Good afternoon, and welcome to the Triumph Bancorp 2017 annual shareholders meeting. All participants will be in listen-only mode. To receive assistance, audio participants may signal a conference specialist by pressing the star key followed by zero. Please note this event is being recorded. I would now like to turn the program over to Carlos Sepulveda, Chairman of the board. Please go ahead, sir.
Thank you. Hello, and welcome everyone to the annual stockholders meeting of Triumph Bancorp, Inc. My name is Carlos Sepulveda, and I serve as chairman of the board. I'd like to welcome those who are joining us by webcast today. We're glad to have you here virtually with us. I'd also like to introduce the fellow board members that are here this morning. Chuck Anderson. Rick Davis. There you are, Rick. Thank you. Robert Dobrient. Aaron Graft, of course, you know. Justin Trail. Derek McClain. Maribess Miller. Fred Perpall. Hey, there you are, Fred. Good to have you here. Michael Rafferty. Todd Sparks is not with us. He's on the webcast, so hello, Todd, and Justin Trail. As discussed in the proxy, Derek McClain is ending his term as a member of our board today. He will not be standing for re-election.
If you'd like to know more about that, you can ask Derek about it, but we are fast friends and continue to be in contact as appropriate. Also would like to acknowledge Mr. McClain's service to the board, and he joined us in 2014 and has rowed a heavy oar. Let's give Derek a hand. Derek. We have a lot of Triumph team members here with us today, but I would like to take just a minute and recognize, introduce some of the executive officers present. To that end, Bryce Fowler, CFO and president of TBK Bank. Bryce. Steve Hausman, president of Triumph Business Capital. Hello, Stephen. Dan Karas, our chief lending officer at TBK Bank. Dan. Adam Nelson, EVP of the holding company and general counsel, and Grant Smith, our chief credit officer at TBK Bank. Also present is Mr. Stephen Wagner of Crowe Horwath.
They are our independent registered public accounting firm. Stephen will be available later to answer any questions that you might have. We appreciate the job that Crowe Horwath does, and Stephen in particular has been a vital contributor to the Triumph story for many years now. Thank you, Stephen. Okay, Gail Lehmann, our EVP and secretary, is going to serve as secretary of today's meeting, and Adam Nelson, our general counsel, will serve as Inspector of Elections. With that, thank you for coming. I'd like Aaron to come up now and conduct our formal meeting, and afterwards, Aaron will present some additional information.
Sure. Good afternoon. I'm Aaron Graft, the President and Chief Executive Officer of the company. I'll 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 the re-election of the Class 3 directors of our board of directors and the ratification of the appointment of Crowe Horwath 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. Those stockholders who desire to vote in person please give their names to the Inspector of Elections. Then 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 the certified list of the holders of the common stock of the company at the close of business March 6th, 2017, 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. 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 are present in person or represented by proxy the holders of 15,638,639 shares of common stock, or 86.48% of all shares authorized to vote at this meeting. A quorum is duly present and authorized to transact business on the matters that were submitted to the stockholders for approval.
Thank you. The first order of business is the re-election of the three Class III directors of the company. A summary of the proposal begins on page four of the proxy statement. I now 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 nomination for director closed. 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 31 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. Seeing none, all the stockholders present in person or by proxy have had an opportunity to vote. I will now declare the polls closed. The time is 1:12 P.M. on May 4, 2017. The Inspector of Elections will examine the proxies and ballots submitted. Mr. Nelson, would you provide the results of the vote?
With respect to the election of the Class III directors, 11,744,411 shares were voted in favor of Mr. Anderson, with 109,712 shares withheld or abstaining, and 3,784,516 broker non-votes. 11,527,429 shares were voted in favor of Mr. Sepulveda, with 326,694 shares withheld or abstaining, and 3,784,516 broker non-votes. 11,745,947 shares were voted in favor of Mr. Trail, with 108,176 shares withheld or abstaining, and 3,784,516 broker non-votes. Consequently, each of the Class III electors nominated to stand for reelection, as set forth in our proxy statement, have been hereby reelected. With respect to the proposal to ratify the appointment of Crowe Horwath LLP as our independent registered public accounting firm for our current fiscal year, 15,623,323 shares were voted in favor of such proposal, with 15,140 opposed, and 176 abstentions. Consequently, such proposal is hereby adopted.
With no further business to vote on today, 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 plans, outlooks, or predictions 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.
