Earnings Call Transcript - TFIN Q4 2022

Operator, Operator

Good morning, it's 7 o'clock sharp. Thank you for being with us. It's time for our Fourth Quarter Earnings Call. Since the last time we spoke, we rebranded the company to Triumph Financial and changed our ticker to TFIN. As a result, some of the backgrounds and logos may be a little different today. But it's all part of aligning where we're going with what we're doing. We're joined this morning by Tim Valdez, President of Triumph; Brad Voss, our Chief Financial Officer of Triumph Financial; Aaron Graft, the Chief Executive Officer of Triumph Financial; Melissa Forman, President of TriumphPay, and Todd Ritterbusch, President of TBK Bank. I'd like to open today by thanking you for the feedback following the call last quarter. It's so helpful to hear from you. Most of your thoughts were overwhelmingly positive. However, this is a new format for us. So we'll continue to tweak things here and there as we go forward. So let's get to the business of the day. Triumph Financial had a solid quarter, and while there are freight headwinds, we are also seeing a lot of opportunity. Last evening, we published our quarterly shareholder letter. That letter and our quarterly results will form the basis of our call today. However, before we get started, I would like to remind you that this conversation 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 statements. For details, please refer to the safe harbor statement in our shareholder letter published last evening. All comments made during today's call are subject to that safe harbor statement. With that, I'd like to turn the call over to Aaron for a welcome and to kick off our Q&A session. Aaron?

Aaron Graft, CEO

Thank you, Luke. Good morning, everyone, and thank you for joining us. I have just a few comments before we open the floor for questions. First, I'd like to welcome Tim Valdez to our call. I've known Tim for several years, and he has been with Triumph for the last year and a half. We are very grateful to have him leading our factoring segment at Triumph. Before we proceed to questions, I want to address some points from the notes published last evening regarding expense growth throughout the year. It's important for analysts and investors to understand that a significant portion of our anticipated expense growth is linked to TriumphPay. As mentioned in our letter, we expect TriumphPay’s margins to improve by 50% this year. This means that if we do see an increase in expenses, it should be paired with revenue growth that exceeds any expenses we report in that segment. Additionally, there are other expenses across the organization related to inflation and reinvestment, but any expense growth will come with corresponding revenue growth. Two other key points from the letter that investors should not overlook are regarding network transactions, which we previously referred to as conforming transactions. We have successfully grown from 0 to over $1 billion in network transactions in just one year since January 11, 2022. This is a significant achievement. I am also pleased to share that TriumphPay was self-funding this quarter, which has been part of our long-term strategy. In the current rate environment, it's encouraging to see that business not only generates float to support its own activities but also contributes funds back to the parent company. With these opening remarks concluded, we are now ready to take questions from analysts and investors.

Operator, Operator

Our first question comes from Jared Shaw from Wells Fargo.

Jared Shaw, Analyst

Could you clarify how we should view the ramp-up of expenses throughout 2023? Specifically, how much of the expenses will be invested in advance of revenue versus how much will be a direct response to increased revenue? Additionally, can you provide details on the types of expenses, such as whether they relate to hiring, compensation, or technology, and how much of that will occur prior to generating revenue?

Aaron Graft, CEO

I'll start with that generally, and then Brad can add his specific thoughts. The expense is going to largely mirror the expense that all of Triumph has, which roughly 60% is going to be people. I mean it's not going to materially deviate from that. I think you should expect to see the expense growth weighted towards the back half of the year rather than on a linear quarter-by-quarter basis. Brad, anything else you would add to that?

Brad Voss, CFO

I would say that we do have projections for the first quarter already in the letter, and that's relatively flat relative to where we are today. So I would agree, it will be weighted toward the back half of the year. We do compensation adjustments for our team in March. So you'll see a little bit of a lift there in the second quarter. Beyond that, it will be heavily dependent on the pace at which the revenue comes in.

Jared Shaw, Analyst

Okay. Aaron, in the letter, you mentioned that net earnings growth may be limited for a while due to changes in transportation costs. Can you clarify whether this growth is indeed muted? How should we interpret your comment regarding earnings in relation to the overall trends in transportation costs?

