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Triumph Bancorp Inc  (NASDAQ:TBK)
Q3 2018 Earnings Conference Call
Oct. 18, 2018, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Triumph Bancorp Third Quarter 2018 Earnings Conference Call. All participants will be in a listen-only mode. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Luke Wyse, SVP of Finance and Investor Relations. Please go ahead.

Luke Wyse -- Senior Vice President, Finance & Investor Relations

Good morning. Welcome to the Triumph Bancorp conference call to discuss our third quarter 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 two. For those joining by phone, please note that the safe harbor statement and presentation are available on our website at www.triumphbancorp.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?

Aaron Graft -- Vice Chairman and CEO

Good morning. For the third quarter, we earned net income to common stockholders of 9 million, or $0.34 per diluted share. Adjusted for $4.5 million in after-tax transaction costs related to our acquisition of two bank holding companies during the quarter, net income to common shareholders was 13.5 million, or $0.51 per diluted share.

There are two material items this quarter worth mentioning. First, on September 8, we closed on the acquisitions of two bank holding companies. One of these holding companies owned two banks. So we acquired three banks in all. The footprint of these acquisitions is in Colorado and New Mexico, with combined 753 million in total assets, 288 million in loans, and 675 million in attractive deposits. This reduced our loan-to-deposit ratio of 16% to 102%. The transactions also increased our branch count to 61, across six states, and give us 37 locations in Colorado and entry into the New Mexico market.

Second, on September 20th, we announced a $4 million 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 be perpetrated by one or more of the employees of the borrower. As a result of that loss, we increased the estimates of the allowance for loan loss reserve recorded against the remaining asset-based lending portfolio by $2.5 million, 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 $0.16 after-tax.

I want to pause here and say 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% 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 of 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 4.1 million, or 12 basis points of average loans in Q3. Excluding the $4 million 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 30th. Non-performing loans as a percentage of loans were down 30 basis points, or 1.13%, driven by a $6.2 million decrease in non-performing loans and the addition of 288 million of loans from the aforementioned bank acquisitions.

Loan growth for the quarter was 316 million, inclusive of 288 million of loans acquired from the three purchased banks. At first glance, organic growth in the quarter appears relatively flat overall at 28 million, but excluding our mortgage warehouse business, we grew loans organically by 95 million, or 3.3%. The period-end balance of mortgage warehouse was down at quarter end. However, average balances increased 52 million this quarter to 290 million.

Asset-based lending grew 12 million or 4.5%; equipment lending grew, 34 million, or 11.5%; and factored receivables grew 8 million, or 1.2%. At Triumph Business Capital, our factoring subsidiary, some of our metrics were impacted by the inclusion of ICC for only one month in the prior quarter. Setting that aside, the core business remains very strong.

Total factoring revenue increased 7.1 million quarter-over-quarter, or 34%, to 28.4 million. Purchases increased by 340 million, or 29%, to 1.5 billion 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 $1,796. Average transportation invoices decreased $29 to $1,666 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 422 clients to a total of 5,932. This secular growth has been consistent for over six 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 20.5 million of the maximum 22 million final payment for this business. This accrual as a direct result of the strength of the business.

As it relates to TriumphPay, we have 86 clients utilizing the TriumphPay system, up from 76 last quarter. During Q3, TriumphPay processed 66,000 invoices, paying 16,000 distinct carriers approximately $96 million. For TriumphPay, we are also in the integration and onboarding phase of one 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%, which remains in the top of the industry. Net interest income was up 8.5 million over Q2. Loan yields were 8.33%, or 8.1% adjusted for purchase discount accretion, which was helped this quarter with the full quarter impact of ICC. Similarly, with the acquisition of the three 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% 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 1.1 million from the second quarter to $6.1 million. There are two items we should note that are unique to this quarter. First, card income includes the bonus payment of 398,000 related to the achievement of certain volume-related goals in that relationship in the first year. This is not expected to continue next quarter and year two incentive goals are not as lucrative.

