Bank7 Corp. (NASDAQ:BSVN) Q1 2024 Earnings Call Transcript

Bank7 Corp. (NASDAQ:BSVN) Q1 2024 Earnings Call Transcript April 12, 2024

Bank7 Corp. beats earnings expectations. Reported EPS is $1.21, expectations were $1.04. BSVN isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Welcome to Bank7 Corp’s First Quarter Earnings Call. Before we get started, I’d like to highlight the legal information and disclaimer on Page 23 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 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 differ 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; Jason Estes, Chief Credit Officer; Kelly Harris, Chief Financial Officer. Please note, this event is being recorded. With that, I’ll turn the call over to Tom Travis. Please go ahead.

Thomas Travis : Good morning, everyone. Thank you for joining us. Well as you can see, we posted record earnings and record earnings per share and we are obviously very pleased with those results. It reflects our continued discipline on the way we manage our balance sheet, match up the interest rate risk and maintain our liquidity and you can tell that it’s been successful with our steady and strong NIM. And you can also see that the cost controls continue to be in place, which all adds up to really good results. And with regard to the loan book, the asset quality is very good, regardless of which vertical you view. And I know in this day and time, there’s a hyper focus on CRE. And I will tell you, we have no issues with our portfolio and no issues with our CRE and feel very confident about where we are and how we’re doing with asset quality. So with all that being said, we’ll turn it over for any questions that people might have.

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Q&A Session

Operator: [Operator Instructions] The first question today comes from Woody Lay with KBW.

Wood Lay : I wanted to start with the treasury maturity that occurred in the first quarter. I was hoping you could just give some color on where the funds went into. It wasn’t super clear to me, if they all went into cash or if you redeployed some of that back into the bond book. So any color there would be helpful.

Kelly Harris : Woody, this is Kelly. We had the maturity occurred at the end of February. We reinvested around $85 million into a three month treasury products and then $15 million with the cash.

Wood Lay : And do you have the NIM in the month of March post that reinvestment?

Kelly Harris : Yes. Core NIM, excluding fees for March was 4.58%.

Wood Lay : I wanted to shift over to M&A and just get your thoughts on sort of your appetite for M&A in this current backdrop?

Thomas Travis : Woody, as you know, we’re constantly working on potential acquisitions. We were a finalist in one recently and it didn’t work out. But we’re constantly meeting with people and sticking to our strategy of pursuing, what we call the right side of the balance sheet and heavily focused on core deposits and good fundamental banks. And so I would say that nothing has changed in regard to our commitment to doing that and we’re going to continue to do that.

Wood Lay : And then if an M&A deals pushed out, would you look to the buyback as a potential leverage just to deploy your excess capital? Or is that less likely in the future?

Thomas Travis : I guess I don’t understand the question well enough.

Wood Lay : Yes. I guess I mean would you be interested in the buyback with where the stock is currently traded or trading? Or is that less appealing to you right now?

Thomas Travis : I think what happens is that there’s a couple of factors and we have been as you know, you followed us for a long time and we have been very disciplined on the buybacks with regard to how high the multiple of the stock is. And also, we want to maintain a little bit of extra capital in case we can find an acquisition that makes sense. And so it’s a delicate balance there because we understand that piling up capital doesn’t really benefit people us anyone other than if we were able to use it to deploy into an acquisition. So as every month that goes by because we’re a strong earner and a strong compounder it just has the tendency to cause that question to come up increasingly. And so at some point, absent an acquisition then it may motivate us to think more favorably about stock buybacks, even though a multiple may be a little higher than where we would like it to be. And so that’s how we view it.

Operator: The next question is from Thomas Wendler with Stephens.

Thomas Wendler : I just wanted to go back to the securities. Can you give us an idea of the yields on the securities that you purchased?

Kelly Harris : Yes. I believe they were 5.38% at the end of February. And so we picked up on a go-forward 15 basis points on NIM, although because it was only one month in Q1, it was 5 basis points.

Thomas Travis : Let me add some color here. Correct me, if I’m wrong, Kelly, but I think people need to understand the only reason we went back into some securities was the final tailwind and wind down of us needing to pledge to the court related to that large bankruptcy, correct? Okay. So very short-term. So the wind down in the bankruptcy court of that large credit, the money’s posted and they wanted securities. And so if not for that we would not have redeployed the $100 million that matured went down to $85 million as far as requirement. And so we would not have done that. And so this is not some conscious strategy on our part to pivot — to move into that. We would much rather have just put the money at the Fed.

Thomas Wendler : I appreciate that color. And then just sticking on the yield side, we saw a large step-up in loan yields during the quarter. Can you give me an idea of what drove the increase there? And how should we think about loan yields moving forward?

Jason Estes : I believe that’s due to that $1 million of lift. If you look at the slide deck, investor presentation that we put out, you’ll see there was a $1 million one-time item related to the full collection of a workout loan that had been showing up in our past dues for probably six quarters in a row. And so I think that’s a good signal or reminder of our commitment to behaving like owners because we are owners, okay? And I think that there’s probably financial institutions out there that maybe would have walked away from that deal without realizing that income but just another good result from a hard-working team committed to doing things the right way and maximizing our returns.

Thomas Wendler : Perfect. And then if I can sneak one more in here. Previously, I think we were expecting to collect 60% of the $16.9 million in asset value from the oil and gas business in cash flows in 2024. Is that still how we should be thinking about it? I’m just looking for any update from last quarter’s call on the revenues and expenses from the oil and gas business.

Jason Estes : We are spot on with that projection through the first quarter and so no deviation whatsoever. So far, just for your knowledge, $6.4 million of revenue has been recognized, $5 million of cash has been collected, there’s $1.4 million due to us that will come in, in the next 30 days. And then we’ve got the updated engineering projections for the rest of the year and we are exactly in line with those previous estimates.