Aaron Graft, CEO

Sure. That comment, frankly, should be in every earnings presentation we do in a business like ours, which is exposed to a cyclical business like transportation. So the most profitable thing we do, and the most profitable thing we've done for a long period of time has been our factoring business. I have no idea. I don't think Tim has any idea. I'm not sure anyone in the industry has an idea of what the freight market is going to do going forward. What we're seeing right now is some strength off of the November lows. And our hope is that will continue. But it is just that it is a hope. So if the freight market weakens as has been projected, and if it weakens materially, you should expect we will be profitable. We've built this business to not live and die on transportation alone. And so I can't foresee any scenario in which we are not a profitable enterprise. But given that the transportation factoring contributes to our earnings, as we've said, a $100 move in invoice prices is generally tied to $10 million of pretax income. It's very difficult for us to put a specific point on where we will be at the end of the year. So we're excited about the strength we're seeing right now. We have no idea whether that strength will continue. And whatever may come, we're going to be profitable as an enterprise. And if a freight recession does get worse, then we're going to use our balance sheet position, our market position to take advantage of that even if it is negative for short-term earnings.

Jared Shaw, Analyst

Okay. Finally, I wanted to ask about your low deposit funding costs. You've managed to keep them down effectively. How have you achieved this? Also, why not consider expanding the balance sheet? Even if your deposit costs were to double, wouldn’t it make sense to increase the balance sheet to enhance your incremental net interest income earnings in the near term while you have this funding advantage?

Brad Voss, CFO

I'll take that one. Thank you for the question. What we haven't done with respect to deposits is we have not raised published rates, and we haven't put out any special promotions related to high rate CDs or anything else. What we have done is we've managed our deposit pricing on an exception basis. So every day, I get 10 to 15 requests from the field, and we have to decide on the basis of that relationship, whether it makes sense to make that exception or not. And that's how we've managed our pricing through the quarter. That's how we plan to manage it going forward. And yes, we are out in the market looking for more deposits every day.

Aaron Graft, CEO

And Todd, the other part of the question was related to growth in the bank as opportunities present themselves. Maybe you could talk about what you're seeing there?

Todd Ritterbusch, President of TBK Bank

Yes. So obviously, we're not constrained. We can grow where we'd like to grow. We are seeing more attractive risk-adjusted returns in some lending areas than we've seen in some time. And so we're going to pursue those. And you will see more growth in lending than you've seen in the past.

Operator, Operator

Our next question comes from Brady Gailey from KBW.

Brady Gailey, Analyst

I wanted to begin by discussing the potential long-term profitability scenario for Triumph and TPay, as it has been some time since we addressed this topic. It may seem like this is a few years down the line, but how do you assess the maximum EPS potential this company could achieve? Additionally, I understand this could vary widely, but what are the key factors that could impact that ultimate EPS potential?

Aaron Graft, CEO

Yes, that’s a great question. Let’s break it down by each of the three parts of the business. Starting with the community bank, we have been careful in our approach over the past few years. As noted in our letter, we did not believe the risk-adjusted opportunities justified growth in our balance sheet. This year, we believe they do. We are confident in our cost of funds, even though we anticipate an increase. We are also seeing the capability to price community bank loans at a level that meets our internal return on equity requirements, which are notably higher than most banks. If you consider the Community Bank in isolation, it is expected to generate more than a 1% return on assets. Moving on to our factoring segment, Triumph, which you have historical data on, has consistently produced a pretax return on assets between 5% and 6.5%. The variation within that range correlates with the transportation market performance we discussed on Jared's call. We exert equal effort in acquiring a $1,600 invoice as we do with a $2,200 invoice. In a normalized scenario, that segment is likely to yield roughly double the return on assets compared to the community bank, if not more. When combining these two segments, it aligns with the expectations I set forth in the second quarter of 2019. I anticipated that our overall business would achieve a return on assets above 2% and a return on equity of 20%. The basis for those figures was the assumption that factoring would constitute 40% of our loan portfolio while the remaining community bank portfolio performs well, allowing us to easily surpass those projections. The reason we achieved strong results but fell short of those ambitious targets was due to our decision to reinvest in TriumphPay. If TriumphPay were to break even as a segment, we would be much closer to that 2% return on assets. However, our aspiration for TriumphPay extends beyond merely breaking even; we aim to achieve operating margins reflective of a payments network or software as a service business. If Triumph continues to perform consistently as it has, alongside the community bank maintaining its historical performance and addressing the opportunities currently in front of us while achieving TriumphPay's long-term objectives, we should rank at the upper echelon of our competitive peer set regarding returns to shareholders on both return on assets and return on equity.

