'm very proud of that we've achieved the profitability we have while doing a massive amount of reinvesting into our business. You're correct that the treasury management solution, the biggest market opportunity is I mean, Dallas is the biggest market in which we operate. But that being said, we're in and around Denver and other growth areas of Colorado. I mean there's a tremendous treasury management opportunity there. And as a kid who grew up in a small town, I also know that in many of these small towns in which we operate, they're very healthy businesses that can use treasury management services.
So the volume opportunities in Dallas, but we intend to roll it out everywhere. And as a result of doing that, I'm excited about generating more transactional account relationships.
Great. Thanks very much.
Our next question comes from Brett Rabatin with Piper Jaffray. Please go ahead.
Hey, guys. Good morning.
Good morning.
Wanted to ask Aaron, in the past you exited healthcare kind of after that became an issue. And I'm just curious, I mean, you have such potential in the transportation industry. I guess, I'm just curious, are some of the other areas that are in your commercial finance portfolio potential exits at some point? Or can you talk about like where you want the factor receivables to be relative to the overall commercial finance book over time?
Yes. So let me answer the first question. Look, it is a fine art between being an expert in a few silos of business, to that crossing over to having your business entirely correlated to a sector. And I, for 1, do not believe it is wise to have our entire business correlated to the transportation sector. We believe in it.
We're heavily invested into it between factoring, even some asset based lending in that space and of course our equipment finance business. But cycles come and cycles go in transportation just like everywhere else. And so we want the diversity of businesses. As of right now, all of the businesses we're in, we're committed to. We don't have plans to add any new businesses at this time.
And we think that the way we're structured with approximately 60% of our assets being in our traditional community bank enterprise and 40% being in commercial finance is appropriate. As of today, factoring is starting to approach being 50% of that commercial finance portfolio. We don't have any bright lines drawn as far as that commercial finance portfolio composition. What I would say, Brett, is with respect to transportation factoring specifically, we're going to keep doing what we've always done, which is finding new clients, which ultimately lead to collecting from generally the same counterparties, those account debtors, which do most of the shipping in United States, whose credit we understand. So we're comfortable with that growing faster than the remainder of the portfolio, but it's going to grow on our terms.
It's going to grow because our product offering is better, not because we're going to change the way we're doing the business. So, we like where we are right now. Obviously, we continue to review everything. We've got heightened scrutiny around asset based lending. We need to prove to ourselves and to the market we can do that well.
We think it's appropriate inside our institution right now. And we're just we're happy to be diversified in the way we are, both geographically and by product
Okay. Fair enough. And then wanted to ask just you've talked about TriumphPay and the potential for it, but the expectations for related fee income are fairly modest for the next year or so. Can you maybe give us an update on how you see that playing out? And then kind of what's the end game for you're obviously going to be gathering quite a bit of data and then there's also other potential ancillary things that you could be doing with more fuel cards, that kind of stuff.
What's longer term potential for that?
I think it's at least $175,000,000,000 market when you just talk about the brokered freight market. If you go beyond the brokered freight market to the direct shipper market, that's another $400,000,000,000 market. Our focus right now is in the brokered freight market. And so that's where our relationships are. That's the people we know.
So it starts 1st and foremost with delivering a product that makes the life of the 3rd party logistics companies who move freight in this country easier and the life of the carriers who actually drive those loads up and down the road easier. And I would there you already alluded to the many ways in which this could produce value for TBK, going forward. Right now, I'm going to say what I said before. We are 100% focused on delivering the best user experiencing technology to the freight broker market and of course the carriers who serve them. If we do that well and we capture a significant portion of that $175,000,000,000 market using our platform.
Whether they factor with us, don't factor with us, whether they quick pay with us, don't quick pay. If we just create the ecosystem on which these payments are done in a safe, fast, reliable manner, there's going to be many ways in which everyone will benefit. And of course, from our perspective, the data we will have, the market penetration creates a lot of opportunities. So I don't know what the end game will be once we're there. Right now, we're focused on driving growth in the market.
And so what I would encourage you to look at is, as we continue to onboard significant freight brokers, but they're not just the end of the story. There's thousands of other freight brokers who we intend to bring on to the system. And where it goes from there, we'll see when we get there. But I need to stay focused on what we're doing right now, and we'll deal with what I think will be a high class problem later down the road.
Okay, great. Thanks for all the color.
This concludes our question and answer session. I would like to turn the conference back over to Aaron Graft for any closing remarks.
Thank you all for joining us today. I hope you have a great week.