Veritex Holdings, Inc.

Q4 2021 Earnings Conference Call


spk10: 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 Cotto, Ambassador Relations Officer and Secretary to the Board of Veritex Holdings. You may begin.
spk09: 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 are logged into our webcast, please refer to our slide presentation including our safe harbor statement beginning on slide two. For those of you joining us by phone, please note that the safe harbor statement and presentation are available on our website, 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 8K earnings release. Joining me today are Malcolm Holland, our Chairman and CEO, Terry Early, our Chief Financial Officer, and Clay Reby, our Chief Credit Officer. I will now turn the call over to Malcolm.
spk05: 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 84 cents per share, our strongest quarter in the company's history. That was up from 70 cents per share in the third quarter, or a 20% increase, while producing a pre-tax, pre-provision operating return of just shy of 2%. The quarter did have a reserve release of approximately $4.4 million, or seven cents. 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 PVP, was $150 million for the quarter and $918 million for the year, or 9 percent and 16 percent, 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 frontline lenders to deliver continued loan growth results like they have 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 5.51 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 reported our first credit loss reserve release of $4.4 million, which brought down our ACL to 1.15%. Our credit leaders and their respective teams had an outstanding year, assisting our growth initiatives while at the same time measurably improving our credit metrics in all categories. The fourth quarter also brought to us 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.
spk04: Thank you, Malcolm. On page five, 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% over all of 2021, as Veritex executed well in spite of the pandemic. Second, tangible book value per share only declined 4 cents during Q4 to $17.49, despite 66 cents of dilution from the North Avenue capital acquisition and our normal 20 cents per quarter common stock dividends. 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 49.3% for 2021 as Veritex maintains its efficient profile even while making significant talent investments. On slide six, Malcolm's 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. is we achieved $5.4 billion in loan production, a 91% increase over 2020. On slide eight, 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 373, 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 two 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 seven basis points. As you look to model net interest income in future periods, keep the following in mind. First, security prepayment income is unlikely to repeat. Second, there was a $35 million in sub-debt with a cost of approximately 5.5% that was called in December of 2021. Third, the remixing of earning assets away from PPP and excess liquidity should continue over 2022. Fourth, previously disclosed hedging gains will 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 prepay speeds. With market expectations of three to four Fed rate hikes in 2022, this will add significantly to net interest income. On slide nine, I want to 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 pre-tax 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 the just-announced $1 billion food supply chain guaranteed loan program. Thrive reported another good quarter, with loan production of $666 million and gain-on-sell 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 a full quarterly contribution from North Avenue Capital and a more favorable seasonality for our mortgage business. For the full year of 2021, we reported operating non-interest income of $57 million, or a 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, a new syndications 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. Its headcount 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 headcount 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 costs. 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 worked 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, all capital levels except total capital contracted approximately $11 million over the quarter as earnings were offset by the North Avenue cap on acquisition and dividends. Total capital contracted more due to the sub-debt repayment 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.
spk03: Thank you, Terry, and good morning, everyone. The credit picture at Veritex continues to improve, as Malcolm described earlier. MPA reductions continue their downward trend in large part due to the resolution of the bank's largest MPA 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 help 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 officer centered in a loan that was moved to help for sale with more than sufficient reserves taken in previous quarters. This loan sale closed in January. We continue to believe the challenge 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.
spk05: 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 and thrive, purchase of NAC. Notwithstanding these accomplishments, we're all excited by 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 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, and I'd like to open the line for any questions.
spk10: Thank you. Ladies and gentlemen, as a reminder to ask the question, you will need to press star then one on your telephone. To withdraw your question, press the pound key. Again, that's star one to ask the question. Please stand by while we compile the Q&A roster. Our first question comes from the line of Brad Millsap with Piper Sandler. Your line is open.
spk08: Hey. Good morning, guys. Good morning. Hey, Brad. Malcolm wanted to start with loan growth. Twenty-three new producers in the quarter is pretty impressive. Can you tell me the types of lender it came from and then what that means? means for those outlook to and beyond?