Brady Gailey, Analyst

All right. What could the very top look like in terms of specific ROA or ROCE numbers?

Aaron Graft, CEO

I think if I were to provide that projection right now, Brad Voss might react strongly because it's looking ahead. However, I would say if we take into account TriumphPay achieving its goals for EBITDA margins, it should exceed the targets we set back in the second quarter of 2019. Specifically, it should be above 2% ROA and 20% ROE, assuming all three segments of our business are performing at their best.

Brady Gailey, Analyst

If you examine the asset base, it was nearly $6 billion this time last year, and now it has decreased to around $5.3 billion. If this decline continues, how should we consider the future of the asset base?

Aaron Graft, CEO

The first thing to understand is that we don’t measure ourselves by the size of our asset base; instead, we focus on creating durable profitability. Our asset base in three years could be lower, and if it’s larger, it will be due to our ability to generate operating leverage through growth. What matters more to me is the nature of the income generated from that asset base. I'm particularly focused on TriumphPay increasing its float significantly and generating interest income by meeting the borrowing needs of some of our clients. I'm even more interested in it generating fee income as network transactions grow. For Triumph Business Capital, which is approximately 15% of the transportation factoring market, our goal isn’t to dominate that market, but to be a significant player within it. We want the entire market to succeed because it benefits TriumphPay. As that market grows, we can grow alongside it, but I don’t expect significant asset growth in our factoring segment. As for our Community Bank segment, I'm pleased that the President, Todd Ritterbusch, can engage in deposit pricing exceptions because we're small enough to be close to our customers. I doubt we would maintain that connection at $15 billion. Therefore, we don’t aim to grow the balance sheet; instead, we want to become more profitable and defensible, which is what drives us.

Brady Gailey, Analyst

Okay. And then just the last question for me. It feels like you guys are nowhere close to topping $10 billion in assets, if anything, you're headed in the direction. But does the business model work over $10 billion in assets? I know Durbin comes into play and you're growing interchange. What's the dynamic or the impact if Triumph were to go over $10 billion? Or is that even a possibility?

Aaron Graft, CEO

As long as I hold this position, we will not exceed $10 billion in assets. I don't believe we can generate more than that. It doesn't make sense to go over $10 billion if we can achieve top 1% profitability with less. The business model of TriumphPay and the payments network could function in a much larger organization, but as it currently stands, I don't foresee us getting anywhere close to that figure.

Brady Gailey, Analyst

But like say Triumph sells one day to a bank over $10 billion, is the profitability diminished because it did cross that threshold? Like is there a big earnings headwind over $10 billion in assets for TFIN?

Aaron Graft, CEO

No, because the nature of factoring wouldn't change, that's not anything affected by the Durbin Amendment. The Community Bank wouldn't change other than you would add on a whole bunch of regulation. And the nature of the fees we generate inside of TriumphPay would not be materially affected by the Durbin Amendment. That's not how it's constructed. It's a subscription service we provide to factors, freight brokers and carriers. And so that can live in any size of bank.

Operator, Operator

Our next question comes from Gary Tenner from D.A. Davidson.

Gary Tenner, Analyst

I have a couple of follow-up questions. I wanted to ask about the commentary in the letter regarding enhancing technology usage at TBC. If you shift to using more technology at TBC, how quickly can you implement that? Is there existing infrastructure at TPay that you could leverage to help reduce costs, considering TBC has reduced its headcount, especially if freight were to slow down significantly?

Tim Valdez, President of TriumphPay

So for my position at TPay prior to joining the factoring division, I had really good visibility into the technology that was available on the platform. And I see that as a tremendous boost to not only the industry but to what we do today.

Aaron Graft, CEO

Yes. Echoing what Tim mentioned, one of the benefits we've observed is evident in our deposit portfolio, where we haven't faced the same level of beta. When growth isn't excessively rapid, we can focus on achieving quality growth. Tim and I have discussed that for Triumph, our factoring segment, it’s less critical to consistently deliver increasing numbers or double-digit growth. What matters more is enhancing efficiency and profitability of our current operations. This is primarily driven by our integration with TriumphPay, along with some initiatives Tim is implementing to improve customer service. While we can attract growth by undercutting the market on pricing, our priority is to protect margins as much as possible and enhance the business through efficiency. This means we aim for less growth in full-time equivalents as overall volume rises, which will ultimately lead to greater profitability in that segment.

