Q3 2019 Earnings Call

Welcome to bank seven Corp's third quarter earnings call.

Before we get started I'd like to highlight the legal information a disclaimer on page one Oh, 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't 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 and an 8-K that was filed this morning by the company.

Please note the call is being recorded.

If you require operator assistance. Please press Star then zero.

Representing the company on todays call, we have Brad Hanes Chairman.

Tom Travis President and Chief Executive Officer, J.T., Philips, Chief Operating Officer, Jason Estis, Chief Credit Officer, Kelly Harris, Chief Financial Officer, Henry Litchfield General Counsel.

With that I'll turn the call over to Tom Travis.

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Thank you Andrew and welcome to the third quarter call. We appreciate everyone with on the call as you can see for the material that was sent out early this morning, we're very happy with our third quarter. A continued strong loan growth. Our net interest margin is held up very well through the year and especially in that.

Third quarter.

In spite of the fed lowering the interest rates were pleased with that earnings were very strong really happy with the earnings of the company given the fact that we are continuing forward with a higher expense load of being a public company. We added two branches and we added a personnel.

Cost and so are 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 in places, where we are and we're here to answer any questions.

We will now begin the question and answer session.

To ask a question you May Press Star then one on your Touchtone phone.

If you're using these speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then to at this time, we will pause momentarily to assemble our roster.

The first question comes from Brendan Nosal of Sandler O'neill and partners. Please go ahead.

Hey, good afternoon, guys how are you.

Right.

Right. Okay. Good just wanted to start off on the net interest margin here and I think obviously that the level outside of loan fees was a lot stronger then.

I was at least looking born probably others as well it looks like you had benefited from some re mixing out of cash as well as you know a bit of a higher yield on short term investments. If there's any other drivers can you elaborate on on the reasons why the NIM was able to performing so well this quarter and then also what the outlook is for coming quarters in light of today's rate cut and potentially you know one.

As you more.

Yeah bread and thank you we saw your piece this morning, and yeah, I think you nailed it pretty well and you know as you and I discussed when we were in New York recently, we've worked very hard one on one with our lenders Jason If this has done a really good job.

Working with lenders and knowing which customers are at the floor and a we've projected out all summer long and our loans who was currently at the floor back in July and assuming fed rate cuts or 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 or that we constantly discussed this issue and so I would just say that 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 you know our bank seven culture.

People really like dealing with a 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 the same in light of the fed action today I think it's inevitable that we will face a flight NIM compression moving forward just because of that.

And but we're ahead of that and you know as we said last year on the road show and as we've always said you know when you're starting out with a very strong them. 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.

Alright, great. That's a that's definitely helpful. And then another one for me just moving on to credit I.

I mean, it looks like some of your peers of energy exposure took a couple of lumps. This quarter to says energy has weekend, but you know it looks like your book overall remains quite strong can you just help US understand you know some of the reasons that others have faced some credit pressure in energy. While you guys have hung in a lot better than than your peers.

Yeah, I can't really speak for others and this is Jason method, Brandon can't can't speak for what others do but I do know that here you know from the beginning of when we look at an opportunity to the time alone pays all were involved on the large credit exposure that's from chairman Haynes down through all of the exactly.

Give team and so we stick to our fundamental.

In underwriting and no don't Misinterpret you know I think we commented last quarter. There is definitely 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 Weve bank for many many years they've been through many cycles.

And I think that the portfolio is holding up.

Better than I think others, maybe seeing out there.

Alright, great. Thank you for taking my questions.

Sure.

Once again, if you have a question. Please press Star then one only touchtone phone.

The next question comes from Matt Olney Stephens. Please go ahead.

Hi, This is actually Gordon Maguire filling in for Matt is he's traveling today good afternoon.

Yes.

So just don't touch quickly on fees or fees were strong this quarter, particularly in the other.

Anything unusual there that may not continue at this pace.

I don't think so I I think.

