Q4 2024 Bank7 Corp Earnings Call
Get in there and try to be awesome.
Speaker Change: Welcome to Bank7Corps' 4th Quarter and Full Year 2024 Earnings Call. Before we get started, I'd like to highlight the legal information and disclaimer on page 25 of the Investor Presentation.
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 and information currently available to management.
Speaker Change: 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: Should one or more of these risks materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those expected.
Speaker Change: 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 8K that was filed this morning by the company.
Brad Haines: Representing the company on today's call, we have Brad Haines, Chairman. Tom Travis, President and CEO.
Speaker Change: J.T. Phillips, Chief Operating Officer, Jason Estes, Chief Credit Officer, Kelly Harris, Chief Financial Officer, and Paul Timmons, Director of Accounting. With that, I'll turn the call over to Tom Travis.
Speaker Change: Thank you. Good morning. Welcome to all those that joined today. Before we move into our financial results, we certainly are aware of the devastation inflicted on the West Coast by those fires on our fellow citizens. Our thoughts and prayers go out to them.
Tom Travis: As we move into our strong financial results, we're very excited and cautiously optimistic.
Tom Travis: The results of the recent election have certainly unleashed a robust amount of animal spirits.
Tom Travis: encouraging and the markets have responded to that message in a positive manner.
Tom Travis: With that said, the current rate of inflation and other economic factors...
Tom Travis: have caused the Fed to possibly pause their interest rate reductions.
Tom Travis: Therefore, we continue to acknowledge a bit of uncertainty relative to interest rates. The variability does seem, however, to be contained within a more narrow band. That is our belief.
Tom Travis: One thing we know for certain, we continue to stress how comforted we are to be operating in this dynamic part of the United States. It's a real blessing.
Tom Travis: We really are pleased with our fundamental strengths, especially our high levels of capital. And it's not just the higher levels of capital that gives us comfort, because we also have a very strong liquid position.
Tom Travis: Something that we mentioned we further enhanced last year when we added a second liquidity backstop with the Fed. So we now have two meaningful sources of additional liquidity.
Tom Travis: We continue to reap the rewards of our disciplined approach to properly matching our ballot sheet.
Tom Travis: something that has proven to be effective for us over a long period of time, and you can see that when you review our NIMS stability through various rate cycles.
Tom Travis: A steady NIM working in conjunction with our strong asset quality and dedication to expense controls all work together to drive strong results.
Tom Travis: We're pleased with our accomplishments as they were achieved through normal operations and in the case of our strong EPS, not driven by share buybacks.
Tom Travis: Our dividend payout ratio is still in the 20% range which is far lower compared to the average dividend payout ratio of 35% that is paid by banks that do pay dividends.
Tom Travis: With all that said, we have plenty of room for further increases should we decide to do it, while at the same time being comforted by our ability to rapidly accumulate capital.
Tom Travis: As majority shareholders, we're 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 most other institutions.
Tom Travis: As always, we thank our outstanding team members who work with our loyal customers. We're all aligned and we're looking forward to a bright future, and it's because of them that we produce our results. So with all that said, we're here and ready to answer any questions that you might have. Thank you.
Speaker Change: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad.
Speaker Change: If you are using a speakerphone, 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 2. At this time, we will pause momentarily to assemble our roster.
The
Speaker Change: The first question comes from Woody Lay with KBW. Please go ahead.
Hey, good morning guys.
Good morning.
Speaker Change: Wanted to start on the loan shrinkage you saw in the fourth quarter. It looked like it was mainly driven by the energy and hospitality segments. Any color you could give on the lower balances there and I guess overall how are you thinking about growth into 2025?
Speaker Change: Yeah, you can see a lot of those came in somewhat late in the fourth quarter. We had several people exit, you know, they sold businesses or sold specific assets off. And so, you know, we have more of that expected in the first quarter.
The, you know, I was looking at.
Speaker Change: Small amount of loan growth, but we really got nailed with those unscheduled payoffs from those exits in the fourth quarter and again, there's going to be a little bit more of that in the first quarter, but
The silver lining is that
Speaker Change: You know gives us some room within those two specific categories where we've been
Speaker Change: If you look back over the last six years, as a percentage of the portfolio, I think the energy component is half of what it used to be. So we've got a little bit of room to backfill there. And the similar comments there on the hospitality side, you'll see us redeploy.
