Triumph Financial Inc
NASDAQ:TFIN
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Good morning, and welcome to the Triumph Bancorp first quarter 2021 earnings call. [Operator Instructions] Please note that this event is being recorded.
Now I'd like to turn the call over to Mr. Luke Wyse, Investor Relations Officer. Please go ahead.
Good morning. Welcome to the Triumph Bancorp conference call to discuss our first quarter 2021 financial results.
Before we get started, I would 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 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 joined 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; Todd Ritterbusch, our Chief Lending Officer; and Geoff Brenner, our CEO of Triumph Business Capital. After this 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?
Thank you, Luke. Good morning, everyone. For the first quarter, we earned net income to common stockholders of $33.1 million or $1.32 per diluted share. There are so many good things to talk about this quarter. It's hard to know where to start. Therefore, I will start by providing an update on the only negative item of note I have to report on today, and that being the continuing developments associated with our acquisition of TFS. Then we will move on to addressing the many great things impacting this quarter and the future of our business.
We acquired the transportation factoring assets of Transport Financial Solutions, or TFS from Covenant Logistics Group in the third quarter of 2020. Upon discovering several issues related to TFS post closing, Covenant agreed to indemnify us for up to $45 million of losses incurred on the $60 million of over advanced receivables acquired in the original transaction. By the end of last year, we had fully reserved for the entire $41.3 million relationship to the largest customer in this portfolio.
In the first quarter, given new adverse developments with that customer, we charged off the entire $41.3 million relationship, which had no impact on earnings given that it had been fully reserved in prior periods. Covenant has reimbursed us $35.6 million of this charge-off in accordance with the indemnification agreement, which they funded by drawing on their secured credit facility with us.
At quarter end, our entire remaining over-formula advanced position is down from $62.1 million at year-end to $10.6 million. In the first quarter, we increased our related reserve by $2.9 million to fully reserve for the remaining $10.6 million balance. This had the effect of increasing our credit loss expense and ACL by $2.9 million. We summarized the TFS impact in our earnings release.
However, to state it simply here, the net impact on first quarter results of the additional $2.9 million reserve and the upward revaluation of the remaining indemnification asset led to a pretax gain of $1.8 million.
In conclusion on this topic, I want to say something that is not entirely germane to this call. The TFS transaction was a mess, but the leadership at Covenant Logistics Group consists of some of the finest and most honorable people I know in our industry, they have been people of their word throughout this workout.
As it relates to the diverted $19.2 million currently in dispute with the U.S. Postal Service and our former client, the process continues to work its way through litigation, and we have no material updates at this time. Based upon our legal analysis and discussions with our counsel advising us on this matter, we continue to believe it is probable that we will prevail in our action against the USPS and that they have the financial capacity to pay us what we are owed. Therefore, we continue to carry this receivable without a specific reserve at the end of the quarter.
Staying on noncore matters, but now turning to good news. We released $9.5 million of reserves due to improved economic forecast this quarter. Our current ACL stands at $48 million, including an existing specific reserve of $10.6 million on the remaining portion of the TFS acquisition. Prior to the pandemic, our ACL as a percentage of loans was around 70 basis points and, should macroeconomic conditions continue to improve, it is possible that we could return to that level. Our current level is at 0.94%.
Now let's turn to the great core things that happened this quarter. This was another record quarter for TBK on many fronts. We continue to grow our deposit base. Noninterest-bearing deposits grew approximately $285 million and now represent 34% of total deposits. Our loan-to-deposit ratio is relatively unchanged at 106%. Our loan yields this quarter were 7.24%. NIM is 6.06%. Looking out into the second quarter, we project that expenses will grow to approximately $63.4 million, incorporating continued investment in our transportation-related businesses.
Now I would like to turn the call over to Todd Ritterbusch, our Chief Lending Officer.
Thanks, Aaron. I would like to start by providing an update on our PPP lending and forgiveness efforts. In 2021, we have originated just over $83 million in new first and second draw loans with an additional $10 million that we expect to close soon. With the expiration of the latest round of funding in sight, we recently shifted resources from originating new PPP loans to forgiving existing loans. We have completed the forgiveness process on $74 million or roughly 1/3 of the loans made in 2020. We also recognized $1.1 million in PPP fee income in first quarter 2021, with an estimated $6.6 million more to be recognized as we complete the forgiveness process. About 80% of the remaining balances originated in 2020 are in various stages of completing the forgiveness process.
