VBTX (2021 - Q4)

Good day, and welcome to the Veritex Holdings Fourth Quarter 2021 Earnings Conference Call and Webcast. All participants will be in a listen-only mode. Please note, this event is being recorded. I will now turn the conference over to Ms. Susan Caudle, Investor Relations Officer and Secretary to the Board of Veritex Holdings. You may begin. Susan Ca

Thank you. Before we get started, I would like to remind you that this presentation may include forward-looking statements and those statements are subject to risks and uncertainties that could cause actual and anticipated results to differ. The company undertakes no obligation to publicly revise any forward-looking statement. At this time, if you're logged into our webcast, please refer to our slide presentation, including our Safe Harbor statement beginning on Slide 2. For those of you joining us by phone, please note that the Safe Harbor statement and presentation are available on our website veritexbank.com. All comments made during today's call are subject to that Safe Harbor statement. Some of the financial metrics discussed will be on a non-GAAP basis, which our management believes better reflects the underlying core operating performance of the business. Please see the reconciliation of all discussed non-GAAP measures in our filed 8-K earnings release. Joining me today are Malcolm Holland, our Chairman and CEO; Terry Earley, our Chief Financial Officer; and Clay Riebe, our Chief Credit Officer. I will now turn the call over to Malcolm.

Thank you, and good morning, everyone. I'm excited to announce our fourth quarter and full year 2021 earnings highlights. The fourth quarter was a very strong quarter that produced operating income of $0.84 per share, our strongest quarter in the company's history. That was up from $0.70 per share in the third quarter or 20% increase, while producing a pretax pre-provision operating return of just shy of 2%. The quarter did have a reserve release of approximately $4.4 million or $0.07. Terry will give you the financial details on our quarter in a moment. Both growth and credit quality continue to trend in a very positive direction. Loan growth, excluding mortgage warehouse and PPP, was $150 million for the quarter and $918 million for the year, or 9% and 16%, respectively. This growth is despite elevated loan payoff levels in Q4 of $646 million, exceeding the payoffs in the first two quarters of the year. I could not be prouder of our front-line lenders to deliver continued loan growth results like that in 2021. Our focus on hiring and adding to our team during the pandemic in addition to the continued market disruption shows me that we made the correct call to invest in people during the pandemic. It should also be noted that the support teams have been incredibly consistent and efficient in this high-volume credit delivery process and we would not be where we are without them. As we look into 2022, we have strong conviction that we can continue to produce mid-teens annual loan growth. Much like our loan growth deposit increases look much the same way. For the year, total deposits grew $851 million or 13%. It should be noted that a majority of that growth, 49%, was in the non-interest bearing category, which now represents 34% of total deposits. From a credit standpoint, positive credit metrics remain the trend. The most notable move was NPAs reducing by $24 million, bringing NPAs to total assets down from 0.51% - to 0.51% from 0.77%. It should also be mentioned that the year-over-year reduction in NPAs was over 50%. Charge-offs were just shy of $13 million as several loans reached final conclusion. All charge-offs were previously identified and provided for in previous periods. As mentioned, we've reported our first credit loss reserve release of $4.4 million, which brought down our ACL 1.15%. Our credit leaders and their respective teams had an outstanding year, assisting our gross - growth initiatives, while at the same time measurably improving our credit metrics in all categories. The fourth quarter also brought to a several new production officers, mainly in the community bank space. Additionally, we are still active in hiring new and experienced talent in the risk and operational areas. Growth is great on the front-line, but you must keep up in the non-client facing areas to deliver credit in a sound and efficient manner. I'd also like to point out that we closed our North Avenue Capital transaction in November and are very impressed with the pipeline that Ben and Joseph have created going into 2022, but more importantly impressed by the overall business and its culture fit with Veritex. With that, I'll turn it over to Terry.

