Q3 2024 Bank7 Corp Earnings Call

Speaker Change: Good morning and welcome to Bank 7 Corpse's third quarter earnings call. Before we get started, I'd like to highlight the legal information and disclaimer on page 26 of the investor presentation.

Unknown Executive: Before we get started, I'd like to highlight the legal information and disclaimer on page 26 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 an 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 subjects 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.

Speaker Change: 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 an 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.

Speaker Change: Such statements are subjects 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.

Unknown Executive: Should one or more of these risks materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those expected.

Speaker Change: Should one or more of these risks materialize or should underline assumptions prove incorrect, actual results may vary materially from those expected.

Unknown Executive: 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.

Speaker Change: Also, please note that this conference call contains references to non-gap financial measures. You can find reconciliation of these non-gap financial measures to get financial measures in an aka that will file this morning by the company.

Unknown Executive: Representing the company on today's call, we have Tom Travis, President and CEO; JT Phillips, Chief Operating Officer; Jason Estes, Chief Credit Officer; and Kelly Harris, Chief Financial Officer.

Speaker Change: representing the company on today's call we have, Tom Travis, President and CEO, JT Phillips, Chief Operating Officer, Jason Estes, Chief Credit Officer, and Kelly Harris, Chief Financial Officer. With that, I'll turn the call over to Tom Travis.

Tom Travis: With that, I'll turn the call over to Tom Travis. Thank you, thank you. We also have Paul Tillman with us, who's Kelly's right-hand person. A shout out to Kelly and Paul for their great work, but also for getting the information out very timely. So, I'm not surprised we have a great, great group. So, good morning. Welcome to everyone.

Tom Travis: Thank you, thank you. We also have Paul Kilman with us too.

Tom Travis: Kelly's right hand person and shout out to Kelly and Paul for their great work but also getting the information out very timely. So I'm not surprised we have a great group. So good morning, welcome to everyone before we launch into our results.

Tom Travis: Before we launch into our results, we're certainly aware of the devastation inflicted by the recent storms on our fellow citizens, and our thoughts and prayers certainly go out to them. Very trying times over in the Eastern Seaboard for sure. As we move into our strong financial results, we're excited; we're cautiously optimistic even in the face of this upcoming and very divisive national election. It'll be nice if we can tone down the rhetoric, for sure. Clearly we're in for some choppy waters over the next few months, and yet we're continually stressing how comforted we are to be in this part of the United States.

Tom Travis: We're certainly aware of the devastation inflicted by the recent storms on our fellow citizens and our thoughts and prayers certainly go out to them very trying times over in the Eastern Seaboard for sure.

Tom Travis: As we move into our strong financial results, we're excited, we're cautiously optimistic, even in the face of this upcoming and very divisive national election, it'll be nice if we can come down the rhetoric for sure.

Tom Travis: Clearly we're in for some choppy waters over the next few months and yet we're continually stressing how comforted we are to be in this part of the United States. It's a real geographic financial advantage for sure.

Tom Travis: It's a real geographic financial advantage for sure. With that in mind, those issues are still always on our mind, and this is certainly tied for caution. That's why we take such comfort in our fundamental strengths, especially the high levels of capital. It isn't just the higher levels of capital that gives us that comfort. We have a very strong liquidity position, and we further enhanced that last quarter by adding a second liquidity backstop, and that being the new Fed facility, which is now in place should we've ever needed in times of stress. So, we now have two meaningful sources of additional liquidity: the FHLV, which we've had for a long time, and the new Fed facility.

Tom Travis: With that in mind those issues are still always on our mind and this is certainly a time for caution. And that's why we take such comfort in our fundamental strengths, especially the high levels of capital.

Tom Travis: And it isn't just the higher levels of capital that gives us that comfort. We have a very strong liquidity position.

Tom Travis: and we further enhanced that last quarter by adding a second liquidity backstop and that being the new Fed facility which is now in place should we never needed in time to stress. So we now had two meaningful sources of additional liquidity, the FHLV, which we've had for a long time, and the new Fed facility.

Tom Travis: Our discipline approach to maintaining that properly matched balance sheet has really been proven through the rate cycles. And those of you that have followed us over a long period of time, and I know that we include in the deputy spread management that compares our spread through up and down rate cycles in the various Treasury markets. It's a great strength of the company. And really it's the foundation, along with our credit quality, that produces these results.

Tom Travis: Our discipline to approach, to maintaining that properly balanced match balance sheet.

Tom Travis: has really been proven to the right cycles and those of you that have followed us over a long period of time and I know that we included in the depth of spread management that compares our spread through up and down right cycles and the various treasury markets. It's a great strength of the company.

Tom Travis: And really, it's the foundation along with our credit quality that produces these results. And as you can see, record earnings and a record EPS, not only for the recent quarter, but our year-to-date results. And so we're very proud of those accomplishments.

Tom Travis: And as you can see, record earnings and a record EPS not only for the recent quarter, but our year-to-date results. And so we're very proud of those accomplishments. And those were achieved through normal operations. And in the case of our EPS, they weren't driven by share buybacks. So our strong earnings and capital levels were the driving factors that motivated us recently to make a large increase to our cash dividend. But even with that large increase, our dividend payout ratio is still in the 20% range. And when you compare that to banks that do pay dividends, the average is a little bit more than 35%.

Tom Travis: and those were achieved through normal operations and in the case of our EPS they weren't driven by share by bags.

