Bank Seven Corp Third Quarter 2025 Earnings Call - Organic loan and deposit growth lifts earnings and capital, but margin faces rate-cut and deposit-cost pressure

Conference Moderator: Welcome to the Bank Seven Corp. Third Quarter twenty twenty five 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 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 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 eight ks 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 JT 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.

Tom Travis, Chairman and CEO, Bank Seven Corp: Good morning. Thank you for joining us. As you can see, we had a very solid quarter. Essentially, we just are a broken record, but it’s a shout out to our bankers. And if you look at the organic growth in both the loan and deposit portfolios, We had a very, very good quarter.

And it’s not a surprise. Again, it’s we don’t take them for granted, but I think sometimes people take our great result for granted. But organic growth has just been really good all year and it’s continuing to drive the institution forward. And so when you look at our income and strong capital accumulation, you can see the effect it’s had, effects on the capital ratios, which are really, really strong and have us well positioned. And so all the elements of the bank look fantastic, the liquidity, the capital, earnings and the margin.

And so we’re excited about where we are. We’re excited about the markets we operate in. And we’re just delighted for the results. And so with that said, we’ll we’re here for any questions.

Conference Moderator: We will now begin the question and answer session. The first question comes from Nathan Race with Piper Sandler. Please go ahead.

Adam Kroll, Analyst (Piper Sandler), Piper Sandler: Hi, this is Adam Kroll on for Nate Race. Good morning, and thank you for taking my questions.

Tom Travis, Chairman and CEO, Bank Seven Corp: Good morning, Adam.

Adam Kroll, Analyst (Piper Sandler), Piper Sandler: Yes. So maybe just to start on loan growth. You guys obviously had another really strong quarter in terms of growth. So I’d just be curious how the pipeline stands today and how you’re thinking about growth in the fourth quarter and into 2026?

Jason Estes, Chief Operating Officer, Bank Seven Corp: Yes. Thanks, Adam. This is Jason. And the quarter was outstanding. And as Tom mentioned, the team of bankers, they just keep delivering.

And it’s not just loans, it’s deposits as well, which are so vital to us continuing to be able to expand like this. So the current pipeline, it’s good. But again, as we caution each quarter, we’re prone to lumpy paydowns as people exit. There’s a lot of conversations about what kind of economy we’re going to have here in the near term. And so you see a lot of people exiting businesses or specific assets.

And so we’re not immune to that. We’ve been able to overcome significant exits this year just with robust growth. I think continuing the theme that we’ve had here for really the whole year, I really expect kind of a high single digit year over year growth. That’s our target. That’s our goal.

I think we’ll be able to deliver on that. But so right now, pipeline still has plenty of activity in it. But again, we’re always careful with those lumpy paydowns.

Adam Kroll, Analyst (Piper Sandler), Piper Sandler: Got it. Yes, I really appreciate that. And kind of going off of that, I’d be curious if you could touch on what you’re seeing in terms of the loan pricing dynamics among competition and what you’re seeing new loans come on the portfolio relative to maybe that 7.4 or so that you saw in September?

Jason Estes, Chief Operating Officer, Bank Seven Corp: Yeah. Think if you looked at the average, we’d be slightly below that 7.4%, somewhere in between 77.25%, I think for the bulky new funding. And then, you know, I think there’s more pressure. You talk about the competitors. From a loan standpoint, it seems to be less pressing than the deposit side, which ebbs and flows, but that seems to be the flavor of the week right now.

There’s a little more pressure on the deposit side than the loan side.

Adam Kroll, Analyst (Piper Sandler), Piper Sandler: Got it. And then last one for me is, obviously, there’s been plenty of deal activity within your markets. So just any update on the M and A front?

Tom Travis, Chairman and CEO, Bank Seven Corp: We’re constantly out there. And we’ve had opportunities over the last few months and looked at various transactions. And we’re active in that space. And we continue to proceed with a nod towards strategic combinations. And that hasn’t really changed.

And so one of these days, we’re going to find something that works. Really, our posture hasn’t changed.

Adam Kroll, Analyst (Piper Sandler), Piper Sandler: Got it. Thank you for taking my questions.

Kelly Harris, Chief Financial Officer, Bank Seven Corp: Thank you.

Conference Moderator: The next question comes from Woody Lay with KBW. Please go ahead.

Woody Lay, Analyst (KBW), KBW: Hey, good morning guys.

Matt Olney, Analyst (Stephens), Stephens: Good morning, Woody.

Woody Lay, Analyst (KBW), KBW: Wanted to touch on the net interest margin to start, really strong quarter in the third quarter, but it did look like with the rate cut in September, the quarter end margin was a little bit lower than where it was in the third quarter. I guess if we get a couple more rate cuts through year end, can you just talk about how we should think about the trajectory of the margin from here?