For loans that have been forgiven to date, over 99% of the outstanding balances have been forgiven, resulting in negligible outstanding amortizing loans. Interestingly, we have not yet seen the expected corresponding decrease in deposit balances associated with the forgiveness of these clients' loans.
Moving to our core lending activity. Competition for quality loans remains stiff. Some competitors, particularly in our community bank markets, are not yet raising prices on term loans to reflect recent changes in the yield curve. Consequently, we expect to see balances decline in credit-only relationships, along with additional spread compression as we defend broader, long-term relationships that still deliver acceptable relationship returns and are not driven solely by price.
Fortunately, we still have relatively attractive options for deploying our capital and excess liquidity. These options extend beyond our transportation payments business to equipment finance and ABL, in particular. The pipelines in these businesses are robust and deal flow is accelerating.
We are also putting greater emphasis on leveraging these capabilities along with our treasury management offerings to support our efforts to build deeper, longer-term relationships with factoring clients.
Overall, we don't expect the balance sheet of the lending organization to grow as fast as it has in the past, but we are increasingly recognizing and realizing other growth opportunities. For example, our new treasury management product sales are already 50% higher than last year and growing rapidly. While it is clear that fiscal stimulus has driven some of our liquidity growth, it is also clear that a significant share of the growth was driven by deepening client relationships.
I'll now turn the discussion back over to Aaron for our transportation update.
Thank you, Todd. In the second quarter of 2019, we announced a pivot in our business model. We narrowed our focus towards our transportation businesses, specifically leaning into TriumphPay and Triumph Business Capital. This quarter, we announced a major step consistent with that pivot.
With the agreement to acquire HubTran, we are creating an open loop payments network for the trucking industry. By open loop, I mean that multiple capital providers can join the network. It's not just for Triumph. The network will provide tools and services to create frictionless presentment, settlement and payment of invoices. In other words, TriumphPay is now becoming more than a B2B payments technology platform. With HubTran, we use data integrations with parties on both sides of the transaction to materially change the way the industry operates.
On Slide 10, we map out a typical transaction between a carrier, a factor and a freight broker as it now exists. Everywhere you see a hand is a point of human interaction in the process. For a $1,500 average invoice, this is extremely inefficient for everyone involved. Factoring companies have large staffs to mitigate fraud, manually handle all documentation, paperwork and to call or e-mail brokers to verify that invoices are valid. Brokers have large staffs to handle those calls and e-mails and to manually match the document type with the loads being hauled by the carrier.
Now if you flip to Slide 11, we demonstrate how this process will work with TriumphPay plus HubTran in an open loop environment. Before a carrier even picks up the load, their factoring company will be able to see the load in the broker's transportation management software. After hauling the load, carriers will be able to select the load from their factors portal, which is connected to TriumphPay. TriumphPay is the invisible pipe that allows parties on both sides of the transaction, the factoring company and the broker to share structured data instantly between them. Efficiency, speed and fraud mitigation take a quantum leap forward. Everyone wins.
In order to deliver this process optimization, we needed to complete the technology suite to handle the life of the trucking load in a structured format. You can see how we do that in this combination on Slide 12.
Moreover, not only is HubTran a technology fit, it is also a well-known player in the transportation payment space with a multitude of legacy integrations that will speed up our progress to scale. The technology only works if you have an integration to the source of truth for the data. HubTran brings client relationships and integrations of over 230 freight brokers and 50 factoring companies. As a result of this transaction, TriumphPay plus HubTran will have integrations with 14 of the top 25 freight brokers as well as several of the largest factoring companies.
Combining HubTran and TriumphPay, we estimate that we touch total transactional volume of $25 billion in brokered freight, which is just under 20% of the market. We expect this transaction to close in Q2 with total intangibles created approaching 90% of the purchase price. Customer relationship intangible and internally developed software could be 25% to 50% of total intangibles. We expect the acquisition to be a modest drag on earnings, mostly driven by amortization of intangibles, the magnitude of which is still being finalized.
With this acquisition, Triumph will have invested more than $120 million in the creation of TriumphPay. We are fully committed to this strategy, and we firmly believe that through it, we will compound value for all of our stakeholders.
Before leaving this topic, I want to point out the obvious. For the payments network to be effective, we have to deliver a compelling value proposition to all participants. That includes data security for both brokers and factors who joined the platform. All factors, including Triumph Business Capital must operate from a level playing field. We are intentionally building safeguards into the terms of service for TriumphPay to align everyone's interests and to protect their proprietary data. As a bank and a fiduciary to our customers, this is a well-understood responsibility that we take very seriously.