With that, I would like to take a few minutes. What we're going to do is we're going to walk through the investor deck presentation that's been filed following our recent 10-Q. Then following that, I'm happy to open it up to any questions. We will cease the webcast at the time that I finish the investor presentation. With no further ado, for those of you who were here last year, you remember the front cover of our investor presentation was either a rabbit or a duck, depending on how you looked at it. What I learned is a lot of investors had no idea that it was either. This year, we tried to pick something that told the story and made it clear.
Look, there are 6,000-some banks out there, actually down from a high of about 16,000 banks 20 years ago. Many banks are very much the same. While we do a lot of things that banks do, we do some things that are different. This year, that was the theme of the deck we put together, is how we were the same and only different. This is a bunch of legalese. If you would like me to read it to you, I won't. Oh, Amanda, did I mess it up? Okay. Let me give you the company overview. What I would say is these are the three things when we're describing Triumph to investors or even how we think about it internally, what makes us different, and we happen to think what makes us different makes us valuable.
These are the three pillars upon which our company is built. Number one, we're a community bank. Everybody knows that. We do what community banks do. We offer a full suite of deposit products. We have a growing core deposit franchise. From the time we were here a year ago until now, we of course completed the acquisition of ColoEast, which means we picked up 18 additional branches in two additional states as part of our core deposit franchise. As part of community banking, we focus a lot on commercial banking. We do CRE lending. We certainly do C&I lending to customers. We don't do much consumer lending, and we really have no active single-family mortgage origination, which would be things that you might see other community banks do that we have chosen not to do. We've got a community bank.
Looks very much like many other community banks of equal or even larger size. The second thing we do is commercial finance. For those of you who've followed Triumph for any period of time know about our commercial finance business. It's factoring, it's asset-based lending, equipment finance, and premium finance. Those are the four things we do. That portfolio, as of this year, has just crossed over $700 million in assets. That was a business that more or less was started from scratch in 2012. We're very pleased with that business. Important to know in that business, and several of them are in the room, is that what makes that business go, what makes any business go, is the quality of the people.
As our chairman taught me, in any fact pattern, the most important fact is the quality of the people, followed by the quality of their thinking. In our commercial finance business, we have executives who've done it a long time. Many people look at a $2.6 billion bank and say, "You've got a very large commercial finance business for a bank of this size." I'd say we have people within our bank who've been at much larger banks and run much larger books of business than this and are very well qualified, have done it successfully for many years. Makes us very different. I would say, is we view it as a great diversification of our credit risk. If you think about most community banks, they're going to be geographically concentrated within the footprint that they serve.
By the nature of our commercial finance business, we serve nationwide markets, which diversifies our credit exposure and allows us to have more diversification than a typical community bank that's lending directly in its community. Commercial finance is certainly something that differentiates us. When you put those two things together, you have this differentiated model, right? You've got community banks, which have been around for a long time, that derive a lot of their value from their core deposit franchise, from the transactional checking accounts and the business accounts that exist within the institution. We've got a commercial finance business which generates higher yields than most any other community bank. You may know this about Triumph. We're in the top 1% of all banks for our net interest margin. You can't be at a much higher level than we are.
There really aren't any community banks that are above us. There are some special purpose banks that don't have a core deposit franchise that are higher than us. We are in well beyond even the top decile. We have a very strong net interest margin because we have the core deposit franchise complemented with our commercial finance business. You're always biased for your team, but I know the team we've built, I know the team we've invested in, and I'm excited about where that team will take us in the future, which I think is far beyond here. We're $2.6 billion in assets. We've grown tenfold in seven years. It's been impressive to watch what they have accomplished. This is our geographic concentration as of the end of last year. You'll note that by any individual state, our largest concentration is in Texas.
This is exclusive of our factored receivable portfolio. A lot of that would be originated to clients in Texas, but that's not included in this as we report it in our 10-Q. You see that Texas is the largest. You see Iowa and Illinois represent 27% collectively. That is the footprint we acquired in 2012 with the acquisition of National Bancs hares, Inc. which is now Triumph Community Bank. Most recently, we have 23% of our portfolio in Colorado. We do have two branches in Western Kansas. Those combine to 23%. That's the western division of TBK Bank. As we look, as we've told the market recently, we would expect our growth and as we build out our footprint, our deposit footprint, to certainly happen in the states you see highlighted here, and also possibly in the contiguous states.