Tom Travis: So our strong earnings and capital levels were the driving factors that motivated us recently to make a large increase to our cash dividend. But even with that large increase, our dividend payout ratio is still in the 20% range, and when you compare that to bank that due paid dividend, the average is a little bit more than 35%.

Tom Travis: So Bank7 has plenty of room for further increases if we want to do that. While at the same time being comforted by our top-tier earnings that rapidly accumulates capital. And as majority shareholders, we're really pleased with the total shareholder returns produced by our company. And as you can see in the published materials, we rapidly compound shareholder value much faster than almost any other institution. Our results are certainly attributed to our outstanding team members who work with our loyal customers. We're all very aligned, and we're really looking forward to our future. And I can't thank the team members enough.

Tom Travis: So, thanks Evan, has plenty of room for further increases if we want to do that. While at the same time being comforted by our top-tier earnings that rapidly accumulates capital.

Tom Travis: And as major majority shareholders, we're really pleased with the total shareholder returns produced by our company and as you can see in the published materials, we rapidly compound shareholder value much faster than almost any other institution.

Tom Travis: ok

Tom Travis: Our results are certainly attributed to our outstanding team members who work with our loyal customers.

Tom Travis: We're all very aligned and we're really looking forward to our future and I can't think that team members enough. So with that said, we're certainly ready for any questions and ready for Q&A this morning. Thank you.

Tom Travis: So, with that said, we're certainly ready for any questions and ready for Q&A this morning. Thank you.

Unknown Executive: I will now begin the question and answer session. To ask a question, you may press star, then one on your touch tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two.

Tom Travis: to

Speaker Change: I will now begin the question and answer session to ask a question you may press star then one on your touchstone phone. If you are using a speaker phone please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two.

Unknown Executive: At this time, we will pause momentarily to assemble our roster.

Speaker Change: At this time we will pause momentarily to assemble our roster.

Woody Lay: And our first question today comes from Woody Lay with KBW. Please go ahead.

Speaker Change: And our first question today comes from Woody Lay with KBW. Please go ahead.

Unknown Executive: Hey, good morning, guys. One of the start on the longer side of the growth was great to see in the third quarter. I know there was some commentary last quarter that there was some funding delayed, but I'm just curious how the pipeline is looking entering the fourth quarter. Yeah, so thanks for the question.

Woody Lay: a good morning guys

Woody Lay: Or a wedding.

Woody Lay: One of the start-on, the one on the roadside, I mean, the growth was great to see in the third quarter. I know there was some commentary last quarter that there was some funding delayed. But I just curious how the pipeline is looking entering the fourth quarter.

Unknown Executive: You know, last quarter, we were very confident that we had a lot of funding coming. This quarter, I would say, you know, I would expect us to finish more in line with where we are now. I wouldn't expect another nice growth quarter, but I think, you know, here we are kind of ending up in that range.

Speaker Change: Yeah, so thanks for the question. You know, last quarter, we were very confident, you know, that we had a lot of fun things coming. This quarter, I would say, you know, I would expect us to finish more in line with where we are now. I wouldn't expect another nice growth quarter, but I think, you know, here we are, kind of ending up in that range we've talked about for the full year of, you know, kind of a moderate to high single digit long growth for the year. And I think we're going to be right in line with that. I think, in general,

Unknown Executive: We've talked about for the full year of, you know, kind of a moderate to high single digit long growth for the year. And I think we're going to be right in line with that. I think in general... There are certain segments we restrict to just continue to mitigate the risk in our portfolio.

Speaker Change: There are certain segments we restrict, you know, to just continue to mitigate the risk in our portfolio. And so we continue to see opportunities there and we're passing on more deals, you know, specifically in the hospitality space, the energy space, those two components we continue to really shift through opportunities to make sure we're optimizing the portfolio return with those dollars that we restrict, you know, by our own intent. So all in all, should fall right in line with what we thought at the beginning of the year.

Unknown Executive: And so we continue to see opportunities there, and we're passing on more deals, specifically in the hospitality space, the energy space. Those two components we continue to really sit through opportunities to make sure we're optimizing the portfolio return with those dollars that we restrict, you know, by our own intent. So all in all, should fall right in line with what we thought at the beginning of the year.

Unknown Executive: Yeah, and as you talk to talk with clients, have you noticed the difference in activity now that we have a couple of rate cuts behind us, or is it still about the same? About the same, I would add to Jason's comments that, again, this goes back, I believe, to factors.

Speaker Change: Yeah, and as you talk to talk with clients, have you noticed the difference in activity now that we have a couple of rate cuts behind us or is it still about the same?

Speaker Change: and about the same.

Speaker Change: This is Tom. I would add to Jason's comments that, again, this goes back, I believe, too.

Tom Travis: One, is the geographic advantage of the robust nature of this part of the country. And two, you know, it confounds me on a regular basis how the financial mentality has been about, quote, higher interest rates in the United States. And I think that's just been somewhat of a false narrative. And what I specifically mean, as I don't know the exact number, I know that Jason and Kelly and I looked at this four or five months ago, and I think we went back for the last 60 years, and I think there's only nine times where the 10-year Treasury was higher than where it's been.

Tom Travis: Two factors. One is the geographic advantage of the robust.

Tom Travis: Nature of this part of the country.

Tom Travis: in two.

Tom Travis: You know, it confounds me on a regular basis, how...

Tom Travis: the financial.

Tom Travis: mentality has been about

Tom Travis: quote, higher interest rates in the United States.

