Bank7 Corp. (NASDAQ:BSVN) Q2 2025 Earnings Call Transcript

Bank7 Corp. (NASDAQ:BSVN) Q2 2025 Earnings Call Transcript July 17, 2025

Bank7 Corp. beats earnings expectations. Reported EPS is $1.16, expectations were $0.98.

Operator: Welcome to the Bank7 Corp. Second Quarter 2025 Earnings Call. Before we get started, I’d like to highlight the legal information and disclaimer on Page 27 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 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, 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 Tom Travis, President and CEO; J.T. Phillips, Chief Operating Officer; Jason Estes, Chief Credit Officer; Kelly Harris, Chief Financial Officer; and Paul Timmons, Director of Accounting. With that, I’ll turn the call over to Tom Travis.

Thomas L. Travis: Thank you. Welcome to the call. We obviously had a great quarter as you can see in the results. Before we get to that, a couple of weeks ago today, there was a really bad flood in my hometown of Kerrville, Texas. And so anyone on the call that has money left in their budgets for relief fund, there’s a great organization, the Kerr County Relief Fund, they really need support. So consider that when you’re looking at your expenditures in that area. I’m sure that the people down there will put it to good use. Back to the call, it was one of our best quarters ever, and we always have to recognize that those results happen because of our talented group of bankers. They drove strong loan and deposit growth and we thank them very, very much.

As you can see, we maintained our NIM on the higher end of our historical range, and we also continue to benefit from that low efficiency ratio. When you put those factors together with the solid loan growth, we experienced nice strong core earnings. We’re very comfortable with our asset quality and I always give a shout-out to Jason Estes and his team. They’ve done an excellent job of maintaining a high-quality credit book while at the same time growing that portfolio. So we’re very proud of our results. We’re pleased to continue to provide shareholders with excellent top-tier results. And without further ado, I guess we’re standing by for any questions you may have. Thank you.

Q&A Session

Operator: [Operator Instructions] And your first question today will come from Woody Lay with KBW.

Wood Neblett Lay: Wanted to start on loan growth. Obviously a really strong quarter on the growth front, and it’s been a really successful first half of the year when many others in the industry have kind of lagged in growth. I know your growth can be a little bit lumpy quarter-to-quarter, but how are you thinking about the growth momentum in the back half of the year?

Jason E. Estes: Always depends on the lumpy paydowns. I think our deal pipeline, it looks solid right now. I think we’ve signaled that the last couple of quarters in a row that things in Oklahoma, things in Texas, economically, they’re just in a really good spot. We’re thankful to do business where we do business. And so going into Q3, again, pipeline looks strong. But you just never know on the chunky paydowns what’s really coming. I think it was fourth quarter of last year, we just had a big wave of companies selling, people selling assets, various things that lead to a little bit of unpredictability there in the payoff side. But from the origination side, Q1 was strong, Q2 was stronger slightly. And I think Q3 is lining up to be similar. But we’ll see.

Wood Neblett Lay: And then how do you think about the NIM outlook, given the growth? Deposit costs were relatively stable in the quarter. Just given the expectation for strong growth, could we see deposit costs start to move up to fund the growth? And how does that impact the NIM?

Jason E. Estes: Yes. I think that’s a fair way to state. What we see real time is that to keep up on the deposit side, it does cost a little bit more money. We’re always focused on offsetting some of the higher-priced money with the transaction accounts, the zero-cost accounts. And so bankers have done a really nice job of dragging that business in. And hopefully, we continue to do so. But I think we’ve been talking for a few quarters in a row about, yes, we expect a slight degradation but we do expect to remain in our historical ranges. And that holds true today.

Wood Neblett Lay: Got it. And then last for me, we’ve seen deal activity pick up in your backyard. Just any update on the M&A front for you all?

Thomas L. Travis: Woody, we’ve come close a couple of times. Over the last 12 months, we’ve actually had a couple of signed LOIs. We’re very disciplined in our approach and for various reasons, those didn’t happen. We continue to meet with various potential partners. We’re very focused on — we’d love to do an MOE, but we just continue to have a lot of meetings and do a lot of evaluations. And I think the tendency for people now as they’ve improved their AOCI, it’s somewhat which is going to loosen up the market. But we’re going to just continue to evaluate opportunities in what we consider to be dynamic markets and common cultures. And it’s just hard to predict when one of those might break loose.

Operator: And your next question today will come from Nathan Race with Piper Sandler.

Nathan James Race: Just following up on the margin commentary. Curious maybe, Jason, if you can kind of touch on some of the competitive pricing dynamics you’re seeing, and just kind of where you’re seeing new loans come on the portfolio relative to the 7.6% kind of core yield in the second quarter.

