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Edited Transcript of BSVN.OQ earnings conference call or presentation 30-Oct-19 8:30pm GMT

Q3 2019 Bank7 Corp Earnings Call

Nov 15, 2019 (Thomson StreetEvents) -- Edited Transcript of Bank7 Corp earnings conference call or presentation Wednesday, October 30, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jason E. Estes

Bank7 Corp. - Executive VP & Chief Credit Officer

* Thomas L. Travis

Bank7 Corp. - President, CEO & Director

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Conference Call Participants

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* Brendan Jeffrey Nosal

Sandler O'Neill + Partners, L.P., Research Division - Director

* Gordon Reilly McGuire

Stephens Inc., Research Division - Research Analyst

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Presentation

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Operator [1]

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Welcome to Bank7 Corp.'s third quarter earnings call. Before we get started, I'd like to highlight the legal information and disclaimer on Page 1 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 8-K that was filed this morning by the company.

Please note, the call is being recorded. (Operator Instructions) Representing the company on today's call, we have Brad Haines, Chairman; Tom Travis, President and Chief Executive Officer; J.T. Phillips, Chief Operating Officer; Jason Estes, Chief Credit Officer; Kelly Harris, Chief Financial Officer; Henry Litchfield, General Counsel.

With that, I will turn the call over to Tom Travis.

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Thomas L. Travis, Bank7 Corp. - President, CEO & Director [2]

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Thank you, Andrew, and welcome to the third quarter call. We appreciate everyone who's on the call. As you can see from the material that was sent out earlier this morning, we are very happy with our third quarter continued strong loan growth, our net interest margin is held up very well through the year, and especially, in the third quarter, in spite of the Fed lowering the interest rates, we are pleased with that. Earnings were very strong. Really happy with the earnings of the company given the fact that we are continuing forward with higher expense load of being a public company. We added 2 branches, and we added personnel cost. And so those expenses were more than offset by loan growth and the ability to keep our net interest margin up.

So we're really pleased with the quarter and pleased where we are, and we are here to answer any questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Brendan Nosal of Sandler O'Neill + Partners.

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Brendan Jeffrey Nosal, Sandler O'Neill + Partners, L.P., Research Division - Director [2]

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Just want to start off on the net interest margin here. And I think, obviously, the level outside of loan feeds was a lot stronger than I was at least looking for them, probably others as well. Looks like you benefited from some remixing out of cash as well as bit of a higher yield on short-term investments. If there's any other drivers, can you elaborate on the reasons why the NIM was able to perform so well this quarter? And then also what the outlook is for coming quarters in light of today's rate cut and potentially 1 or 2 more?

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Thomas L. Travis, Bank7 Corp. - President, CEO & Director [3]

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Yes. Brendan, thank you. We saw your piece this morning, and I think you nailed it pretty well. And as you and I discussed when we were in New York recently, we've worked very hard one-on-one with our lenders. Jason Estes has done a really good job working with lenders and knowing which customers are at the floor, and we've projected out all summer long in our loans who was currently at the floor back in July and assuming Fed rate cuts, who would be next up to hit the floors and prepared lenders ahead of time.

In addition to that, we have a weekly loan committee meeting that we'd constantly discuss this issue. And so I would just say that we got ahead of it, and we're really pleased with our ability to hold the line on floors. And I would also say that our Bank7 culture, people really like dealing with us. And they understand the value-add that we provide them.

And so I think it's just another illustration of our culture and our relationships and our ability to be fair bankers, but also get paid for our good service. And then I think as far as going forward, I don't know that I would say more of the same in light of the Fed's action today. I think it's inevitable that we will face a slight NIM compression moving forward just because of that. And -- but we're ahead of it. And as we said last year on the roadshow, and as we've always said, when you're starting out with a very strong NIM, if we have to suffer a slight compression, we're okay with that, and we're especially okay with that as our earnings have proven that we can grow the portfolio to offset a little bit of that compression.

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Brendan Jeffrey Nosal, Sandler O'Neill + Partners, L.P., Research Division - Director [4]

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All right. Great. That's definitely helpful. And then another one from me, just moving on to credit. I mean it looks like some of your peers with energy exposure took a couple of lumps this quarter just as energy has weakened. But it looks like your book overall remains quite strong. Can you just help us understand some of the reasons that others have faced some credit-pressured energy, while you guys have hung in a lot better than your peers?

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Jason E. Estes, Bank7 Corp. - Executive VP & Chief Credit Officer [5]

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I can't really speak for others, and this is Jason Estes, Brendan. Can't speak for what others do, but I do know that here from the beginning of when we look at an opportunity to the time alone pays off, we're involved on the large credit exposures. That's from Chairman Haines down through all of the executive team. And so we stick to our fundamentals in underwriting.

And don't misinterpret, I think, we commented last quarter, there is definite stress in the energy sector right now. And we do have clients that are being impacted. It's just a lot of these clients are people we've banked for many, many years. They'd been through many cycles. And I think that the portfolio is holding up better than I think others may be seeing out there.

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Operator [6]

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(Operator Instructions) The next question comes from Matt Olney of Stephens.

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Gordon Reilly McGuire, Stephens Inc., Research Division - Research Analyst [7]

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This is actually Gordon McGuire, filling in for Matt, as he's traveling today. So just to touch quickly on fees. Fees were strong this quarter, particularly in the other. Was there anything unusual there that may not continue at this pace?

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Thomas L. Travis, Bank7 Corp. - President, CEO & Director [8]

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I don't think so. I think -- I don't know, Jason, if you have a comment on that or J.T. I think it was just a solid quarter for fees.