Tom Travis: and I think that's just been somewhat of a false narrative and what I specifically mean is I don't know the exact number. I know that Jason and Kelly and I looked at this.

Tom Travis: 4-5 months ago and I think we went back for the last 60 years.

Tom Travis: But I think there's only nine times where the 10-year treasury.

Tom Travis: And so I think this narrative evolved when the Fed started raising rates that, oh my gosh, we're in these high interest rates, and then that bled into borrowers aren't going to be able to make payments or, you know, economic activity. And when you really look at long-term averages, it really hasn't been an interest rate story. It's been a cost story that may have had a dampening effect on companies borrowing money and building projects and, you know, and investing in capital goods.

Tom Travis: was higher than where it's been and so I think this narrative evolved when the Fed started raising rates that, well my gosh, we're in these high interest rates and that blood into borrowers aren't going to be able to make.

Tom Travis: Payments or, you know, economic activity and when you really look at long-term averages

Tom Travis: it really hasn't been an interest rate story it's been a cost story that may have had a dampening effect on companies borrowing money and building projects and you know and investing in capital goods and soi'm not trying to be long winded here but i think it's important for all of us to remember that we're operating in a very normal interest rate environment

Tom Travis: And so I'm not trying to be long-winded here, but I think it's important for all of us to remember that we're operating in a very normal interest rate environment, and when you marry that with where we are in the country and the inward migration, it's just a very nice, steady, ambient level of economic activity. And that's why the growth continues. That's right. You know, throughout the last, call it 15 months, 18 months. That's right. And, again, I said another way. I mean, we bounced into historical, modern history of the United States, historical interest rate lows.

Tom Travis: and when you marry that with where we are in the part of the country, and the inward migration, it's just a very nice steady.

Tom Travis: and being level of economic activity.

Tom Travis: And that's why the growth continues. That's right. You know, throughout the last, call it 15 months, 18 months. That's right. And again, I, you know, said another way. I mean, we bounced into historical, modern, modern history of the United States, historical, interest rate lows. And so when you bounce off of that, people think, oh my gosh, the rates are high, but that's just not the case. Go, go look at the research, go look at, go look at the historical numbers on the treasury markets. And, and so, sorry, anyway, enough of that, but we feel really good about, as Jason said, we could have put even more loans on the books, but we're trying to be very careful.

Tom Travis: And so when you bounce off of that, people think, oh my gosh, the rates are high, but that's just not the case. Go look at the research, go look at the historical numbers on the Treasury markets.

Tom Travis: And so, so anyway, enough of that, but we feel really good about, as Jason said, we could have put even more loans on the books, but we're trying to be very careful.

Unknown Executive: Yeah, that's really helpful color.

Woody Lay: I guess shifting over to more than a positive side, I really appreciate the color you provided on the loan betas and the deposit betas and how those shifted with the recent rate cuts. And I was a little surprised to see the deposit betas go in lockstep with the loan betas. Did you see any deposit run-off when you made those rate adjustments? And with future cuts, do you think you can continue to cut deposit rates out aggressively?

Speaker Change: Yeah, that's really helpful color. I guess shifting over to more than a positive side, I really appreciate the color you provided on the loan betas and the deposit betas and how those shifted with the recent rate cuts. And I was a little surprised to see the deposit betas go in lockstep with the loan betas. Did you see any deposit run off when you made those rate adjustments? And with future cuts, do you think you can continue to cut the deposit rate that aggressively?

Tom Travis: I think this is Tom again, Woody. We're not surprised. You're comment about, I forget your words, but you noted how we had gone lockstep. And I think it goes back to my opening comments relative to a properly matched balance sheet. And we work so hard and we don't take our IELF the ball relative to loan for floors and floters and keeping our fixed rates. I think it's 24% of the loan portfolio or something like that. I mean, even those are rapidly amortizing, and so the end result is a very properly methodically applied concept here. I would tell you that we have modeled, I mean, Kelly, whether we do, we did four columns.

Tom Travis: I think this is Tom again Woody. We're not surprised, you know, you're comment about.

Tom: You were, you know, I forget your words, but you noted how we had gone locked up, you know, and I think it goes back to my opening comments relative to a properly matched balance sheet and we worked so hard.

Tom: and we don't take our eye off the ball relative to lung fore floors and floaters and, you know, keep on our fix rates, you know, I think it's 24% of the lung forefolio or something like that. And even those are rapidly amortizing and so.

Tom: The end result is a very properly methodically applied concept here. I would tell you that we have modeled, I mean, Kelly, whether we do, we did four columns, we did 25, 50, 75, and 100 basis points.

Jason Estes: We did 25, 50, 75, and 100 basis points. And I guess I would use the term "not issue" for the first 100 basis points, Kelly. Correct. And then once you get through the first 100, the 150, that's when you start to see the floors really start to kick in. Right. And so historically, it becomes more difficult as you get into that 100 basis point territory because you do have customers that will want to come in and say, "Hey, I think my floors are maybe too high." I don't want to renegotiate. But again, we've lived through these cycles, and we've been very successful.

Speaker Change: I guess I would use the term not issue for the first 100 basis point to Kelly correct and then once you get through the first 100 to 150 that's when you start to see the floor is really start to kick in right and so, so.

Speaker Change: You know, historically, it becomes more difficult as you get into that 100 basis point territory because you do have customers that will want to come in and say, hey, I think my floors are, you know, maybe too high. I don't want to renegotiate. But again, you know, we've lived through these cycles. And we've been very successful. And so yes, it might get a little more difficult. But the end of the day, Woody, we are very comfortable operating. We're getting our minimum art historical ranges. And that's really the final message.