This is where we're focused. This is the part of the country where we operate, and we think our prospects are very good. Here's a more drilling down to specifically our deposit franchise. First of all, you can see the western division. It includes branches that are primarily in the eastern portion of Colorado. You have some branch footprint north of Denver. You have two branches in far western Kansas. The Texas footprint, you're sitting in it. You're just 17 floors below it. This is our one branch in Dallas. We hope that will grow in the future. As of now, one branch. The Midwestern division, Triumph Community Bank, you can see we have 10 branches in the Quad Cities metroplex. Eight additional more rural branches in northern and central Illinois. That's at a more detailed level, our branch footprint.
With respect to commercial finance, just for those who have looked at that portfolio over time, let me remind you what we do. First of all, we have factoring. Triumph Business Capital. There's not a lot of publicly available information on the size of our competition. We think there's probably 60 other active transportation factors. Of those 60, we're probably number one or number three largest in the United States, which is incredibly impressive what Steve Hausman, George Thorson, and their team have built within Triumph. When we acquired this business in 2012, it's grown, what, 400% or more since then. It's been an exceptional performer. We're very proud of it. Our clients, frankly, are small owner-operators, mom and pop truckers. We also serve mid-size fleets and freight brokers.
It kind of gives us exposure to the transportation market as a whole, which if you think about transportation, that's really exposure to GDP as a whole instead of being exposed to any one specific industry. We like the diversification that comes from that. Right now, we're buying over 130,000 invoices a month from our customers in this business. It's been tremendous business, tremendous opportunities in the future as we invest in technology, and a tremendous growth business for us. We have recently, in the last year or two, expanded our operations to provide factoring services into staffing, distribution, and other sectors. Still, about 80% of our business is in the transportation space for factoring. Secondly, we have Triumph Commercial Finance. That's where we do our asset-based lending.
Asset-based lending is working capital lending to borrowers using a borrowing base calculation, a little more high touch lending than enterprise value type lending that you might see others do. We focus on credit facilities between $1 million and $20 million in size. If you get much larger than that, the market gets really efficient and really competitive with some much larger institutions. The core industries we serve would be manufacturing, distribution services, and healthcare. That business is led by Dan Karas, our Chief Lending Officer. Jim Allen, who may be here today as well, works in that business, the business that started at zero in 2012 and has grown from there, and is a great part of our commercial finance business. We also have our equipment finance business that we brand to the market under Triumph Commercial Finance. Dirk Koppel leads that business. Started at zero as well.
Over $200 million in outstandings right now. Average credit size is in the $200,000-$300,000 range. If you think about the number of customers and the number of loans we're doing in that business, it's a business where it's fully amortizing debt, so you're getting your money back very frequently. It's a lot of work to grow that business. They've done a tremendous job. Have producers in several states, really focused on transportation, construction, and waste, which are core lines of business for our equipment finance team, and they've done a great job. Then we have Triumph Premium Finance, where we provide premium finance solutions to insurance agents. It's a smaller part of our portfolio when we started last year that we're excited about. One theme you see in our commercial finance business is we have a large exposure to transportation, which we actually like.
We think there's the opportunity to establish dominance serving small businesses in the transportation space. As a result, we started an insurance business, our insurance agency, Triumph Insurance Group, which serves a lot of transportation customers meeting their transportation needs. Wes Peterson, who works in that business, is here today. There isn't, to my knowledge at least, another bank of our size with the level of concentration that we have in that space. It's become a niche for us, which my view in this commoditized world of banking, where technology has leveled the playing field and it has frankly, in many ways, mitigated the geographic advantage of serving a particular community when someone doesn't need to go into a branch anymore. If you're going to be successful as a community bank, then you got to have a niche.
We have a couple of niches, but one of them is serving credit needs in the transportation space through various channels. We're excited about that. I happen to love this slide seven, because I think it just lays out for everyone very simply the play we've called, and it gives you a very accurate read of where we are as far as running that play. If you want to understand our business, we try to make it really simple and not hide the ball to anyone. First thing we look at is net interest income to total average assets. Put simply, how much interest income, how much spread income are we earning to our total asset base? Which isn't just loans. That would be loans, securities. That would be our premises we own. What's our net interest income?
We've given these numbers on a GAAP basis, and we've given them on a core basis, where we make adjustments for any unique items that happen within the year. As you can see, for the year 2016, our net interest income to total average assets was 5.4%. That would also be in the top 1% of all U.S. banks. Okay? Very high number relative to our competition. We generate a lot of interest margin income from our business. Our goal, and this goal would be our long-term goal, whether we're two times the size we are right now or even larger. We've laid out kind of what we think we are at scale, because at $2.6 billion, we've certainly come a long way, but we do not believe we're at scale where we can generate the most efficient returns for our investors.
