Bank7 Corp. (BSVN) Q3 2026 Earnings Call Transcript

Operator: Welcome to the Bank7 Corp. Third Quarter 26 Earnings Call. Before we get started, I would like to highlight the legal information and disclaimer on Page 25 of the Investors 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 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 be proved 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 the banking regulators. Should 1 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 Haynes, chairman Tom Travis, president and CEO JT Phillips, chief operating officer Jason E. Estes, chief credit officer, Kelly J. Harris, chief financial officer Paul Timmons, director of accounting. With that, I will turn the call over to Tom Travis.

Thomas L. Travis: Thank you, and welcome to the call. And first and foremost, what a great company we have here at Bank7. It does not happen by accident. Our team's been together a long time. We executed a high level every day. We like to say it takes courage to be great, and we are proud of our consistent top tier results. Just a fantastic company and really good results, given the all the things that we are having to do at the same time closing our recent acquisition. So a really great quarter. I would say that highlights would start out with very strong loan growth, that is stronger than what it appears because we overcame substantial unscheduled paydowns from large customers. So our loan team, as usual, is functioning at a very high level and we are very thankful for them. And we discipline ourselves with our loan pricing and our deposit pricing. And we properly manage that balance sheet, which enables us continue benefiting from that strong and consistent NIM. We also benefit from the robust economy and the biz. Business friendly markets down here in Texas and Oklahoma. And it is a real blessing. And we are mindful of that. For a long time, people on the call were asking us what we were going to do with the excess capital. And it was tempting to distribute some of those funds while the calls were being made asking us what we were going to do. But we waited. And we are glad we did. And we are very excited about the pending merger with Century in New Mexico, and it is a really good example of discipline and patience and prudent use of capital, which really drives the metrics on how transformational beneficial this transaction will be. Century is an outstanding deposit and banking franchise that is well entrenched in the communities in New Mexico, especially Santa Fe and its surrounding areas. And we really look forward to that merger. We look forward to continue serving our existing communities and customers as well as theirs and coming together as 1 team. So we are well positioned for the future. Looking forward to executing on our plans. And with that, we are here to answer any questions anyone might have. Thank you.

Operator: Will now begin the question and answer session. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed, At this time, we will pause momentarily to assemble our roster. The first question today comes from Woody Lay with KBW. Please go ahead.

Woody Lay: Hey. Good morning, guys.

Thomas L. Travis: Good morning.

Woody Lay: I wanted to start on the organic growth in the quarter. And as you mentioned, it was very impressive considering all the all the things you were juggling intra quarter. Maybe specifically on the deposit strategy, deposits were up pretty significantly in the quarter, and you are about to add a really good source of cheap core funding with Century, So I was just curious what you sort of plan to do with the excess liquidity that is on the balance sheet. Is this a sign that the loan pipeline is pretty strong in your eyes?

Kelly J. Harris: Hey, Woody. This is Kelly. Yeah. During the quarter, you know, we experienced, as Tom mentioned, the substantial loan pay down. We chose to be conservative from excess liquidity, higher deposit balance. Because of the known loan fundings as well as the pending merger. And some of that cash that goes out related to that, And so that is kind of the game plan going forward. You know, strong pipeline as well as closing this merger.

Woody Lay: Got it. And then you know, I know the merger is closing November 1st, so midway through the fourth quarter. But just any sort of NIM guidance you could provide, know, pro forma with Century Financial plus, you know, the potential for an additional rate hike from here, I feel like that would be helpful.

Kelly J. Harris: Yeah. I think from a deal perspective, we currently view the deal as neutral to our margin. And we intend to sell some to all of Century's bonds And depending on when those sales occur, it will generate a meaningful amount of cash and we will be methodical about how we deploy that cash. In some scenarios, it will be more accretive to our margin. In other scenarios, it will be more neutral to our margin. And from a bank 7 legacy perspective, the loan beta in the quarter was close to 60%. Deposit beta was around 52%. And I think, you know, forward looking assuming a rate hike in Q4, we anticipate that loan beta to be in the 65% to 70% range. And the deposit beta, a little bit harder to project, but we assume less. Yeah.

Thomas L. Travis: And I would add to that. that is really good. Kelly, and accurate. And I would add to that if you could think of the word bias or think of the word tendency, once the merger happens, we are going to have a bias or a tendency to be able to more easily maintain that margin due to the influx of a cheaper cost of funds. And that advantage will gradually dissipate over time as we redeploy and some of it could be redeployed into slightly lower yielding loans. And so if you think of a trade off between growing slower by maintaining existing pricing compared with growing faster potentially on the loan book because you decide to capitalize on slightly lower cost of funds, and therefore, you can lower your loan rates. And so I do not think that is going to be a material thing. it is not like you are going to see all of a sudden lower loan pricing I am just pointing out that we are going to have some flexibility in the near term to medium term because of that advantage of a slightly lower cost of funds. Yeah.