Speaker Change: We've done a nice job of growing the rest of the book, you know, C&I was a highlight, we grew that a little over 5% for the year, and so, you know, more of the same, build up the other segments around those two, but again, I think you'll see us redeploy within those two segments.
Speaker Change: return to some level of growth here, hopefully in the first half of the year, but for sure for full year.
Speaker Change: Yeah, that's helpful. And then I guess outside of those expected paydowns you mentioned in the first quarter, I mean, does it does it feel like loan demand is picking up or is the
some clients on the sideline for the time being.
I would say our deal floats.
Speaker Change: Slightly improved, but it never was really bad last year, and I think you know we were very consistent in our message on the earnings calls
Speaker Change: You know, just really reiterating that we're going to really, really, really manage our MIM. Okay? And so we're seeing a lot of deals. We're winning probably more than we're losing right now, but we are still, you know, drawing a very hard line on where we'll go with loan rates and deposit rates.
Speaker Change: Yeah, I guess that's a good segue into the NIM. You know, I think last earnings call, there was some thought that maybe we could see some compression, but you know, the NIM was actually up in the quarter. And I've just been impressed by the loan and deposit data. It's kind of moving in the lockstep.
Speaker Change: With the recent cuts, I mean, to the extent we get more cuts. Do you think that's a trend that can continue and how are you feeling about the margin going forward?
Speaker Change: Well, thank you for the compliment. You know, we did exceed our own expectations in the quarter and in the full year.
Speaker Change: I was contemplating this, you know, this morning, kind of thinking about this coming up, and I would just say that, you know, when rates move up,
Speaker Change: We have a slight advantage, and when rates move down, we have a slight disadvantage. And so, I would agree that there is some compression on the horizon. I also believe we'll operate in our historical norms, but, you know, that's really...
Speaker Change: where we focus every day at the transaction level on doing the absolute best we can in regard to maintaining what I would call a very healthy NIM.
Speaker Change: Kelly, you might comment on real time Nim right now. Yeah, Woody.
Kelly Harris: We did have a couple of ticky-tack things during the quarter that kind of fell in our favor. We had a few loan relationships of non-accrual interest that paid off.
And that kind of helped increase.
Kelly Harris: I think if you excluded those items during the quarter, we'd have been closer to 4.7 ex-fees.
Kelly Harris: And then, as Jason mentioned, due to the loan paydowns during the quarter and the excess liquidity, you may see some short-term pressure on them. Currently, we're at $450,000, but as we redeploy into higher-earning assets, such as loans, you'll see that start to expand again.
Speaker Change: Yeah, are those sort of one-time interest items that you called out, is that included in that 1.1 million of loan fee income that y'all highlighted in the slide?
Speaker Change: No, I don't believe so. No, it shouldn't be. It's going to boost your interest income.
Speaker Change: They are one-time, Woody, and it's relatively small amounts, but it goes into the interest income.
Speaker Change: It's really a reflection of, we're a conservative shop, and if we see a threat of, uh-oh, we're not sure if we could have an issue here, we're...
Speaker Change: I'm not going to say we're too fast on the trigger to put it on non-accrual, but we're very certain when we make those decisions and sometimes when you, it's happened to us two or three times.
Speaker Change: over the last couple of years. We don't really have many credit issues, but we get on them early. And so it's infrequent, and it's a little disjointed, but it is extraordinary. I think right now, what do we have total on nonaccrual?
Speaker Change: Not very much. Not hardly any now. So I wouldn't expect it to be a...
Speaker Change: much. And I think just wrapping up on the NIM, we're very proud of ourselves. We really are. And when you look at
Speaker Change: Yeah, I'm not making any predictions here, but it's almost like I don't it's you know I don't believe the four seven the real time is 450 455 whatever it is and I think I'm correct at our
Speaker Change: Can your look back low point is like 430 or something?
Speaker Change: So as Jason said, we're still within our ranges, but it's hard to believe that we can continue to operating where we are, but with that said, it's going to be on the margin. It's going to be narrow. It's going to be subtle. It's not going to be a wild fluctuation that you have seen from
Speaker Change: a great, great number of other banks out there. I think that's one of our hallmarks.
Speaker Change: Yeah, that's really helpful, Culler. All right, well, that's all for me. Thanks for taking my question.
Speaker Change: The next question comes from Nathan Race with Piper Sandler. Please go ahead.
Hey guys, good morning
Nathan Race: Hope we do a lot of money. Going back to the margin discussion, I'm curious if you guys can shed some additional color on how much additional deposit cost leverage you have, assuming the Fed remains on pause over the next couple quarters.
