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.

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 the 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.

And your first question today will come from Woody Lay with KBW.

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?

Always depends on the lumpy paydowns. I think our deal pipeline 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 the 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 on 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.

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?

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.

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?

We've come close a couple of times in the past year and had a few signed letters of intent, but for various reasons, those deals didn't go through. We're actively engaging with potential partners and remain focused on pursuing a merger of equals. We continue to have numerous meetings and evaluations. With the improvements in their asset owners' equity, the market may loosen up a bit, but we will keep assessing opportunities in dynamic markets that share similar cultures. It remains difficult to predict when a deal might materialize.

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

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.

Yes, I think it would be slightly lower than the 7.6%, but still, I think if you go back a year ago or two years ago, there were fewer banks really aggressively looking for loans, especially after March of '23. 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, it feels like people have kind of settled in on the deposit and the loan side, which is part of what led to the results.

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 two of your key MSAs recently. So just curious kind of what the upside is, maybe add some talent relative to the existing capacity across the teams?

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 that the credit comes first and then the deposits to help fund that growth seem 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 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.

Okay, great. Maybe one last one 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 the expense run rate over the back half of this year.

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 on our efficiency ratio. And we're still in that core 36% or 37%, 38% core.

Core.

Right. And so I guess I would argue it's probably splitting hairs at this point, Nate.

Can you remind us what the remaining life is on the oil and gas assets? Should that largely run off by the end of next year or before then?

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?

Correct, versus, I think, 68% at the end of last quarter.

Right, right. And I think that's pretty accurate.

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.

We've achieved our goal, Nate. It's working very well, and we've met our objectives. It will continue to perform that way and has become insignificant, which is a positive outcome.

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

And your next question today will come from Matt Olney with Stephens.

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?

Yes. We're internally projecting $2 million in fees, Matt, split evenly between oil and gas and the core.

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.

Sure, Matt. It’s always a mix for us. Looking back at the start of the year, our production loans are around $30 million to $35 million in the energy sector. Since we went public, there has been a significant shift in our energy portfolio away from service deals or large fund deals towards hedged oil and gas production. This trend has characterized the first half of the year. In terms of commercial and industrial lending, we've seen some strength this year, although it's somewhat obscured by certain exits within that portfolio. Overall, we had a solid year in C&I origination, as well as in owner-occupied real estate, with a net increase of about $19 million. We have also seen some growth in our outstanding loans in the hospitality sector. However, similar to energy and C&I, there’s quite a bit of activity in the hospitality portfolio, with numerous exits and asset sales, and we are continuously working to refresh our customer base. Consequently, we are benefiting from some of these exits on the deposit side. We prefer to remain very active in these three areas as they have significantly contributed to our company's growth over the past decade.

I would like to expand on Jason's remarks by noting that if we take a long-term view over the past 7 to 8 years, our energy exposure today is nearly half of what it was back then. This reduction is largely due to the growth in other segments, particularly as our Hospitality segment has seen a decline in exposure percentage, preventing us from expanding in those areas. In fact, our energy exposure has decreased significantly. As Jason mentioned, this isn't about us withdrawing from a segment; rather, it reflects our focus on growing the other parts of our portfolio, especially in the Dallas/Fort Worth region. It's crucial to keep in mind the long-term dynamics at play here.

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 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.

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.

You can observe that dynamic on Page 10, where we attempted to illustrate the floors and their dynamics. Generally, we always discuss our net interest margin (NIM). When referencing NIM, we're looking at it without loan fee income, and historically, we've been near the top end of our historical range. Thus, we are well positioned for when rates decrease. We are not worried because we have numerous floaters and floors, and we're properly funding that on the other side. It's crucial to remember the long-term averages we've seen in net NIM. I'm pleased that we've managed to maintain it at this level. I did want to mention, Nate, that I noticed you predicted we would be higher than we are now last quarter. It feels like I pole vaulted 20 feet and you think I should have cleared 21, partly joking, but seriously, when analyzing NIM, it's vital to keep the long-term dynamics of the matched balance sheet and the floors in mind. If we were to drift down into a more typical historical range, that would be acceptable and wouldn’t come as a surprise to us.

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

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.

I would say that if you review the past few quarters, you'll notice a consistent trend toward a cleaner and smaller NPA number. Internally, not much has changed in the last six to nine months. Our past dues remain very clean, and the economic environment is positive. We are adhering to our underwriting fundamentals and are not introducing new business lines; it's more of the same. There is some uncertainty in the economy, which is evident from the headlines regarding tariffs and immigration policy. However, when we engage with our clients and business owners, it's remarkable to see how they manage these challenges. While some may face specific issues, overall, we have experienced a strong performance over multiple quarters, and the economy is robust.

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.

We appreciate it, Nate. It's easier to meet low expectations, you know that.

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

We're delighted with the quarter and the first half of the year. We're cautiously excited about the remainder of the year, given the excellent markets we operate in and our fantastic team of bankers. We are committed to providing our shareholders with top-tier results and will continue with our established approach. Thank you.

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