Woody Lay: Got it. And then maybe just last for me. And you have kind of hit on it a little bit, on the bond portfolio. But longer term with the acquisition of Century, it would feel like there is a significant opportunity on the. On the balance sheet remix side to help that 25% accretion longer term How do you think about remixing Century's loan portfolio over the medium to longer term.

John T. Phillips: I think you are going to see us continue to do what we have done in the past. And they have commercial banking talent that aligns philosophically with us. And so you will see us kind of expanding into a couple new markets there. But doing the same thing that we have traditionally done. Which is catering to business owners, entrepreneurs, high net worth individuals, and really pursuing that commercial loan, and it will look similar to what we have done in our other markets. And it also gives us some more opportunity specifically in our Dallas operation. Where we. We are constantly funding challenged there. A lot more loan growth than there is deposit growth, and so maybe we can share some of the newly acquired funds into our Dallas market.

Woody Lay: Got it. Alright. Well, that is all for me. Thanks for taking my questions.

Operator: The next question comes from Nathan Race with Piper Sandler. Please go ahead.

Nathan Race: Thanks for taking the questions. Just going back to 1 of the previous questions, just thinking about any potential runoff that you are anticipating at the Century loan portfolio and just maybe bigger picture, how do you anticipate the addition of Century kind of impacting Bank7's historical kind of high single to double digit loan trajectory that we have seen kind of longer term from you guys?

John T. Phillips: I think there is any-- you know, day 1 plan to, you know, specifically run off loan balances, I think you will hopefully see a steady similar to what we typically do and as you just referenced, a 5%, mid-single digit to low double digit company wide growth. You know, whichever markets are able to contribute to that consistently. And remember, we still run into these chunky periods of payoffs, and it is-- you cannot see it in the numbers, but our payoffs for the quarter were over a $130 million. Okay? And so we backfilled that and we are able to grow nicely over the prior. But that is a very atypical amount of payoffs followed on the heels of reasonably significant payoffs in Q2. But we knew going, at least midway through Q2 that we were stacked with a big loan pipeline to fund throughout the rest of the year. And most of that funding has occurred, but we still have some clarity, some visibility to a little bit of additional funding in the fourth quarter. So it is really. You know, go back to Tom's opening statement about the strong economies that we operate within, and we have a great team of bankers. They are out working, and we are finding deals. And not going to stop. We are not going to change. I do not see a consistent move up or down. We want to keep doing more of the same. Right? Let's just be what we are. And if we run into a couple periods where we can grow a little faster because things are going well, then let's do it. But we are not going to take unnecessary risk, and we are not going to give away our margin.

Thomas L. Travis: Yeah. there is 1 minor addition, I would say, that Century did have a more aggressive use of buying loan participations And it is certainly not the majority of the portfolio, but it is a healthy amount that we intend to. We are not gonna pursue that and those particular loan participations as they mature, as we have the opportunity to exit those, we would. Which would then provide additional funding sources.

Nathan Race: Got it. that is really helpful. And just curious on the. Some of the competitive dynamics in your geographies these days. Think there is some growing competition across some of those markets. So just curious what you are seeing in terms of kind of new loan pricing these days. It was great to see, I think, core loan yields ticked up 2 basis points quarter over quarter. So just curious kind of what you are seeing from a competitive perspective, particularly across some of the specialties that you guys operate within.

Thomas L. Travis: I have not seen any dynamic changes there, Nate. I mean, it is very We always have tough competition in all the markets where we are actively loaning money. I do not see that changing. I guess there was a period during COVID where there were some people that were not particularly aggressive in loaning out money, but it is been very consistent for the last 3 to 4 years. Lots of banks looking to deploy into loans, and that is where the relationship bankers win the day.

Nathan Race: Got it. that is helpful. Maybe 1 more for Kelly just on the expense outlook. I think Centra is running around $12 million a quarter. Over the last handful of quarters. Terms of overhead costs. So obviously, it will be noisy the next couple of quarters, but just any sense in terms of how to get to kind of 30% cost savings and the timing around the systems conversion to, I imagine, realize the large majority of those cost saves.

Kelly J. Harris: Yeah. I mean, I like to look at our previous deal with Cornerstone I mean, you saw efficiency ratio creep up you know, couple hundred basis points. Initially. And then over time, we feel very confident that we can operate Century's noninterest expense at or below where we currently operate ours. I think from a timing of system conversions are more of a Q3 Yeah.