Now to TriumphPay's quarterly results. We're providing the metrics as we have in the past, but due to the shift in strategy towards the open loop, our key performance indicators will change going forward. For example, we will deemphasize QuickPay on our balance sheet in favor of transaction-based fees and the Select Carrier program will evolve to reflect the open loop focus.
Next quarter, we will enhance the TriumphPay disclosures in our financials to make its progress easier to track for investors.
During the first quarter, TriumphPay processed 2.53 million invoices, paying over 77,000 carriers. As of March 31, we have paid 132,000 carriers since inception. Payments processed in the first quarter totaled approximately $2.3 billion, a 27% increase over the prior quarter. Using March numbers only, TriumphPay's annual run rate payment volume was $10.7 billion. We added 1 more Tier 1 broker in the first quarter and expect to add another in the next few weeks. As a result, we expect volumes to continue to grow.
Finally, we turn to Triumph Business Capital. All I can say is that this team is amazing. While we spend a lot of airtime talking about TriumphPay, everyone would do well to remember that very few companies are able to incubate a fintech start-up the size of TriumphPay and still deliver return on tangible common equity above 20%. That wouldn't be happening without Triumph Business Capital. We have a tailwind unlike any I have ever seen in transportation, but without the people, technology and processes to catch that tailwind, it would pass us by. Triumph Business Capital purchased approximately 1.19 million invoices in the first quarter from just over 8,000 clients.
Q1 factoring revenue was $37.6 million, excluding the $4.7 million gain on the indemnification asset referenced in the opening. The dollar volume of invoices purchased was $2.5 million in Q1 2021. That is a 1.3% increase compared to last quarter and a 72% increase over the first quarter of 2020. Average transportation invoice sizes were $1,974 for the quarter. This is the strongest first quarter we have ever seen. The conversion of TriumphPay to an open loop payments network takes away potential advantages for Triumph Business Capital that our team had spent several years discussing. In the end, however, we think the health of the entire transportation factoring industry is the best course.
The market needs several healthy participants to meet the capital and other needs of the smaller trucking universe. Triumph Business Capital will be a leader among those participants. TBC is working on several technology projects of its own to improve efficiencies and the user experience for our customers.
Again, I can't say enough about how exceptional our team at TBC is and what they are continuing to do.
Finally, regarding return to office after this most unusual past year. As of April 19, working in consultation with health care professionals, we returned to approximately 60% occupancy at our headquarters. Despite the remote environment, we had one of our finest quarters ever. I'm exceptionally proud of our team and their work.
With that, we will turn the call over for questions.
[Operator Instructions] First question comes from Bradley Milsaps, Piper Sandler.
Aaron, maybe just to start, bigger picture, what do you think is the kind of best measure going forward? Is it still -- we should be tracking the number of invoices, the number of distinct carriers that you guys continue to add to the platform? Is that sort of the best way to kind of manage your progress? Just trying to get a sense of how the handoff is going to be from traditional type -- Triumph Business Capital or even TriumphPay type revenue to kind of what you've now developed with the acquisition of HubTran?
Yes. It's a great question. And one that we owe you some metrics next quarter. Let's just stepping back. If you think about volume and freight broker adoption, of course, that matters. What also matters now that didn't matter so much prior to converting to open loop is how many factoring companies have chosen to engage on the other side of the network. So that's something you should look for. Are we able to grow the number of participants? If there's 400 factoring companies and HubTran's engaged with 50 of them existing, how many more will come on because they see the efficiency gain that will come from this? So I would point you to that.
Secondly, is to start to understand fee income. Right now, if you combine TriumphPay and HubTran, on a run rate basis, the revenues are around $18.5 million. Of course, for us, if we achieve what we're after, we expect that to grow materially, but it's important that, that grows in fee based revenue. HubTran prices things on a per load basis, per invoice basis. TriumphPay historically used its balance sheet and generated QuickPay revenue, which is, as you know, spread revenue, that will be deemphasized going forward. So I would -- I think those are the things to look for.
But clearly, a leading indicator if we're being successful is the continued growth of volume going through the network. That includes Tier 1 brokers, all the way through Tier 4 brokers. But there's 25 Tier 1 freight brokers have more than $500 million in revenue. And as we told you, we're now integrated on a combined basis with 14 of those. You should watch and see how many more of those come and, of course, that will materially drive volume.
Does that give some amount of clarity of what we'll be pointing you to in the future?
