Earnings Call Transcript - TFIN Q1 2022

Operator, Operator

Hello, everyone and welcome to the Triumph Bancorp's First Quarter 2022 Earnings Call. My name is Emma and I will be coordinating your call today. I will now pass the call over to the Senior Vice President of Investor Relations, Luke Wyse, to begin. Please go ahead, Luke.

Luke Wyse, Senior Vice President of Investor Relations

Good morning. Welcome to the Triumph Bancorp conference call to discuss our first quarter 2022 financial results. Before we get started, I would like to remind you that this presentation may include forward-looking statements. The 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. If you're logged into our webcast, please refer to the slide presentation available online including our Safe Harbor statement on Slide 2. For those joining by phone, please note that the safe harbor statement and presentation are available on our website at www.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 Brad Voss; Todd Ritterbusch, President of TBK Bank, Geoff Brenner CEO of Triumph Business Capital; and Melissa Forman, our newly appointed President of TriumphPay. After the presentation, we will be happy to address any questions you may have. At this time, I'd like to turn the call over to Aaron.

Aaron Graft, CEO

Thank you, Luke. Good morning. For the first quarter, we earned net income to common stockholders of $23.5 million or $0.93 per diluted share. This was a very good quarter for TBK. We saw the typical seasonality that accompanies the first quarter of every year. However, in this case, despite a modest pullback in volume, invoice prices remained elevated such that purchases at Triumph's business capital were flat with the fourth quarter of 2021. TriumphPay saw the number of invoices decline only slightly while the dollar value of invoices paid continued to climb. Overall, I am incredibly proud of this team. We control the things we can control, executing on those items with distinction and continue to make investments in the unique opportunity before us. In the first quarter, we announced the first conforming transactions in our TriumphPay platform. As a reminder, a conforming transaction is a payment from a fully enabled TriumphPay payor, either a freight broker or a shipper to a fully-enabled TriumphPay payee, either a carrier or their factoring company. Parties on both sides of the transaction are connected via API with TriumphPay, which largely automates the process. What began with a beta test of 2 brokers and 5 factors in mid-January is now 39 brokers and 17 factors, including 5 of the 20 largest factors and 2 of the 30 largest brokers. While volumes are not material from a financial perspective, the progress forward seems to validate our thesis that this is a solution the market desires. From January 11 through March 31, we processed 53,000 conforming transactions totaling 132 million in freight spent. Conforming payment volume continues to scale rapidly with February and March volumes of 43 million and 86 million respectively. As of the end of the quarter, we were processing 1,600 invoices a day or about 3.8 million in payment volume as conforming transactions. In total, during the first quarter, TriumphPay processed approximately 4 million invoices paying just under 127,000 distinct carriers. We have now paid 168,000 distinct carriers in the last 12 months. First quarter payments processed totaled approximately $5.7 billion and an 8.8% increase over the prior quarter and a 147.7% increase from Q1 2021. TriumphPay's annual run rate payment volume exiting the quarter was over $24 billion. We listed as one of our metrics that matter, the continued growth in both factors and brokers that make up both sides of the network. As a reminder, the sales cycle for Tier 1 brokers can be multiple years. We only announced Tier 1 additions by name when they are integrated and we are providing services on their behalf. In the first quarter, we added another three factoring companies as TriumphPay audit clients bringing the total number to 72. We also continued to add brokers to the network, bringing our total count of freight brokers to 558 who are TriumphPay customers, TriumphPay audit customers or both. This number is down four brokers since our announcement earlier in March because we made some minor system adjustments to consolidate customer entity reporting. This approach is more consistent with how we think about our customers and prevents a broker's subsidiary from being reported as a separate customer even if it operates as such. We think this is a more accurate way to look at things. As a result of this move, 28 brokers were removed from the broker count but they didn't actually leave the ecosystem. These reductions were offset by 27 new broker additions. Those changes, along with the removal of some brokers due to acquisitions and the consolidation, also affected counts for the quarter. Of the 27 brokers added in the corner, all were Tier 2s, Tier 3s, and Tier 4s. Seven other brokers were integrated on Triumph payments, 14 on audit, and 6 on both payments and audit. Overall, we have three factors and 44 brokers currently in the integration queue including one Tier 1 factor and four Tier 1 brokers with expected go-lives over the next three quarters. Every quarter we discuss how many distinct carriers we paid in the last quarter and trailing 12 months or since inception. Another important carrier number is the number of registered carriers on the network. These are carriers that have