Jason Estes: And so, yes, it might get a little more difficult, but at the end of the day, Woody, we are very comfortable operating our minimum and our historical ranges. And that's really the final message. Yeah.

Woody Lay: Well, that's all for me. Congrats on the great quarter.

Speaker Change: Well that's all for me it congrats on the great quarter.

Tom Travis: And Woody, I have a question. This is Tom. Notice your target was $40. It seems to me like you're saying bagging because we're almost already there. Well, it was a great quarter. So we'll be where he goes in the.

Speaker Change: And what do you have a question this is Tom. I noticed your target was $40. It seems to me like you're saying back in because we're almost already there.

Speaker Change: It was a great quarter, though we'll see where it goes in there. We appreciate your coverage, Woody. Thank you.

Woody Lay: We appreciate your coverage, Woody. Thank you. Yeah, of course.

Unknown Executive: Thanks, guys. Again, if you have a question, please press star, then one.

Woody Lay: Yeah, of course. Thanks guys.

Speaker Change: Again, if you have a question, please press star then one.

Nathan Race: And our next question comes from Nathan Race with Piper Sandler. Please go ahead.

Speaker Change: In our next question, comes from Nathan Race with Piper Sandler. Please go ahead.

Nathan Race: Hey, guys, good morning. Thanks for taking the questions. Hi, Nate. Good morning. Just going back to the margin commentary previously, you know, I appreciate you still expect the margin to remain kind of within that historical range. But, you know, just giving you guys posted, you know, 20% plus an ag growth as short-term rates are going up the last couple of years. Just curious how you're thinking about an ag growth prospect in the next year, just given that, you know, short-term rates are expected to decline from here.

Nathan Race: Hey you guys, good morning. Thanks for taking the questions.

Unknown Executive: Yeah, so Nate, I think that one of the things that's not really been spoken about on this call yet is the fact that banks, in general, in 2023, after what happened in March, really tightened up on lending money. And so our net interest income and our NIMM, that's been the health because we've been able to be more stubborn on giving in and negotiations on loan rates. Okay, and that's allowed us to give in a little more on deposit rates. And so, you know, there's different, I would say, variables involved as we're negotiating loans in deposits and trying to attract new clients and take care of our existing clients. But in general, you know, I hear you, yes, there's been pressure, but we've been able to navigate that because they're really in our market; you still have good, healthy economic growth.

Nathan Race: i

Speaker Change: Yeah, so Nate, I think that one of the things that's not really been spoken about on this call yet is the fact that you know, banks in general in 2023 after what happened in March really tightened up on lending money. And so...

Speaker Change: Our net interest income and our NIM that's been helped because we've been able to be more stubborn on giving in negotiations on loan rate. Okay, and that's allowed us to give in a little more on the profit rate. And so, you know, there's different...

Speaker Change: I would say variables involved as we're negotiating loans in the Pogots and trying to attract new clients and take care of our existing clients.

Speaker Change: In general, you know, I hear you, yes, there's been pressure, but we've been able to navigate that because they're really...

Speaker Change: In our market, you still have good healthy economic growth.

Unknown Executive: And you have, I would say, fewer banks really pursuing loans. There's always competition, but I think the level of competition for loans, it shifted a little bit, you know, last year, really in the second half of the year. And yeah, I'm sure that's going to normalize, and it wouldn't surprise me, you know, as we continue to try to grow both loans and deposits going into next year. Some of that restriction or governance that we've seen on some of these competing banks, if they start to return to more normal competing levels. And so, you know, I think we've talked about this now for several quarters in a row that we could see our, you know, gradually sliding down, but, you know, we're fighting every day to maximize it.

Speaker Change: and you have

Speaker Change: I would say fewer.

Speaker Change: Banks really pursuing loans. There's always competition, but I think the level of competition for loans, it shifted a little bit, you know, last year, really in the second half of the year.

Speaker Change: And yeah, I'm sure that's going to normalize and it wouldn't surprise me, you know, as we continue to try to grow both loans and deposits going in the next year. Some of that restriction.

Speaker Change: or governance that we've seen on some of these competing banks, if they start to return to more normal competing levels and so, you know, I think we've talked about this now for several quarters in a row that we could see are, you know, gradually sliding down, but, you know, we're fighting every day to maximize it.

Unknown Executive: Yeah, that's very helpful.

Jason Estes: And while we have you, Jason, just, we'd be curious here for an update on the credit quality front. You know, it seemed like, you know, non-performers are relatively stable in the quarter. So, just curious to hear what you're seeing in terms of Christy's class, I think, these days. Yeah, so, you know, we were up a million, roughly in the quarter, but there's a lot that's actually gone on there that doesn't really show up in that individual number. We had a couple of really nice results. The largest NPA we had left, we actually got a million six in principle reduction during the quarter.

Speaker Change: Yeah, that's very helpful. And while we have you Jason, just would be curious to hear it out there on the credit quality front, you know, it seemed like, you know, not performers are relatively stable in the quarter. So just curious to hear what you're seeing in terms of Chris that's got, like, friends, these days.

Jason Estes: Yeah, so um

Speaker Change: You know, we were up a million roughly in the quarter, but there's a lot that's actually gone on there that doesn't really show up in that individual number. We have a couple of really nice results, the largest.