spk05: Sure. Yeah, 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, was in the community bank space, both in Dallas and in Houston. I talk about market disruption. All of 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 gonna 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 the sponsored finance area that we brought on from that same disruption that I just talked about. So, yes, and the thing is, you know, it takes a while for those folks to get ramped up. The third quarter was also a really big higher quarter, and so we're starting to see some of what they're putting together, and the pipelines are, we're pretty encouraged by where the pipelines are today.
spk04: Also includes some production folks from NACC.
spk05: Yes. Yes, that's correct. And then we had all the NAC people. I think there were 19 total in the NAC acquisition.
spk08: Okay. Still comfortable with kind of that low double-digit type growth guidance in 22?
spk05: You know, 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. You know, we did 16 this last year. You know, I'm thinking we're going to be in the 14 to 16 range in 22.
spk04: Especially assuming payoffs don't stay at Q4 levels.
spk05: Yeah. 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're going to be higher than the first half of the year, but I don't think they're going to be $650 million. So, you know, that coupled with our unfunded commitments that we have on the real estate side, we feel pretty good about mid-teens.
spk08: Okay, great. And then as a follow-up for me, Terry, just – On the expense side of the equation, you guys have historically done a good job, you know, keeping a pretty tight loan expenses. Obviously, a lot of discussion about, you know, wage inflation. You guys are a growth company. 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, you know, the expense bill to kind of, you know, get this kind of inflationary backdrop.
spk04: Well, I need the perfect crystal ball to be able to forecast inflation and how it's going to inflect wage costs. And I'll confess I don't have one of those. But having said that, just in general on expenses, I'm going to take a wider range than I normally would. I would, you know, I would say, you know, like $180 to $200 million right now. And, you know... It's so hard to know. You can rest assured anytime someone departs your organization, it's painful to rehire on the comp front. I think that's the case everywhere, and I think we're being more successful recruiting and hiring and hanging on to people than most, but it's a hard one this year. Brad. And so, you know, I'm going to be I'm going to be, you know, forty five to two hundred. And because, look, we're planning to continue to hire some, too. I mean, so, you know, you go, well, we had forty five for the quarter, forty five annualized is one eighty. But with inflation and hiring expectations and a full year of NAC, I think I got to I think I got to widen it out to about two hundred.
spk08: That's helpful. And maybe one more follow-up. On AC, Terry, I know you cautioned us. We need to think about kind of an annual run rate. It can be also from quarter to quarter. But based on what you've seen from a couple 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?
spk05: Yeah, I would candidly probably tell you we feel a little better. We feel a little better than what we initially laid out. And just by the way, MAC 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're on the production side.
spk07: Great. Thank you, guys. Thanks, Brad. Thanks, Brad.
spk10: Thank you. Our next question comes from the line of Michael Rose with Raymond James. Your line is open.
spk06: Hey, good morning, everyone. I hope you're doing well. Yes, sir. Good morning. Good morning. I just wanted to start on slide eight on the core margin at 331. You know, Terry, you rattled off a bunch of considerations. If you could help us out a little bit with, you know, what the impacts of all those, you know, considerations might be and how we should think at least about the core margin execration. and PAA, stuff like that, you know, as we think about the year. Obviously, with the backdrop of, you know, higher rates, but just looking for a core, you know, core expectations, X any rates. Thanks.
spk04: All right. I'll be glad to. Well, if we ended in Q4 at 331, I'd take 10 BIPs off that for that prepayment to 321. We've got nine BIPs of expansion opportunity between PPP and X liquidity, so that takes you back up to 330. The hedging gains are going to add about 5.5, so that's 335. And the sub-debt payoff is 2.5 to the NIMS. So I would say about 338 core, and that's net of taking out the 10 BIPs for the security prepayment.
spk06: Okay, so that's a good starting point. Appreciate it. And then, you know, you mentioned on the health or investment side, you know, mid-teens growth, that's really, really good to see. Obviously, you know, 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, you know, almost 20%. How should we think about your guys, you know, warehouse as we think about the year? Thanks.
spk05: Yeah. So, I mean, listen, we are not guiding it down. We think it's going to grow. There's opportunity. Amy running that group has done an outstanding job. There's new business that we're looking at all the time. We think there's a little bit of growth in there. We'll never grow it over the 10% that we've always talked about since day one, but running at 6.7% last quarter on average, there's some room there. We think there's some additional room there, and she does too. We're not guiding that piece down at all.