claimed their profile and TriumphPay and are now fully integrated for payments, paperwork, and all the benefits of the network. We added 15,000 new registered carriers in the first quarter, bringing the total number to just over 106,000 carriers who have claimed their profile on the TriumphPay network. Triumph business count also had a very strong quarter. Average purchases per day exceeded 60 million again for the quarter and the dollar volume of invoices purchased was $4.04 billion, a 62.2% increase over the first quarter of 2021. That's an annualized run rate of approximately 16.1 billion in purchases. Average transportation invoice sizes were $2,401 for the quarter, up $110 from Q4 of 2021. Triumph business capital purchased approximately 1.6 million invoices, down just 3.9% from the prior quarter and a 34.9% increase over the first quarter of 2021. Triumph business capital ended the quarter with 1.67 billion in accounts receivable and receivables held for sale, a 48.9% increase over the first quarter of 2021. This team just continues to surpass expectations achieving results that even without the benefit of strong invoice prices continue to break previous internal records. There's been a lot written and said over the last few weeks about an imminent freight recession. Our outlook is not as negative as the prevailing narrative in the media. Indeed, the market has rationalized as anyone would expect. But consider this fact, our April month-to-date average transportation invoice size is approximately $2,300. That threshold of $2,300 per invoice has only been exceeded in four individual months since 2007. We are not economists but we do closely follow several key market indicators in the sector in addition to our own internal statistics. What our data shows is a gradual drop-off from historic rates per mile offset by rising fuel costs. There has not been a significant drop-off in freight tonnage. At Triumph business capital, we have seen trucking clients adjust to small rate adjustments on a downward curve. But the carnage some are predicting typically only occurs when a recession dramatically and swiftly reduces tonnage which leaves trucks parked. We do not see any sign of that in the near future. In my opinion, the media has seized on one side of a narrative to drive clicks and the market has just followed along. Regardless of the direction of freight, our job is to serve our customers in good times and in recessionary times. We have to be nimble enough to keep the business when everyone wants in and wise enough to structure our deals to weather the inevitable headwinds. Our history shows we know how to do this well and we plan to continue that trend. Our revenue may fluctuate with the transportation market but we are well prepared to handle a slowdown in trucking. One benefit of a slowdown in the trucking market is a heightened focus on the bottom line among our prospects. When margins are thin, people have to look for every advantage. The promise of TriumphPay is to save our customers more than they pay us to use it. Getting the market's attention is easier when the tide goes out of it and it's not just a race to cover loads or buy invoices. Thus, I expect any market weakness to create opportunities for us. Our focus doesn't change with short-term moves in our stock price or the transportation market. We are building something that will benefit everyone. It is our primary mission and we will accomplish it. Last quarter, I offered expectations on Q1 expenses at about $80 million excluding any strategic equity grant adjustments and we were just short of that estimate. We currently expect Q2 expenses of about $85 million, inclusive of expenses related to the disposal group as we continue to invest in the opportunity we see in front of us. Finally, let's turn to some unusual items this quarter. As we continue to focus our efforts on the opportunities in the transportation market, we are in discussions to sell 15 TBK Bank branches in rural Colorado and Kansas. The 159 million of loans and 20 million of other assets in these branches are now reflected in assets held for sale on our balance sheet. And 367 million of branch deposits likewise are reflected as deposits held for sale. Moving the loans to held for sale status created a $970,000 benefit to our credit loss expense in the first quarter. And once closed, we expect a reduction in quarterly revenue in expenses of about 2.25 million for revenue and 2 million for expenses respectively. Second, in another focusing effort, we have moved approximately half of the non-transportation portion of our factoring business. About 70 million in net funds employed to held for sale, anticipating a divestiture in the second quarter. This move created a $420,000 benefit to our credit loss expense in the first quarter and once closed we expect a reduction in quarterly revenue and expenses of about $2.7 million in revenue and $300,000 in expenses respectively. As evidenced by these moves, we will continue to simplify our operating model, focusing our strategy, capital, and energy on the opportunities we see before us in our transportation-related businesses. Let me be clear, for Triumph, nothing is as important as establishing a ubiquitous payments network for the trucking industry. Everything we do begins with that end in mind. We will continue to maintain diversity of revenue and funding as appropriate. But overall our business model is narrowing its focus on to our ultimate goal. With that we will turn the call over for questions.