Thank you, Malcolm. On Page 5, you'll see multiple graphs. Just want to comment on a couple of these. First, our operating return on average tangible common equity remained very strong in the fourth quarter at 20.5% and 17.6% overall of 2021 has Veritex executed well in spite of the pandemic. Second, tangible book value per share only declined $0.04 during Q4 to $17.49, despite $0.66 of dilution from the North Avenue Capital acquisition and our normal $0.20 per quarter common stock dividend. Veritex grew tangible book value per share 16.2% in 2021 after adding back the impact of quarterly dividends. TBV growth has been and remains an important priority of our management team. The operating efficiency ratio was 47.6% for Q4 and 49%, 49.3%, for 2021 as Veritex maintains its efficient profile even while making significant talent investments. On Slide 6, Malcolm has already mentioned our loan growth for the quarter. What growth was driven by C&I and ADC? These two portfolios both grew at 11.9% and 13.5%, respectively, during the fourth quarter. Improving C&I utilization rates continued their upward trend that started in the first quarter of 2021. The level of unfunded commitments in the ADC portfolio remained relatively steady. Average mortgage warehouse balances increased just under 4% in the fourth quarter from the third quarter to the fourth, reflecting new customer acquisition. This portfolio sits at 6.7% of average total loans, excluding PPP. It remains our intent to keep the average mortgage warehouse portfolio at 10% or less of average total loans. Slide 7 shows information on our loan production. 2021 was an exceptional year as we achieved $5.4 billion in loan production and 91% increase over 2020. On Slide 8, net interest income increased $5.5 million from Q3 to $76.7 million in Q4. The most significant driver of the increase was loan growth, where average loans excluding PPP grew by $410 million or 24% annualized from the third to the fourth quarter. The second most significant driver was prepayment income from a debt security. This debt instrument was a commercial mortgage-backed security that was purchased in the second quarter of 2017. Also note the Q4 loan production was at 3.73% and Q4 interest-bearing deposit production was at 20 basis points. Next, let's talk about the net interest margin, which increased 11 basis points from Q3 to 3.37%. Almost all of the NIM expansion is due to the prepayment income on the debt security. For Q4, the PPP portfolio represented a 2 basis point drag on the NIM and average liquidity was approximately $217 million higher than our normal target, up meaningfully from Q3. This increased liquidity is primarily a function of higher loan payoffs and had the effect of depressing the NIM by 7 basis points. As you look to model net interest income in future periods, keep the following in mind. First, the security prepayment income is unlikely to repeat. Second, there was a $35 million in sub-debt with the cost to approximately 5.5% that was called in December of 2021. Third, remixing of earning assets away from PPP and excess liquidity should continue over 2022. Fourth, previously disclosed hedging gains to start flowing through net interest income late in the first quarter of 2022. Finally, Veritex's asset sensitivity profile has grown from Q3 to Q4 as a result of greater liquidity and faster loan and prepay speeds. With market expectations of three to four Fed rate hikes in 2022, this will add significantly to net interest income. On Slide 9, we'll provide an update on North Avenue Capital acquisition, which closed in the fourth quarter. NAC had a good couple of months within Veritex and contributed approximately $1.3 million in pretax earnings. Their pipeline is building and they're actively recruiting to take advantage of the increased government funding in the Rural Energy for America Program, otherwise known as REAP, and they just announced $1 billion food supply chain guaranteed loan program. Thrive reported another good quarter with loan production of $666 million and gain on sale margins down slightly to 360 basis points. Seasonality certainly affected production volume and the pipeline, but the fundamentals remain strong. Thrive's 2021 production was $3 billion, up from $2.3 billion in 2020, representing a 30% increase. This was an exceptional result when the total production in the industry declined almost 5% during 2021. On Slide 10, another strong non-interest income quarter with $16.2 million. Please remember that in the third quarter, we excluded from operating results the benefit of $1.9 million in PPP forgiveness at Thrive. Operating non-interest revenue represented 17.4% of total revenue for the quarter and should continue to improve with the full quarterly contribution from North Avenue Capital and a more favorable season seasonality for our mortgage business. For the full year 2021, we've reported operating non-interest income of $57 million or 27% increase over 2020. This increase was the result of Veritex's strategic intent to invest in diversified revenue sources, namely Thrive, North Avenue Capital, our new Syndication Group, customer interest rate swaps, et cetera. Operating expenses on Slide 11 increased $2.9 million from Q3. Salaries and employee benefits were the largest component of the increase as head count grew 7% during the quarter with almost half of the growth coming from North Avenue Capital. As we've been saying for many quarters, we knew head count and salaries were headed up due to our investments for growth. Additionally, relating to the fourth quarter, personnel cost level, these costs were also due to lower deferred loan origination cost. Moving to Slide 12. Another good quarter on the deposit front with growth of 10% for the quarter and 13% for 2021. Deposit growth would have been even better, but we intentionally work with our customers to move deposits off balance sheet at year-end to allow us to stay under the $10 billion threshold. Total deposits costs continued their downward trend and ended the year at 18 basis points. On Slide 13, our capital levels except total capital contracted approximately $11 million over the quarter as earnings were offset by the North Avenue Capital and acquisition and dividends. Total capital contracted more due to sub-debt repayment, as I mentioned earlier, and the decline in the allowance for credit losses, our capital deployment priorities, given the current valuation of our stock, our organic growth, dividends, strategic growth and, lastly, share repurchases. With that, I'd like to turn the call over to Clay for some comments on credit.