Speaker Change: We actually got a million six in principle reduction during the quarter, and we had the final tail of the energy credit paid off, that was a million one. And so we collected just under three million on last quarter numbers from the MPA in principle, which is a good result. We did have two new relationships. We had two new relationships.

Jason Estes: And we had, you know, the final tail of the energy credit paid off; that was a million one. And so, we collected just under three million on last quarter's numbers from the NPA in principle, which is a good result. We did have two new relationships show up on this list that are better on non-accrual. I think those two, you know, we don't expect meaningful loss there, approximately three million; the other one's 750,000 in total balance, but I do think those will stay on here through year end. But my goal has always worked this number to zero.

Speaker Change: ah

Speaker Change: Show up on this list that are not a cruel. I think those two, you know, we don't expect meaningful loss there. One approximately three million, the other 750,000 in total balance. But I do think those will stay on here through year end. But my goal has always worked this number to zero. And so we've had good, good results throughout this entire year. Credit wise, the portfolio is performing well overall. But, you know. [inaudible]

Jason Estes: And so, we've had good results throughout this entire year, credit wise. The portfolio is performing well overall, but, you know... Still always, you know, the book's big enough now where, you know, there's enough clients, there's enough exposure to various areas and industries, and so we're always eyeing something, but we're working through those successfully.

Speaker Change: Still always, you know, the book's big enough now where, you know, there's enough clients, there's enough exposure to various areas and industries, and so we're always...

Speaker Change: I think something that we're working through those successfully.

Unknown Executive: Okay, great.

Jason Estes: And then just in terms of the thing about the future of provisioning levels, you know, growth kind of reverse to the mid-school disarrange going forward. Any thoughts on just the provision and kind of where you'd like to reserve to kind of trend over time going forward relative to think of one and a quarter coming out 3-2. Yeah, you know, this quarter, depending on, you know, what happens with the economy in the fourth quarter, I still expect this to operate in these same ranges, you know, as long as the portfolio holds up and the economic activity stays, you know, similar, knock on wood.

Speaker Change: Okay, great. And then just in terms of thing about the future provisioning levels, you know, growth kind of reverse to the mid-suel deserings going forward, any thoughts on just the provision, it kind of worries like the reserve to kind of trend over time going forward. We'll take to think of one and a quarter, coming out of three, two.

Speaker Change: Yeah, you know, this quarter, depending on, you know, what happens with the economy in the fourth quarter, I still expect us to operate in these same ranges, you know, as long as the portfolio holds up and the economic activity stays, you know, similar knock on wood. It's been, it's been really good in Texas and Oklahoma and so we're hopeful that it continues kind of in the same ranges.

Jason Estes: So it's been, it's been really good in Texas and Oklahoma, and so we're hopeful that it continues kind of in the same ranges.

Tom Travis: Yeah, and I think to add to Jason's comments, Nate, this is Tom. You know, as we've commented before, you know, it's the Rubik's Cube, so to speak, and what I specifically mean is we carry a significant amount of cushion over and above the PCA levels of capital. And, Kelly, I don't remember; do we put that slide in the deck? I know we have the stress test. I don't think we do, but I have it in my lap. But if you look at the cushion, the dollar cushion of where we are relative to excess capital, if you want to call it that way, you really are in a splitting hairs. You know, it's not the debt, but I've got it here.

Speaker Change: Yeah, and I think to add to Jason's comments, Nate, this is Tom. You know, as we've commented before, you know, it's the Rubik's Cube, so to speak, and what I specifically mean is we carry a significant amount of cushion over and above the PCA levels of capital. And, Kelly, I don't remember, do we put that slide in the deck? I know we have the stress test.

Kelly Harris: I don't think we do, but I have it in my lap, but if you look at the dollar cushion of where we are relative to excess capital, if you want to call it that way, you really are in a splitting hairs environment, whether it's 125, 120, or 130, and so we really look at those factors in tandem and

Kelly Harris: You know, as an example, it's not in the deck but I've got it here, you know, just on the CET-1 ratio, we have 98 million dollars of excess capital just over and above the prop-corrective action levels.

Tom Travis: You know, just on the CET-1 ratio, we have 98 million dollars of excess capital just over and above the prop corrective action levels. And it's kind of consistent with you go through risk-based capital at 60 some odd million, so we don't really feel like that we're going to always, I mean, we're mindful of CET-1. We have a very precise application of our methodology, but we're not conflicted at all about minor variations. And a lot of that has to do with how great of a job Jason and his staff do on asset quality. So that's a long answer, but that's kind of how we feel about it.

Kelly Harris: And it's kind of consistent with you go through risk-based capital at 60 some odd million. So, we don't really feel like that, that we're going to always, I mean, we're mindful of Cecil. We have a very precise application of our methodology, but we're not conflicted at all about minor variations. And a lot of that has to do with how great of a job Jason and his staff do on asset quality. So, that's a long answer, but that's kind of how we feel about it.

Nathan Race: Got it, that's a full one last one for me. Tom Eddie, describe you guys are creating capital of pretty strong clips to say the least. So just curious how you're thinking about the M&A environment today and just kind of the acquisition prospects going forward.

Nathan Race: We've got it that helpful. One last one for me. Thomas, you described you guys are treating capital at pretty strong cliffs to settle these. So just curious how you're thinking about the M&A environment stay and just kind of the acquisition prospects going toward.

Tom Travis: You know, Nate, you know us well, and you know there are, I'm pretty certain, a few people on this call that I've interfaced with relative to the M&A space this year and continue to do so. So we were pretty far down the road on a particular potential transaction earlier this year that ended up not doing.