Gary Tenner, Analyst

I guess to ask it again in a different way, maybe, Aaron, you know I have talked in the past about the legacy factoring business being more of an earnings risk kind of business than a credit risk type of business. So as you think about trade slowing, is there a way to kind of quickly apply anything that would be an offset to that earnings risk issue in a freight slowdown? Or is that nothing you would be able to do that?

Aaron Graft, CEO

No, I understand your question better, Gary. I don't think that would be a wise decision. About 65% of our expenses in the factoring segment are related to our employees, and we have many exceptional people who have a strong grasp of our systems and the industry. Making cuts to such talented individuals solely due to some challenges in freight seems like the wrong approach. While it's always important to address underperformance, making cuts for the sake of reacting to short-term obstacles in freight isn't the right way to go. We aim to attract the best talent available, and despite any temporary slowdowns in freight, we are committed to improving efficiency by incorporating more technology into processes that were previously handled by people. Over the long term, this will certainly enhance the efficiency of our business. While we are making significant investments, we will not take actions that could have long-term negative effects simply because of a slight downturn in freight.

Gary Tenner, Analyst

Appreciate that. And then sort of an adjunct to that, have you seen any signs at this point? And maybe it's still early in the cycle, but obviously, a bit of a slowdown in the fourth quarter. Any signs of changes in the kind of collection time on invoices purchased in the factoring business. So I noticed the yield on factor receivables was down a little bit in the quarter. I don't know if that's maybe an indicator that you're seeing some extension over the collections?

Aaron Graft, CEO

At this point, we have not seen that slowdown. As a matter of fact, we've seen an improvement. We do get an opportunity to collect more in January than we do in December, the volume drops off and our collection ratio does improve. But we have not seen an erosion of how our customers pay.

Gary Tenner, Analyst

And then last question for me. As you were talking, Todd, about lending opportunities. Is this where you're seeing better risk-adjusted returns? Is this traditional community bank lending? Is it the liquid credit group? Where are you really looking at those opportunities?

Todd Ritterbusch, President of TBK Bank

Yes, it is more of the traditional lending opportunities. So 3 or 4 years ago, we shied away from traditional commercial real estate loans. We just didn't feel that the risk-adjusted returns were attractive over the term that we are required to provide. Now we see more attractive risk-adjusted returns there, and we are looking for some term fixed rate financing. So we have to be careful in that space. We will be careful in that space, but we are seeing some interesting opportunities.

Operator, Operator

Our next question comes from Matt Olney from Stephens.

Matt Olney, Analyst

Aaron, thanks for all the comments here in that letter. I always appreciate your insights there. I want to dig more into TPay and some of the updated goals that are out there. And I appreciate the EBITDA margin guidance you gave exiting '23, I think that's going to help out our forecast. I want to check in on some other TPay goals that we've talked about. The $40 billion of annualized payments exiting '23. I think last time we spoke, you had pretty good line of sight based on some onboarding process that you saw in the coming months. Is this still a reasonable goal that we should assume even with the headwinds in the industry?

Melissa Forman, President of TriumphPay

Yes. Matt, I would say, it's still our goal. We still have that path in place and are looking for some of those Tier 1s that we talked about in the last quarter being coming on board in the first half of this year. So we're tracking right along.

Aaron Graft, CEO

Matt, I want to emphasize the excellent work that Melissa and the team are doing with the pipeline and integrations, which take a significant amount of time. Their efforts and quality of work are truly impressive. Regarding the specific figure, whether it will reach $40 billion by the end of the year depends on the size of the invoices, which will determine the exact amount. Our primary focus is to bring in more Tier 1 brokers, as this enhances the strength of the network, which is critical for long-term success. While we still aim for around $40 billion, that specific figure is closely linked to market conditions at year-end.

Matt Olney, Analyst

Yes. Okay. Thanks for the commentary. Definitely appreciate it's a tough number to give specific on. But I guess the other number we've talked about in the past, exiting '24, well, I think was more of a stretch goal in the past of $75 billion of payments. I guess my assumption is that it would still require some additional Tier 1s to sign up that are not on the list today or have not signed on and are not being integrated yet. Any additional thoughts on that goal exiting '24?