Thank you, Terry; and good morning, everyone. The credit picture at Veritex continues to improve as Malcolm described earlier. NPA reductions continues their downward trend in large part due to the resolution of the Bank's largest NPA loan by way of a note sale. Another meaningful resolution over the quarter included the sale of a judgment on an acquired credit that resulted in an approximate release of $1 million in specific reserves, additionally $4.4 million of loans on non-accrual paid off during the quarter at par. Credit migration continues to improve with criticized assets down by 7% for the quarter and 23% year-over-year. While we saw some credit downgrades in the normal course of business, upgrades outpaced downgrades meaningfully throughout 2021 and I see nothing that would change that trend today. During the fourth quarter, we charged-off $12.6 million in credits that were all more than fully reserved against. Acquired loans accounted for 77% of these charge-offs. These charge-offs came in three primary buckets; 43% were PCD loans, 28% were SBA loans, and 11% were loans moved to held for sale. PCD charged-off loans were primarily the result of negotiated settlements in anticipation of the resolution of debt. The SBA charge-offs were the result of loans that have completed liquidation and were awaiting payment for the guaranteed portion from the SBA. The Veritex originated loan charge-offs are centered in a loan that was moved to held for sale with more than sufficient reserves taken in previous quarters. This loan sale closed in January. We continue to believe the challenged credits we have in the loan portfolio are properly reserved and I'm encouraged with the progress and resolutions our credit team has made to further the positive credit trends metrics. With that, I'll turn it over to Malcolm for final remarks.

As I reflect on 2021, I couldn't be any prouder of our team. Even during a pandemic and economic uncertainty, we're able to deliver top tier results in 2021. Loan growth, 16%; deposit growth, 13%; new production hires, 55%; operational hires, 101%; reduction in NPAs, 48%; reduction in criticized assets, 23%; focus on non-interest income, investment in Thrive, purchase of NAC. Notwithstanding these accomplishments, we are all excited about our prospects and fully expect to continue our positive results in 2022. We continue to evaluate M&A opportunities in both the bank and non-bank space. It has been a core value of ours to be ready and opportunistic for any bills - business that solves for the strategic needs of our company. Whether it's funding, non-interest income, scale or technology, we have not lost our focus. Operator, I'd now like to open the line for any questions.

[Operator Instructions] Our first question comes from the line of Brad Milsaps with Piper Sandler. Your line is open.

Malcolm, I wanted to start with loan growth, 23 new producers in the quarter is pretty [technical difficulty]. Can you tell me the types of [technical difficulty] lender came from and then what that means for the outlook in [technical difficulty] and beyond?