Yes. Just need some numbers, right, to back it up. But yes, I think I get the I think I get the road map. Do you still think there's still shelf space for plus or minus $2 billion of kind of traditional factor receivables? Can that number grow? Just kind of any color around that. Average invoice prices there saw another tick up this quarter as well, not as dramatic as last quarter, but obviously, still running very high relative to history.
Yes. So let me start off, then I'm going to ask Geoff to finish. Look, we want to make clear TriumphPay is a tool that is built for the entire industry. So that means that factoring -- it's built for other factoring companies, Triumph Business Capital will be treated with equal parity to them in that tool. And so going forward, you're going to see more growth on a just volume basis in Triumph pay because it addresses the entire market. But as to Triumph Business Capital, which, as you know, for a long time, has delivered very high profitability around here, we're still very proud of that business and think it will grow organically.
Geoff, you want to talk about some of the things you think that might affect the next few quarters?
Yes. I think going back and just thinking about the factoring industry itself, it remains highly fragmented. You do have a few large players that occupy 1/3 of the market, and then it drops off relatively swiftly to hundreds of other smaller players. I think there will be some consolidation in that. I think, honestly, those that come into the network will enjoy benefits along with Triumph Business Capital. I think those that don't come into the network could become vulnerable to losing market share.
So I think there's a lot of growth for Triumph Business Capital organically. Our plan has always been to go into the market and take market share. We'll do it a little differently in the open loop model, but we're still going to do it.
Great. And just final question for me. Aaron, I know you mentioned the intangible amortization, but -- or maybe for Bryce. Can you give us any sense of kind of maybe where to start with operating expenses as you -- from a run rate perspective as HubTran comes on board?
This is Bryce. I mean the run rate expenses of HubTran itself are not that material. I mean, really, overall, I mean, their run rate revenue was kind of building up to the $8 million, $10 million annualized range over the last few months are running at around probably in that breakeven at or before the amortization impact overall is kind of what's being plugged in. And of course, we'll be spending on technology and integration costs over the next few quarters to plug all that in.
The next question is from Michael Roles of Raymond James.
I think part of building this open loop network involves buying, obviously, from not only the freight brokers, but also from your competitors on the factoring side. Just wanted to see, I know it's still early days, but where those efforts stand. And obviously, part of the HubTran acquisition comes with 50 factoring clients, which I think was a big part of the rationale for the deal. Can you just give us an update on kind of where the open loop network build stands? And maybe how long you think this will take to kind of get up and running at this point?
Sure. So the first thing is we have to actually close on HubTran, which we would expect to happen in the second quarter. We have to get regulatory approval to do that, which we don't expect to be a problem.
On the topic of how is the factoring industry responding to this? Well, I think they respond like you might think so. They know us to be a formidable competitor through Triumph Business Capital, and all of them wanted clarity on what does this mean? Does this mean that a HubTran and TriumphPay combined enterprise is going to either take away features and tools that factors currently used with HubTran? Are we going to -- is Triumph going to take that away? Is Triumph going to weaponize the data against us? And a lot of legitimate questions.
And so we've been out on the road meeting face-to-face with the factoring industry and explaining, number one, we would never spend the kind of money we did on HubTran to buy something on a technology multiple to turn around and destroy its client base just as a lead generator. I mean that would make no economic sense. Secondly, that we don't think we should be nor do we think the industry would allow a single capital provider to meet all of its needs, that doesn't make sense. And then our goal is to actually see interchange fee-based revenue growth. And if that grows faster than our factoring business, then great. And so I think those conversations are in various stages.
I think we do have relational capital with the industry that we've always done what we said we would do. And so I think what the factoring industry is waiting on and deserves to see is the written terms of service of how this network will operate and what sort of data security will be provided.
And it's not just them. I think if there's a major catalyst for why TriumphPay will achieve its long-term goals is both sides of the network, freight brokers, factors, carriers as well. They want to protect their data, and their data historically has not been protected in the way the market operates. And so we view ourselves as a bank with all of the obligations and regulations around our responsibility there, our responsibility as a fiduciary as the appropriate place to give people an area to interact with each other while protecting their data.
So that's a lot in that. But I would say, Michael, we are meeting and have met with most of factoring companies that we know well. We'll continue the outreach to others. And it's our job to demonstrate the value proposition for them so that they're excited about this and can see how they can grow and especially make their business more efficient and mitigate fraud risk by choosing to integrate with the network.