Speaker Change: you know, obviously had nice reductions in deposit costs this quarter, but just curious, you know, how much more opportunities there are to reprice CDs lower and what other opportunities there are to bring down non-maturity deposit costs as well.
Speaker Change: I would say, Nate, that two things, the CD portfolio is by far the smaller, I think it's $150 or $180 million, whatever it is, $200 million?
five and deposits and so
Speaker Change: The opportunity to reprice down is pretty limited because of its size, A and B.
Reads the newspaper and the internet
Speaker Change: It's a lot easier always historically to lower your rates and pick up 100% of that beta. And as you get deeper into Fed rate cuts, it becomes a little more challenging. And that view has not changed for us.
Speaker Change: And we're delighted and proud of the fact that our loan and deposit betas have reacted the way they have.
Speaker Change: But look, notwithstanding our belief that the rates are going to operate in a very narrow band, look, we do recognize I think the 10 years fluctuated at 100 basis points in the last four months.
Speaker Change: And so, I think if there was a 25 basis point cut, it would be more of the same, but I think once you get past that, it becomes more difficult to, you know, maintain that deposit beta.
Speaker Change: Got it. That's very helpful. And just going back to some of Jason's comments, you know, curious if you can maybe comment on what you're seeing in terms of new loan pricing these days.
Speaker Change: Yeah, I think real-time isn't the interest $750, $755, portfolio-wide, so that kind of gives you a snapshot of the range and I think that's pretty indicative of what we're seeing on the new stuff coming in. You know, those two segments I mentioned, you know, energy and hospitality, there may be a slight, you know, benefit or increase there depending on the opportunities we can go find, but I think that seven and a half ranges.
Speaker Change: pretty good. I would have predicted you would have said seven and a quarter Jason. Depends on the mix. Yeah.
Speaker Change: Got it, that's helpful. Maybe a question for Kelly, just curious how you're thinking about the expense run rate going forward. You know, obviously the impact from the oil and gas assets is continuing to decline, so just curious how you're thinking about the run rate over the course of 2025.
Speaker Change: Okay, and then any just thoughts on kind of any investments you're planning on undertaking this year that may cause some upward pressure to that run rate on a core basis?
Investments.
Right.
Speaker Change: No, I think you're going to see more of the same.
Speaker Change: Okay, got it. And maybe one last one for me, you guys continue to have a high class problem with your access capital levels, continue to build at really strong clips, so Tom just be curious to get your updated thoughts on how you're thinking about deployment opportunities and just what you've seen on the M&A front as well.
Speaker Change: You know, we're working hard, Nate. We, uh, it, it, we didn't close anything and...
Speaker Change: 2024 and that was very disappointing. I can tell you that we had a lot of activity.
Some some serious looks
Speaker Change: We tried really hard, and we were not able to get anything done. And so as we roll into 2025, our mentality has not changed.
Speaker Change: and we are actively pursuing some opportunities right now and you know how that goes and you know we could we could have something
Speaker Change: materialize you know sooner rather than later we we might not you know we're disciplined buyers we don't just grow just to grow and so
Speaker Change: I know that sounds like a word salad probably, but we're trying really, really hard and we're being very strategic about it. I mean, there are...
Speaker Change: couple of particular opportunities right now in Texas right now that if we wanted to I'm highly confident we could do. Strategically we're not sure we want to.
Speaker Change: And so, we're going to continue to work really hard, and the time is certainly right with the...
currency value with the excess capital and you know
Speaker Change: Sellers obviously benefit from taking our stock and they get to ride the upside with us and they also get to defer taxes and then they, in some cases, if it's privately owned.
Speaker Change: Companies, they get the benefit of liquid investment that they haven't had before and the cash dividends along the way. So there's a lot of compelling reasons for people to join forces with Bank 7 and that's been acknowledged to us.
Speaker Change: And that may help us get a few deals over the finish line. So that's the way we view it.
Speaker Change: Okay, great. Sounds encouraging. I appreciate all the collar. Thanks guys. Congrats on a nice quarter.
Thank you.
Speaker Change: Again, if you have a question, please press star, then 1. Our next question comes from Matt Olney with Stevens. Please go ahead.
Hey, thanks want to go back to the comment that
Matt Olney: Jason made around the loan mix. I heard you mention some paydowns in energy and hospitality in the fourth quarter, but also opportunities to kind of backfill that, those two portfolios in 2025. And I also heard some commentary about just general C&I growth.