Sure. Yes. So we did - and in our production numbers, we do include some of the support folks and so in that number specifically, we've got 10 plus kind of frontline relationship manager type people. The majority, I think, I mentioned it, it was in the community bank space, both in Dallas and in Houston where I talked about market disruption. So all - the majority of those came from one of the major market disruption places in our state. So that group specifically is - probably you're not going to see massive loan production numbers, but it continues to be our most profitable our best funded group in the bank. We also had a corporate bank hire and also somebody in this - on the sponsored finance area that we brought on from that same disruption that I just talked about. So, yes. And the thing is, it's going to take a while for those folks to get ramped up. The third quarter was also a really big hire quarter and so we're starting to see some of what they're putting together and the pipelines are - we're pretty encouraged about where the pipelines are today.

Also included some of the production folks from NAC.

Yes, yes, that's correct. We had all the NAC people. I think there were 19 total in the NAC acquisition.

Okay. Still comfortable with kind of that low double-digit type growth guidance in 2022?

Brad, and I think I mentioned it, but I'm probably thinking a little bit higher than that, so I'm thinking we can do kind of mid-teens. We did 16% as last year. I'm thinking we're going to be in the 14% to 16% range in 2022.

Especially assuming payoffs don't stay at Q4 levels.

Yes. I mean that was - I mean, I wanted everybody to get that payoff number. That was the monster payoff level of $640 million. We still grew $150 million. I mean, we didn't have $640 million in payoffs in the first half of the year. So I think they are going to be higher than the first half of the year, but I don't think they are going to be $650 million. So of that coupled with our unfunded commitments that we have on the real estate side, we feel pretty good about mid-teens.

Okay, great. And then as a follow-up from me, Terry, just on the expense side of the equation, you guys have historically done a good job keeping a pretty tight lid on expenses, obviously a lot of discussion about wage inflation you've got as a growth company. But do you feel like the fourth quarter is a pretty decent run rate? I know you'll get another month from NAC in there, but just kind of curious how you're thinking about the expense bill to kind of get to that [technical difficulty] this kind of inflationary backdrop?

Well, I need a perfect crystal ball to be able to forecast inflation and how it's going to inflect wage cost and I'll confess I don't have one of those. But having said that, if - just in general on expenses and we'll take a wider range than I normally would. I would say, like, $180 million to $200 million right now. And it's just --it's so hard to know. You can rest assured anytime someone depart the organization, it is not - it's painful to rehire on the comp front. And I think that's the case everywhere and I think we're being more successful recruiting and hiring and hanging on the people than most. But it's a hard one this year, Brad. And so - and it will be $45 million to $200 million and because we're planning to continue to hire some too. I mean, so you will go with - we had $45 million for the quarter, $45 million annualized is $180 million, but with inflation in hiring expectations and a full year of NAC, I think, I've got to widen it out to about $200 million.

That is helpful. And maybe one more follow-up. On NAC, Terry, I know you're cautious, you need to think about kind of an annual run rate can be volatile from quarter-to-quarter, but based on what you've seen from a couple of months, do you kind of still feel good about the initial kind of revenue guidance you laid out when you announced this deal late last year?

Yes. I would generally probably tell you we feel a little better. We feel a little better than what we initially laid out. And just by the way, NAC has made three new hires this month and that was part of the plan.

It was in the guidance we gave.

It was. And so they completed that and they are on the production side.

Our next question comes from the line of Michael Rose with Raymond James. Your line is open.

Just wanted to start on the Slide 8 on the core margin at 3.31%. Terry, you rattled off a bunch of considerations. If you could help us fill a little bit with what the impacts of all those considerations might be and how we should think at least about the core margin ex-accretion and PAA stuff like that as we think about the year, obviously with the backdrop of higher rates, but just looking for a core expectations ex any rates? Thanks.