Kelly Harris, Chief Financial Officer, Bank Seven Corp: Yes, Woody, this is Kelly. We ended the quarter at 4.55% from a core NIM perspective. I guess Jason mentioned, did experience some deposit upward pressure on cost of funds towards the end of the quarter. I think if you look at the first rate cut in Q4, you could see further NIM compression slightly down to $450,000,000 and that starts to slow with additional rate cut towards the latter half of the quarter. That could creep down to $4.47 as those loan floors kick in, but then also assuming that we can keep pace on liability side.

Woody Lay, Analyst (KBW), KBW: Got it. That’s helpful. And then I also wanted to touch on the loan fee income. It’s the past couple of quarters, it’s come up pretty nicely, and it now represents about 40 basis points of the margin. Could you just talk about the dynamic there on what’s been driving that income up?

And how sticky can that be going forward?

Jason Estes, Chief Operating Officer, Bank Seven Corp: Yes. I think again that goes back to successful efforts by the sales team, a robust deal market. We’ve just seen a lot of activity, lot of opportunities. Our salespeople have done a fantastic job of converting. And so when you say how sticky is that, gosh, it feels like we’ve really beat the mean here, for a couple of quarters in a row.

I think you’ll see it trend back toward normal though fourth quarter who knows the pipeline is strong. But definitely feels like a bit of outperformance the last couple of quarters.

Woody Lay, Analyst (KBW), KBW: Got it. And then lastly, just on credit. I mean, credit trends were really strong in the quarter, but you did elect to increase the reserve some just on a percentage basis. Can you just sort of walk through the decision there and just any over broader thoughts on credit?

Tom Travis, Chairman and CEO, Bank Seven Corp: Yes, think this is Tom. The real key here is the growth in the portfolio. And when you look at the macro events in the world right now, it’s frightening in a lot of areas. And it’s increased what I think is the volatility of just the overall credit markets. And so when we grow the portfolio and we see increased volatility in the macro world out there, we believe it’s prudent to put the hay in the barn, so to speak, relative to all those factors.

And it gives us a lot of comfort. And we benefit from really strong, strong capital levels. And it’s always been fascinating to me that when people around the world in our space talk about one off reserves, there isn’t really much discussion usually on the capital levels. And so one could argue and say, why do you even need to worry about anything if you’re going to maintain capital levels the way you are? But I think the importance for us is you know, the Rubik’s cube, so to speak.

And we stay really focused on the loan book, the macro factors. And so when you look at that growth, we felt like it was it was prudent. And to maintain the integrity of our process, that’s why we did it.

Woody Lay, Analyst (KBW), KBW: Got it. So just as a follow-up, was it driven by some changes in the scenario weightings? And if that’s the case, do you think we could see some additional reserve build from here?

Tom Travis, Chairman and CEO, Bank Seven Corp: I think it’s it was driven by all of the above. And, you know, could we see us increasing and putting more provision? It’s possible. It’s really a fact it depends on the macro factors and it depends on the growth. But I would say that I don’t want to signal anything, but I would say that we’re pretty set right now for the foreseeable future.

But again, if macro conditions change, adjustments need to be made, or if we have additional growth, you could see more provisioning.

Woody Lay, Analyst (KBW), KBW: Yes. All right. Well, I appreciate all the color. Thanks for taking my questions.

Conference Moderator: The next question comes from Matt Olney with Stephens. Please go ahead.

Matt Olney, Analyst (Stephens), Stephens: Yes. Hey, guys. Thanks for taking the question. Just wanted to ask about the outlook for fees and expenses. And I know this can be impacted by the oil and gas revenues.

So just any kind of color you can give with and without that. Thanks.

Kelly Harris, Chief Financial Officer, Bank Seven Corp: Hey, Matt. This is Kelly. I think we got pretty close on the core fee income from Q3, and we anticipate a similar run rate, both on the core fee and the expense side, the $1,000,000 core fee and then $9,000,000 to $9,500,000 on the noninterest expense side. And then, yes, you’re correct. The oil and gas is a little bit less predictable, but we’re also utilizing the Q3 as a good guide for Q4.

Matt Olney, Analyst (Stephens), Stephens: Okay. Thanks for that, Kelly. And then on what about the expectations around mortgage? I know you guys made an investment there recently. We’d love to get your updated thoughts about expectations for this investment, especially within 2026?

Thanks.

Jason Estes, Chief Operating Officer, Bank Seven Corp: I think right now, the mortgage business, at least here locally, it’s pretty slow still. Maybe not as bad for the mortgage lenders as it is for the realtors. But, you know, until you see something give, you know, whether it’s discounts or, you know, lower rates, I think we’re kind of expecting more of the same where, you know, it’s covering itself. It makes a little bit of money, but it’s definitely not what we think, you know, is possible if you see a real change in the rate scenario. Or, you know, we think there’s a lot of headwinds against that business.

