Bank7 Corp Q4 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Woody Lay - Keefe, Bruyette & Woods North America - Analyst : Wanted to start on the loan shrinkage you saw in the fourth quarter. It looked like it was mainly driven by the energy and hospitality segments. Any color you could give on the lower balances there? And I guess, overall, how are you thinking about growth into 2025? Jason Estes - Bank7 Corp - Executive Vice President, Chief Credit Officer, President and Chief Credit Officer of the Bank Yes. You can see a lot of those came in somewhat late in the fourth quarter. We had several people exit. They sold businesses or sold specific assets off. And so we have more of that expected in the first quarter. I was looking at last year for the full year between Energy and Hospitality, we had over $160 million of unscheduled principal payoff, right? And so we were able to redeploy throughout the year a good portion of that. And so if you look for the full year, we did have small amount of loan growth that really got nailed with those unscheduled payoffs from those exits in the fourth quarter. And again, there's going to be a little bit more of that in the first quarter, but the silver lining is that gives us some room within those two specific categories where we've been -- if you look back over the last six years as a percentage of the portfolio, I think the Energy component is half of what it used to be. So we've got a little bit of room to backfill there. And the similar comments there on the Hospitality side, you'll see us redeploy. We've done a nice job of growing the rest of the book. C&I was a highlight. We grew that a little over 5% for the year. And so more of the same, build up the other segments around those 2. But again, I think you'll see us redeploy within those two segments. So return to some level of growth here hopefully in the first half of the year, but for sure for full year. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 16, 2025 / 4:00PM, BSVN.OQ - Q4 2024 Bank7 Corp Earnings Call

Question: Woody Lay - Keefe, Bruyette & Woods North America - Analyst : Yes. I guess that's a good segue into the NIM. I think last earnings call, you -- there was some thought that maybe we could see some compression, but the NIM was actually up in the quarter. And I've just been impressed by the loan and deposit betas kind of moving in lockstep with the recent cuts. I mean to the extent we get more cost, do you think that's a trend that can continue? And how are you feeling about the margin going forward? Jason Estes - Bank7 Corp - Executive Vice President, Chief Credit Officer, President and Chief Credit Officer of the Bank Well, thank you for the compliment. We did exceed our own expectations in the quarter and in the full year. I was contemplating this morning kind of thinking about this coming up. And I would just say that when rates move up, we have a slight advantage. And when rates move down, we have a slight disadvantage. And so I would agree that there is some compression on the horizon. I also believe we'll operate in our historical norms, but that's really where we focus every day at the transaction level on doing the absolute best we can in regard to maintaining what I would call a very healthy NIM.

Question: Woody Lay - Keefe, Bruyette & Woods North America - Analyst : Yes. Are those sort of onetime interest items that you called out, is that included in that $1.1 million of loan fee income that you'll highlight in the slide? Jason Estes - Bank7 Corp - Executive Vice President, Chief Credit Officer, President and Chief Credit Officer of the Bank No, I don't believe so. No. It shouldn't be. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 16, 2025 / 4:00PM, BSVN.OQ - Q4 2024 Bank7 Corp Earnings Call

Question: Nathan Race - Piper Sandler & Co. - Analyst : Just going back to the margin discussion. I'm curious if you guys can shed some additional color on how much additional deposit cost leverage you have, assuming the Fed remains on pause over the next couple of quarters. You obviously had nice reductions in deposit costs this quarter. But just curious how much more opportunities are to reprice CDs lower and what other opportunities there are to bring down non-maturity deposit costs as well.

Question: Nathan Race - Piper Sandler & Co. - Analyst : Got it. That's very helpful. And just going back to some of Jason's comments. Curious if you can maybe comment on what you're seeing in terms of new loan pricing these days? Jason Estes - Bank7 Corp - Executive Vice President, Chief Credit Officer, President and Chief Credit Officer of the Bank Yes. I think real time isn't the interest $750, $755 portfolio-wide. So that kind of gives you a snapshot of the range. And I think that's pretty indicative of what we're seeing on the new stuff coming in. In those two segments, I mentioned energy and hospitality. There may be a slight benefit or increase there, depending on the opportunities we can go find. But I think that 7.5% range is pretty good.