All right. I'll be glad to. Well, if we ended Q4 at 3.31%, what - I'd take 10 bps off that for the prepayment at 3.21%. We've got 9 bps of expansion opportunity between PPP and ex-liquidity, so that takes you back up to 3.30%. The hedging gains are going to add about 5.5, so that's 3.35% and the sub-debt payoff is 2.5 to the NIM. So I would say about 3.38% core and that's net of taking out the 10 bps for the security prepayment.

Okay. So it's a good starting point. I appreciate it. And then you mentioned on the held for investment side mid-teens growth, that's really good to see it. Obviously, I think a little bit better than expectations. But as we think about the warehouse, you had a larger competitor of yours in town guide down warehouse balances almost 20%. How should we think about your guys warehouse as we think about the year? Thanks.

Yes. So, I mean, we - listen, we are not guiding it down, we think it's going to grow. There is opportunity move, so any run in that group has done an outstanding job. There is new business that we're looking at all the time. And so we think there is a little bit of growth in there and we will never grow at over the 10% that we've always talked about since day one. But running at 6.7% last month, there is - last quarter, on average, there is some room there and we think there is some additional room there and she does too. So we're not guiding that piece down at all.

We've got some specific clients who are coming on in Q1.

Yes. We've already got some identified, approved and so we feel pretty good about that number growing.

All right. So, maybe - and not opining to it, but maybe high-4s, low-5s for an average is maybe the way to think about it just given the -

Sure. Yes. Yes, I think so.

Okay. Fair enough. And then maybe just one final one for me. The loan to deposit ratio ex-warehouse right around 93%. I know you've talked about funding in the past, any sort of expectations for deposit growth and how should we think? I think you've mentioned that you have enough liquidity. I think you said in the last call or in previous calls, through the end of I want to say 2024, but just wanted to get any updated thoughts on that relatively higher loan to deposit ratio? Thanks.

Yes. Certainly, I understand the question and we - to quote Malcolm, we tend to run a little hot there. But keep in mind, one of my comments was, we intentionally moved off deposits at the end of the year to stay under 10%. They should have come back. And there is some interesting and meaningful sizable MSR deposits coming with the new mortgage warehouse customers on in Q1 and we're continuing to see good deposit activity, especially from the major disruption that Malcolm referenced and we've hired some new folks in our treasury sales effort. So, I think, look, we're pretty focused on that had been an understatement and stay tuned. But we feel good about the deposit growth trends for 2022 given all those things I just mentioned and we'll continue to talk about this as we go forward.

Our next question comes from the line of Brett Rabatin with Hovde Group. Your line is open.

It's actually Ben Gerlinger on for Brett. I was curious, I know that you guys have done a pretty phenomenal job of taking up talent from the market disruption and within Texas itself the first half of 2021 was pretty quiet, especially relative to the second half in terms of deals and with your guidance kind of in the mid-teens growth. With the recent deals announced, obviously it will take a little time for them to close. But do you think that you could potentially see growth higher than that through more opportunities for adding talent or does that kind of prime the pump for FY 2023?

Again, it's some sort of guidance that we're giving. I can't foresee that future. I think with the team that we have assembled today, we feel pretty comfortable in the mid-teens range. We are talking to people, other groups, teams, opportunities. It always takes a ramp-up time and so we don't have those hired - a lot of these folks are awaiting their payouts from 2021. So those don't happen until February/March. They don't get on-board until second quarter and probably don't see much of their help until we get to 2023. So could we payoff slow? Sure. I don't see that, but if they were to materially slowdown, I think, you'd see the mid-teens number grow. So I think the mid-teens grow number is a function of - probably more of payoffs than it is on hiring new talent.

Got you. Okay. That's helpful color. And then my follow up would be more on, kind of, your valuation there is improving. So obviously when you listed out the capital actions, share repurchases was towards the low-end. I'm pretty sure that organic growth was at the high-end, but do you think M&A - from your perspective, is there anything on a wish list, so to speak, that you would want to check in terms of the boxes that the additional - either bank or you see income source would need to bring to the Veritex as a whole?