Operator, Operator

Our first question today comes from Steve Moss from B. Riley Securities. Steve, please go ahead. Your line is now open.

Steve Moss, Analyst

Good morning, guys. Maybe just following up on the factor receivable business here and, Aaron, you mentioned the rising fuel costs. Just if you could break down kind of what percentage that represents the invoice these days.

Aaron Graft, CEO

Just to clarify, Steve, what percentage is fuel?

Steve Moss, Analyst

Yes, fuel-related costs in the invoice are significant.

Aaron Graft, CEO

Yes, it appears that the market doesn't break out in that manner, Steve. There are two main ways loads are priced. One is long-term contractual pricing, which may or may not include fuel surcharges, typically used by larger carriers working with shippers. The factoring industry primarily deals with invoices from smaller carriers, many of whom mainly depend on the spot market. The spot market changes prices daily, similar to the equities market. Thus, there isn't a specific separation for fuel in the spot market; it is included in the spot rate. The reason rates have remained stable, even as revenues per mile or rate per mile (excluding fuel) decline, is due to rising fuel prices. Brokers must provide a spot rate that accounts for the increased fuel cost, or drivers will refuse the load, so we can't really separate it out. We estimate that about 40% of an invoice's cost is linked to fuel, and this generally holds true regardless of fuel price fluctuations.

Steve Moss, Analyst

And then, Aaron, in terms of the level of payments being processed fully automated conforming transactions here in quite the ramp as February and March goes on. Maybe just any color as to where things are in April and kind of if you can, any idea of where you think that will head over the next, call it, three to six months?

Melissa Forman, President of TriumphPay

Steve, thank you for that question. This is Melissa. We are seeing daily average transaction counts where we ended Q1 at around 1,600 per day, moving towards the 2,000 transactions per day that are conforming transactions.

Aaron Graft, CEO

And Steve, on top of that, I would say, you heard us call out Tier 1 factors and Tier 1 freight brokers who are in the queue. Each of those going live will create upward gaps in the number of conforming transactions because one Tier 1 freight broker is the size of 500 Tier 4 freight brokers. So you can't draw a straight line; it will gap upwards as you continue to land large clients.

Steve Moss, Analyst

And maybe to that point, Aaron, I apologize if I missed it. But did you say when they would be coming online? Is it this quarter or just over the next couple of several quarters?

Aaron Graft, CEO

We did not give a specific timing because the sales cycle is long in and of itself. The integration cycle requires both parties, us and our client, to do some sophisticated API integrations. I think what we are saying is over the next few quarters, we expect those four Tier 1 freight brokers and the one Tier 1 factor to come live and there are other people in the queue. Those are just those that are far enough along, we felt like we could call them out as being in the queue.

Steve Moss, Analyst

I have one more question about expenses related to the increase to 85 million. You mentioned that some of that includes disposal costs. Does this imply that there are one-time items affecting the underlying number?

Aaron Graft, CEO

There are always one-time items that impact our expenses. Let's take a moment to recap what we discussed during the last call. We mentioned that we anticipate a 15% growth in expenses over the course of this year, with most of this growth related to investments in technology and personnel to speed up the TriumphPay integration sales cycle, development build-out, and also for Triumph business capital. We are realizing a significant portion of that increase in Q2. We maintain our full-year expense guidance, and if it needs to be adjusted due to inflation-related factors, we will communicate that. We are confidently capturing a substantial part of that planned increase in Q2; we still expect to end the year approximately where we indicated.

Steve Moss, Analyst

Okay, great. Thank you very much. That’s helpful.

Operator, Operator

Thank you, Steve. Our next question today comes from Matt Olney from Stephens. Please go ahead. Your line is open.