Matt Olney: So, just trying to appreciate if we'll see any material makeshift of that loan portfolio over the next year or two.
Matt Olney: referred to, you know, that energy book. It used to be twice, you know, it's just under 10 percent. It used to be just under 20 percent of our total outstanding loans and so...
Matt Olney: We're not going back to that high of a percentage, but you know
Matt Olney: If you look at the last few years, we've been in that 11% or 12%, maybe even 13% range. So, there's some room there. Hospitality, you know, it floats kind of between an 18%, 23%, 24%. And, you know, we're closer to the bottom end of the range there.
I would say accelerated over the last several years.
Matt Olney: A lot of pullback from, you know, within our group of customers that they did on their own and then there was some on our part where we shrunk that segment, right? And then energy fluctuates, it just does, that's the nature of that industry and then, you know, hospitality. We've grown other things around it and it's given us a little bit of room to backfill.
Speaker Change: You know I would add to that you know it's interesting you have to keep top of mind awareness of what kind of institution we are and you know we're
We're the bank for.
Speaker Change: developing new verticals or buying companies. And so we're going to always have a little.
Speaker Change: More of that pay down segment and I don't want to say that we're lumpy because Jason and his staff are excellent at Growing our portfolio every year, but we do have we have had historical periods where we've had
Speaker Change: people that their investments have matured, they've sold, and on to the next deal. And so that's part of it. And the other part of it is that...
Speaker Change: Look, we have a wonderful relationship with our regulators and we just concluded an exam.
Speaker Change: everything was great and just we weren't surprised and and we don't with all due respect to the regulators we don't run our bank based on the regulators however with that said you know we all need to remember that the environment for
Speaker Change: Call it mid-2023, up until even the recent months, there has been a heightened, heightened focus and scrutiny on CRE.
And so you've probably...
Speaker Change: If you read about it, if you focused on it at all, if you listened to the examiners and it was a reaction to the failures in the spring and the summer of 2023, there definitely, definitely was a pivot and a mandate that came out that said, really, scrub.
Speaker Change: CRE and liquidity and look at it really, really hard. And I think that it may have been a subtle wet blanket over the CRE market, but as I speak to our brethren.
Speaker Change: executive management around the country it was definitely on the top of everyone's minds and I think that it's fair to say that that the underwriting standards were a little tougher.
Speaker Change: And I think that had somewhat of a muted effect on
Speaker Change: the growth of CRE portfolios across the board, and I don't think we were really any different. And I think as we look today, what's our 100 bucket? Are we 70? 73. Yeah, 73. And then if you look at the 300 bucket, we're below that. And I think, you know, I would submit to you that
Speaker Change: You know, for quite a few number of years, there were banks that were, they weren't blowing through stop signs, but they were certainly
Speaker Change: Not as worried about it. And so again, it's not a it wasn't a major issue but it was definitely a contributing factor to a little bit of muted growth
Speaker Change: Yeah, I appreciate the commentary on the loan growth front. I guess just kind of following up with that, is it reasonable to assume that in 2025
Speaker Change: That loan growth for Bank 7 could be similar to what we saw in 2024 to where it's kind of all the quarter quarter given some of those paydowns and asset sales, but at the end of the day, we still got to a kind of organic growth level on that low single digit number. Is that a reasonable expectation for us?
Speaker Change: I think it's reasonable. I'd be disappointed if that's where we end up.
Speaker Change: Okay, and if there was upside on that, would you, is it reasonable to assume that would be more the back half of the ear than the front half?
Absolutely.
Okay.
Speaker Change: Okay, appreciate that. And then I guess going back to, I think Kelly mentioned that the non-accrual interest was a little bit elevated in the fourth quarter. If you have the dollar amount of that in front of you so we can kind of normalize that for the for the first quarter.
I'm glad it was around 600,000.
Okay, great.
And then, just lastly for me, on the fees front.
Speaker Change: Any more color you can give as far as expectations for fees in 2025?
Speaker Change: Yeah, for Q1 combined $2.4 million, $1.7 million of that related to oil and gas, and then $700,000 for your core fee.
Speaker Change: I think his question was moving forward. Am I incorrect about that? Yeah, just for the first quarter though. I mean, you could... Oh, I see. You're talking about, yeah, this quarter. Okay, I misunderstood.
Speaker Change: Okay, great. Thanks guys. Appreciate the color and congrats on the year.
Thank you. Bye.
Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.