Speaker Change: You know Nate, you know as well, and you know there are.

Speaker Change: I'm pretty certain a few people on this call that I've interface with relative to the M&A space this year and continue to do so we were pretty far down the road on a particular potential transaction earlier this year that ended up not doing we have.

Tom Travis: We have I would tell you that the market is very robust and we are constantly over the last four or five months being approached, not as a potential person to sell, but as a bank that's known for public currency and a high-performing bank. And what's now starting to increasingly occur are quite a few opportunities in some of which are unfortunately what I call the zombie bags who are really stuck with AOCI issues or not just in their securities portfolio but also in the lone rate interest rate mark world. And I don't want to be as bold or forward to say that some of these banks may have been using hope as a strategy relative to interest rates falling and therefore unwinding some of that AOCI and interest rate marks, but I think the reality has hit in many places. And I mean if you just look at it, the 10 years still around 4% today, right? And so I a lot of remember where the 10-year gift but I think there are based on the volume of opportunities that are being presented to our institution because of our performance and our currency, but also the fact that some of these banks have I think come to realize that it's a slower boat to China relative to unwinding some of these marks that I would expect that more I think more opportunities that were more discussion type exploratory conversations will convert into actual transactions. And we certainly see that we're constantly engaged, we have some specific targets and discussions, and so we've always been consistent that we want to build capital to be opportunistic and I would expect I would expect transactions to occur given all those dynamics sooner rather than later in our space.

Speaker Change: I would tell you that the...

Speaker Change: Market is very robust and we are constantly over the last four to five months being approached.

Speaker Change: not to not as a potential.

Speaker Change: person to sell, but as a bank that's known for public currency and a high-performing bank. So what's now starting to increasingly occur are quite a few opportunities in

Speaker Change: Some of which are unfortunately what I call the zombie bag to a really stuck.

Speaker Change: with AOCI issues or not just in there. Security is portfolio, but also in the loan rate interest rate mark world. And I don't want to be it.

Speaker Change: Bowled or forward to say that.

Speaker Change: Some of these banks may have been using hope as a strategy relative to interest rates falling in their poor, unwinding, some of that AOCI and interest rate marks.

Speaker Change: But I think the reality has hit in many places and if you just look at the 10 years still around 4% today, right? And so I thought I would remember where the 10 years did, but I think there are based on the volume of...

Speaker Change: Opportunities that are being presented to our institution because of our performance and our currency but also the fact that some of these banks have, I think, come to realize that it's a slow, we're both a China relative too.

Speaker Change: and winding some of these marks that

Speaker Change: I would expect

Speaker Change: that more...

Speaker Change: I think more opportunities that

Speaker Change: We're more discussion-type exploratory conversations will convert into actual transactions. And we certainly see that, you know, we're constantly engaged. We have some specific targets and discussions, and so we've always been consistent that we want to build capital to be opportunistic and I would expect.

Speaker Change: I would expect transactions to occur given all those dynamics sooner rather than later in our space.

Nathan Race: Got it. That's great color; I appreciate the commentary. Thanks, guys. Congrats on a great quarter.

Matt Alney: And our next question comes from Matt Alney with Stevens. Please go ahead. Hey, good morning, Tom. On the last comments on the M&A front, just remind us of the characteristics of an M&A partner that you're looking for as it relates to size and geography and just the type, the type of bank you're looking to partner with.

Speaker Change: And our next question comes from Matt Olney with Stevens. Please go ahead.

Matt Olney: Hey, good morning. Tom, on the last comments on the M&A front, just remind us of the characteristics of an M&A partner that you're looking for as it relates to size and geography and just the type of thing you're looking to partner with.

Tom Travis: You know, Matt, we've been consistent in our history, and I'd like to call it, you've heard this many times, the right side of the ballot sheet. And so we are, you know, we have opportunities now, and we're evaluating a handful that are really nice core banking groups with core funding and really good cultures. And so I guess I would split the coin over and say that we're not, you know, what we're not interested in are, you know, specific verticals and fintechs and, you know, earnings. We're interested in people that are culturally aligned that would bring a really nice ballot sheet to the bank and blend really well with the bank 17. And as far as size goes, you know, we're excited about, you know, we compound equity so quickly, and we have excess equity. You know, we'd love to do an MOE. You know, I think those are fun to do, and they're also very rewarding to the shareholder base and our executive team. You know, we're big bank people, and we're, you know, without sounding air yet, we're properly trained. And hopefully, as you followed us over the, you know, the last six years and all those quarters, what is that, 24 quarters now since we've been public, and we've been rock steady with our reporting and no misstatements. And I think that, again, I give so much credit to this team and how precise and professional and top tier performing they are. And so when you really think about that married with the excess capital, the compounding of equity, an MOE or a, you know, a two billion or one billion or whatever it is institution is right in our wheelhouse. And so, and I think that, you know, those are the preferred things. Does that mean we wouldn't do a five hundred million dollar acquisition? No, we would. So if those characteristics are in play, that's how we would see the future.

Tom: You know Matt, we've been consistent in our history and I like to call it, he's heard this many times, the right side of the ballot sheet and uh.

Tom: and so we are...

Tom: You know, we have opportunities now and we're evaluating a handful that are really nice core, core banking groups with core funding and really good cultures.

Tom: and so I guess I would flip the coin over and say that we're not, you know, what we're not interested in are.