Matt Olney, Analyst

Hey, thanks for taking the question. Want to dig more into TPay. In the segment of data, I think there was a loss of $57 million just to help us appreciate how you see this trending over the next few quarters. And I think last time you said you were hopeful back that could break even towards the end of 2023. Any thoughts around that?

Aaron Graft, CEO

I think Matt, that's still our goal. But understand, I hope we made clear in the past, 2022 is a year to expand the reach of the network and we are investing heavily to do that. Some of the things that are hitting our expense line item in 2022, for example, would be commissions paid to our producers. Those commissions don't last forever. Now, the idea is once you add clients to the network, it is a very sticky ecosystem because of the value it creates for the parties involved. So our goal is to push towards breakeven in 2023 and we see the revenue opportunity grow especially as more conforming transactions come into the ecosystem. But the most important thing is to have Tier 1 factors and freight brokers using our system and finding it to improve their operating economics. And if that is true which has been true so far and it continues to be true, then the expansion of the TriumphPay network and the ultimate monetization will follow naturally from that.

Matt Olney, Analyst

And then, I guess, sticking on TPay, I know there're some normal seasonal headwinds in the freight business in the first quarter but I guess I was still surprised the number of invoices was flat sequentially. Any more color on kind of what would drove that being relatively flat.

Melissa Forman, President of TriumphPay

Thank you, Matt. This is Melissa. So we've seen some mostly Tier 3s and Tier 4s, Tiers 2s, 3s, and 4s, get onboarded in the last quarter. And as we've mentioned in previous calls, the Tier 1 brokers tend to scale up their operation over time. We don't get 100% of their volume day one. And so we're starting to see that scale kind of offset with the seasonal dip that you would typically see in the first quarter and so it's evening out. And I think that as you look at the seasonal flow, you'll start to feel those transaction volumes come back up in this next quarter.

Matt Olney, Analyst

Okay. And then just lastly, Aaron, you mentioned lots of talking heads on the media about expectations of freight and who knows what's going to happen and not asking you to opine more on this. Just more of a thought as far as if the environment does flow, are there any strategic shifts the company would consider in that scenario?

Aaron Graft, CEO

That's a great question, Matt. If the situation creates a perfect storm, it would negatively impact the trucking industry due to rising interest rates, high fuel prices, and a weakening spot market. Small truckers entering the market often borrow heavily to buy trucks, and their profit margins are becoming tighter. Fuel surcharges for the freight brokerage community may not reach the drivers if the market isn't as competitive. For us, we've owned Triumph Business Capital since 2012 and have data from as far back as 2004. The lowest return on assets that the Triumph Business Capital segment has achieved after taxes was 3.2%, which was 4.4% pretax. We will not change our approach with Triumph Business Capital; we will continue to serve our customers as best as possible and onboard new customers as opportunities arise. Regarding TriumphPay, I may increase our investment. While that could be difficult in the short term, I believe the last year has generally been good for those in transportation. Historically, this industry has thin margins, but TriumphPay can save $15 to $20 in friction costs per invoice on hundreds of millions of transactions annually, which is a tremendous value for our shareholders and the broader market. We have the retained earnings and profitability to support this initiative. I don’t foresee anything that would hinder our efforts to realize TriumphPay's potential in the market. In terms of operational adjustments, we would certainly tighten our focus in the short term, as we want to be responsible, but our main priority is creating long-term value for our network.

Matt Olney, Analyst

Okay. That’s helpful, Aaron. Thanks for taking my questions.

Operator, Operator

Thank you, Matt. Our next question today comes from Gary Tenner from D.A. Davidson. Gary, please go ahead. Your line is now open.

Gary Tenner, Analyst

Thanks. Good morning. Aaron, I wanted to just kind of ask about the timing of the decision to exit that non-transportation factor receivable part of the business. If I heard your numbers right, you said revenue declined to $2.7 million a quarter, a $300,000 expense reduction. So I mean, a pretty significant piece of pretax earnings if you look back to 2021. Given the investment that you're making in TriumphPay and what I assume this is a pretty kind of steady business that doesn't take a lot of incremental attention for management, why not keep that around to help fund the other investments you're making in the rest of the business?

