Bank7 (NASDAQ:BSVN) released first-quarter financial results and hosted an earnings call on Tuesday. Read the complete transcript below.

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Summary

Bank7 reported strong financial performance with solid average loan growth, although some payoffs later in the quarter affected end-of-period balances.

The company is managing its net interest margin effectively and expects it to remain stable despite potential changes in interest rates.

Loan growth is expected to be moderate single digits for the year, with a focus on offsetting early payoffs with new loan bookings.

The energy portfolio is at a 10-year low and not expected to significantly impact overall performance.

The company has a strong capital position and is actively pursuing strategic M&A opportunities, indicating a preference for growth through acquisitions rather than share buybacks.

Management highlighted the effective management of asset quality and credit risk, with minimal provisions needed for loan losses.

The company is optimistic about its ability to navigate potential economic uncertainties, including geopolitical tensions affecting energy prices.

Full Transcript

OPERATOR

Sam. Welcome to Bank 7 core first quarter 2026 earnings call. Before we get started, I'd like to highlight the legal information and disclaimer on page 25 of the Investor presentation. For those who do not have access to the presentation, management is going to discuss certain topics that contain forward looking information which is based on management's beliefs as well as assumptions made by and information currently available to management. Although management believes that the expectations reflected in such forward looking statements are reasonable, they can give no assurance that such expectations will prove to be correct. Such statements are subject to certain risks, uncertainties and assumptions, including, among other things, the direct and indirect effect of economic conditions on interest rates, credit quality, loan demand, liquidity and monetary and supervisory policies of banking regulators. Should one or more of these risks materialize or should underlying assumptions prove incorrect, actual results may vary materially from those expected. Also, please note that this conference call contains references to non GAAP financial measures. You can find reconciliations of these non GAAP financial measures to GAAP financial measures in an 8-K that was filed this morning by the company. Representing the company on today's call we have Brad Haynes, Chairman, Tom Travis, President and CEO 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. Please go ahead.

Tom Travis (President and CEO)

Thank you. Welcome to that as you can see, we're happy with our results today. As we regularly say, we're probably a little boring in this area, but we have to thank our team of bankers and I know some of them listen to these calls and if you're on the call, thank you. And we have a great group that's been together for a few decades and it's very comforting to have such a strong, deep, broad team. And that's why we produce the results that we do. And so I suppose it's a little boring for some people quarter after quarter where we're always putting up these fantastic results. But it takes a lot of effort and we don't take many days off around here and we do it the right way and, and the results speak for themselves. And so, you know, last quarter we were, I think the markets were expecting rate cuts in this quarter. Now the market's thinking maybe the rates will go the other way due to the increase in commodity prices associated with the Middle Eastern conflict. Who knows? But the reason that I bring it up is that we are really proud of our ability to manage our NIM and to properly mix our balance sheet and we're not concerned about rates going down or rates going up. We're positioned either way. And so with all of that said, you can see the major metrics in the deck and we're here to answer any questions. So thank you.

OPERATOR

We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you 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 the question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Nathan Race with Piper Sandler. Please go ahead.

Tom Travis (President and CEO)

Hi, good morning, this is Adam Kroll on for Nathan Race and thanks for taking my questions. Hey, Adam, good morning.

Adam Kroll

Yeah, so maybe just starting on loan growth. You know, looks like average loan growth was pretty solid while some payoffs later in the quarter dragged down end of period balances. So I guess I'm curious if your expectations for loan growth has changed for the remainder of the year and along with that, if you're seeing any noticeable change in demand within your energy portfolio.

Jason Estes (Chief Credit Officer)

Yes, thanks for the question. This is Jason and I think our goals for the year remain intact. We're still thinking moderate single digit, but I would say that coming off of the third and fourth quarter we had last year where we had really robust growth that kind of exceeded expectations in both quarters, we're not at that pace, so I would say that it has slightly slowed down, but we had really nice bookings in the first quarter. So just expect kind of the same from us this year. I do think, you know, like last year we offset really sizable early payoffs throughout last year. That's a routine thing for us. I think you'll see more of that this year. In the second quarter in particular, you know, we expect pretty sizable payoffs and then we'll just offset that with new loan bookings throughout the rest of the year. And as it relates to the energy portfolio, it's I believe it's at a 10 year low. It's about, it was a little over 8% of the portfolio. And so, you know, in the energy space, most of your well capitalized professional organizations really are not changing a lot as it relates to rushing out to drill, so to speak. I would say just because this spike in energy prices, I don't think anyone believes that there's any stability in the oil prices when it goes up due to what's going on in the Middle East. And so for us we're opportunistic when those energy loan opportunities come along, but it's not a huge driver for our company. We're active and we like the portfolio we have. But I wouldn't expect the energy piece to be causing a lot of dynamic change one way or the other.

Adam Kroll

Got it. No, that's super helpful. Color, maybe shifting to the net interest margin, some really nice expansion during the quarter. I was wondering if you could provide some color on how you expect the net interest margin x loan fees to trend assuming rates remain here through 26.

Kelly Harris (Chief Financial Officer)

Hey Adam, this is Kelly. We did make some really good progress on the liability side cost of funds and that was related to our talented bankers continuing to bring in some quality core deposits. That said, we are modeling in that same range 440 to 445 from a core Nim perspective and on the loan fee side of things, kind of reverting back to the normal of 28 to 35 basis points.