Aaron Graft, CEO

I'll start, and then she can provide more detail because she has a better understanding of the situation. The important aspect of that goal is that it was linked to a specific figure: $75 billion in volume and $100 million in revenue. We are primarily focused on the revenue aspect of that equation. One positive trend we’re noticing is that we are monetizing the network at a higher rate per million than we did a few years ago, which puts us in a good position to achieve our revenue targets, even if we don't reach the volume we desire. What else would you add, Melissa?

Melissa Forman, President of TriumphPay

That's exactly what I was going to speak to, Aaron, that's perfect.

Matt Olney, Analyst

Okay. Lastly, in the payment section of that letter, you mentioned a number of freight brokers and factors in the TPay network. It appears we have made little progress over the last few quarters. Can you share your thoughts on the momentum of TPay and why that isn’t reflected in that specific disclosure?

Melissa Forman, President of TriumphPay

Yes, I can take that, Aaron. So the volatility you're seeing in that number, specifically on the broker side, has to do with we had 3 brokers that were inactive during the quarter, doesn't mean that they're gone. And we had another 1 that consolidated with another 1 of our clients. So you're seeing some movement specifically just through those factors.

Operator, Operator

Our next question comes from Brad Milsaps from Piper Sandler Company.

Bradley Milsaps, Analyst

Aaron, I just wanted to go back to the EBITDA margin improvement you expect a year from now exiting '23, it certainly implies at least a minimum of doubling of revenue. Does that come more from charging existing users more on the platform? Or from, as Melissa mentioned that more of the Tier 1 brokers kicking in. And do you expect that to manifest itself more in fee revenues or net interest income? In the letter, you alluded to increasing your fee revenue growth. Just wanted to get a sense of kind of how you see that playing out over the next year?

Brad Voss, CFO

Melissa is the expert on this. So we'll let her take this question.

Melissa Forman, President of TriumphPay

Yes. Thank you, Brad. So I would say it's both. So we have given our network away for free for several years and allowed our customers to see the value of it. So we're able to now come back to that and be able to charge those fees associated with the value that they're getting. So it's new business, obviously, that's our goal to keep going out and gaining market share, but it's also the repricing of some of the business that we have on the network today.

Brad Voss, CFO

And it is largely fees.

Aaron Graft, CEO

To elaborate on that, if we consider last year or two years ago when borrowing costs were negligible and leverage was widely available, it made sense to prioritize fee income growth because many could access leverage in the market. Now, as we evaluate our current position and TriumphPay's journey, our objective remains focused on fee income growth. Network transactions represent the future. If we can leverage our balance sheet to support client growth, it will reflect as net interest income. The yields generated from that net interest income are notably high, making it a combination of both aspects. We are a bank for a reason, and if being a bank enables us to assist our clients and secure business, we will utilize that advantage.

Bradley Milsaps, Analyst

I don't know if this is the right way to measure it, Aaron. But I look at TPay revenue over the invoices that you're processing, it's been running about 12 or 13 basis points. Should we be pushing that number up based on the comments you made as you start charging work? And if so, what's the right percentage to think about?

Aaron Graft, CEO

The answer to your question is that the historical revenue per transaction is significantly lower than our current pricing strategy. It's important to note that we monetize our services in various ways, which complicates this question. However, the revenue we anticipate generating in the future will be considerably higher compared to our historical performance. I won’t provide a specific percentage at this moment because I want to assess the volume that Melissa and her team are currently handling before providing clarity. To summarize, if you're estimating 12 to 13 basis points, that figure is low compared to our expectations for driving business growth and the new contracts we are securing.

Bradley Milsaps, Analyst

Okay. And then maybe finally on capital. You've talked a lot in the past about the excess capital you have. You don't need a lot of capital to run your business. Is it safe to assume the accelerated share repurchase will all be completed in calendar year '23? And then secondly, you've got some high-cost trust preferreds out there. I know they're on the books at a discount, but I was just curious, thoughts on taking those out. And then maybe bigger picture, why you've been so aggressive with the buyback? It seems there are a lot of unknowns. You don't know where transportation is at and none of us do. Again, I know you don't need a lot of capital, but why are you so focused on pushing so much back right now when there are many unknowns out there? Who knows what opportunities might be coming? And I get that you really like your stocks undervalued based on where it's going. But it just seems like you're really focused on pushing a lot out, and just kind of curious your thinking there?

