Release Date: July 11, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Bank7 Corp (BSVN, Financial) achieved record profits despite a relatively flat loan book.
- The company's cost discipline and low efficiency ratio contributed to strong earnings.
- Liquidity remains strong with a historically higher cash position than industry averages.
- Asset quality is very strong, with minimal net charge-offs and robust credit quality.
- Capital levels are growing rapidly due to strong earnings and a low dividend payout ratio.
Negative Points
- The drop in deposits was primarily due to the disbursement of a large bankruptcy court deposit, not part of core funding.
- Loan growth was impacted by large loan paydowns and delayed new loan fundings.
- Potential need for higher-cost funding to support future loan growth could impact margins.
- The hospitality sector, while performing well, is concentrated in Texas, posing geographic risk.
- Uncertainty around future rate cuts and their impact on net interest margin (NIM) remains a concern.
Q & A Highlights
Highlights from Bank7 Corp (BSVN) Q2 2024 Earnings Call
Q: What is a good run rate for the core net interest margin (NIM) for the back half of the year?
A: Kelly Harris, CFO: We are forecasting between 460 and 465 from a core perspective. However, the actual timing of loan growth and securing funding could affect this slightly. (Thomas Travis, CEO)
Q: What factors contributed to the loan growth and what are the expectations for the next quarter?
A: Jason Estes, Chief Credit Officer: Loan growth was influenced by customers selling businesses and equity raises, leading to increased payoffs. We expect high single-digit loan growth for the full year, despite quarterly fluctuations. We prioritize maintaining profit margins over growth.
Q: How do you plan to deploy excess capital in the current environment?
A: Thomas Travis, CEO: We are considering M&A opportunities, especially as some banks may want to sell when they can unwind some AOCI. We are not in a hurry and will revisit share repurchase if no opportunities arise in the near future.
Q: What is the status of the oil and gas assets acquired last year and their impact on fee income and expenses?
A: Kelly Harris, CFO: For Q2, noninterest income from oil and gas was $2.4 million, with expenses at $1.1 million. We expect a net income of around $800,000 after-tax for Q3. We are performing well and may consider selling these assets, but there is no urgency. (Thomas Travis, CEO)
Q: How are hospitality loans performing, especially given the higher cost of debt?
A: Jason Estes, Chief Credit Officer: Hospitality loans, mainly in Texas, are performing well with NOIs up slightly from last year. We expect Q2 NOIs to be at an all-time high.
Q: What are the expectations for charge-offs going forward?
A: Jason Estes, Chief Credit Officer: We expect charge-offs to be lower than the last few quarters, returning to historical levels. Credit quality is very strong.
Q: How do you see interest-bearing deposit costs evolving?
A: Kelly Harris, CFO: Our current total cost of funds is 310. Future costs will depend on balance sheet needs and funding requirements.
Q: How will potential rate cuts impact the net interest margin (NIM)?
A: Kelly Harris, CFO: We are comfortable operating within our historical NIM range, irrespective of rate changes. We will run scenarios to test the impact of rate cuts, but we expect the effect to be neutral. (Thomas Travis, CEO)
Q: What is the long-term average NIM you are referencing?
A: Thomas Travis, CEO: We believe our long-term average NIM is around 4.3% to 4.5%.
Q: How do you view the reserve levels in the back half of the year?
A: Jason Estes, Chief Credit Officer: We may need a small provision if loan growth is strong, but our current reserve percentage is within our historical range. Rapid equity growth provides flexibility.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