spk04: We've got some specific clients that are coming on in Q1.
spk05: Yeah, we've already got some identified, approved, and so we feel pretty good about that number growing.
spk06: All right, so maybe, and not to pin you to it, but maybe high fours, low fives for an average is maybe the way to think about it, just given the folks it takes.
spk05: Yeah, I think so.
spk06: Okay, fair enough. And then Um, maybe just one final one for me, um, the loan to deposit ratio X warehouse, you know, right around 93%. I know you've talked about, you know, funding, uh, in the past, any sort of expectations, uh, for a deposit growth and, you know, how should we think, you know, I think you'd mentioned that you, you have enough liquidity. I think you said last call or previous calls, you know, through the end of, I want to say 2024. Um, but just want to get any updated thoughts on, uh, on that relatively higher loan-to-deposit ratio. Thanks.
spk04: Yeah, certainly I understand the question. And 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, you know, at the end of the year to stay under 10. They used to come back. And there's some interesting and meaningful, sizable changes 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. You know, that'd be an understatement. and stay tuned, but we feel good about the deposit growth trends for 22, given all those things I just mentioned, and we'll continue to talk about this as we go forward. All right. Thanks for taking my questions. All right. Thanks, Michael.
spk10: Thank you. Our next question comes from the line of Brett Webayton with Hope Group. Your line is open.
spk00: Hey, good morning, guys. This is actually Ben, going off with Brett. Hey, there. I was curious. I know that you guys have done a pretty phenomenal job of picking up talent from the market disruption. And within Texas itself, the first half of 21 was pretty quiet, especially relative to the second half in terms of deals. And with your guidance of kind of that mid-teens growth, With the recent deals announced, obviously it'll 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 FY23?
spk05: You know, again, it's some sort of guidance that we're given. 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. You know, a lot of these folks are, you know, awaiting their payouts from 21, so those don't happen until February or March. They don't get on board until second quarter and probably don't see much of their help until you get to 23. So, you know, could payoffs slow? Sure. I don't see that, but if they were to materially slow down, I think you'd see the mid-teens number grow. So I think the mid-teens grow number is a function of probably more on payoffs than it is on hiring new talent.
spk00: Gotcha. Okay, that's helpful, Culler. And then my follow-up would be more on kind of Your valuation today is improving, so obviously when you listed out the capital actions, share purchases 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 boxes that the additional either bank or the income source would need to bring to the vertex of the hole?
spk05: Yeah, I mean, we're always active in the M&A side. And as our currency becomes stronger, we get a little bit more active from time to time. But yeah, there's 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. And then we also would be... what we call unicorn banks around the state that aren't for sale. Nobody's willing to sell them. But if and when that happens or there's an event that happens at 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. last year was quite successful in that regard with our investment in Thrive and the acquisition of Mac. So I'm continuing to look at those things. And, you know, FinTech's a big buzzword, so we continue to look at – there's all sorts of stuff 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 my remarks, that really we need to meet those.
spk10: Thank you. Our next question comes from the line of Matt Olney with Stevens. Your line is open.
spk01: Hey, thanks. Good morning, guys. Good morning, Matt. Matt, how are you doing, buddy? I'm well. I wanted to ask more about speeds 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 to 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?
spk04: Well, I mean, I think if – clearly seasonality, and I expect Q1 – You know how it is. I mean, things start to ramp up when you start coming out of winter. So whether it hits the production side of things in Q1, I think it will hit the pipeline side. And, you know, look, as we all know, there's been tremendous gain on sale margin compression. In addition to, you know, just volumes were down, gain on sale margins have come down You know, Thrive is focused on bringing on more teams, growing production capacity. But, you know, I think it's – if I had to – if I had to – let me see.
spk05: Getting the crystal ball out.