And it’s not just rates, you know, that affordability of housing is a big deal. And it’s a little hard for us to handicap. But, you know, personally, I’d be surprised if ’26 isn’t better than ’25. But who knows? You know, there’s so much going on really across the globe that impacts our economy and people’s ability to get wage gains and afford a new house.

And so we’re as curious as you are. I wish I had a more specific answer, but I would think that next year would be a little bit better for us in the mortgage business. I will say the pipeline has picked up compared to what it was six months ago. We’re sitting here with probably, I would say, three times the number of transactions and dollar volume, you know, that will close in the next sixty days than what we had. But I’ll also tell you the fallout rate is quite high.

I don’t know how closely you follow the industry, but we’re seeing a lot more contracts break and people not close than historically has been the case.

Tom Travis, Chairman and CEO, Bank Seven Corp: Yes. This is Tom. I would add also just a reminder on who we are and what we are. And specifically as it relates to mortgage, it was an important acquisition for us and it was obviously a relatively small amount of dollars given our earnings and our the size of the company. But we’re more of a rifle shooter than a shotgun shooter in the business.

And the strategic implication of buying that company, and Dale built a really fine mortgage operation. We’re really glad to have him. But we feel like we’re a professional mortgage provider now. And when you look at what the mortgage space will be for us going forward, we’re delighted that we have the ability to deliver to our high net worth clients and other people. And so I don’t want to minimize mortgage at all because it’s a wonderful, nice little segment.

But it’s always going to be that more niche specialized service that we provide our customers. And hopefully one day it will grow into a much more significant income provider. But I think that that’s going to take some time. And in the meantime, we’re really, really happy with the acquisition.

Matt Olney, Analyst (Stephens), Stephens: Yep. Okay. Well, I appreciate the commentary on mortgage. And if I could just circle back to the M and A topic. It sounds like there’s still conversations with potential candidates.

And I guess, Tom, I’m curious, kind of what do you see as a major challenge for M and A today? And what do we need to see to see just improve volumes within the region?

Tom Travis, Chairman and CEO, Bank Seven Corp: I would say that we still have the overhang of the AOCI that’s keeping some sellers on the bench. It’s a slow boat to China. And it’s not just the AOCI in the bond portfolio, but there are it’s disappointingly surprising how many bankers booked really long maturity, lower fixed rate loans. And it’s just going to take some time to work out. So that has a dampening effect on sellers, they all think they’re worth fill in the blank, whatever.

They all think they’re worth one and a half to two times. And when you factor all those purchase accounting marks into the equation, it makes it more difficult. I would also say that we, you know, we own more than 50% of the shares of this company. And we act like owners, and we act like owners every day and especially in the m and a space. And and so I think when you look at our disciplined approach and just following the numbers, it makes it a little more challenging as compared to I’m not gonna reference any particular transactions, but there’s there have been two or three transactions recently that are real head scratchers.

And and I’m not sure that, you know, that those transactions should have happened the way they did, but they did. So I just think the landscape is is gonna be it’s better. There’s a lot of excitement out there, but those factors are always gonna make it more challenging for bank seven. Now with that said, you know, I can’t get into specifics on, you know, what we’ve looked at, you know, over the last nine months or so. But we’ve we’ve come close on a few transactions.

And so I don’t want anybody to think that we’re not competitive because we are. But I think that you’re gonna see continued eagerness in the M and A space in our industry, and and eventually, we’ll find something that works strategic strategically for us.

Matt Olney, Analyst (Stephens), Stephens: Okay. Well, thanks for the commentary. And it feels like Bank seven is in a nice spot for M and A. So appreciate it.

Conference Moderator: We have a follow-up from Nathan Race with Piper Sandler. Please go ahead.

Adam Kroll, Analyst (Piper Sandler), Piper Sandler: Yes. Just a follow-up on credit. You obviously had really strong credit performance during the quarter. But Tom, you mentioned the concerns within the macro environment. So I was just curious if you’re seeing anything in terms of criticized or classified migrations during the quarter?

Jason Estes, Chief Operating Officer, Bank Seven Corp: No. It was very benign in the quarter migrations. We had a couple move down, a couple move up, a couple pay off that were on our special mention rating. So all in all, very, very neutral. If I had to cap it, was it slightly positive or slightly negative?

I would say it was slightly positive. But in general, couldn’t be happier with where we are credit wise within the whole portfolio.

Adam Kroll, Analyst (Piper Sandler), Piper Sandler: Got it. Thanks for taking my question.

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

Tom Travis, Chairman and CEO, Bank Seven Corp: Thank you again for joining us. We’re happy with our quarter. Looking forward to our near future, and thank you.

Conference Moderator: The conference has now concluded. Thank you for attending today’s presentation.