Good afternoon, and welcome to the Triumph Bancorp 2018 annual shareholders meeting. All participants will be in listen-only mode. Should you need assistance, please signal our conference specialist by pressing the star key followed by zero. Please note that today's event is being recorded. I would now like to turn the conference over to Carlos Sepulveda, chairman of Triumph Bancorp. Please go ahead.
Thank you. Hello, and welcome everyone to the annual stockholders meeting of Triumph Bancorp Inc. I am Carlos Sepulveda, and I serve this team as chairman of the board. I'd also like to welcome those who are attending by webcast. I'd like to introduce my fellow directors from the board that are here this afternoon, Robert Dobrient, Rick Davis, Aaron Graft, Maribess Miller, and Michael Rafferty. Also present are Executive Officers of the company and other members of senior management of the company and subsidiaries. I'd like to recognize Bryce Fowler, Executive Vice President and CFO and President of TBK Bank; Gail Lehmann, Executive Vice President and Secretary and Chief Operating Officer of TBK Bank; Dan Harris, Chief Lending Officer at TBK Bank; and Adam Nelson, Executive Vice President and General Counsel. I see that Chuck Anderson, director, has also joined us. Hello, Chuck.
Also present is Steve Wagner of CohnReznick, our independently registered public accounting firm, who will be available to answer any questions in the event there are some later. Steve, welcome. Gail Lehmann, our Executive Vice President and Secretary, will act as secretary of today's meeting, and Adam Nelson, our General Counsel, will act as Inspector of Elections. At this time, I'll turn the meeting over to Aaron Graft, the company's Vice Chairman and Chief Executive Officer. Aaron?
Thank you, Carlos. Let's start with a few matters of business. I am Aaron Graft, the President and Chief Executive Officer of the company, and I will serve as the chairman of this meeting. I now officially call the meeting to order. The business items on the agenda today were outlined in the company's notice and proxy provided to all stockholders. The matters to be voted on at this meeting consist of, first, re-election of four Class I directors of our board of directors; second, approval of amendments to our certificate of formation to provide for the phasing out of the classified structure of our board of directors; third, approval of amendments to our certificate of formation to implement majority voting in uncontested director elections; and finally, ratification of the appointment of CohnReznick LLP as our independent registered public accounting firm for our current fiscal year.
At this time, could those stockholders who hold proxies please deliver them to the Inspector of Elections, who's sitting down here, and those stockholders who desire to vote in person, please give their names to the Inspector of Elections. The Inspector of Elections will give you a ballot for matters to be voted upon today. While we are waiting for the Inspector of Elections to determine if a quorum is present, let me ask the secretary whether proper notice was given for this meeting.
I have available a certified list of the holders of the common stock of the company at the close of business on March 12th, 2018, the date fixed by the board of directors for determining the stockholders entitled to notice of and to vote at this meeting. I also have available the notice of meeting, proxy statement and proxy, and affidavits of the company's representatives as to the due mailing thereof.
Thank you. I would ask that those documents be filed with the records of the company. This now brings us to the determination of a quorum. Our bylaws provide that the presence, in person or by proxy, of a majority of the votes entitled to be cast on a matter constitutes a quorum. May I now have a report on whether a quorum is present?
There present in person or represented by proxy, the holders of 18,613,830 shares of common stock, or 89.38% of all shares authorized to vote at this meeting. Consequently, a quorum is duly present and authorized to transact business on the matters that were submitted to the stockholders for approval.
Thank you. Will the secretary please introduce each order of business for the meeting?
The first order of business is the re-election of the four Class I directors of the company. Summary of the proposal begins on page five of the proxy statement.
I move to approve the re-election of such directors.
I second the motion.
Our bylaws require stockholders to provide advance notice of their intent to nominate candidates for directors. No stockholder has provided notice. I therefore declare the nominations for director closed.
The next order of business is the approval of amendments to our certificate of formation to provide for the phasing out of the classified structure of our board of directors. A summary of the proposal begins on page 32 of the proxy statement.
I also move to approve such amendments.
I second the motion.
The next order of business is the approval of the amendments to our certificate of formation to implement majority voting in uncontested director elections. A summary of the proposal begins on page 33 of the proxy statement, the secretary was supposed to have read that.
You did a fine job, Mr. Graft.
I apologize. I was just rolling right along. Having given that wonderful introduction, I now move to approve such amendments. Thank you very much.