Tom: specific verticals and fintex and you know my earnings we're interested in people that are culturally aligned that would bring a really nice balance sheet to the bank can blend really well with the bankks seventeen

Tom: and um

Tom: and as far as size goes, you know, we're excited about, you know, we compound equity so quickly and we have excess equity, you know, we would love to do an MOE, you know, I think those are fun to do and they're also very rewarding to the shareholder base and our executive team.

Tom: You know, we're big bank people and we're, you know, without sounding arrogant, we're properly trained. And hopefully, as you followed us over the, you know, the last six years and all those quarters, what is that 24 quarters now since we've been public and we've been rock steady with our reporting and no misstatements. And I think that again, I give so much credit to this team and how precise and professional and you know, I'm sorry. I'm sorry. I'm sorry. I'm sorry. I'm sorry.

Tom: Talked here performing they are and so when you really think about that married with the excess capital and the compounding of equity, an MOE or a two billion or one billion or whatever it is, institution is right in our wheelhouse. And so, and I think that, you know, those are the, those are the preferred things. Does that mean we wouldn't do a 500 million dollar acquisition? No, we would. So, if those characteristics are in place.

Tom: that's how we would see the future.

Matt Alney: Okay, that's great, Tom. I appreciate that.

Tom Travis: And I guess, on the sticking with the emanating that there's lots of financial metrics to consider, as you review these, in your view and the board view, what are the more important financial metrics to review as you kind of go through these various emanating options? You know, I think it's a very difficult question to answer because, look, you know, some people are more focused on earned back, some people are more focused on P.E. ratios and tangible book value and deposit premiums. And for us, really, we are guided by long-term fundamental principles. And so, all of those metrics have to coalesce.

Speaker Change: Okay, that's great time. Appreciate that. And I guess on the sticking with the M&A team, there's lots of financial metrics to consider as you review these, in your view and the board view, what's the more important financial metrics to review as you kind of go through these various M&A options?

Speaker Change: You know, I think it's a very difficult question to answer because, look, you know, some people are more focused on earth, back, some people are more focused on...

Speaker Change: P.E. Ray shows and tangible book value and the positive premiums and for us, really.

Speaker Change: We are guided by long-term fundamental principles. And so all of those metrics have to coalesce. They have to merge and blend. And so with that being said, you're not going to see Bank7 get outside of any normal or right down the middle of the fairway parameters. There's no reason for us to do that. And so, if you look at us, and again, not trying to...

Tom Travis: They have to merge and blend. And so, with that being said, you're not going to see Bank7 get outside of any normal or right down the middle of the fairway parameters. There's no reason for us to do that. And so, you know, if you look at us and, again, not trying to, you know, prop ourselves up. But these are just facts, but we are a top tier organization. And we're top one percent. And you look at that in any metric, whether it's efficiency ratio, ROE, ROE, credit quality, we are just liquidity. And so, when you really look at that, you know, we're trading it.

Speaker Change: Prop ourselves up, but these are just facts, but we are a top tier organization, and we're top 1%. And you look at that in any metric whether it's efficiency ratio, ROE, ROA, credit quality. We are just liquidity. And so when you really look at that, you know, we're trading it. We're are we today about 1.8 or two times book. And then, you know, our PE is 9.5 or 10. And so when you start thinking about you know, some banks and they seem to think that, you know, that, or maybe the investment bankers with all due respect to you guys go in and say, well, we think you guys are worth.

Tom Travis: And so, we are; we did a about 1.8 or 2 times book. And then, you know, our P.E. is 9.5 or 10. And so, when you start thinking about, you know, some banks. And they seem to think that, you know, that, or maybe the investment bankers, with all due respect to you guys, go in and say, well, we think you guys are worth, you know, metrics that are anywhere near when I just describe. And yet, their performance is not there. It's a pretty tough, you know, thing for us to accept that. And so, what we try to do when we approach, that's, we do, and so, we'll pay a very fair price.

Speaker Change: You know, metrics that are anywhere near what I just described, but yet their performance is not there. It's a pretty tough thing for us to accept that. And so what we try to do when we approach that's just...

Speaker Change: We do and so we'll pay a very fair price.

Tom Travis: And it will make a lot of sense. And then the rising tide, so to speak, will raise both boats going forward. And, and so, that's not a specific, you know, metric by metric, you know, answer for you. But it's, it's how we, how we view things.

Speaker Change: and it will make a lot of sense and then the riding tide so to speak will raise both boats going forward. And so that's not a specific metric by metric, you know, answer for you, but it's how we view things. And we view things over the course of a three and a five year strategic period.

Tom Travis: And we view things over the course of a three- and a five-year, you know, strategic period.

Matt Alney: Okay, great. Appreciate the commentary, Tom.

Tom Travis: And I guess just stepping away from the minute, going back to the core, the core margin discussion. You talked about kind of maintaining that historical range, you know, regardless of what the Fed does in their term. Any, any general commentary about the core margin as it relates to the Fed.

Speaker Change: Okay, great. Appreciate the commentary Tom and I guess just stepping away from him in a going back to the core, the core margin discussion.

Speaker Change: You talked about kind of maintaining that historical range, you know, regardless of what the Fed does in their term.

Speaker Change: Any, any general commentary about the core margin as it relates to the Fed, so if we were to see a very active Fed cutting.