Jason E. Estes: Yes, I think it would be slightly lower than the 7.6%, but still, I think if you go back a year ago or 2 years ago, there were fewer banks really aggressively looking for loans, especially after March of ’23. And I would consider today’s environment very historically normal from a pricing standpoint within the competitive set here in Texas and Oklahoma. It just seems pretty benign and that’s nice to see some return to normalcy. So yes, there’s always pricing pressure, Nate. But right now, feels like people have kind of settled in on the deposit and the loan side, which is part of what led to the results.

Nathan James Race: Got it. That’s helpful. And then just kind of thinking about the appetite to maybe add some producers going forward. There’s obviously been some M&A announcements within 2 of your key MSAs recently. So just curious kind of what the upside is, maybe add some talent maybe relative to the existing capacity across the teams?

Thomas L. Travis: Nate, I met with a person in Dallas on Monday, and we’ve looked at a few lift-out possibilities, and those are delicate things as you can imagine. And I think the dynamic when you look at a lift-out or people coming out of those situations is always the credit comes first and then the deposits to help fund that growth seems to be a slower dynamic. And so we evaluate those and you may see us do something in the North Texas region. But I don’t know that it’s going to be that anything that’s materially dynamic at first. We’re very, very careful and culture is very, very important to us. And so we’ll see how that goes in the next couple of months.

Nathan James Race: Okay, great. Maybe 1 last 1 for me for Kelly. If I strip out some of the oil and gas impacts, within expenses, I think they run around $8.8 million coming out of the quarter. So just curious how you’re thinking about kind of the expense run rate over the back half of this year.

Kelly J. Harris: Yes, Nate, I believe Q2 is probably a solid guide. Internally, we are showing a little bit of expense creep. So you could increase that slightly but it’s probably a good start. I think from a Q3 perspective, fees, $2 million split evenly with oil and gas and core. And then on the expense side, we’re using $10 million, with $1 million in oil and gas and $9 million on the expenses. But I don’t think it’s had a real meaningful impact to our efficiency ratio. And we’re still in that core 36% or 37%, 38% core.

Thomas L. Travis: Core.

Kelly J. Harris: Right. And so I guess I would argue it’s probably splitting hairs at this point, Nate.

Nathan James Race: Right. And then can you just remind us what the remaining life is on the oil and gas assets? Should that largely run off by the end of — or should the recovery pretty much conclude by the end of next year or before then?

Thomas L. Travis: I think when I read your piece, you said that we had recovered 75% of our cash outlay. Is that what you said in your piece this morning, Nate?

Nathan James Race: Correct, versus, I think, 68% at the end of last quarter.

Thomas L. Travis: Right, right. And I think that’s pretty accurate.

Jason E. Estes: Yes, we should recover fully cash on cash middle of next year, I think, is what we’re projecting. So 3 to 4 more quarters.

Thomas L. Travis: We’ve achieved our goal there, Nate. It’s working really, really well, and we’ve achieved our goal on that. And so it’s going to just continue to perform that way and become — it’s really not material anymore and that’s a good thing.

Nathan James Race: Great. Got it. I appreciate all the color. Congrats on a great quarter, guys.

Operator: [Operator Instructions] And your next question today will come from Matt Olney with Stephens.

Matthew Covington Olney: Just a few follow-ups here. Kelly, I think I missed your commentary you just made about the fees for the third quarter with and without the oil and gas revenue. Can you just go over that again?

Kelly J. Harris: Yes. We’re internally projecting $2 million in fees, Matt, split evenly between oil and gas and the core.

Matthew Covington Olney: Got it. Okay, that’s helpful. And then going back to the loan growth discussion, it looks like a portion of that growth was within energy lending. Just looking for any more color on kind of the opportunities you see on that side. And then just overall growth that you’re seeing in 2Q in the pipeline. Just any color on the overall granularity of these loans. I think some of these loans can be smaller singles and doubles, but I think also you’re open to some larger chunkier loans. Just any more color on the granularity what you’re seeing these days.

Jason E. Estes: Sure. Matt, it’s always a mix with us. And I would say going back to the first of this year, I think if you look our production loans, that’s really where we’re at, $30 million, $35 million in that energy bucket. And what’s happened in our energy portfolio really since we went public is just this shift away from service — the service deals we’re in or big fund deals typically. And it shifted a lot more to production, just think hedged oil and gas production. And so that’s kind of the story for this first half of the year as well. And then from a C&I standpoint, there’s some strength there this year that’s getting a little bit clouded by some exits within that portfolio. And so we’ve really had a nice origination year in the C&I portfolio.

