Bank7 Corp. (BSVN) Q3 2026 Earnings Call Transcript

Welcome to the Bank 7 Core 3rd Quarter 2026 Earnings Call. Before we get started, I'd like to highlight the legal information and disclaimer on page 25 of the investor's 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 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 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 8K 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, J.T. Phillips, Chief Operating Officer, Jason Estes, Chief Credit Officer, Kelly Harris, Chief Financial Officer, Paul Timmons, Director of Accounting. With that, I'll turn the call over to Tom Travis.

Welcome to the call. First and foremost, what a great company we have here at Bank 7. It doesn't happen by accident. Our team's been together a long time. We execute at a high level every day. We like to say it takes courage to be great, and we're proud of our consistent top-tier results. Just a fantastic company and really good results, especially given all the things that we're 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 pay downs from large customers. So, our loan team, as usual, is functioning at a very high level, and we're 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 to continue benefiting from that strong and consistent NIM. We also benefit from the robust economy and the business-friendly markets down here in Texas and Oklahoma, and it's a real blessing, and we're 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 made asking us what we were going to do, but we waited, and we're glad we did. And we're very excited about the pending merger with Century in New Mexico, and it's a really good example of discipline and patience and prudent use of capital, which really drives the metrics on how transformational and beneficial this transaction will be. The 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 one team. So we're well positioned for the future, looking forward to executing on our plans. And with that, we're here to answer any questions anyone might have.

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, Please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Woody Lay with KBW. Please go ahead.

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

This is Kelly. Yeah, during the quarter, we experienced, as Tom mentioned, substantial loan pay down. We chose to be conservative from an excess liquidity, higher deposit balance because of the known loan funding as well as the pending merger and some of that cash that goes out related to that. And so that's kind of the game plan going forward. You know, a strong pipeline as well as closing this merger.

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 pro forma with Century Financial plus the potential for an additional rate hike from here, I feel like that would be helpful.

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'll generate a meaningful amount of cash. And we will be methodical about how we deploy that cash. In some scenarios, it'll be more accretive to our margin. In other scenarios, it'll be more neutral to our margin. And from a Bank 7 legacy perspective, the loan beta in the quarter was close to 60%. The deposit beta was around 52%. And I think, you know, forward-looking, assuming a rate hike in Q4, we anticipate that loan beta being in the 65 to 70% range. And the deposit beta, a little bit harder to project, but we assume less.

Yeah, and I would add to that, that's 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're 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 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 that you want to capitalize on slightly lower cost of funds and therefore you can lower your loan rates. And so I don't think that's going to be a material thing. It's not like you're going to see all of a sudden lower loan pricing. I'm just pointing out that we're going to have some flexibility in the near-term to medium-term because of that advantage of a slightly lower cost of funds.

Yeah, got it. And then maybe just last for me, and you've kind of hit on it a little bit, you know, on the bond portfolio, But longer term with the acquisition of Century, it would feel like there's a significant opportunity on the balance sheet remix side to, you know, help that 25 plus percent accretion longer term. How do you think about remixing Century's loan portfolio over, you know, the medium to longer term?

You're going to see us continue to do what we've done in the past, and they have commercial banking talent that aligns philosophically with us, and so you'll see us kind of expanding into a couple new markets there, but doing the same thing that we've traditionally done, which is catering to business owners, entrepreneurs, high net worth individuals, and really pursuing that commercial loan. and it'll look similar to what we've done in our other markets. And it also gives us some more opportunity, specifically in our Dallas operation, where we're 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.

All right, well, that's all for me. Thanks for taking my questions.

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

Hey, guys. Thanks for taking the questions. Just going back to one of the previous questions, you know, just thinking about, you know, any potential runoff that you're anticipating at the Century loan portfolio and just maybe bigger picture, you know, how do you anticipate the addition of Century kind of impacting, you know, a bank seventh historical kind of high single to double-digit loan trajectory that we've seen kind of longer term from you guys?

I think there's any, you know, day one plan to, you know, specifically run off loan balances. I think you'll hopefully see, you know, a steady similar to what we typically do and as you just referenced, you know, a 5%, you know, 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 you can't see it in the numbers, but our payoffs this quarter were over $130 million. And so we backfilled that and were 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, you know, 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, you know, some clarity, some visibility to a little bit of additional funding in the fourth quarter. So it's 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're out working and we are finding deals and we're not going to stop. We're not going to change. I don't see, you know, a consistent move up or down. I want us 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're not going to take unnecessary risk, and we're not going to give away our margin.