The next order of business is the ratification of the appointment of Crowe Horwath LLP as our independent registered public accounting firm for our current fiscal year. A summary of the proposal begins on page 34 of the proxy statement.
I now move to ratify such appointment.
I second the motion.
At this time, we ask each stockholder voting in person to mark your ballot and to deliver your completed ballot to the Inspector of Elections. It appears there are none voting in person. All of the stockholders present in person or by proxy have had an opportunity to vote. I will now declare the polls closed. The time is 1:07 and 30 seconds on May 10th, 2018. The Inspector of Elections will examine the proxies and the ballots submitted. Mr. Nelson, would you please provide the results of the vote?
With respect to the election of the Class I directors, 15,613,309 shares were voted in favor of Mr. Graft, with 67,521 shares withheld or abstaining, and 2,933,000 broker non-votes. 15,420,053 shares were voted in favor of Mr. Dobrient, with 260,777 shares withheld or abstaining, and 2,933,000 broker non-votes. 14,500,052 shares were voted in favor of Ms. Miller, with 1,180,778 shares withheld or abstaining, and 2,933,000 broker non-votes. 15,613,309 shares were voted in favor of Mr. Perpall, with 67,521 shares withheld or abstaining, and 2,933,000 broker non-votes. Consequently, each of the Class I directors nominated to stand for election, as set forth in our proxy statement, have hereby been re-elected.
With respect to the proposal to approve amendments to our certificate of formation to provide for the phasing out of the classified structure of our board of directors, 15,675,518 shares were voted in favor of such proposal, with 2,850 opposed, 2,462 abstentions, and 2,933,000 broker non-votes. Consequently, such proposal is hereby adopted. With respect to the proposal to approve amendments to our certificate of formation to implement majority voting in uncontested director elections, 15,675,280 shares were voted in favor of such proposal, with 3,088 shares opposed, 2,462 abstentions, and 2,933,000 broker non-votes. Consequently, such proposal is hereby adopted. With respect to the proposal to ratify the appointment of CohnReznick LLP as our independent registered public accounting firm for our current fiscal year, 18,543,238 shares were voted in favor of such proposal, with 49,204 opposed and 21,388 abstentions. Consequently, such proposal is hereby adopted.
With no further business, I hereby make a motion that this meeting be adjourned.
I second that motion.
As previously noted in Carlos' remarks to start the meeting, we would now like to take a few minutes to update our stockholders on Triumph's previous fiscal year and its activities to date this year. Before I begin, let me remind you that we may make comments that might be characterized as forward-looking statements under the Private Securities Litigation Reform Act of 1995. Generally speaking, comments regarding the company's or management's beliefs, expectations, intentions, goals, plans, outlooks, or prediction of the future are forward-looking statements. These statements involve a number of risks and uncertainties that could cause actual results to vary materially from the anticipated results implied by these forward-looking statements. These risks and uncertainties are detailed in the company's filings with the SEC, which are publicly available on the SEC's website. At this point, I would like to walk through a slide presentation.
Many of you have seen this before. This is a form of the presentation we use when we go on the road to meet with institutional investors. By way of reminder, a couple of things that are important about us. Of course, we're a community bank. We're a fast-growing community bank, and we do a lot of things that many of our community banking peers do. In addition to community banking, we have built a commercial finance portfolio that is now approximately $1 billion in assets, and that has almost exclusively been built organically, which is something I'm very proud of. A lot of team members here have contributed to that value creation. As a result of the commercial finance portfolio and the way we approach banking in general, we have a very differentiated model from many of our peers.
I believe this is our fourth year to do an annual meeting as a publicly traded company. You can see in 2015, total assets were $1.69 billion. In 2016, $2.6 billion. 2017, $3.5 billion. As many of you, I expect all of you in this room know, we recently announced the acquisition of three banks held by two holding companies. Pro forma for those acquisitions, which we expect to close in September of this year, will be about $4.3 billion in assets. You can see gross loans are just under $3 billion. Tangible common equity as a result of capital raises we've done and retained earnings has grown significantly. I would point you to net interest margin. You can see, at 5.92%, that's in the top 1% of all banks. We have been in the top 1% of all banks since in our very earliest of days.