Second, 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 writedown 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 three 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 three banks, the full quarter impact of ICC's operating costs and the partial quarter impact of the three acquired banks. Transaction costs were $5.9 million and are reported in the following line items of non-interest expense: 1.4 million in severance and compensation; 1.4 million in legal and consulting professional fees; 3 million in IT-related expenses; and 520,000 [ph] 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 three acquired banks. We expect Q4 non-interest expense to be 47 million. This increase is related to a full quarter of the three acquired banks operations, technological development and investment in our overall infrastructure. We will continue to invest in the future of our business.

The acquisition of the three banks resulted in our recording 72.1 million of goodwill, and 14.1 million 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 $2.5 million in Q4 and 9.2 million 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. We 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.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Our first question comes from Jared Shaw with Wells Fargo Securities. Please go ahead.

Jared Shaw -- Wells Fargo Securities -- Analyst

Hi. Good morning, guys.

Aaron Graft -- Vice Chairman and CEO

Good morning, Jared.

Jared Shaw -- Wells Fargo Securities -- Analyst

It's great to see the movement, the growth in deposits this quarter. Do you think that you have -- 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?

Aaron Graft -- Vice Chairman and CEO

Well -- yeah, 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'll see that organically grow as, in Q4 and Q1, we complete the development and the roll-out 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.

Jared Shaw -- Wells Fargo Securities -- Analyst

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 its 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?

Aaron Graft -- Vice Chairman and CEO

Yeah. 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 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 is 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 on onboard clients, service them well and drive revenue through that, whatever the invoice size is.

Jared Shaw -- Wells Fargo Securities -- Analyst

Great. Thank you.

Operator

Our next question comes from Brad Milsaps with Sandler O'Neill. Please go ahead.

Brad Milsaps -- Sandler O'Neill -- Analyst

Hey. Good morning, Aaron.

Aaron Graft -- Vice Chairman and CEO

Good morning.

Brad Milsaps -- Sandler O'Neill -- Analyst

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 the period-end growth in factoring, turning quicker or is there any other dynamic, is it sort of on the come, maybe you added a lot of those clients late in the quarter, so maybe you get a bigger upswing in the fourth quarter? Just looking for additional color there.

Aaron Graft -- Vice Chairman and CEO

Yeah. So that is a great point and 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 turned the portfolio. In this quarter, we drove down -- the portfolio turned in 34.4 days, which is one day faster than it was in 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 7.1 million over last quarter, and that was driven on purchase increase of 340 million, or 29%. So it's a business that you've got to look at the turn that's happening all quarter long rather than where you stood 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 are very pleased with where it is.

Brad Milsaps -- Sandler O'Neill -- Analyst

Great. That's helpful. And then, just one follow-up on your expense guidance of 47 million for the fourth quarter. Does that include any impact from cost savings or are 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 what comprises the $47 million number.

Bryce Fowler -- Executive Vice President, Chief Financial Officer and Treasurer

Sure. Hi. 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 would moderate and had planned it out to kind of be achieved over a four-quarter period. I think that's still -- everything is still on track there. There is 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, Bank of Durango overall. So I think, we're on track there. 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 at 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.

Brad Milsaps -- Sandler O'Neill -- Analyst

Got it. Bryce, is it too early to kind of give any insight on what you guys are thinking from an expense standpoint into 2019?

Bryce Fowler -- Executive Vice President, Chief Financial Officer and Treasurer

Yeah. I think we're not at that point to communicate that.

Brad Milsaps -- Sandler O'Neill -- Analyst

Okay. All right. Great. Thanks for the color.

Operator

Our next question comes from Brady Gailey with KBW. Please go ahead.

Brady Gailey -- KBW -- Analyst

Hey. Good morning, guys.

Aaron Graft -- Vice Chairman and CEO

Good morning, Brady.

Brady Gailey -- KBW -- Analyst

Aaron, 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 fourth quarter, just as you have the full impact from the bank deals, any idea the magnitude of how much the margin could decline in 4Q?