Question: Nathan Race - Piper Sandler & Co. - Analyst : Yes. Got it. That's helpful. Maybe a question for Kelly. Just curious how you're thinking about the expense run rate going forward. Obviously, the impact from the oil and gas assets is continuing to decline. So just curious how you're thinking about the run rate over the course of 2025.

Question: Nathan Race - Piper Sandler & Co. - Analyst : Okay. And then any just thoughts on kind of any investments you're planning on undertaking this year that may cause some upward pressure to that run rate on a core basis?

Question: Nathan Race - Piper Sandler & Co. - Analyst : Right.

Question: Nathan Race - Piper Sandler & Co. - Analyst : Okay. Got it. And maybe one last one for me. You guys continue to have a high-class problem with your excess capital levels continue to build a really strong clips. So Tom, just be curious to get your updated thoughts on how you're thinking about deployment opportunities and just what you're seeing on the M&A front as well.

Question: Nathan Race - Piper Sandler & Co. - Analyst : Okay. Great. Sounds encouraging. I appreciate the color.

Question: Matt Olney - Stephens Inc. - Analyst : I want to go back to the comment that Jason made around the loan mix I heard you mentioned some paydowns in energy and hospitality in the fourth quarter, but also opportunities to kind of backfill that those two portfolios in 2025. and I also heard some commentary about some just general C&I growth. So just trying to appreciate if we'll see any material mix shift of that loan portfolio over the next year or 2? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 16, 2025 / 4:00PM, BSVN.OQ - Q4 2024 Bank7 Corp Earnings Call Jason Estes - Bank7 Corp - Executive Vice President, Chief Credit Officer, President and Chief Credit Officer of the Bank Yes. I don't think you'll see us deviate from our historical ranges. And when referred to the energy book. It used to be twice -- it's just under 10%. It used to be just under 20% of our total outstanding loans. And so we're not going back to that high of a percentage. But if you look at the last few years, we've been in that 11% or 12%, maybe even 13% range. So there's some room there. Hospitality, it floats kind of between 18%, 23%, 24%, and we're closer to the bottom end of the range there. So more of the same on mix, but if you went and looked at our history since being public, you'd see we're at the low end of the range on three key segments, okay? And that's construction, one to four family. This was intentional when costs got really I would say, accelerated over the last several years, a lot of pullback from within our group of customers that they did on their own and then there were some on our part where we shrunk that segment, right? And then Energy fluctuates, it just does, that's the nature of that industry. And then Hospitality, we've grown other things around it and it's given us a little bit of room to backfill.

Question: Matt Olney - Stephens Inc. - Analyst : Yes. No, I appreciate the commentary on the loan growth front. I guess just kind of following up with that, is it reasonable to assume that in 2025, loan growth for Bank7 could be similar to what we saw in 2024 to where it's kind of all of the quarter to quarter given some of those paydowns and asset sales. But at the end of the day, we still got to kind of organic growth level in that low single-digit number. Is that a reasonable expectation for us? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 16, 2025 / 4:00PM, BSVN.OQ - Q4 2024 Bank7 Corp Earnings Call Jason Estes - Bank7 Corp - Executive Vice President, Chief Credit Officer, President and Chief Credit Officer of the Bank I think it's reasonable. I'd be disappointed if that's where we end up.

Question: Matt Olney - Stephens Inc. - Analyst : Okay. Okay. I appreciate that. And then I guess going back to -- I think Kelly mentioned that the non-accrual interest was a little bit elevated in the fourth quarter. I don't know if you have the dollar amount of that in front of us so we can kind of normalize that for the first quarter?

Question: Matt Olney - Stephens Inc. - Analyst : Okay. Great. And then just lastly for me on the fees front. Any more color you can give as far as expectations for fees in 2025?