Brad Voss, CFO

That $70 million accelerated share repurchase program that we talked about will certainly be done in this calendar year, probably by the end of the second quarter. As far as our capital base overall and our desire to shrink the share base, we believe that what we're building with our payments business and the way that it all fits together is not fully reflected in our current share price. So as long as that remains true, we would love to continue to retire our own shares with some of that excess capital.

Aaron Graft, CEO

I want to emphasize that we are not approaching share repurchases lightly. The discipline we've demonstrated in our balance sheet over the past few years should be evident. Regardless of the repurchase opportunities available, we maintain significant buffers above any regulatory thresholds due to our experience with a failing bank we acquired in 2010. I have no desire to relive that situation. We will always prioritize having a margin of safety. Moreover, the uncertainty present is what creates opportunity; if we waited until conditions were certain, our stock price would likely be much higher than it is today. We plan to be thoughtful about our approach and won't rush in. Once this $70 million accelerated share repurchase program is completed, we will consider returning to the market if our share prices don't reflect the long-term intrinsic value of our operations. We do not pay a dividend, we won't grow just for growth's sake, and we will only pursue mergers and acquisitions with a clear purpose. Given our buffers above necessary thresholds, we believe returning capital to shareholders and reducing our share count is a wise use of our funds.

Bradley Milsaps, Analyst

Great. Any thoughts on taking out some of those trust preferreds? I think your cost was 9% in the quarter? That's my final question.

Brad Voss, CFO

Brad, those are floating rate trust preferreds, as you know. We're not going to be taking those out anytime soon. They provide valuable capital to us. It would be a hit to common equity Tier 1 capital to take those out. They're not going anywhere.

Operator, Operator

Our next question comes from Julian Tunis from Raymond James.

Unknown Analyst, Analyst

You previously guided to Triumph Business Capital 1Q '23 volume being down 10% quarter-over-quarter due to seasonality. Given you're starting to see signs of strength in the market and then with a relatively steep decline in 4Q volumes, do you still expect that to happen, that 10% decline?

Aaron Graft, CEO

The interesting aspect of our business is its dynamic nature. Looking ahead, predicting performance is quite challenging. However, we analyze the average invoice amount and its impact on our carriers. As mentioned in the shareholder letter, we are establishing a new baseline. Therefore, we do not foresee any further decline, but we cannot foresee the future.

Brad Voss, CFO

It's based on two factors: the average invoice size and utilization. We've established a baseline that we don't believe carriers will drop below, as it wouldn't be economically viable for them. The challenging part for us is predicting utilization. Currently, it's slightly better than our expectations, but that could change at any moment. That's the best prediction we can provide for now.

Unknown Analyst, Analyst

Understood. And then kind of with respect to TPay and just kind of looking at what you can control, if invoice prices were to remain static at, say, current rates at $2,000, what type of transaction volume would you need to be EBITDA breakeven? And do you still hope to achieve that in 2024?

Melissa Forman, President of TriumphPay

I can't calculate the exact transaction volume off the top of my head right now. However, I can say that we expect the average invoice price to vary. It's important to note that there is a significant difference between TriumphPay's average invoice and that of Triumph factoring. For TriumphPay, our average is $1,250 because we handle transactions from our brokers that are all-inclusive. In contrast, factoring tends to focus more on full truck loads and spot market transactions, which typically result in higher invoices. We have a mix of contract and spot transactions, and due to the volatility we experience, predictions are challenging. Nonetheless, the key takeaway is to concentrate on improving the EBITDA margin, which we believe will align with increased revenue and slower expense growth. Would you like to add anything?

Brad Voss, CFO

Well, the only thing I’d emphasize is that TriumphPay does many things. It's not just one-sided. This offering includes audit and payment services. The most valuable aspect of what we do is network transactions. We highlighted that we've processed $1 billion this year in network transactions, which generates the most revenue for us. It’s not simply about the volume of payments; it's about the nature of our engagement with network participants. If we can grow network transactions faster than other areas, we can reach our revenue goals much sooner than the overall volume. That's why we’re bringing this to your attention. We're particularly excited that, despite a slowing freight market, our network transactions grew nearly 9% quarter-over-quarter. This indicates that factoring companies and other payers recognize the value in what we provide.

Unknown Analyst, Analyst

If I could actually go back to those fees you were talking about, in light of the current market, are you seeing either brokers or factoring companies being more receptive to your value proposition?