Aaron Graft -- Vice Chairman and CEO

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 they grow, that'll 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, vis-a-vis the rest of our business.

Brady Gailey -- KBW -- Analyst

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 and talk about how competitive it is. They've seen lower yields in the mortgage warehouse business due to the competition. But maybe just an update on how you guys are thinking about the warehouse from here on out?

Daniel Karas -- Chief Lending Officer

Hi. Good morning, Brady. Its 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 downward earlier in the 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.

Brady Gailey -- KBW -- Analyst

And then, finally, from me, Aaron, I know you've talked about hitting this 180 ROA by the end of next year. But as you said, on a core adjusted basis, you almost hit it this quarter. Do you think we can see a 180 before year-end next year?

Aaron Graft -- Vice Chairman and CEO

Well, I don't know. I would remind you there is 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 240 pre-tax, 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'd 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 describe to be from a financial metric a perfect quarter or the ideal quarter we're looking for is a 1.8% ROA or better, non-performing 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 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 '19, 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 are very excited about where we go from here.

Brady Gailey -- KBW -- Analyst

Got it. Thanks, Aaron.

Operator

Our next question comes from Steve Moss with B Riley FBR. Please go ahead.

Zach Weiss -- B Riley FBR -- Analyst

Hey. Good morning, everybody. This is Zach Weiss filing 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 third quarter, you guys were guiding for about a $6 billion run rate of accounts receivable purchases and right on there, just curious how we should think about that moving forward?

Aaron Graft -- Vice Chairman and CEO

Yeah. It's a hard business to predict because you got two different things. What I view was our controllable is net client growth, because if we have a better mousetrap than everyone else in the market and if we are 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 a 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, on 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.

Zach Weiss -- B Riley FBR -- Analyst

Okay. Great. That's helpful. And then, if you could provide any commentary just how things are going with 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?

Aaron Graft -- Vice Chairman and CEO

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 onto 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 our competitor factoring companies use in order to process payments, handle 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 to take a large chunk of this market. That's my focus. And again, I think if we do that, whatever the value that you would extrapolate from that, I can't quantify for you now, but its 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.

Zach Weiss -- B Riley FBR -- Analyst

All right. Thank you very much.

Operator

Our next question comes from Matt Olney with Stephens. Please go ahead.

Matt Olney -- Stephens -- Analyst

Hey. Thanks. Good morning, guys.

Aaron Graft -- Vice Chairman and CEO

Good morning.

Matt Olney -- Stephens -- Analyst

Aaron, I want to go back to a credit quality and you mentioned NPAs, assets are now below that 1% target level. Remind me what's still in that bucket, legacy assets versus acquired assets, how much is ag versus non-ag, just trying get better feel for what's in there and what your expectations are as far as resolution?

Daniel Karas -- Chief Lending Officer

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 that 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 are just normal relationships that we're trying to exit.

Matt Olney -- Stephens -- Analyst

Okay. Thanks, Dan. And on the deposit growth, Aaron, you sound more confident about your ability to fund organic loan growth without any additional M&A. Am I reading this right, and if so, what are some of the channels you're having success on the deposit front?

Aaron Graft -- Vice Chairman and CEO

Yeah. Matt, look, so we think about the world, there's two 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 five states. We can drive people into those branches and drive deposit growth through rate and service. We are reticent to do that pre-emptively 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, 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, one or two acquisitions that are targeted toward improving our deposit franchise.

Matt Olney -- Stephens -- Analyst

Okay. Thanks guys.

Operator

Our next question comes from Gary Tenner with D.A. Davidson. Please go ahead.

Gary Tenner -- D.A. Davidson -- Analyst

Thanks. Good morning.

Aaron Graft -- Vice Chairman and CEO

Good morning.

Gary Tenner -- D.A. Davidson -- Analyst

Just want to ask a couple of questions. I guess, first just to clarify that the $1.1 million accrual for the payout of ICC, that was part of the 5.9 million of total transaction cost or is that over and above that?