You can also see our efficiency ratio continues to improve as we grow, as revenue growth continues to outpace expense growth, which has led to a nice double-digit growth of return on average tangible common equity as we continue to deliver value to our shareholders. Here's what we look like today. Our Western division, as of today, is 32 branches in Colorado with two branches in Western Kansas. Pro forma for the acquisition, we'll be acquiring The First National Bank of Durango, Bank of New Mexico, and Citizens Bank of Pagosa Springs. After that acquisition, we will have over 40 branches in our Western division. 39 of those branches will be in Colorado, which if you exclude the money center banks like Wells Fargo or other banks over $20 billion, we would be the eighth-largest community bank presence in Colorado.
In a very short period of time, less than three years, we have become a top 10 franchise in Colorado, which is a state we happen to believe has a lot of exciting demographic trends. Of course, our headquarters is here in Dallas. As many of you have heard, we are building a branch in Preston Center. Last time I checked, they were short on banks in Preston Center, and they needed us to deliver one. What we're delivering in Preston Center is going to be different than anything you've seen there, I promise. We're calling it the Epic Branch. I invite you to go to www.epicbanking.com, and we will keep you updated if you subscribe there. It will be the hub of the concierge banking initiative that we'll be rolling out in Dallas, our commercial banking initiative that we'll be rolling out in Dallas.
If you ask why, because we have significant relationships. I see significant potential banking relationships sitting in this room. Many of them sit on our board of directors. We have $400 million-$500 million of loans in the Dallas market. What we've never done up to this point is actually pursue holistic banking relationships with customers in Dallas. Of course, you don't have to spend much time in Dallas to realize the growth opportunity that's here. We're very excited about entering an extremely competitive market, but with some momentum behind us that someone coming from another geography without the relationships here would struggle to replicate. We have our Midwestern branch, which we acquired in 2013, our Midwestern division, excuse me.
18 branches, 10 of which are in the Quad Cities, which is on the border of Iowa and Illinois, surrounding the Mississippi River, and with other branches in Northern and Central Illinois. If you look at what we look like at the end of the year, interesting shift has happened in that Texas and Colorado have become, by a percentage, our largest proportion of our loan portfolio. This would exclude factored receivables. We don't include that in this calculation. For the remainder of our loan portfolio, Colorado and Texas are the largest proportion, and you should expect to see that to grow. That's where we're making investments. That's where we think the greatest opportunity is. It is possible we will go into other states. Of course, by virtue of the announced transactions, we are going into New Mexico, with three branches.
We could continue to build that out. By and large, growth will be in Texas and Colorado. As opportunities come along, we certainly would continue to invest in our Midwestern footprint, but we believe the best opportunities are in Texas, Colorado, and New Mexico. For our commercial finance portfolio that I alluded to earlier, we've done the same thing for several years now. It's built upon multiple strategies. Number one, equipment finance, which is led by Dirk Copple, who's been here since 2012 or 2013 and has built a portfolio that today is almost $300 million in outstanding loans, which is very impressive given the size of the loans he makes, which aren't particularly large relative to perhaps our commercial real estate loans, for example, and how quickly they amortize down. That business, equipment finance, focuses on trucking, construction, and environmental, which environmental means trash trucks.
We can call it environmental, but what we like to focus on is waste refuse because we figure there's going to be trash for the foreseeable future and somebody has to haul it from point A to point B, and it might as well be our customers. Asset-based lending, led by Dan Karas, our Chief Lending Officer, Jim Allen, continue to focus on facilities between $1 million-$20 million in size. Asset-based lending is something you find in many regional banks. How we differentiate ourselves, besides trying to be creative and service-oriented, is to say smaller in facility size than many of our peers. That has continued to serve us well. Triumph Premium Finance, which is headquartered in Kansas City, is the smallest of our commercial finance portfolio.
It's a great ancillary product that we offer serving insurance agencies and the insurers, also helps in our pursuit in Triumph Insurance Group, our wholly owned insurance brokerage, in its pursuit of providing insurance services to the trucking industry. That's a common theme you hear with us. I would submit to you, I believe that nobody in the world provides more financial services to the owner/operator or small fleet sector of trucking than Triumph. That's something that started in 2012, and we have rapidly taken market share in that business. Of course, our first acquisition, Triumph Business Capital, our factoring subsidiary, which was $40 million in net funds employed at the time of acquisition, has now organically grown to $360 million as of today. Just phenomenal growth, credit quality, performance yield.