That's very helpful. Maybe just going to TPay for a sec. I noticed that the average invoice size was down a little bit more than I was expecting. Any sort of color there? I know fourth quarter was a little bit more elevated than kind of the second and third quarters of last year. Just any thoughts on expectations on where that number could shake out?
Just to clarify, are you talking about the average invoice size for TriumphPay or for Triumph...
Correct. For TriumphPay, yes.
There's nothing -- we don't see a trend in any of that. Some of that's going to be seasonality. If more refrigerated trucks are moving vis-Ã -vis the rest of the industry, that will pull prices up, if more flatbeds are moving, that will pull prices up. I think what you're seeing in there is just small cyclical businesses inside a greater, very cyclical industry.
I think our view right now is spot. The spot market will probably not strengthen materially from here. I think it's more likely that it will -- it might weaken some because it's been a little -- it's been distorted by the difference in where contractual lanes were being priced versus spot rates based upon a whole year of unknowns and uncertainties. So it seems to us, right now, the firm-wide view for both TriumphPay and Triumph Business Capital is that average invoice sizes will appreciate upward or won't go up materially from here, but we don't think they'll go down materially either. And we think utilization rates will stay very high. There's just some really strong secular things going on that appear to be setting up for a very good year for freight.
Very helpful. And then just one last one for me. Just going back to Brad's question. I guess, we're all trying to get at what the amortization could be. Maybe if you could just help us out, are you going to use like a 10-year sum of the year's digits or straight line, just to give us some sense of what the amortization could be on a quarterly basis?
I don't have the number. Yes, the valuation work is still being completed, but it will be an accelerated amortization method, probably some years digits, probably in the range of an 8-year life. But I'm guessing to some degree here, but -- until that work is completed. But it's probably in that range.
The next question is from Steve Moss of B. Riley FBR.
Just want to follow-up on the -- you guys mentioned with TriumphPay, $10.7 billion run rate in March, adding additional Tier 1 broker in the coming weeks. Just kind of curious where does that Tier 1 broker take you? And is that additive to the $25 billion you have combined with HubTran?
It would be, yes, additive to that. I think you'll see -- it would not surprise me. By the end of the second quarter, we were getting closer to 17 of the top 25 being integrated. The 1 that is in process that we thought would integrate this quarter but slid a few weeks to next quarter, probably brings around $500 million to $600 million of volume to the network. But we continue the dialogue with the remaining Tier 1 brokers, and of course, the midsized brokers as well.
But you are correct that the run rate as of March is $10.7 billion. And of course, the reason that's higher than for the entire quarter is because we onboarded a few brokers during the quarter. And so what we're capturing in March was the best indication of what the fully loaded run rate would be that we're starting off with for Q2.
Okay. And so it sounds like with the pipeline continuing to be strong in terms of additional integrations. We've been thinking about this -- the HubTran acquisition with a $25 billion run rate. But it sounds like the growth to that number will continue throughout the year, is this kind of a fair assumption?
Yes, yes. There's -- my own view here, Steve, is there is -- it is very, very likely that the freight brokerage community will continue to come. Because they see very easily for them, the value proposition of cost savings, the data protection, all of the things we're offering.
The thing that you need to watch for that's important, and I think we will have success at it, but it requires us getting out on the road and sitting down face-to-face with the factoring industry and helping them understand the equal value proposition for them. And so that's a KPI we owe you going forward because you need both sides of the network for a network to exist. And that's what our focus is.
Great. No, that's definitely helpful there. And then just in terms of just one balance sheet item, you guys talked about picking up pipeline for equipment finance and ABL. Just kind of thinking -- wondering just how to think about what are the yields for those portfolios? And just how we think about growth for the full year there?
Yes. This is Todd. I'll answer that question. So yields in equipment finance have remained very steady over the last few months. You can think about that yield being in the 5.75% range and new originations coming on at that range, sometimes a little higher, sometimes a little lower. Asset-based lending is a lumpier business, so it's more deal-by-deal. It's hard to use averages. But where we have carved out our niche in asset-based lending, we feel that we're still going to be able to get pricing in the, say, L plus 350, L plus 400 range.
The next question is from Gary Tenner of D.A. Davidson.
I guess I'm going to ask a few more questions about the TriumphPay and HubTran integration. From a technology perspective, I know you've been working with them. What's the kind of time frame, assuming a second quarter close to kind of the integration of the HubTran product with TriumphPay to be able to actually offer -- to get ready to offer the product to the industry? How long does that process take?
Yes. Gary, so the first thing is there is no one specific finish line. What we would say is there will be things we offer almost immediately. There are some things we can do in TriumphPay and HubTran together that help, for instance, the factoring industry with cash application and some integrations we can turn on for them.