And then owner-occupied real estate, we’ve had a good year there. We’re up about $19 million net-net. And then a little bit of growth in our dollars outstanding in the Hospitality portfolio. But again, that’s another one like energy and like C&I. And the Hospitality — between those 3 portfolios, there’s just a lot of churn. And so lots of exits, lots of asset sales and then we’re constantly trying to reload that customer base. And so we’re benefiting from some of these exits on the deposit side. And so we like to stay real active in those 3 books because it’s really helped us grow the company here over the last 10 years.

Thomas L. Travis: I would add to Jason’s comments that if you look at a long-term horizon going back for the last 7 or 8 years, the energy exposure today is almost half what it was 7 or 8 years ago. And because of the growth in the other segments — and the other, Hospitality segment is down exposure-wise from a percentage basis and so we haven’t expanded those verticals. And in fact, in energy, it’s come down quite a bit. And I really — as Jason said, it doesn’t have anything to do with us exiting a segment. It has everything to do with the ability to grow the other parts of the portfolio and specifically in the Dallas/Fort Worth region. So I think it’s important to remember the long-term dynamics that are in play there.

Matthew Covington Olney: Yes, okay. Well, I appreciate the color on that. And then I guess, going back to the margin discussion, I think you kind of hit on some — a little bit of pressure in the third quarter we already discussed. Just remind us of your rate sensitivity. And I guess the market is currently expecting a September fed funds cut. And I guess, with that on your balance sheet, I’m just now assuming there could be a little bit more incremental margin headwind in the fourth quarter, if that’s the case. But just remind me of your overall sensitivity to rates.

Kelly J. Harris: Yes, Matt, this is Kelly. The first few rate cuts, we were able to keep the loan beta and deposit beta 1 for 1. We anticipate more of the same for the next couple of rate cuts, and as floors kick in will definitely help out on the liability side.

Thomas L. Travis: I think you can see some of that dynamic on Page 10. We tried to illustrate the floors and what the dynamics are. I would say generally that we always talk about our NIM. And when we talk about NIM, we’re looking at the net NIM without loan fee income. And historically, we are very close to the high end of our historical range. And so I think it’s a natural thing that the — we are very well positioned for when rates do come down. And we’re not concerned about it because we have so many floaters and floors and we’re funding it on the other side properly. But I think that it’s important that we all remember the long-term averages that we experienced in that net NIM. And I’m delighted that we’ve been able to keep it where it is.

I mean, I got a little bit of bone to pick with Nate. I saw Nate that he — I didn’t realize Nate, last quarter, that you had predicted us to be even higher than where we are. I feel like a pole vaulter that just pole vaulted 20 feet and Nate’s like, “Well, you should have done 21,” but I’m half kidding, Nate. But seriously, I think when you look at NIM, it’s really important to remember the long-term dynamics of the match balance sheet, the floors and that look, if we bleed down into the more typical historical range that’s okay, and it wouldn’t surprise us.

Operator: And your next question today will come from Nathan Race with Piper Sandler.

Nathan James Race: Unrelated question to your last comment, Tom, but just wondering if Jason can maybe just comment on what you see in terms of criticized, classified migration in the quarter and just how you’re thinking about credit quality and charge-offs over the balance of this year and into next.

Jason E. Estes: Yes, I’d say if you go look back over the last several quarters, it’s just kind of this continuous path toward a little cleaner, a little smaller NPA number. Really nothing has changed over the last, I’d say, 6 to 9 months internally. Our past dues are very clean. Economic environment here is good. We stick to our underwriting fundamentals. We’re not adding new business lines. It’s just more of the same. And it’s — there’s a little bit of uncertainty, I think, in the economy. If you just look at the headlines and see the tariffs and different things going on with immigration policy, it’s pretty remarkable as we talk to our clients and these business owners and how they operate. And you’ll see someone have to deal with an issue here or there, but all in all, it’s just been a really good run of multiple quarters here where we operate. I mean, the economy is strong.

Nathan James Race: Okay, great. That’s helpful. And Tom, I’ll be sure to set a low core margin bar for you in the future. I appreciate it.

Thomas L. Travis: We appreciate it, Nate. It’s easier to meet low expectations, you know that.

Operator: This will conclude our question-and-answer session. I would like to turn the conference back over to Tom Travis for any closing remarks.

Thomas L. Travis: Well, we’re — again, we’re delighted with the quarter, with the first half of the year. We’re cautiously excited about the rest of the year, just the great markets that we operate in and the great team of bankers that we have. And we’re just delighted to continue to provide shareholders with absolute top-tier results, and we’re going to keep doing what we’ve always done. And so thank you. Bye-bye.

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.