I don't know, Jason if you have a comment on that or J.T. I think I think it was just to get to solid quarter for fees, Yeah, I think the construction.

Lending activity has picked up somewhat offsetting some of the softness in the in the beauty and on the energy side and so just a nice quality quarter.

And and then just.

Looking back in on the NIM, a interest bearing deposits were down six basis points. This quarter is is that reasonable level of decline to think about as we get into the fourth quarter or could you potentially be more aggressive there.

You know, it's it's a it's a constant battle on the deposit side with larger depositors just like it is on the loan side.

And so are you know I really couldn't I could I wouldn't even begin to speculate on the six basis points and whether it would be more or less or high or low I, just would say that our constant theme of working with customers on the liability side is just like it is on the 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 not who knows I would suggest it will be I don't think you're going to ever see shouldn't they ever but for bank seven you're not going to see big spikes, you're going to see a a management of a NIM on a monthly basis that that you'll see a flight lowering or you might see a slight rising of rates and then.

The the NIM will just be right there with it so hard hard to say on specifics on six basis points or not.

And then just on the Cds that they were costing to 22. This quarter can you give any color around new CD offers from the bank just just trying to think about those costs going forward based on what your offer in the market right now.

I don't think it's any different than the other deposit categories. I would say that we do have you know 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.

The share counts were lower this quarter I guess was the buyback active and if so how much and whatever price for the report purchases.

Yeah. So the share count change was not related to stock buyback it was more related to the onetime transaction involving.

For exactly three executives and contributions into Treasury, we haven't bought a single share based on our buyback program yet.

Got it.

And then last one from me a loan growth is pretty impressive again this quarter or can you just talked about what loan categories were the primary drivers there.

Sure Hi in the in the release, we've got the Pie chart that shows the loan portfolio, but you'll see that the.

Yeah, I'd commercial real estate, a was up significantly that was approximately 24 and a half million dollars operational hospitality was up 22.8 someone that was transitioning out of construction into.

That section of operational but some of it was actually a new funding and then we also have.

No I know non owner occupied commercial real estate and that was up about $18 million, So really nice a robot deal flow.

Still seeing good deal flow today.

Alright, thank you.

Again, if you I must caution.

Please press Star then one and we have any follow up from Brendan knows all of Sandler O'neill and partners. Please go ahead.

Hey, guys I'll, just sneak a few more in there I'm sorry, I heard you said you didn't buy back any shares this quarter, but you do have the authorization for up to roughly 5% of shares outstanding I'm just wanted to kind of gauge your appetite for for actually deploying capital enter any purchase to this point is it something you're looking to do is it more of a have a defensive measure.

Well, you know brand and as you know it's one of those obviously, we can't get into specifics or how do you say, we tell you, but then we'd have to kill you're right.

But I think from a from a general overview you know our our view of the buyback is is.

Just proper capital planning and of course, we think there's always a bargain element price and so you know we have those parameters that are very well defined within our executive management group and our board and.

And so.

You know for us.

I think it's just it's just good capital planning a downside protection in bargain element all wrapped together and.

So that's just kind of the philosophy of how we look at it.

Got it got it Okay, and then last one from me loan fees as a part of and I were down a fair bit quarter over quarter in or you know trending at one of the lower levels you guys have seen at a quarterly basis.

Is there anything specific to this quarter.

And then is that kind of 50 basis points on the the net interest margin still a reasonable assumption going forward.

Oh, you know 50 basis points is kinda been our baseline, but there are some quarters, where obviously.

Building on timing and loan category.

You may have a little bit below.

I think overall 50 Bips is still a.

Fair way of thinking about a going forward.

Alright, perfect. Thank you guys.

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

Well, we just a again, we feel really good about our company and about a quarter. We had you know the conclusion of our.

Executive top stock transaction with with chairman hangs in here today, and you know we're happy that that.

And we're blessed to be in the markets that we're in so.

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

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