What you're asking about, I think, is the ultimate end state, which you saw on Slide 11. Slide 11 would be effectively life out processing taken to its further -- as far as we can see. And what that means is that a load shows up for a the factoring company or the carrier itself, if they're not factored. But generally, we're talking about a factoring company, can see the load, and you have structured data that exists before the load ever got picked up by the trucker. And then for the whole life cycle of the load, that data stays structured, and there's only one human intervention in that entire process and that would be what you could call lights-out processing, which is an efficiency that's never been seen before in our industry.
I think it's more likely that, that is a first, second quarter of next year before that is fully completed. It will come on piece by piece with -- as frame brokers fully integrate with the system and the factoring companies fully integrate. But to get to where a material amount of all transactions are done on a lights-out basis I think that's probably 12 months.
Along the way, we will be releasing enhancements and different feature sets, to both freight brokers and factoring companies that will continue to improve their experience, all along that journey to the end game, which I think is, like I said, first, second quarter of next year.
Okay. And then just to go back to TFS for a quick second here. The remaining $10.5 million -- obviously that $41 million relationship accelerated in terms of resolution via charge-off. The remaining amount, is anything going on that would accelerate that too? I know the numbers now become quite a bit smaller, but is this still kind of just a longer-term expectation for the workout?
Well, that customer -- or the customers underlined that portion of the overadvanced portfolio are in a different financial position than the one that we charged off. And so of course, they're always out looking for their growth capital for themselves. And so it's possible that could resolve in a favorable manner in short order. If we had any inkling that we thought we needed to charge it off. We would have charged it off this quarter. But like I said, it's the client -- the underlying client situation is different with respect to that piece of the portfolio versus what we charged off.
The next question is from Brady Gailey, KBW.
So Aaron, with HubTran, you're at $25 billion of annualized payments. How big do you think annualized payments can get over time?
Well, that's a great question. So brokered freight is somewhere between, in our opinion, $100 billion to $150 billion. I think it's skewing to the higher end of that right now, just given market conditions and invoice sizes are higher. So I think it's skewing to the higher end.
We know that the top 25 freight brokers control 40% of the market. And the top 1,000 freight brokers control 90% of the market. And then the remaining 10% is divided up among 7,000, plus or minus, very small freight brokers, some of whom are subsidiaries of carriers. So our goal is to go after as much of the 90% of the market as we can, Tier 1, 2 and 3 freight brokers. We also will serve Tier 4, the smallest ones. But if we're -- if it's a volume game and trying to get to a network scale, that's who we have to go after.
There is no doubt that we won't get them all for reasons I can't even anticipate. But we think that this the value proposition, Brady, is this: Right now to pay a $1,500 invoice, which is historically what the average would be, we think there's $60 of liquidity and friction cost. Of course, we don't fix the liquidity cost. I mean, somebody needs to get paid their cost of capital to provide it still liquidity to the carrier who needs it. But setting that part aside, there's $30, plus or minus, that's just friction cost to get this done.
My vision, our team's vision is that TriumphPay materially changes that, that, that $30 number gets way smaller because data stays structured, fraud risk is mitigated. We use integrations versus e-mails, integrations versus phone calls, and everything speeds up. And so if that's true, if that's the value proposition we bring to the market, I would think a lot of the market would want that. No one wants unnecessary friction. They want to provide capital and liquidity and carriers want capital and liquidity and freight brokers want to provide QuickPay. And all that should and will happen.
But if we can eliminate what is roughly our estimate of $30 of just expense per invoice that's doing -- that's not doing anything for anyone. We think that a large part of the market is going to want that. So I can't give you an ultimate target number. I can tell you going after the top 1,000 freight brokers. We've got several hundred of them already. And we obviously want all factoring companies who want to join the network to join the network. And hopefully, they see the cost savings available to them and get excited about that.
So then to me, it doesn't feel like $100 billion of annualized payments is unrealistic. I mean maybe it's a stretch goal, but you guys will basically have the market. So is $100 billion at some point in the future, an unrealistic stretch pull?
I wouldn't -- I mean, yes, that's stretch, but I wouldn't call it unrealistic if we're delivering a value proposition. And remember that's, Brady, beyond brokered freight, which is clearly our focus now. We think the same product should work in a modified format but should work for the shipper market, which is a $250 billion market. Because I know as of right now, at Triumph Business Capital, for example, 70% of the invoices we purchased from truckers are brokered freight, but 30% are shippers.