Yeah, there's one minor addition, I would say, that Century did have a more aggressive use of buying loan participations, and it's certainly not the majority of the portfolio, but it's a healthy amount that we intend to...we're not going to 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 got it that's really helpful and just you know curious on the some of the competitive dynamics in your um geographies these days you know i think

there's some growing competition um across some of those markets so just curious what you're seeing in terms of kind of new loan pricing these days you know it's great to see i think core loan yields ticked up two basis points quarter over quarter. So just curious kind of what you're seeing from a competitive perspective, particularly across some of the specialties that you guys operate within.

I haven't seen any dynamic changes there, Nate. I mean, it's very consistent. We always have tough competition in all the markets where we're actively loaning money. I don't 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's been very consistent for the last three to four years. Lots of banks looking to deploy into loans, and that's where the relationship bankers win the day.

Got it. That's helpful. Maybe one more for Kelly, just on the expense outlook. I think Century is running around $12 million a quarter over the last handful of quarters in 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 the 30% cost saves and the timing around the systems conversion to, I imagine, realize the large majority of those cost saves?

Yeah, I mean, I like to look at our previous deal with Cornerstone. I mean, you saw efficiency ratio creep up, you know, a couple hundred basis points initially. And then over time, we feel very confident that we can operate a century's non-interest expense at or below where we currently operate ours. I think from the timing of systems conversion, is that more of a Q3?

Yeah, I would say we modeled when we sent that deck out. We talked about expected efficiencies and the numbers in there. And I've got two numbers that I'm looking at I don't know the percentage, but I would say that at least 75 or 80 percent 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'm 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? Is it close to that number? And so when you think about that number, Nate, we should be well south of 2% if you just look at, if you want to call it the Century standalone, right? Because you always have heavier at the headquarters.

Maybe if I could just sneak one more in. Obviously, it's a pretty transformational deal. I think Century is the largest acquisition history of the company. But, you know, just curious, is 2027 kind of more of a digest and integrate type of year for Bank 7? Or do you guys maybe anticipate some additional M&A coming your way to the extent those opportunities are still there for you guys?

You know, Nate, we're 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 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 don't have any choice but to allow, call it that 20% to 25% of last cuts to the efficiencies to be realized. But we're not going to be slow. We're not going to take a casual approach to this. We're going to do what we always do, and we're going to make those adjustments and create as many efficiencies as we can day one. And so, yes, the back half of the year will be more profitable than the front half of the year, but you're going to see us really achieve very, very meaningful results starting immediately.

Yep, gotcha. Makes sense. Thanks for that, Tom. If I could actually just leave one housekeeping question for Kelly. On the goodwill number for Century, the slide deck indicates you're expecting a material right up on some assets within some of the locations. Any sense of what kind of an all-in-goodwill number we can anticipate for the fourth quarter once the deal closes?

Yeah, Nate, I think it's too soon. I know that the increase in rates are going to impact some of the marks and then some of the valuation pieces. So I think it's too soon to confirm that.

Fair enough. I appreciate all the color, guys. Congrats on the great quarter again.

As a reminder, if you would like to ask a question, please press star, then one, to join the question queue. The next question comes from Jordan Ghent with Stevens. Please go ahead.

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-90s. 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-90s, towards 100%, or do you expect to keep it a little lower? Thanks.

That's a function, as you well know, that's a function of a lot of different things, 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's much more complex, it's much more dynamic than a simple answer. I would just say that just similar to our NIM, you know, you probably won't see us operate much below 80% 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, one thing I will say is that if you see us operating in those higher ranges, we're going to be doing that only if we have tremendous sources 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 of 2023. And so I know that's a long potential non-answer, but the fact is that we're comfortable operating in that band and those ranges depending on all those factors and circumstances.

Got it. And then maybe just one more. On the one-time transaction expenses that you guys had in the IP of, I think it was around $16 million, has any of that been realized already and maybe what's remaining or how much of it is remaining, I guess?

The question?

Sorry, the one-time merger expenses you guys had, I think you said it was $16.2 million you guys put in the slide deck.

Oh, that's the catch-all. Investment banker fees, those are conversion fees, early contract termination, all those things that will be realized. It's just like any other M&A transaction.

Okay, thank you.

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

Thank you again for participating. We appreciate our investment partners, and we appreciate the analysts covering us the way they do. And if there's any of our team members that are on the call, we appreciate you a lot. And if there's anybody from Century that's on the call, we're 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.

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