Melissa Forman, President of TriumphPay

Yes, I would say that during recessionary periods, it is essential for everyone to seek operational efficiencies. As they do this, they are turning to technology to address those challenges. We believe that TriumphPay is the solution. The opportunities are present, discussions are ongoing, and we continue to grow. We are excited about that and the prospects we have in front of us.

Unknown Analyst, Analyst

Got it. And then if I could just sneak in 1 last one. Your commentary and then earlier on this call, you talked about your expectation for fee income to represent a larger share of revenue. Well, I understand a lot of this is going to come from TPay. If we're 1 to 2 years out, what does that revenue composition look like for you? What would you consider to be a success?

Aaron Graft, CEO

If we're talking in that short of order, I would consider a success just seeing that number...

Unknown Analyst, Analyst

Just any range that you think it would be appropriate?

Aaron Graft, CEO

Good question. I'm not hesitating due to fear of making a prediction, but I need to know the size of the bank's balance sheet at that time because that will be a factor. We have established that we're not here to significantly grow our bank or factoring balance sheets. Our focus is on efficiency and smart growth. If we assume that there won't be major changes in either segment, I would suggest looking at TriumphPay's current revenue run rate and our projections for it. This revenue currently includes a mix of net interest income and fee income. We have indicated that we want growth primarily in network transactions, which falls under fee income. Considering all these factors, I think we could still see a single-digit increase. If it leans towards the higher end of single-digit growth, I would see that as a success in our long-term journey. We're approaching an inflection point where TriumphPay becomes a valuable business. We need to consider how our overall balance sheet comes together to support this investment. Eventually, TriumphPay will contribute positively to our operations, just like our other segments. As we think about our revenue generation, we recognize that while revenue is important, profitability is even better, and defensible profitability is the ultimate goal. It’s a journey, and I'm aiming to provide you with a clear perspective on all the relevant factors at play in relation to your question. That's my best attempt at an answer.

Operator, Operator

And there are no further questions on this line at this time. So we'll now move over to the phone line for further Q&A. Thank you. Our first question comes from Paul Ghosh.

Unknown Analyst, Analyst

My question is related to TPay pricing. In one way to think about it is you have a lot of business on there in cohorts from a year ago or more and some today and some are using maybe 1 of the services, payment audit or network. And 1 way to think about it is the backlog, the first people on the network are priced 1 way and new people are being priced another way, different mixes. What is kind of the effective kind of yield or take rate on someone is do we network transaction, payment, audit or basically the whole value provided by the network? What kind of take rate are you getting from that kind of customer you're adding today?

Melissa Forman, President of TriumphPay

Yes, it varies based on the size of the customer and the volume they are processing. Additionally, if they utilize all available services, that influences the outcome as well. Currently, we see rates ranging from around 13 basis points up to 25 to 30. It's difficult to provide a definitive answer since it depends on the specific situation, the relationship, and the level of integration they are pursuing along with the services they are utilizing from the network. Keep in mind that many large brokers have their own proprietary systems, which means they may integrate and utilize services differently, leading to varying payment structures. Each of these situations and discussions we engage in is typically tailored, and as a result, the outcomes can differ significantly.

Aaron Graft, CEO

To clarify, when a customer signs up for audit or payments, they do not sign up for the network. If both parties in a transaction are enabled for audit and payment, it automatically qualifies as a network transaction. The expected revenue from the payor side, such as freight brokers or shippers, ranges from $1,000 to $1,600 per million, with the possibility of increasing based on various factors. It's important to note that the payor typically bears less of the economic burden compared to the payee, who can achieve greater efficiency. For network transactions, the revenue expectation is around $3.50, which is subject to change based on pricing and size. This shows a significant shift compared to three years ago, when we did not even recognize these as bad debt. We are learning as we progress, and is there anything else you would like to add?

Melissa Forman, President of TriumphPay

I would just say that as we have engaged with our payee customers regarding the addition of network transactions, they are very receptive. They recognize the value. We have validated this test and understand that TriumphPay network transactions are important to those involved in the transaction. As a result, we are receiving positive feedback on the term sheets we are currently presenting.

Operator, Operator

And at this time, we have no further questions from the phone line.

Aaron Graft, CEO

Thank you all for joining us. Have a great day, and we'll see you soon.

Operator, Operator

This concludes today's call. Thank you for your participation. You may disconnect at any time.