And so obviously, that means we have trucking customers who haul both in the brokered market, but they also haul directly for shippers.
So our view is that this works and with future further feature sets and enhancements, is -- well, where else are truckers hauling, where else does this issue present itself, and that would be with the larger shipper market. So that's a certainly 2 to 3 years down the road plan. We've got a lot of work in front of us just to attack what is right in front of us. And so in light of that additional market opportunity, Brady, I don't think $100 billion is out of reach.
All right. And then, Aaron, can you just talk a little bit about kind of the strategic shift away from QuickPay and towards interchange income with your new network? I mean is it -- will you all still focus on QuickPay, but more of the focus will be on interchange. And then I know it's tough, but is there any way to guesstimate what that interchange fee could be once the network is mature in a few years out?
Yes. So let's take the first topic. QuickPay and where TriumphPay was originally born is -- does the same thing as factoring. It's reverse factoring. And so in 2015, when the idea for TriumphPay was dreamed up by Steve Hausman, who was our CEO of Triumph Business Capital at the time, and as we continue to work on it, that was its purpose. We used our balance sheet to hold QuickPays on behalf of freight brokers who weren't capitalized -- or from a cost -- it wasn't effective to them to hold QuickPays on their balance sheet.
Well, TriumphPay can't do that the same way we started off, if we're really going to convert to an open loop network. That would not be fair to the factoring industry's integration.
[Operator Instructions] Next question is from Jared Shaw, Wells Fargo Securities.
Can you hear me? I think I can't hear anything on your end. I still don't hear anything coming from Triumph, so I'll wait to see if that gets fixed.
[Technical Difficulty]
We reconnected the speakers. Mr. Jared Shaw, if you're at the podium with your questions, please go ahead at this time.
Just, I guess, shifting back to the Triumph Business Capital discussion and your thought that there's going to be more consolidation among some of the smaller factors. Just given the strong ROEs and the system you put in place on that side of the business, what's the appetite for being part of consolidation being an active consolidator or maybe some of the less efficient capital providers out there?
Yes. Great question, Jared. I think our appetite, given this conversion to the open loop is probably lower than it has ever been in the past. What we want to see is Triumph Business Capital win on an organic basis. And I think they're doing that, some of the stuff that we're doing with the user experience and ancillary services and products that are being offered to truckers that Geoff and team and, frankly, working with Todd Ritterbusch and our lending team, we're really excited about, frankly, engaging these factoring clients as bank customers.
So we want that business to grow. It is growing at a very large clip. I think, frankly, where we sit right now on this very day, it is more important to us to demonstrate to the rest of the factoring industry that we have their best interest in mind than it is to go out and try to buy a bunch of competitors. And I mean the whole point of what we're doing here is to try to grow fee income and be valued more like a fintech payments company, which is what I think we've created for a market that's 8% of GDP, than we are the largest factoring company in the history of transportation. That's less of our goal.
So obviously, the profitability, I mean, you see it. Triumph Business capital is operating at a 6% plus pretax ROA. So you -- that pays the bills around here and more, and so we like that. But I don't think you'll see us aggressively be out consolidating factoring companies. I think there are other players who would like to do that, and we think we'll probably allow them to do that.
And that doesn't mean -- just last point on that, and that doesn't mean we won't look at compelling opportunities, especially on the larger factoring companies. If someone approaches us and wants to merge with us, of course, we will look at that. But it's not our stated goal right now to go out and try to gobble up as many factoring companies as we can.
And one last thing on that. I think TriumphPay also brings with it the ability of smaller entrants to now have a little bit of parity with the larger players, to the extent they use the network to do their back office processing. And so I think you'll see smaller factoring companies who are really focused on sales and really efficient and using the network to do what historically you'd have a large staff to do. I think that they've got a shot to build a nice business within this industry. So it all remains to be seen, but those are our thoughts.
Okay. And then just circling back on Brady's question. I think you may have got cut off at the end there. But when we look at HubTran, can you just walk us through or what are they charging now in terms of interchange? And then once you have this ramped up and approach that total addressable market, whatever it is, where do you think that interchange goes to as they work to eliminate part of that $60 of friction?
Yes. So right now, and you got to understand how brand, as it exists, is not a network. And so there are things that TriumphPay plus subtrend of the network is going to do that are not part of the world for HubTran as it now exists. But HubTran right now charges between $0.50 and $1 a load to the to the freight broker community for the services it provides, and it charges between $0.50 and $1 a load to the factoring community for the service it provides.