Yes. I mean, we're always active in the M&A side. And then as our currency become stronger, we get a little bit more active from time to time, but, yes, there is a few holes, if you will, in the state of Texas. We're fairly committed to the State of Texas at this point in time. Obviously, we don't have anything in Central Texas. We'd like to fill that hole at some point in time. But - and then we also would be - there is what we call unicorn banks around the state that aren't for sale. Nobody is willing to sell them. But if and when that happens, or there is an event that happens with that institution, we want to be in that conversation. So we want to be active, but we're going to be extremely disciplined on the M&A side, because we do have such an organic growth story. On the non-bank side, we continue to look at different opportunities. Obviously, last year was quite successful in that regard with our investment in Thrive and the acquisition of NAC. So I'm continuing to look at those things and fintech is a big buzzword, so we continue to look at - there is all sorts of stuffs flying around there. So we'll continue to evaluate it. And, again, it's got to meet one of those strategic priorities that I said at the end of the - of my remarks that really - we need to meet those.

Our next question comes from the line of Matt Olney with Stephens. Your line is open.

I wanted to ask more about fees and start with Thrive. It sounds like you think that the fourth quarter was the trough and expect some improved seasonal trends in the first quarter. Did I hear that right? And I think you mentioned, a few months ago, that you thought the Thrive impact of Veritex would be between $2 million to $3 million per quarter based off seasonality, is that still the thinking or do we need to downshift any of that given the market headwinds?

Well, I mean, I think, it's clearly seasonality and I expect Q1 - you know how it is. I mean, if things start to ramp up when you start coming out of the winter. So whether it hits the production side of things in Q1, I think it will hit the pipeline side. And, look, as we all know, there has been tremendous gain on sale margin compression in addition just volumes were down, gain on sale margins have come down. Thrive is focused on bringing on more teams, growing production capacity, but I think it's - if I had to, let me see.

He is getting the crystal ball out.

Yes, I'm getting my crystal ball out. I would say, it's going to be - it's not as lumpy as NAC, but it didn't going to be a linear straight line either. If I had to lay out a range for Thrive, I would probably go in the $7.5 million to $9 million annual impact and it's obviously going to be stronger in Qs two and three. So that's the best insight I have now and I'd say Q1 is going to be a little stronger than Q4 of 2022. I mean, look - I mean, I'm looking - I'm acting like Atkins. I've got perfect vision in this fourth quarter, which I clearly know and no one who does in this volatile rate crazy time we're in here. So - and it's such a rate driven business. But I think they did prove in 2021, even when the industry is down, they can grow. And one of the key parts of that is what's going on in the Texas economy. I mean, we brought on between 300,000 to 400,000 people last year moved into Texas and 67% of their business, at Thrive roughly two-thirds, comes out of the state of Texas. So it's a huge - I mean, that's a nice tailwind to half when this is going on.

Okay. Yes. That's helpful, Terry. Thanks for the commentary there and fully appreciate that. It's tough to make a call on the mortgage trends at this point. I guess, taking a step back, I think you've talked about one of the strategic priorities is to get the fees up to 25% of revenues. I assume this is a longer-term goal and maybe not quite within sight in 2022, am I thinking about that right?

Yes. Yes. No, I think we've gone from, I believe, a year ago 10% or 11% and we're up to almost 18%. But if you load in a full year of NAC, you're going to get to the 20%s, low-20s. Are we going to get to 25%? No, I don't think so. But yes, that continues to be a long-term goal, which means that we'll continue to look at other businesses, both inside and outside, that might add to that number.

The other thing making it hard, Brad, is, when you got - when given our asset sensitivity and given with the Fed on the launching pad with rates, that drives up the revenue just from net interest income and rates. And if you're growing mid-teens and the Fed is raising rates, getting to 25% and fee income, even with the full year of NAC, is a pretty Herculean effort.