We think there's a lot of growth ahead of us. We've given you the goal. This is what we expect to be held accountable to. The goal for us would be 5%, which you would say, well, is lower than it is today. Well, that presumes as we grow, we will do some larger credits. If you do larger credits, the yields are certainly lower, but you have more efficiency. If you think about it's just about as difficult to buy a $1,300 invoice or service an owner-operator client who you might at any given time only have $9,000- $10,000 in purchases from, as it is to make a $25 million real estate loan. If you think about economies of scale, as we go up and do some larger lending, that's going to pull that net interest income to average assets number down.
At 5%, it would still easily be in the top 10% of all banks. That's something we're already doing. We're already running ahead of goal. The second thing would be our net overhead ratio, which is just functionally how much does it cost us to open the doors every day, to turn on the lights? If you exclude interest income that we pay to our depositors because that's already picked up in the net interest income number, what does it take us to open the doors? You back out fee income because fees would offset that. You can see that that number for us on a GAAP basis for 2016 was 3.47%. On a core basis, 3.39%. You can see our goal at scale is 2%.
That means that the next $1 billion, the next $500 million, the next $2 billion of growth we have, are going to have to be at a much more efficient rate than we currently now operate. I happen to believe that. We've made huge investments in infrastructure, people, technology, processes, branding, to be ready for that. That's the play we've called. That, frankly, is the one area that you're going to see us that we have to deliver on in order for us to achieve our long-term goal of a 1.5% ROA. We need to get approximately 40% better. If you look at most banks of our size, their net overhead ratio is below 2%. Even when we achieve our goal, we're going to be higher than our peer because we have some businesses that require a lot of people.
Those businesses also happen to be very high margin businesses. We've built the platform the way we see it unfolding. It's just a function of running it out, and I would show you, if we looked over time, that number has gotten better every year. That net overhead ratio used to be above 4%, but as we did the ColoEast acquisition and integrated them in and realized the synergies in that business, that number has come down. I think that year-over-year, that number's down approximately 20%. We just need a couple more years of doing what we're doing, and it gets better every year as we move forward. When you simply take your net interest income to total average assets, you subtract your net overhead ratio, and that gives you your pre-provision net revenue.
As a percentage of total assets, what are you earning before you take any provision for credit losses? You can see our goal is 3%. You can see core last year for us was 2.01%. What does that mean? We need to be 33% better to achieve our long-term goal. Understand that our long-term goal of a 1.5% ROA would also put us in the top 10% of all banks. The goal we have set for ourselves is a pretty lofty one. It's not just to be above average, it's not to be median, but to achieve something far beyond that. We believe we're doing it, that we're getting better as we go. The goal is 3%, we are running 2%. Of course, from your pre-provision net revenue number, then you subtract whatever credit cost you have, loan loss provision or actual charge-offs.
You can see for the year last year, we ran 32 basis points of provision expense, better than our long-term goal. 2016 was pretty exceptional performance on provision. For those of you who follow our stock now, you'll know that in the first quarter of 2017, for the first time in our history, we took what I would view as an above market provision expense. We flushed through some assets that were assets that we were working out. We dealt with some fraud issues of some size, and I think on a net basis, approximately $7 million of credit cost flowed through that number in the first quarter of 2017. Disappointing to us. On the other hand, we know we're not going to bat 1,000.
The key thing for us was to take our medicine to deal with these credits and move on, certainly return to more historical standards of running this bank at a 30- 40 basis point credit cost expense, which we are committed to doing. We're absolutely committed to doing that, I'm excited about where we go from here and glad the first quarter is over. Of course, tax expense, that's just math. That's unless Donald Trump saves us all, we're going to pay one of the highest tax rates of any bank. Our tax rate runs in the high 30 percentile. There's a reason for that. We are 100% loaned up. We view it as our job, we view it as what we're good at, to go lend money to borrowers who need it to grow their business. We don't have a large municipal portfolio.
We don't have a tax credit strategy. We view our job is to make money, we'll pay taxes on that money as appropriate. I don't know that there's any solution there. There has been analysis done by third parties that if the corporate tax rate were to fall, if you take like Sandler O'Neill, I believe they have a coverage universe of 300 banks. We're like number one, two or three as far as the beneficiary of that tax rate falling. It could have a tremendous impact on our return on assets. We're not holding our breath, we certainly have our pom-poms out, rooting for the president to get done at least that. That's taxes, that leads you to a core ROA of one and a half.