This year, as of the first part of this year, Steve Hausman, who served as our CEO and President and the founder of that business, has retired and will now serve as Executive Chairman. George Thorson, who's been with us in that business since we acquired it, even before, has been named the President, and it continues to be a very exciting time for us. We try to be very specific in what you should hold us accountable to and what we hold ourselves accountable to. I think as banks, you get publicly traded, you get to our size, things can get complex, my bias is to make it really simple. Simply put, our goal is to deliver a consistent core return on average assets of 1.8%.
A 1.8% return on average assets would put you in the top 5% of all banks by a large margin. We used to set that number a little lower, more at the 1.5%-1.6% range, but we have increased it as a result of tax reform. Tax reform was very beneficial to Triumph because we paid a 36% corporate tax rate, which is now more like 24%. If we deliver a 1.8% return on average assets, then our return on average equity ought to be approximately 18%, which would be an industry-leading return on a core basis. How we get there is just simple math. Net interest income to average assets needs to be above 5%, which very few banks do. Maybe a couple hundred in the country.
We've done that for many years because of the granular nature of our portfolio, the high yields we get. We achieve our net interest income goal and have done that for a long period of time. Our opportunity is in the net overhead ratio. This number, when we went public, was 4%. Net overhead ratio, simply put, is our net operating expenses as a proportion of our assets. That number, we need to drive below 3%. I will tell you today, that number is running about in the 3.4% range. In order for us to achieve our long-term goals, we need to maintain net interest income at its current levels but continue to grow more profitably. Every time we do an acquisition, that number gets lower because no other bank we would look at has an expense ratio to total assets as high as ours.
Now, why is ours high? Because we do so many small-ticket loans, as a result, it takes a lot of people. Triumph, by the middle of this year, when we close our pending acquisitions, will have 1,100 team members. We started with 34 team members in November 2010. It's pretty astounding number of people it takes to run our business. We will drive that net overhead ratio below 3%. I have said it to others, so I'll say it to you, my expectation is we will do that at some point in 2019, and then would continue to expect to maintain it beyond there. When you take your net interest income to total average assets and you subtract your operating expenses, you get to your pre-provision income.
Of course, provision expense is just loan losses, which we would model to be about 40 basis points. From that, you get to your net income, which you take your taxes, which is a pretty simple calculation that's given to us. Ultimately, we delivered a 1.27% return on average assets last year. Our goal is 1.8. I would say we are running in the 1.3%-1.4% range right now. The trajectory continues. Something people in this room, I would expect, care about. Investors in our IPO have earned a 40% compounded return on their investment, which is going to be in the top 1%-2% of all banks. Original investors, many of whom are in this room, who bought their basis in Triumph as $9.58 a share from November 2010, have quadrupled the value of that investment.
Our goal is to continue to deliver on that. You can see we've outperformed every single index, both financial in nature and just broader market index. As of a result of the most recent capital raise that we did just a few weeks ago, we crossed over $1 billion in market cap, which is a significant threshold for us, not because we keep score by that, but because it creates liquidity in our shares that will invite larger investors into our name. As liquidity increases, the premium at which we trade should increase. As of today, we're trading $5 million-$6 million. If you look over the last 90 days, we trade $5 million-$6 million of value a day. You are viewed as a true small cap when you trade $10 million of liquidity a day.
We are well on our way to achieving that. Which again, a broader investor set investing in our name gives liquidity to our existing investors who would like to harvest yield on what they've done, and it also attracts new investors. Generating 40% annualized returns generally brings capital into the light. We've got a lot of work to do to keep that up. Highlights, just real quickly. I'd mentioned net interest margin, 2017 was 5.92%. That's phenomenal. I think sometimes it's lost when you say you're in the top 1% of all banks, and our team deserves credit for that. For those in this room, I want them to hear from me how hard that is to do and how they consistently do it. We grew commercial finance portfolio by 46%, which is pretty phenomenal.
It's really hard to achieve those kind of growth numbers and still achieve a high return on average assets, because as you grow, your provision expenses grow. You have to staff up ahead of that growth. For us to grow this profitably, to grow our total loan portfolio $854 million last year, $600 million of which was organic, for an institution that, when we bought it, was $200 million total, just speaks to the quality of the team we've built. For investors, whether you're long-term investors, short-term, new to the name, I would invite you to do your research on the quality of the people who help make this business run. You may hear from me more often, but I'm not the one driving this value.
