Q4 2021 Bank7 Corp Earnings Call

Good day, and welcome to Bank seven Corp's fourth quarter and full year earnings call before we get started I would like to highlight the legal information and disclaimer on page 21 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.

<unk> made by and information currently available to management.

Although management believes that these expectations reflected in such forward looking statements are reasonable they can give no assurance that the 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 Super supervisory policies of banking regulators should one or more of these risks materialize.

The 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.

Representing the company on today's call, we have Mr. Brad Haines, Chairman, Tom Travis President and CEO J T Phillips, Chief operating Officer, Jason Estes, Chief Credit officer with that I'll turn the call over to Mr. Tom Travis. Please go ahead.

Thank you welcome everyone to the call Yeah, we were.

Very pleased to report record earnings for the company, we had for those of you that.

And then part of our Merry band for a while we had a lot going on in the last quarter of the year.

And we.

We were successful in closing on our acquisition on.

About 23 days before the end of the year and we're excited about that.

The acquisition went down really well and we remain confident of our prior guidance of numbers relative to that acquisition and I would say as we sit here.

Seven weeks later eight weeks later, it's going well.

<unk>.

The next big thing that with the acquisition will be the computer conversion in June and we don't expect any issues there. So.

It looks good so we were busy in the fourth quarter in spite of that.

We were able to continue moving forward in the with the organic growth of the company.

And.

And we're just really pleased at accomplishing so much.

And reporting those record profits. We also had an event that closed the same day as the acquisition that was the registration and the sale of about $1 1 million shares.

So that effect would be.

Basically put a little bit more volume out there on the market. So all in all positive we look forward to.

2022, and we'll open it up for questions.

Thank you we will now begin the question and answer session.

To ask a question you May press Star then one on your telephone keypad.

If youre using a speakerphone please pick up your handset before pressing the keys and Swift draw. Your question. Please press Star then two.

And at this time, we'll pause momentarily, while we assemble our roster.

Hey, Ben answer is wonderful.

And the first question will come from Nathan race with Piper Sandler.

Please go ahead, hey, guys.

Good M&A.

Yeah.

Maybe just start on the loan growth outlook.

Last couple of quarters.

Excluding the loans that you guys acquired from cornerstone in the fourth quarter been kind of in the high single digit range.

Would just love to kind of get your expectations for 2022 in terms of organic growth should we still expect kind of the.

Growth to track in the low double digit range that we've discussed previously.

Yes.

The range we were expecting.

It's probably like most years not going to come in.

Sequential order, we expect the first quarter to have more headwinds due to known payoffs that have either already happened or will happen and so then I think youll see us.

Return to that more normal growth level.

Probably as early as second quarter, but it could push into the third quarter before we see that type of activity but.

Overall, new looks are solid and we're generating good good new fundings, we've just had some headwinds with known payoffs.

I would also tell you that at some point at some point, we're going to have to.

Think about low double digit we've had that same.

Response for three or four years and I think eventually just the sheer size of the institution is going to catch up and so if we were to fall in that 7% to 8% or 9% range. It wouldn't surprise me, but I think Jason still pretty bullish.

Understood and can definitely I appreciate that the payoffs can be tough to predict.

The quarter within the context.

Just thinking about loan growth in the overall margin dynamics going forward.

The margin held in more stable.

Anticipating here in the quarter.

So we'll just be curious to get some color around kind of near term expectations for the margin.

Imagine theres some opportunities too.

Remix, earning asset profile a little bit.

Given the liquidity that you guys acquired with cornerstone so imagine that could provide some near term support and then maybe as we think about the back half of this year. How do you guys kind of do you expect the margin to trend.

As I said, presumably raising short term rates and within that context curious in terms of the amount of floating rate loans that you guys have today and what floors, if any would need to be.

We would need to move through in order to see some repricing of those loans.

We started some extensive modeling.

A few weeks ago and relative to loan floors, and which ones are.

That's the floor and which ones will basically.

What amount of the loan portfolio every 25 basis point increase would generate additional revenue to the bank and so.

We have concluded that modeling we know what you expect and as a result of.

That and the fact that we know are going to have.

Our securities portfolio for a while.

I would expect the pressure downward pressure on the margin and.

I don't know that you could degrade by <unk>.

25 basis points on our margin and our full year I'm, not saying that I'm, saying that there is too much uncertainty with how many fed rate increases and what theyre going to be and so I would just say that.

If we were to degrade down to the lower end of our range over time over the next several quarters. It wouldn't surprise me for those reasons, probably fair to say also though that we've been very pleased with how resilient our margins have been.

In spite of.

<unk> pressure from competitors and borrowers and.

Very pleased overall with the sales staff and the effective results throughout the last year for sure.

And I think that the.

The benefits of Youll notice the deposits grew.

And yet we maintained I think it's 35% at year end were noninterest bearing.

Alright, and so we have some strength in the company that that continues to.

To help.

Soften any kind of.

Our margin decline that we might have.

Understood.

But it sounds like Theres also some inherent repricing.

Characteristics within the loan portfolio that we should see as the fed starts mover would that impact be somewhat delayed as we get through some floors within those floating rate loans.

Correct that is correct.

Okay.

Great.

Maybe just turning to credit.

You guys had net recoveries in the quarter it appears provision.

Provision was still a little higher was that higher provision.

Relative to charge offs, just a function of growth in the quarter or any specific downgrades.

Within the portfolio and how you guys kind of thinking about providing for growth within the context of charge offs for this year again within that context of low double digit to high single digit loan growth expectations.

Well with the addition of the cornerstone portfolio our percentage of LLS.

At the low end of our range and so we're going to add to the provision just to be consistent with our history and so I would say that with the exception of the one credit that we've talked about it seems like forever. The rest of the portfolio has improved Jason has all the data on it but we.