A 1.5 return on assets if you run your institution at the capital ratios we do is a mid-teens return on equity. If you look back over the last four years of our company, we have been above, on a blended rate, 1.5. Much of those gains have been, there have been some transactional gains along the way, which we're very grateful for, but those aren't the core recurring returns that when we talk about this number we want to achieve. We've actually, but if you just look dollars and cents, we've performed above that, which is something I'm very proud of as we built this company by its bootstraps, literally from a $200 million distressed bank to where it is today. On a core basis for last year, we ran 1.06%. I got a lot of colleagues in this room. Here's what I would say.
Last year was a year of exceptional effort. Not quite exceptional results. A 1.06% core ROA is better than about the 50th percentile of banks, that's never been good enough for us. Very hopeful about where we go from here. We got a long way to go after the first quarter. I'm frankly pretty excited about what I think happens from here, but the effort was tremendous last year between all the things we did, not the least of which was acquiring and integrating ColoEast and many other things that we did exceptionally well. There were a lot of investments made that you're going to see in the bottom line that frankly, you felt like you worked harder than a core 1.06 ROA. That's what it was. That's about the 50th percentile. We intend to improve that from here.
Again, long-term goal would be 1.5 ROA, which would be a mid-teens ROE, which would be pretty exceptional for the bank universe. Of course, these numbers could move around as interest rates move, but over the long term, if you're generating a 1.5 ROA, you're in very rare company among banks for delivering value to shareholders. At the end of it all, that's what this is about, is shareholder value. Look, three things drive share price, return on assets, core deposit franchise, and asset quality. All right? We've already told you, return on assets, we want to run above peer. Core deposit franchise, that's a big opportunity for us to get better. That's where acquisitions will be focused in that space. How do we improve that core customer base?
What technology do we have to invest in to maintain that core customer base? We recently hired Kenyon Warren, raise your hand, Kenyon, from BBVA. It's his job to raise all the money we need to go do the lending we plan to do, and he's our head of retail, and we're very excited about what he's going to do for us. Core deposit franchise matters. It has a big impact on the multiple at which you trade and the multiple at which institutions are sold. We're very focused on that. The third thing, as I mentioned, is asset quality. For your investors, for your team, everyone has to feel confident in that you're managing the risks you take. We've done that well since 2010. We've cleaned up a lot of messes. As I mentioned, the first quarter, we took some provision expense, some charge-offs.
You hesitate to ever call things one-time, but I think we dealt with some one-time issues. We're always going to have issues. When you lend money, when you got a $2 billion loan portfolio, you're going to have issues. I expect it to return to where we've run normally, which is really pretty good relative to peer. Return on assets, asset quality, core deposit franchise, that's what drives price. Now, our actual price, if you look at it since, we run this back to what? November 2014, when we went public. $1 invested with us then is approximately, we're what? Probably at a $1.80, a 1.8x multiple on that period of time. We went public at $12 a share. We trade today somewhere $21 a share. Our high price back in January was $27.95. Again, we can't control the market.
We can't control whether or not we're a great stock. All we can control is whether or not we're a great company, we work very hard at that. I think we generally get it right. We've learned some things that we will continue to do better. We got a supportive board, a great team, and a vision. I don't know about all community banks, but I do think we have an exceptional vision for what we want to do. It's different. We're committed to it. I think I can explain to you, or at least have explained to you, how different is good, how what we're doing creates greater value. From here, we're just going to run the play, just continue to do what we're doing. I think it'll involve acquisitions. It'll involve organic growth.
Our goal, certainly we don't measure long-term success by intervening stock price, if we do that well, we think our stock price will rise. When you look at where we trade on a relative basis to our peer group, as far as our forward PE expectations, we're pretty cheap. We don't like that. We want to be rich, right? We want to make our stock price rich to our peer group. We're very focused on that. With that, at the end of the appendix, we just do the reconciliations for you of how we calculated core versus GAAP. With that, I think we'll bring the webcast to an end. Luke? Just one minute. Are you ready? Oh, he's doing it now. I'm happy to answer any questions for those in the room.
The webcast-
Thank you all for coming
I apologize. The webcast for today's event has concluded, I will now disconnect it. Thank you, everybody. Enjoy your day.