It's the team we've built, and they do a phenomenal job to hit these numbers, which I think anyone would tell you are as good as you would find in any bank anywhere. Triumph Business Capital, as I mentioned, this is our most unique, our most differentiated, and our most defensible line of business in my opinion. We bank 3,500 truckers as of today, 3,158 clients as of December 31st, and generated a yield of almost 17% with a charge-off rate that's roughly 40 basis points. That is extremely hard to do. This business, as of today, is a 5.5% return on asset line of business, which does not exist very often in banking. The business is growing at 30% a year. It has continued to grow since the end of the year.
I predict in 2019, with our recently announced acquisition of ICC, which is one of our top five competitors in El Paso, I predict we will buy over $6 billion of invoices in 2019 and generate net interest income of over $90 million in this line of business, which is a phenomenal growth, phenomenal profitability. Of course, as you may have heard, we're developing technology related to this business called TriumphPay, which we think will be transformative to the entire transportation industry as it continues to be adopted. The value of that business, as it gains momentum, it currently has 61 clients. We think someday with a couple hundred clients, you could be talking about processing tens of billions of dollars of payments on behalf of third-party logistics companies.
If we deliver on that, we will create another leg of value for this institution that goes well beyond traditional bank metrics. Extremely excited about what we're doing there. Here's our record of growth. Our compounded annual growth rate for assets, deposits, gross loans has been approximately 30% over the last four years. We've grown tangible book value per share at 12%. Again, just a phenomenal performance by the team. You can see our comparison on net interest margin, return on average assets, and return on average tangible common equity. We outperform all U.S. commercial banks by a fairly significant margin. You can see that net overhead ratio that I talked about. You could say we're not outperforming, we're underperforming there, but that's a function of investing in our growth. You can see as we move forward how that number trends down.
While we will never be on the low end of that region on that metric because of the nature of our business, we will bring it more into line with our peers. As long as we deliver on these three areas, then you're going to see shareholder value created. Of course, the most important thing to running a bank is maintaining credit quality. We've done that. Our net charge-offs to average loans, 28 basis points last year, 25 basis points in 2016, 7 basis points in 2015. Compared to historical banking numbers, very good. Non-performing assets to total assets continues to fall, and our allowance for loan loss as a percentage of total loans. These numbers move around when we do acquisitions because of the way we account for them, but I would tell you, continue to reflect the credit quality we've created.
Last thing, I think it's just helpful to see this. Here's how we're different. The left-hand side, a lot of hard work goes into delivering the community bank growth we have. Commercial real estate grew over $200 million last year in a very competitive market, and has developed a niche and relationships in the industry that we are viewed as a go-to lender for some very preferred clients. That team has built that Ray Sperring led us and built that over the last few years. When you combine that with what we do within our branch network, you're talking about $745 million in commercial real estate loans, $130 in construction land and development loans. Commercial real estate as a whole is about 200% of our capital, which is about a third lower than most of our peers.
While commercial real estate is very important to us, we're much more diversified compared to our competition, which we think is wise because as you know, cycles come and cycles go. Our commercial, all of the stuff on this side is generally targeted to customers within our 60-plus branch network, people with whom we have deposit relationships. That portfolio is $2 billion, or roughly 68% of all loans. Our commercial finance portfolio, which as I've talked about, has now grown. As of today, I think it probably is over a billion dollars. That portfolio as a whole generates a yield of 11%, which is what, when you couple it with our community banking portfolio, is how we deliver net interest margins that are in the top 1% of all banks. Of course, to do that, you have to have deposits.
This is our challenge to grow deposits at the pace we grow loans and to preferably grow transactional deposit accounts. It's why we're building the Dallas branch. Kenyon Warren, who's here today, would love to have your deposits. Don't let him out of the room until they've opened a checking account with us. You see, through acquisitions, we picked up $300 million in excess funding in the acquisitions that will close in September, the First National Bank of Durango, Pagosa, and Bank of New Mexico. We still have to work very hard to grow deposits at the very fast rate we're growing loans. That remains a heightened level of focus for management and how to do that in traditional banking methods, but also how to do some things that may be more creative in order to generate that.
Lastly, at the back of the presentation, because this is getting filed, we have the non-GAAP financial reconciliations. At this point, that is the end of my formal presentation. I think we're going to disconnect, then we can chat. Kenyon will take your deposits. Do I say magic words to make us disconnect?
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.