Feel we're sufficiently reserved we'll reserve a little bit more for the year and.

We've had definite.

Positive movement in the NPA is in the company.

Okay great.

Step back I appreciate you guys, taking the questions and all the color. Thank you.

Keith.

The next question will come from Brady Gailey with <unk>. Please go ahead.

Hey, Thanks, good afternoon guys.

Good afternoon.

I know you all didn't necessarily disclose the spin.

Specifics for fee income and expenses, but.

These were.

We sent them out.

If you look at it linked quarter.

Anything driving that or the other.

Fees are a small part of your business, but was there anything onetime in nature driving that.

Pick up.

I don't think so.

Nothing.

Of large magnitude.

Okay.

And then as far as one timers are concerned in the corner I know you call out the 875000.

Related to the merger and some expenses for.

For Brad stock sale, but any other one time in nature things to be aware of in the quarter.

Are you speaking to expense increase on non interest.

I mean, I'm talking expenses or fee income just just any any kind of large onetime in nature item.

In the quarter beyond day 25.

No.

Okay.

Where did.

<unk> finished.

Finish for the year I think they were about $27 million at the end of September were they as the end of December .

$27 million, you're talking about the total outstanding balance Brady.

Yes for PPP loans.

Yes in the <unk>.

<unk> and a half.

Okay.

Alright.

And what was the.

What was the exact amount of.

Cornerstone loans.

Acquired.

And I'm trying to.

Right.

100 <unk>.

115 to 118 at the end of the end of the year.

Okay.

Alright.

But if you look at if you look at core was ex PPP ex acquired.

They were down on a linked quarter basis.

Yes down.

Yes.

So our third quarter to fourth yes. He is targeting for the end of September to December slightly I would call it flat.

Okay.

Okay, Alright, Thats all for me thanks, guys.

Larry.

Again, if you have a question. Please press Star then one our next question will come from Matt Olney with Stephens. Please go ahead.

Thanks, Hey, guys good afternoon.

Hello.

It sounds like you've been doing some work around modeling for interest rate sensitivity.

I didn't see any update to the 100 basis point shock analysis in the slides but.

The last disclosure I've found on that was that the 100 basis points and now.

Shock analysis.

A 10% benefit to NII in any updated commentary you guys can disclose now that you've done a little bit more work over the last few weeks on that.

It is 10% in dollars.

Okay.

Yes.

Okay.

Are you Reconfirming the 10% is a good is a good number no I'm.

Im asking I'm trying to I'm thinking about your question and I don't know what 10% translates to $1 with net interest income increase.

Alright.

NII was about $53 million in 2021, so call it about $5 million.

I don't see that.

I don't.

I don't see that subject to we have a deep deep dive.

So thats going to occur next week on our we've done some enhanced work with our loan floors and work on that and then based on chairman Powell his remarks.

We're going to modify the.

Expectations and.

And tweak that model.

But look don't hold me to that but that would surprise me $5 million is a big number for us to lift.

Okay, well well look for that information I guess in the.

And the 10-Q, when you guys put that out.

Yes.

Let's see here outside of that.

Operating.

Expenses.

Folding in cornerstone now and we'll get the full impact of that in the first quarter any any is there a level you can point us towards for operating expenses in <unk> and then into <unk>.

Throughout 2022.

No overall organic growth.

Is it going to be in.

<unk> range.

Obviously.

We had the cornerstone for about 25% in the quarter in Ms.

A majority.

The balance of the noninterest.

Expense increase.

Between 75 and the actual check.

Okay.

J J, maybe even just more broadly any commentary just on.

Investments or expenses at the legacy Bank as you look into 2022, putting putting cornerstone aside for a second.

I think from a legacy standpoint, obviously, there's pressure on labor costs like everyone else is seeing.

So you might see a little higher than traditional increases on labor.

Overall were in line with what we've done historically.

Ex cornerstone.

Okay.

And on back to your net net your net interest income.

Up 100 scenario.

<unk>.

I should know this but I don't know is what youre looking at are you using that number for bank seven on a stand alone or was that for the combined entity.

That disclosure I was referencing was as at December 31, 2020, and last question if I could sign so would not include cornerstone.

Yes.

That's part of the reason that we had to modify the.

Got a lot to get done in the last 23 or four days of December and get all this out so I think.

I think the.

Modeling will be a little different for us this year because of that cornerstone in the securities portfolio, but I still wouldn't expect it to be $5 million.

Okay. Thank you.

And then I wanted to shift over towards energy and we're seeing some higher commodity prices over the last few weeks and a few more a few months I am curious what this means for the bank with respect to I guess, a few things one.

Your thought on maybe your higher risk energy loan category, but also potential to add more energy credits to the balance sheet.

I think youll see us continue to be opportunistic there.

I would say.

We had a large energy loan pay off in the fourth quarter, where we stepped in and supported people when the market was down and when it's up like this this is when we're a lot more conservative.

I think youll see us stay to those disciplines doesn't mean, we won't be active in this space.

This means we'll be more selective.

And then.

This is this is to us the more risky time to really get out there and get it.

<unk> on the energy lending space.

Got it.

Okay.

Okay guys. Thanks for your help.

Alright, 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. Please go ahead Sir.

Again, we're happy with our results and.

We continue to be an excellent compound or for our fellow shareholders. We're excited about 2022 and.

We benefit greatly from where we are in the country, it's pretty dynamic and are part of the world.

So we're excited to continue to do more of the same and keep compounding our.

Our values there for our shareholders.

That's where we.

That's why we get excited so we thank you and.

Look forward to the rest of the year.

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

Okay.

[music].

Okay.

Okay.

Okay.

[music].

Okay.

No.

Okay.

Yes.

Yes.

[music].