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Jason E. Estes, Bank7 Corp. - Executive VP & Chief Credit Officer [9]

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Yes. I think the construction lending activity has picked up somewhat, so offsetting some of the softness and the new demand on the energy side. And so just a nice quality quarter.

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Gordon Reilly McGuire, Stephens Inc., Research Division - Research Analyst [10]

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And then just digging back in on the NIM. Interest bearing deposits were down 6 basis points this quarter. Is that a reasonable level of decline to think about, as we get into the fourth quarter? Or could you potentially be more aggressive there?

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Thomas L. Travis, Bank7 Corp. - President, CEO & Director [11]

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You know it's a constant battle on the deposit side with larger depositors, just like it is on the loan side. And so I really couldn't -- I could -- I wouldn't even begin to speculate on the 6 basis points and whether it would be more or less or high or low. I just would say that our cost, it seem, working with customers on the liability side, it's just like it is on the asset side with the loans. And so I think what you'll see from us is, clearly, the deposit costs will go down and whether they go down more -- significantly more or not, who knows, I would suggest it will be -- I don't think you're going to ever see -- I shouldn't say ever, but for Bank7, you're not going to see big spikes. And you're going to see a management of the NIM on a monthly basis that you'll see a slight lowering or you might see a slight rising of rates and then the NIM will just be right there with it.

So hard to say on specifics on 6 basis points or not.

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Gordon Reilly McGuire, Stephens Inc., Research Division - Research Analyst [12]

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And then just on the CDs. They were costing 2.22% this quarter. Can you give any color around new CD offers from the bank? Just trying to think about those costs going forward based on what you're offering the market right now.

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Thomas L. Travis, Bank7 Corp. - President, CEO & Director [13]

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I don't think it's any different than the other deposit categories. I would say that we do have quite a bit of money in the money market accounts as well. And so I don't think you can distinguish between our deposit categories. We try to treat them the same.

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Gordon Reilly McGuire, Stephens Inc., Research Division - Research Analyst [14]

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The share counts were lower this quarter, I guess. Was the buyback active and if so how much? And what average price were the repurchases?

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Unidentified Company Representative, [15]

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Yes. So the share count change was not related to the stock buyback. It was more related to the onetime transaction and involving...

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Thomas L. Travis, Bank7 Corp. - President, CEO & Director [16]

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Three executives.

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Unidentified Company Representative, [17]

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Three executives and contributions in the treasury.

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Thomas L. Travis, Bank7 Corp. - President, CEO & Director [18]

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We haven't bought a single share based on our buyback program yet.

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Gordon Reilly McGuire, Stephens Inc., Research Division - Research Analyst [19]

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Got it. And then last one for me. Loan growth is pretty impressive, again, this quarter. Can you just talk about what loan categories were the primary drivers there?

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Jason E. Estes, Bank7 Corp. - Executive VP & Chief Credit Officer [20]

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Sure. In the release, we've got the pie chart that shows the loan portfolio, but you'll see that the owner occupied commercial real estate was up significantly. That was approximately $24.5 million, operational hospitality was up $22.8 million. Some of that was transitioning out of construction into that section of operational, but some of it was actually new fundings. And then we also have nonowner occupied commercial real estate, and that was up about $18 million.

So really nice, robust deal flow. Still seeing good deal flow today.

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Operator [21]

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(Operator Instructions) And we have a follow-up from Brendan Nosal of Sandler O'Neill + Partners.

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Brendan Jeffrey Nosal, Sandler O'Neill + Partners, L.P., Research Division - Director [22]

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I'll just sneak a few more in there. So I heard you here you didn't buy back any shares this quarter, but you do have the authorization for up to roughly 5% of shares outstanding. Just want to kind of gauge your appetite for actually deploying capital into repurchase at this point. Is it something you're looking to do? Is it more of a defensive measure?

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Thomas L. Travis, Bank7 Corp. - President, CEO & Director [23]

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Well, Brendan, as you know, it's one of those -- obviously, we can't get into the specifics, or how do you say it, we'd tell you, but then we'd have to kill you, right? But I think from a general overview, our view of the buyback is just proper capital planning and, of course, we think there's always a bargain element price.

And so we have those parameters that are very well-defined within our executive management group and our Board. And so for us, I think it's just good capital planning, its downside protection and bargain element all wrapped together. And so that's just kind of the philosophy of how we look at it.

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Brendan Jeffrey Nosal, Sandler O'Neill + Partners, L.P., Research Division - Director [24]

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Got it. Got it. Okay. And then last one for me. Loan fees as a part of NII were down a fair bit quarter-over-quarter and are trending at one of the lower levels. You guys have seen it on a quarterly base. Was there anything specific to this quarter? And then is that kind of 50 basis points on the net interest margin still a reasonable assumption going forward?

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Unidentified Company Representative, [25]

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50 basis points is kind of in our baseline. But there are some quarters where obviously depending on timing and loan category, you may have a little bit below, I think, overall, 50 bps is still a fair way of thinking about it going forward.

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Operator [26]

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

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Thomas L. Travis, Bank7 Corp. - President, CEO & Director [27]

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Well, we just -- again, we feel really good about our company and about the quarter we had, the conclusion of our executive stock transaction with Chairman Haines, who is in here today. And we're happy that -- and we're blessed to be in the markets that we're in.

And so we appreciate everyone's interest and support, and we look forward to doing more of the same.

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Operator [28]

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