Tom Travis: And so, so if we were to see a very active Fed cutting, each meeting 25 or 50 bits versus a more methodical, slower moving Fed cutting, maybe every other meeting, you know, any commentary about kind of directionally what that would mean for the core margin. I just think historically, you mean, you can go back to the COVID years and go back to the slide that we have, and nothing, nothing concerns us, our ability to manage that. I don't know what pays that slides on. It's on page nine, but, you know, we've gone back to 2016 and showed our spread compared to the five year, the 10 year, and cost of funds.

Speaker Change: Each meeting 25 or 50 bits.

Speaker Change: First is a more methodical, slower moving said, cutting maybe every other meeting, is there any commentary about? Kind of directly what that would mean for the core margin. Thanks. I just think historically, you can go back to the COVID years and go back to the slide that we have and nothing, nothing concerns us, our ability to manage that. I don't know what page that slides on. [inaudible]

Speaker Change: It's on page 9, but...

Speaker Change: You know, we've gone back to 2016 and shown our spread compared to the five year, the 10 year and cost of funds and so there's nothing that would indicate to us and again we've modeled it and we're not, we're not concerned at all.

Tom Travis: And so, there's nothing that would indicate to us. And again, we've modeled it. And we're not; we're not concerned at all.

Tom Travis: So, I think the lowest, the non-steak income in them components, what's the low point? For 30, 40, 40, any for a four year. And I think Jason said, you know, in the past, and I think he's right, that, you know, at some point as the bank gets larger and larger, you say, well, maybe that maybe you touch those loads and maybe it goes to four and a quarter or four or fifteen if you get it to be a really large bank and a certain economic environment. But if that were to ever happen, then fine, we're still going to be a top-tier bank.

Speaker Change: So, I think the lowest, the non-fee income, NIM components, what's the low point, 438, 438 or 4 year? Right. And I think Jason that said, you know, in the past, and I think he's right, that, you know, at some point as the bank gets larger and larger, you say, well, maybe you touch those lows, and maybe it goes to four and a quarter or 415 if you get it to be a really large bank. I think in a certain economic environment, but if that were to ever happen, then fine. We're still going to be a top tier bank.

Unknown Executive: Okay. Thanks, guys.

Nathan Race: Thank you. Our next question comes from Nathan Race with Piper Sandler with the follow-up.

Speaker Change: Okay, thanks guys.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Nathan Race with Piper Sandler with the follow-up. Please go ahead. Yeah, thanks for taking the follow-up. Maybe a question for Kelly just in terms of think about the impact within these next benches from the oil and gas assets going forward.

Nathan Race: Please go ahead. Yeah.

Kelly Harris: Things you're taking to follow. Maybe a question for Kelly, just in terms of thinking about the impact within fees and expenses from the oil and gas assets going forward. Yeah, Nate, for Q4, we do feel like that we saw peak revenue expenses for an oil and gas perspective in Q3. And then that said, non-interference income combined by $3 million and $2.3 million that's going to come from the oil and gas and some hundred thousand coming from a core fee. And from a non-interference expense perspective for Q4, we're modeling $9.5 million, with $1 million coming from the oil and gas and $8.5 coming from core.

Speaker Change: Yannay

Speaker Change: For Q4, we do feel like we saw peak revenue since when a long aspect of in Q3.

Speaker Change: and in that said, no I need your shink.

Speaker Change: Combined bank-wide 3 million and 2.3 of that's going to come from the low end gas and some hundred thousand coming from core fee and from a non-interest expense perspective for Q4. We're modeling 9.5 million with 1 million coming from the low end gas and 8.5 coming from core.

Kelly Harris: So core non-interference expense up a little bit, quarter of a quarter. Historically, our fourth quarter has been a little bit higher. In that perspective. Got it. That's helpful.

Nathan Race: And then one last one. I know there's some noise in there. Nate, are you still there? Did you not hear my question? No, we didn't. That phone cut out. I apologize. Just the last question around non-interference bearing deposit levels. I know there's some noise. The last couple of quarters tied to some legal matters. So just curious how you're thinking about that trajectory going forward. Pretty flat. Just our normal growth. We didn't have that large $100 million deposit that flowed out of here earlier this year. And then I'd say pretty flat. Nothing major either way. Okay, so it seems like some of the makeshift changes have largely slowed across the client base lately.

Speaker Change: Got it, that's all folks, and then one last one, I know it was noise and noise and noise.

Speaker Change: Hello.

Speaker Change: Nader, are you still there?

Speaker Change: Thank you for joining my question.

Speaker Change: No, we did it. That's fine, cut out. I apologize. Just the last question around not just bearing the positive levels. I know there's some noise. We'll ask a couple of quarters, tie to some legal matters, so just curious I'm thinking about that trajectory going forward.

Speaker Change: Pretty flat. Just our normal growth, you know, we didn't have that large $100 million deposit that flowed out of here earlier this year. And then, I'd say pretty flat, nothing major either way.

Speaker Change: Okay, so it seems like some of the makeshift changes have largely slowed across the climb base lately.

Nathan Race: If not thoroughly. I appreciate you guys taking the follow-ups. Thanks again.

Speaker Change: Good night, Charlie.

Unknown Executive: Thank you.

Unknown Executive: That concludes our question and answer session.

Tom Travis: I would like to turn the conference back over to Tom Travis for any closing remarks. Well, thank you all for your interest. We appreciate the coverage, and we look forward to the future. Thank you.

Tom Travis: Bye-bye.

Unknown Executive: The conference is now concluded. Thank you for attending today's presentation.

Unknown Executive: You may now disconnect.