Aaron Graft, CEO

Great question, Gary and I'll let Geoff speak to the operational implications of having a non-transportation portfolio inside of the transportation portfolio but let me speak to it from a profitability standpoint. Assuming the transportation market stays relatively flat, we will backfill that revenue in a quarter. I mean if you think about the growth of Triumph Business Capital, I'm not worried about backfilling that revenue. And of course, we're making investments in Triumph Business Capital to improve its operational efficiency. And then the other reason, Gary, that with the catalyst in doing this is we understand transportation I think, as well as anyone in the world as far as what we do. That's not true of every other industry out there. And as we narrow our focus, we want to be the best in the world at providing these services to transportation and understanding the nuances and the fraud mitigation that comes with that. Geoff, what would you add to that?

Geoffrey Brenner, CEO of Triumph Business Capital

To your point, Aaron, I would say in the transportation sector, when you're factoring these invoices, it's a very repeatable process of underwriting and buying the invoice. When you get outside transportation, you're dealing with everything from apparel, garments to staffing and each deal is so unique. You don't get the same synergies and the same efficiencies from repeatability. So with a focus on our core business of transportation that made sense to focus on the core business.

Gary Tenner, Analyst

I appreciate that. I have a follow-up question. In the quarter, the decline in fee income compared to the fourth quarter seems to be mainly due to other income, particularly in the bank segment. Could you elaborate on what some of the contributing factors might have been?

William Voss, CFO

Yes, Gary, this is Brad. There is always some variability in that line item. Historically, most of that variability has been on the positive side. In the fourth quarter, we had a few unusual items that were significant but won’t repeat. In the first quarter, there were some negative items as well. For instance, we had a reduction in our indemnification asset due to collections from misdirected amounts or over advances. Additionally, we had a BOLI claim in the fourth quarter that won't happen again. There are just a few factors that continue to arise. If you normalize everything, what appears to be a $3.2 million decline this quarter is likely closer to $800,000. We had some minor realized losses from loan sales and similar occurrences. Looking at our ongoing performance, our core noninterest income was around $12 million, which saw a slight decrease from the previous quarter. One more point to mention, which is important for the future, is that we implemented more consumer-friendly changes to our overdraft policies in April. This will probably reduce TPay income by about $600,000 or $700,000 each quarter going forward, which shouldn’t be a surprise as many banks are making similar adjustments. We are simply trying to be responsible partners in the communities we serve.

Gary Tenner, Analyst

Thanks for taking my questions.

Operator, Operator

Thank you, Gary. Our next question comes from Brady Gailey from KBW. Please go ahead. Your line is now open.

Brady Gailey, Analyst

Good morning, guys. I was just wondering, if we were to head into a scenario where we saw a freight recession, I mean, obviously, the average invoice price and volumes could come under pressure. But how do you think a recessionary scenario would impact TPay's interchange fee? I think the last time we talked about it, you guys said that over time, that could be roughly 20 basis points. Would a recession have any negative or positive impact on that interchange fee?

Aaron Graft, CEO

I believe that in the short term, a recession will negatively impact short-term earnings. However, regardless of whether invoices are $1,500 or $2,400, the associated friction costs remain unchanged. This stability is why TriumphPay is poised for success; there are fixed costs in presenting, auditing, and paying invoices that persist both during a recession and in a strong economic environment like we have experienced. Thus, I don’t believe a recession alters our value proposition to the market. The difference in a recession would be that every additional dollar we can offer to shippers, freight brokers, factors, and carriers by eliminating manual processes becomes increasingly vital as profit margins tighten. Regarding what we will return to our shareholders, we have stated our intention to retain about half of the savings we provide to our partners. Revenue volatility will naturally fluctuate over time. However, it would be impossible to predict that an interchange fee will move from one specific point to another in any recessionary scenario while we are still in the initial phases of developing that pricing strategy.

Brady Gailey, Analyst

Okay. All right. And then my second question, you're selling some of your funding and some of your deposits here. I know over time, you guys continue to kind of narrow the focus on TPay and the transportation industry and kind of away from the bank. Do you expect to continue to kind of wind down the bank from here? And could we see additional divestitures over time?