Yes.

Yes. No, understood. And that's a good problem to have given your rate sensitive profile. Just lastly on credit. I think Clay gave us some great details as far as the cleanup in the quarter. Is it fair to say that additional credit clean up from here is going to be less material than what we saw in the fourth quarter? And then with the allowance ratio now, I think, at 115% ex-warehouse and PPP, do you see more room for this to drift down or should we anticipate this to more or less flatten out from here? Thanks.

Well, I mean, I think, yes, I think the material cleanup that we did in the fourth quarter was - I don't anticipate that going forward. I mean you can see what our historical numbers have been for the last couple of years, I would think those going to moderate down meaningfully just primarily because we've reduced the PCD book by about 78% over the last three years and that's where a majority of this has come from. So, yes, I would think it's going to moderate down significantly.

Yes. And I think you anticipate the reserve staying - hopefully, staying right where it is, that would be the goal.

Might be challenging.

Might be challenging.

Yes.

With the way its go. With the way CECL works and the economic inputs that go into the model, those are pretty important drivers and so we would have thought that 115% was kind of the bottom. I think it's got the potential - I'm not talking about major moves --

Right.

But I think if that - again, when you come back to the strength of the Texas economy and you look at the Moody's forecast for GDP and unemployment, it could push it a little lower, not - it ain't going sub-1 or anything like that. Don't misunderstand me. But it's - again, it's a good problem to have when you got this economy.

Yes.

Impressive with any growth profile there.

Our next question comes from the line of Gary Tenner with D.A. Davidson. Your line is open.

Terry, I missed - hey. I missed in your prepared remarks the gain on sale margin on Thrive, can you just give us that again?

Yes. It was 360, down slightly.

360. Thank you. And then you had mentioned kind of the lumpiness on NAC and I think you kind of telegraphed that pretty well when you did the deal. Based on kind of the fourth quarter production and kind of what things look like in the first quarter, any sense to kind of what sale could be from that particular business here in 1Q?

It's going to be higher. We've got a pretty decent range and the reason I've been just a little slow to answer is, those are big deals and so that is lumpy. And so, I think, last year they sold a total of 20-something loans, high-20s?

Low-20s.

Low-20s. And so if you get five or six in a quarter, you're going to get a pretty good pop. So - but their pipeline is very, very strong and it will undoubtedly first quarter will exceed the fourth quarter. It could be by a measurable amount.

And as I recall it again, on sale premiums, they are well above serving SBA level, any change to that or are they still at the kind of high-teens or 20%?

No, what we sold so far since the acquisition have been in the 17% to 20% range.

Okay. And then…

Gary, when we -

Sorry.

[technical difficulty] on this base to 15%, so FYI.

Okay. And then just wanted to ask on capital on Slide 13, CET1 down around 8.5%, with kind of your expectations for mid-teens loan growth, how do you think about kind of building that back up from here or what's your kind of level that you'd like to operate at maybe whether CET1 or other capital ratios?

Well, CET1 is the one we focus on the most and we start with - the thing this quarter was - the big thing was that goodwill from the NAC acquisition, intangibles there. So, look, we want to see this migrate back up to the 9%, 9.25% level over the course, maybe we needed to be starting with the 9%, between 9% and 9.25%, 9.5% as we move through and we'd really like that as we think about 2022 see it migrate up to that level. Obviously, if that's the goal and given our div - and when you think about growth and dividends, that didn't leave any room for buybacks. So don't - and given the valuation and the earn back, it's not - we probably wouldn't be there anyway. But capital growth, capital accumulation right now is a pretty, pretty high priority for us given where we are and the growth we think we're going to have.

Okay. And as things lay out right now, you think you get back towards that range organically over the course of the year?

I think a lot of it depends on - it's going to be somewhat - I don't think we can get near the top end of that range this year. I do think we can get to - I think we can make meaningful progress in building it back.

Thank you. I'm showing no further questions in the queue. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a wonderful day.