Bank7 Corp. (NASDAQ:BSVN) Q2 2023 Earnings Call Transcript

Bank7 Corp. (NASDAQ:BSVN) Q2 2023 Earnings Call Transcript July 20, 2023

Bank7 Corp. beats earnings expectations. Reported EPS is $1.05, expectations were $0.96.

Operator: Good morning, everyone. Welcome to Bank7 Second Quarter Earnings Call. Before we get started, I’d like to highlight the legal information and disclaimer on Page 25 of the investor presentation. For those who do not have access to the presentation, management is going to discuss certain topics that contain forward-looking information, which is based on the management’s beliefs as well as assumptions made by and information currently available to management. Although management believes that the expectations reflected in such forward-looking statements are reasonable, they can give no assurance that such expectations will prove to be correct. Such statements are subject to certain risks, uncertainties and assumptions, including, among other things, the direct and indirect effect of economic conditions on interest rates, credit quality, loan demand, liquidity and monetary and supervisory policies of banking regulators.

Should one or more of these risks materialize or should underlying assumptions prove incorrect, actual results may vary materially from those expected. Also, please note that this conference call contains references to non-GAAP financial measures. You can find reconciliations of these non-GAAP financial measures to GAAP financial measures in an 8-K that was filed this morning by the company. Representing the company on today’s call, we have Brad Haines, Chairman; Tom Travis, President and CEO; J.T. Phillips, Chief Operating Officer; Jason Estes, Chief Credit Officer; and Kelly Harris, Chief Financial Officer. With that, I would like to turn the floor over to Tom Travis.

Tom Travis : Thank you. Good morning, and welcome, everyone. We were pleased with our quarter and pleased with our year-to-date. If you boil it all down to why we were able to again have record profits and earnings per share. It’s really a story of sticking to your fundamentals, our fundamentals and relationship banking. And we’re proud of the banking team that we have, the bankers, the executive management all the way down to the front line. And we’re just continue to stay focused on our fundamentals and we are also mindful of what’s going on in the market, and we’re carrying excess liquidity just in case, and we’re happy with the position of that balance sheet that continues to have no debt, extra liquidity and plenty of money for turbulent should it come into the markets again.

And so with that being said, it’s not sexy and fancy, but fundamentals just don’t go out of style as they say, and we’re real pleased about it. And I think if you look back at the prior 2 quarters, earnings call commentary, maybe 3 quarters, the year has kind of shaped up the way we thought it would. And with the Fed continuing to increase rates, clearly, the funding costs have gone up, but we’ve managed our margin within our historical ranges and very happy about that. So with all that being said, we’re happy to take any all calls or questions you may have. Thank you.

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Q&A Session

Operator: [Operator Instructions] Our first question today comes from Tom Wendler from Stephens Inc.

Tom Wendler: I just want to start off with expenses. We saw the decrease this quarter. Can you maybe give us some color on your expectations for expense growth moving forward?

Jason Estes: Yes. We did have a slight decrease in Q2 versus Q1. And from a run rate perspective, I like the second quarter better going forward, maybe a little bit higher at $7.5 million.

Tom Wendler: Perfect. And then just kind of moving on to credit. We saw a step-up in your allowance this quarter even with the decreasing nonperforming loans and loan balances remaining relatively flat. Can you maybe give us some color around the reserve build?

Jason Estes: Yes, I think that it’s just kind of our DNA whenever you have what we believe to be some economic headwinds out there or potential headwinds to continue to build. The portfolio has held up very well. Past dues are down, you’ll see positive trends, credit trends throughout the book, I think if you’re comparing to the last couple of quarters. So with that being the case, we still — we’re not oblivious to the impact of higher interest rates and what that’s going to look like in the economy as the year goes on, and you’re starting to see some of those effects, I think, in the economic data. And so regardless of what the Fed does in the next couple of meetings, we just think it was prudent to get ahead of that.

Tom Wendler: And then one last one for me. Loan balances remained flat this quarter. Can you just maybe give us some color on your expectations for loan growth? And if there’s any sort of segments you’re looking to grow more than others?

A –Jason Estes: Yes. From a segment standpoint, we’re pretty consistent, I think. You see us hospitality, energy, C&I and then the same stuff that we’ve been doing, I think, is expect the same in the future. And as far as growth, I think if you go back to the last couple of calls and the commentary has been, hey, look, this won’t be a year like last year where the growth was probably a little bit more than we had anticipated, single digits this year. And I still feel confident in that. I think this will be the third call in a row or maybe even the fourth where we talked about what does this year look like? And I think we’re unchanged, even though March was a little bit turbulent and caused some uncertainty, it’s still looking like that’s a good number for the overall year.

Tom Travis: Jason, am I correct that construction is actually down.

A –Jason Estes: It is. It is.

A –Tom Travis: So that’s one segment that we would point out that – I don’t know the numbers, but our construction lending has definitely slowed as we expected it would.

Operator: Our next question comes from Nathan Race from Piper Sandler.

Nathan Race: Question on just kind of the margin outlook ex fees and accretion. It looks like it came down about 6 basis points versus the first quarter. It looks like the increase in deposit costs was actually less than what we saw during the first quarter. So just curious to kind of get your expectations in terms of perhaps the magnitude of future pressure that we can expect during 3Q and 4Q of this year?

Kelly Harris: This is Kelly. I think from an ex-fee perspective, 4.55% is a good number. And I’ll just highlight the fact that we are carrying additional liquidity. And so you could see a shift potentially if we do fund up loans, when we do fund up loans, some of that cash leads down and that could prop up NIM a little bit as well. The Fed is meeting next week, and so that will have an impact on NIM going forward as well. But I think from a core NIM perspective, 4.55% is a good number.