Aaron Graft, CEO

At this time, there is nothing beyond what we've already done. The recent decisions we made were influenced by our shift towards a transportation-centric approach. The 15 branches involved in the disposal were not aligning with our business model, as we were moving away from agricultural lending and failing to serve those communities effectively. Additionally, the assets generated were not contributing to our overall objectives. We recognize the importance of maintaining diverse revenue sources while focusing on transportation. As we transition towards becoming a financial technology company that operates as a bank, we do not plan to pursue any new disposals right now. There are no additional plans in the pipeline at this moment.

Brady Gailey, Analyst

All right. And then finally for me, Aaron, I know you're not interested in bank M&A anymore or you're just not interested there. But when you look at Fintech M&A, is there anything out there that you think could make sense for you guys to purchase?

Aaron Graft, CEO

Yes, we are in ongoing discussions with companies that align with TriumphPay's goals. However, any mergers or acquisitions we pursue must contribute positively, not necessarily in the short term, but towards making the TriumphPay network a widely used payments network for trucking. If an opportunity does not support that vision, we will not consider it.

Operator, Operator

Thank you, Emma. Our next question today comes from Joe Yanchunis from Raymond James. Please go ahead, Joe. Your line is now open.

Joe Yanchunis, Analyst

Good morning. Hi, there. You had previously you had previously stated that you believe Triumph Business Capital can reach $240 million of revenue in 2022. Given the current market, do you still feel comfortable with that outlook?

Aaron Graft, CEO

At this moment, we do.

Joe Yanchunis, Analyst

Perfect. And then again, earlier this month, you announced the formation of TriumphX. I was hoping you could discuss the expected benefits you hope to achieve from this initiative?

Aaron Graft, CEO

Sure. The transformation that we have undergone as a company has required a lot of technical talent from systems engineers to developers, to people who are user experience, designers of the user and customer experience, data scientists. It is not easy to recruit people from those backgrounds into a bank. It's almost impossible to recruit those people into a factoring company. You can recruit some of those people into a payments network. But the fact of the matter is we need that talent throughout our enterprise. And so TriumphX is an effort to engage with people with skill sets that I just mentioned and to give them a career path inside of our organization that doesn't just pigeonhole them to doing one thing but allows them to work on some really exciting products and be on the bleeding edge of technology as it relates to the transportation space. That's why TriumphX was created. That's the people we're going after who will sit within that part of the organization and they will serve the entire organization.

Joe Yanchunis, Analyst

Understood. I appreciate it. That was all of my question.

Operator, Operator

Thank you, Joe. Our next question today comes from Jared Shaw from Wells Fargo. Please go ahead. Your line is now open.

Timur Braziler, Analyst

Hi, good morning. This is Timur Braziler filling in for Jared. Just wanted to dig in a little deeper on TriumphPay and looking at when you're bringing on new relationships, whether it's the brokers of the factors. I know Melissa had mentioned that you don't get all their business at once and that volume kind of slowly comes on board. I guess when you bring on a new relationship, what's the typical percentage of their payments volumes that kind of goes through TPay and how should we expect that to ramp in the future? What's the typical ramp for a company to start giving you more of their business?

Melissa Forman, President of TriumphPay

That's a great question. And I think it's really hard to answer because it tends to be all over the place. In some cases, we would have a broker that has multiple divisions and they may bring on one division at a time, just as a result of having multiple TMSs that we're integrating with. Some of them will bring on certain modes at a time. And so as we've seen to date, it's really hard to predict. One might bring everything on at once. And the next one, it could take a year to a year and a half to get all that volume onboard.

Timur Braziler, Analyst

Okay. And then maybe following up on Brady's question, if we do enter a recessionary environment and the expense side becomes a greater focus for everybody, does that accelerate the adoption of TPay in your view? Do you get more of that business coming through your platform if it's able to alleviate some of the cost pressures?

Aaron Graft, CEO

That's our thesis that the value is significant. As I mentioned earlier, the fixed costs related to presenting audits, processing payments, and managing cash applications for invoices remain fairly constant whether the invoices are $2,300 or $1,500. The market requires this solution, and someone will provide it. Spending large amounts of money on inefficiencies associated with $2,300 invoices is unreasonable, and it becomes even less justifiable when dealing with $1,500 invoices. Therefore, it makes sense to believe that in a market where profit margins are shrinking, and TriumphPay offers greater savings than its fees, there would be a strong incentive for you to enhance your technology systems to integrate with ours, which would likely become a priority.