Thomas L. Travis: I would say we modeled when we sent that deck out. We talked about expected efficiencies and the numbers in there. And I have got 2 numbers that I am looking at in my head. I do not know what percentage, but I would say that at least 75% or 80% of the cost savings will occur immediately in the first quarter And then there will be the remainder spread out between the end of the second quarter and the end of I am sorry. The end of the first quarter and the end of the second quarter. So call it 75/25, 75% cost savings to be achieved right away. But back to Kelly's point, I think you can look at that What are we at? 2.05% of non-interest expense? Yeah. Is it close to that number? Yeah. And so when you think about that number, Nate, we should be well south of 2% if you just look at if you wanna call it the century stand alone. Right? Because you always have heavier at the headquarters.

Nathan Race: Gotcha. Maybe if I could just sneak 1 more in. You know, it is a pretty transformational deal. I think Accenture is a large acquisition. History of the company. But just curious as 2027, kind of more of a digest and integrate type of year for Bank7? Or do you guys maybe anticipate some additional M&A coming your way to the extent those opportunities are still there for you guys.

Thomas L. Travis: Nate, we are always in a shoot, move, communicate mode. And we would be disappointed as a group if we allowed much of the noise and expense to linger into. Far into 2027. And so with the exception of the burden that we have because the providers are always so slow to give us conversion dates I believe our conversion date is in July. And so we do not have any choice but to allow call it, that 20% to 25% of last cuts to the efficiencies to be realized. But we are we are not going to be slow. We are not gonna get a take a casual approach to this. We are gonna do what we always do and we are going to make those adjustments and create as many efficiencies as we can day 1 And so yes, the back half of the year will be more profitable than the front half of the year, but you are going to see us really achieve very, very meaningful results starting immediately.

Nathan Race: Yep. Gotcha. Makes sense. Thanks for that, Tom. If I could actually just sneak 1 housekeeping question for Kelly. On the goodwill number for Century, the slide deck indicated that you are expecting a material write up on some assets within some of the locations. Any sense of what kind of all in goodwill number we can anticipate for the fourth quarter once the deal closes?

Kelly J. Harris: Yeah. Nate, I think it is too soon. I know that the increase in rates are gonna impact some of the marks. And so I think and then of the valuation pieces. So I think it is too soon to confirm that.

Nathan Race: Okay. Fair enough. I appreciate all the color, guys. Congrats on the great quarter again.

Thomas L. Travis: Thanks.

Operator: Next question comes from Jordan Gendt with Stephens. Please go ahead.

Jordan Gendt: Hey, good morning. Thanks for taking my question. I just wanted to kind of talk about the loan deposit ratio. I mean, historically, you guys have been operating with a higher loan deposit ratio kind of in the mid nineties. Kind of now with Century, where do you see that kind of going? Do you expect it to go back up to the kind of mid nineties high towards a 100%, or do you do you expect to keep it a little lower? Thanks.

Thomas L. Travis: that is a function, as you well know, that is a function of a lot of different things. And which include liquidity, capital, and debt instruments, and ability to capture liquidity if necessary. And so it also is impacted by the loan maturity distribution schedule. We have our loan portfolio. We have a high number of notes that mature during the year. And so it is much more complex. it is much more dynamic than a simple answer. I would just say that just similar to our NIM, you know, you probably will not see us operate much below 80% in our in our world. There will be times depending on all those various factors that I just mentioned that we may sneak up to that 95% level And, again, that would just depend on the circumstances as far as capital and liquidity and markets and all the things that we see. But generally speaking, 1 thing I will say is that if you see us operating in those higher ranges, we are going to be doing that only if we have tremendous source of funding that are overnight capable sources to make darn sure that the bank is well positioned for any kind of a macro event, for any kind of liquidity scare like we saw in March 2023, And so I know that is a long potential nonanswer, but the fact is we are comfortable operating in that band and those ranges depending on all those factors and circumstances.

Jordan Gendt: Got it. And then maybe just 1 more. On the onetime transaction expenses that you guys had in the IP. Of, I think it was 16 around $16 million Has any of that been realized already? And maybe what is remaining or how much of it is remaining, I guess?

Thomas L. Travis: What was the question? The.

Jordan Gendt: Sorry. The onetime merger expenses you guys had. I think you said $16.2 million you guys put in the slide deck.

Thomas L. Travis: Oh, those are. Though you have got. that is the catch all. Investment banker fees, those are conversion fees, early contract termination. Yeah. All those things that will be realized. it is just like any other M&A transaction.

Jordan Gendt: Okay. Okay. Thank you.

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

Thomas L. Travis: Thank you again for participating. We appreciate our investment partners, and we appreciate the analysts covering us the way they do. And if there is any of our team members that are on the call, we appreciate you a lot. And if there is anybody from Century that is on the call, we are super excited to be joining forces together and looking forward to the future together. And, onward and upward for more good results for our great company. So thank you very much.

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