Now it was never able to provide full integration and, ultimately, fraud mitigation and all the things that come with having a direct pipe between the factoring company and the freight broker.
So this is Brady's question, and I'm sorry we got cut off, but I'm going to project, Jared, that long term, and we will continue to add feature sets as we go. But I think once you get to lights out processing, where the network owns the risk of fraud in certain aspects because of the way it's structured, our goal would be an interchange fee that is somewhere between 25 to 50 basis points, is we think will still allow adequate profitability to be remitted back to freight brokers and the factoring companies. And so that all 3 of us win, and we can create a scale and volume that I think our payments investors would like to see.
[Operator Instructions] Next is a follow-up question from Brady Gailey of KBW.
My other question was just, Aaron, I know longer term, you talked about getting the company up to 2%, 2.5% ROA or potentially higher. I was just wondering, do you have any updated thoughts on that just with HubTran now in the mix, and you're now looking at the profitability a little different with interchange fees coming up? Is there any update on what the ROA of this company could be longer term?
Well, the first thing -- so if you strip everything down right now and take the noise out of the quarter, and it is my sincere hope this is the last quarter we have to spend 4 paragraphs talking about TFS. But if you strip everything down and the ACL releases out, on core run rate, we're running between 1.65% and 1.7% ROA. And we are doing that Brady with TriumphPay being a couple of a million-dollar drag a quarter.
And so if we were running this business as a mature, stable business, we would be at a 2% ROA right now, no question in my mind. But we've chosen over the long run, to invest in an ambitious project that is going to transform how payments are done in an industry that's 8% of GDP. And so to do that, you've got to invest.
And so we're going to walk the tightrope of trying to be a top 4-tile earner relative to our banking peers, all the while continuing to invest and experiencing the amortization expense that comes from all these intangibles with HubTran. And so I can't give you, in this new world, a prediction on a steady state, 2% ROA run rate. I think the gating question to getting there is at what point does TriumphPay become accretive to earnings versus a drag on earnings.
And as we said, we've invested $120 million with HubTran included at least to build this. We think the opportunity set is, frankly, that TriumphPay could be worth well over $1 billion, once we get to where we're going and even beyond that, depending upon how you want to look at what the interchange fees will be and whether you think we can take this to the shipper market and all of those things.
And so for us, it's acceptable to back off of what I previously told you about trying to get to this 2% run rate to try to incubate this fintech and give it every advantage it needs to win the race to become ubiquitous payments network for this entire segment of the industry, and that involves hiring good people.
So if and when that 2% ROA comes is beyond 2022, maybe it's 2023, I really can't project, Brady. What I have to do now is we have to make sure we do everything in our power that getting this far in the process, we set TriumphPay up to complete the race that it started.
Yes, yes. I mean I would think the ultimate value of TPay could be a lot higher than $1 billion. If you run at the math, $100 billion of payments that you're earning, say, the lower end of your interchange ratio, 25 basis points, and that's $250 million of revenue. And then you put a high teens multiple on revenue, which I think is now the market values at. I mean that's -- yes, that's a lot higher than $1 billion.
I mean -- so first thing, just remember that only 1 out of every 2 invoices or 50% of the brokered freight market is currently factored. And I'm not saying there won't be a way for us to deliver value on the nonfactored portion, but I would start with running that off a 50% financing rate to that market.
But yes, I mean, look, it took a great deal of courage for our Board and our team to take this step of creating an open loop and giving to the industry, specifically many of our factoring competitors, the same advantages that Triumph Business Capital would have had and level the playing field, that -- there was a lot of discussion. I mean it's a scary thing to disrupt your most profitable line of business.
But our ultimate conclusion was this is what the market really wants and needs, and somebody is going to do this. And based upon the knowledge we've built from being in this industry for 15 years, we were the best equipped to do it if we would just have the courage to go after it.
So I own for you the fact that 2% ROA was the target. I was not thinking open loop at the time. We see open loop now is the future. And so that's going to delay that. But I think for investors, they ought to see that if we pull this off, the valuation, especially if you can take this beyond the brokered freight market into the shipper market. You've got the chance to create something that's worth many times of our current market cap, and so that's what we're running for.
This concludes your question-and-answer session. Now I'd like to turn the conference back over to Mr. Aaron Graft for closing remarks. Please go ahead.
Thank you all for your time today. We apologize for the technical glitch, but we look forward to seeing you soon and for our investors, hopefully in person soon. Everyone, have a great day.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.