Bryce Fowler -- Executive Vice President, Chief Financial Officer and Treasurer

This is Bryce. The accrual for the contingent payout was not part of the transaction costs. Transaction costs were total of 5.9 million. Those are all-in operating expenses, the accrual this quarter for the continued payout is -- there is a reduction of other non-interest income.

Gary Tenner -- D.A. Davidson -- Analyst

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 1.5 billion 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?

Bryce Fowler -- Executive Vice President, Chief Financial Officer and Treasurer

Absolutely correct.

Gary Tenner -- D.A. Davidson -- Analyst

Okay. All right. And then, just as it relates to the questions regarding M&A and deposits, as you think about what your map looks like on slide four, and where your Community Bank business is, any changes where you'd be targeting and maybe an update on your thoughts and plans for the Dallas market?

Aaron Graft -- Vice Chairman and CEO

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 million 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 -- 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 million branch with some very large customers in that branch, very different than the rest of our branch 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 in-market deal in Iowa or Illinois that fit within those footprints as they exist. And then we also remain open to looking at 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.

Gary Tenner -- D.A. Davidson -- Analyst

Thanks, Aaron. And then just as it relates to that and last question from me, in terms of the treasury management system upgrade, I'd imagine that's probably a little more slated toward the prospects of the Dallas customer base maybe then the rest of your customer base, but you talk about the timing and when you think you'd launch the new offering?

Aaron Graft -- Vice Chairman and CEO

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 '19, 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 am 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, there are very healthy businesses that can use treasury management services. So the volume opportunity is 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.

Gary Tenner -- D.A. Davidson -- Analyst

Great. Thanks very much.

Operator

(Operator Instructions) Our next question comes from Brett Rabatin with Piper Jaffray. Please go ahead.

Brett Rabatin -- Piper Jaffray -- Analyst

Hey, guys. Good morning.

Aaron Graft -- Vice Chairman and CEO

Good Morning.

Brett Rabatin -- Piper Jaffray -- Analyst

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?

Aaron Graft -- Vice Chairman and CEO

Yeah. So, let me answer the first question. Look that 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 one, 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 common 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 counter-parties, those account debtors which do most of the shipping in the 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. 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 happy to be diversified in the way we are, both geographically and by product type.

Brett Rabatin -- Piper Jaffray -- Analyst

Okay. Fair enough. And then, wanted to ask, just you've talked about TriumphPay and the potential for it, but the expectation 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 are obviously going to be gathering quite a bit of data and then there's also other potential ancillary things you could be doing with more fuel cards, that kind of stuff. What's longer term potential for that?

Aaron Graft -- Vice Chairman and CEO

I think it's at least $175 billion 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 billion 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, first and foremost, with delivering a product that makes the life of the third-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 a 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 billion market using our platform, whether they factor with us, don't factor with us, whether they QuickPay with us, don't QuickPay, 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 are 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 onto 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.

Brett Rabatin -- Piper Jaffray -- Analyst

Okay. Great. Thanks for the color.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Aaron Graft for any closing remarks.

Aaron Graft -- Vice Chairman and CEO

Thank you all for joining us today. I hope you have a great week.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Duration: 47 minutes

Call participants:

Luke Wyse -- Senior Vice President, Finance & Investor Relations

Aaron Graft -- Vice Chairman and CEO

Jared Shaw -- Wells Fargo Securities -- Analyst

Brad Milsaps -- Sandler O'Neill -- Analyst

Bryce Fowler -- Executive Vice President, Chief Financial Officer and Treasurer

Brady Gailey -- KBW -- Analyst

Daniel Karas -- Chief Lending Officer

Zach Weiss -- B Riley FBR -- Analyst

Matt Olney -- Stephens -- Analyst

Gary Tenner -- D.A. Davidson -- Analyst

Brett Rabatin -- Piper Jaffray -- Analyst

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