Timur Braziler, Analyst

Okay. And then maybe, Aaron, just tying it all together, as you look towards that breakeven point, I guess what's the largest driver? Is it getting larger utilization of the system from existing clients? Is it bringing on additional Tier 1, Tier 2, 3s, and 4s onto the platform? Is it the reduction or kind of, I guess, stability of the expense base, is it a combination of all three? What's the largest driver as we get towards breakeven next year?

Aaron Graft, CEO

Yes, that's an important question. To address your third point first, we recognize that the expenses associated with TriumphPay are significant. If we were to exclude TriumphPay from our overall operations, we would be achieving over a 2% return on assets as a company. We are aware of this. Our investment is strategic, and we are intentionally investing heavily in certain areas right now to ensure that the platform is reliable, progresses swiftly, and meets all our customer requirements. There will come a time, whether in 2023 or 2024, when we will need to optimize TriumphPay's expense structure, but that moment is not here yet. Currently, it is crucial that the platform remains operational at all times and is accessible to anyone interested in joining, while also developing the necessary features for our customers. The key to achieving profitability, which we have highlighted, is that $75 billion in payment volume produces $100 million in revenue. We are confident that we will reach profitability well before that, and we are already a third of the way there with a $24 billion run rate, which is growing at rates of 10% quarter-over-quarter, or 8.8%, in what has typically been the weakest quarter transitioning from Q4 to Q1. The most critical aspect for the value proposition for everyone involved in our network is that Tier 1 brokers—those 30 brokers managing 40% of all brokered freight in the U.S.—and Tier 1 factors—20 factors that control 75% of the factoring industry—must see a significant adoption rate from both sides of the network. This will enable them to adjust their operational processes and procedures to benefit from the efficiencies that the network provides. We're making progress toward this goal. We've already shared information about the parties queued for these integrations. Once both sides of the network can adapt their processes for handling presentment, audit, payment, and cash application due to the volume generated from the network, our monetization opportunities will become substantial. We anticipate beginning to see this by the end of 2023, and from that point, we expect continued growth.

Timur Braziler, Analyst

Great color. Thank you.

Operator, Operator

Our next question is a follow-up from Matt Olney from Stephens. Please go ahead, Matt. Your line is now open.

Matt Olney, Analyst

Yes. Thanks for taking the call. Just want to ask more about capital and M&A and capital is obviously strong today. It looks like it's going to build even more from here with some of those pending sales that you mentioned. How do you weigh M&A against repurchasing some of your own stock? It looks like there was some loss activity in 1Q. How do you weigh those two things?

Aaron Graft, CEO

All things being equal, if we can make an investment, especially if we can do it with out of cash and not dilute our shareholders that moves TriumphPay towards its ultimate goal. That is our first and foremost focus. If none of those opportunities present themselves or if a recession comes which continues to depress our share price, we are long term, incredibly optimistic on what we are building here and we will be happy to buy back our own shares. We bought back a little bit as you noted last quarter; we don't feel the need to rush to do either to deploy money into an M&A transaction. It has to be the right M&A transaction that helps the network. To support our share price, that matters, but we're going to be thoughtful about when we do it. But overall, even though we trade at a high multiple relative to a bank peer group, we don't really think banks are our peer group. And so we think our shares are underpriced. The call option of what TriumphPay can be is severely underpriced in our view. So it is highly unlikely that you will see us use our stock in an M&A transaction or for a material part of an M&A transaction in any event until we believe the market more appropriately values the option value of what TriumphPay will be.

Matt Olney, Analyst

Okay. Thanks for taking the questions.

Operator, Operator

Thank you, Matt. We have no further questions. So I'd like to turn today's call back to CEO, Aaron Graft.

Aaron Graft, CEO

Thank you all for joining us. Have a great day.

Operator, Operator

This concludes Triumph Bancorp first quarter 2022 earnings call. You may now disconnect your lines. Have a good day.