spk04: Yeah, I'm getting my crystal ball out. You know – I would say it's not as lumpy as NAC, but it isn'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 to $9 million annual impact. It's obviously going to be stronger in Q's Two and three. So, you know, that's the best insight I have now. And, you know, I'd say Q1 is going to be a little stronger than Q4 of 22. I mean, look, I mean, I'm looking, I'm acting like I can, I've got perfect vision in this fourth quarter, which I clearly don't and don't know who does in this volatile situation. rate-crazy time we're in here. And it's such a rate-driven business. But I think they did prove in 2021, even when the industry's 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 and 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, it's a nice... tailwind to have when this is going on.
spk01: Okay. Yeah, that's helpful, Terry. Thanks for the commentary there. And I 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 within sight in 2022. Am I thinking about that right?
spk05: Yeah.
spk01: Yeah.
spk05: No, I think we've gone from, I believe a year ago, 10, 11, and we're up to almost 18. But if you load in a full year of NAC, you know, you're going to get to the 20s, 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, you know, other businesses' both inside and outside, that might add to that number.
spk04: The other thing making it hard, Brad, is 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% in fee income, even with a full year of NAC, is a pretty Herculean effort.
spk01: Yeah, 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 cleanup 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 115x warehouse and PPP, Do you see any more room for this to drift down, or should we anticipate this to more or less flatten out from here? Thanks.
spk03: Well, I mean, I think, yes, I think the material cleanup that we did in the fourth quarter was, you know, 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 are going to moderate down meaningfully, just primarily because we've reduced the the PCD book by 78% over the last three years, and that's where a majority of this has come from. So, yeah, I would think it was going to moderate down significantly.
spk05: Yeah, and I think you can anticipate the reserve staying, hopefully staying right where it is. That would be the goal. Might be challenging. Might be challenging, yes.
spk04: With the way CECL works and the economic inputs that go into the model, You know, 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. But I think, 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. It ain't going sub one or anything like that. Don't misunderstand me. But, again... It's a good problem to have when you've got this economy, especially with that growth profile.
spk01: Okay. That's all from me. Congrats on a great year, guys. Thanks.
spk07: Thanks, Brad. Matt. Matt.
spk10: Thank you. Our next question comes from the line of Gary Tenner with DA Davidson. Your line is open.
spk07: Thanks. Good morning. Good morning. Terry, I missed in your prepared remarks, the gain on sale, margin on thrive. Can you just give us that again?
spk04: Yeah, it was a 360 down slightly.
spk07: Thank you. And then you'd 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 again, on sale could be from that particular business here in 1Q?
spk05: It's going to be higher. We've got a pretty decent range. And the reason I'm being just a little slow to answer is those are big deals. And so, you know, it's lumping. So I think last year they sold a total of 20-something loans. High 20s? Low 20s. Low 20s. And so, you know, if you get... five or six and a quarter, you're going to get a pretty good pop. 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.
spk07: As I recalled again on sale, premiums there are well above sort of an SBA level. Any changes to that, or are they still up at that kind of high teens or 20s? 20% range?
spk04: No, what we've sold so far since the acquisition have been in the 17% to 20% range. Okay, thank you. And then, Gary, we get bias on this based at 15%, so FYI. Okay. Okay.
spk07: And I just wanted to ask on capital, on slide 13, CT1 down around 8.5. You know, with kind of your expectations for mid-teens, loan growth, you know, 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 it's CT1 or other capital ratios?
spk04: Well, CT1 is the one we focus on the most, and – You know, the thing this quarter, the big thing was the goodwill from the NAC acquisition, the intangibles there. So, look, we want to see this migrate back up to the nine, nine-and-a-quarter level, you know, over the course. Maybe, you know, we need it to be starting with a nine, between, you know, nine, nine-and-a-quarter level. nine and a half as we move through. And we'd really like to, as we think about 2022, see it migrate up to that level. You know, obviously, if that's the goal and given our, when you think about growth and dividends, that doesn't leave any room for buybacks. So don't, and given the valuation and the earn back, that's not, you know, we probably wouldn't be there anyway. But capital growth Capital accumulation right now is a pretty high priority for us, given where we are and the growth we think we're going to have.
spk07: Okay. And as things lay out right now, do you think you get back towards that range organically over the course of the year?
spk04: I think a lot of it depends on, you know, 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. Okay. Thank you.
spk10: Thank you. I'm sure 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.

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