Adam Kroll

Got it. And then lastly for me on capital management, just given the strong profitability metrics, you should be building capital at pretty strong clips. So I guess I'd be curious to hear your updated thoughts on M and A and just overall comfort level and letting capital levels build from here if the right partner doesn't come along.

Tom Travis (President and CEO)

Well, clearly, you know, as we sit here today, I think we ended the quarter at 15.96 on risk base. So we're probably over 16% today, who knows? But you know, clearly the need for us to accumulate more capital is not on the top of our minds and we're more into, you know, growing and organically and then on the M and A side. And so we've always been active in the M and A space and for the right strategic opportunities, we're going to continue to pursue those and we think that would be an efficient use of the capital.

Adam Kroll

Got it. Thanks for taking my question.

OPERATOR

Our next question comes from Will Jones with kbw. Please go ahead.

Will Jones

Yeah, hey, thanks. Good morning guys. Jumping in for Woody Lay. I wanted to follow up on the margin discussion and specifically just talk about deposit costs. It feels just, you know, Tom, you alluded that the market has all but pulled cuts out of the forecast. Maybe even we see up rates this year. But you guys kind of see the margin more stable in that setting. But specifically with deposit costs, how would you guys kind of characterize the competitive environment right now? And in that scenario, is there a chance we actually see deposit costs trickle up towards the back half of the year just as competitive dynamics kind of Increase,

Tom Travis (President and CEO)

I don't think you're going to see. I don't think it's that dynamic, so to speak. And you know, if you. So it's really kind of a two part question you ask. And I don't see a massive fluctuation or any meaningful fluctuation in deposit costs. And then second now that's absent a rate increase. Right. So I'm just assuming that there's no rate increase. And then the second part is as far as the margin goes, related to that, we just look back at our, we provide that in the deck on the stability and the lack of volatility in the margin. So we don't expect anything materially different.

Will Jones

Okay, got it. That's helpful. And then maybe could you guys just call out some interest recoveries you saw this quarter? Would you be able to just quantify that just so we could think about kind of a clean more recurring margin run rate this quarter?

Kelly Harris (Chief Financial Officer)

Yeah, from a core Nim perspective I think the non accrual interest net up was 1.1 million a little bit under and then on a fee perspective it was closer to 1 7. And so again that reverts us back to that normalized core NIM of 440 and then 28 to 30 plus basis points on the T side.

Will Jones

Got it. Okay, very helpful there. I wanted to just pivot to the credit discussion. I know there's just puts and takes on credit each quarter, very little migration generally speaking and asset quality is strong and you guys have really kind of hit a zero provision for the past, call it five out of four out of five quarters. But what is the messaging on the provision and reserve levels going forward? It feels like at some point that trend may have to give a little bit. But I just wanted to kind of get your views on the provision and where you see the credit story today.

Jason Estes (Chief Credit Officer)

A little bit challenging of a question to answer when we really don't know what the economy is going to do for the rest of the year. But what we're looking at today is, I mean I think our credit book is as clean as it's ever been and there was some migration during the quarter. You know, when you see that non accrual interest recovery, I mean those loans were paid in full and so we had multiple credits transition out, full payoffs and then you know, we had a couple of downgrades during the quarter. But you know, on the surface it looks like the numbers were fairly neutral. But I can't overstate how active we are at managing the loan portfolio. From a credit quality standpoint. And so, you know, let's say we grow the book again, you know, a pretty sizable amount and the economy stays the same. Yeah, we'll have to provision a little bit more, but if the loan growth is more timid, think low single digits, then we may not have to provision more, you know, and let's see what's going on. You know, there's quite a conflict going in the Middle east and so does that, does that intrude into our daily lives here in a bigger way? So far it's been a non event, especially within our credit book. But you know, we're going to, we're going to stay true to our fundamentals and do the same things we've done for the last, you know, decades. I would also add to that that we have quoted a payoff for this Friday that for the only really material remaining NPA that we have, we have a high confidence factor that that's going to happen. And if that happens, the net effect would be NPAs of somewhere in that 4 to 5 million dollars range. And when you look at 4 or 5 million dollars on our portfolio, I think that equates to 25bps or something like that. So to echo Jason's comments, we certainly don't feel any pressure absent the macro about building more ACL loan loss reserve.

Will Jones

Yeah, okay, I appreciate all that context. I know I'm asking you to look into a crystal ball a little bit there. So thanks for that. I guess just one last one for me. Just on capital, we've talked about buybacks not really being an efficient use for you guys. Just through your lens. Could you just remind, is that still kind of how you're viewing the buyback? And does it look any more attractive today than it did, say 90 days ago? Would love your thoughts there.

Tom Travis (President and CEO)

Well, look, buybacks are, we often said this, that we're blessed with a very top 1% return on equity in our company and because of that we produce really good earnings per share and we're not driven to reach for increasing EPS by doing some share buybacks. We've been beneficiaries of strong earnings and growth. And so now with that said, you know, as we've said the last few quarters, we recognize that we are, you know, we're very, very capital heavy and you know, especially for a company with no debt. And so, you know, at some point the rubber meets the road. But just generally speaking, our philosophy, philosophy is too strong of a word. Our view is that the share buybacks really don't add franchise value and it's more of a short term mechanism. So I'm not trying to suggest that we would never do one. What I'm simply saying is that it hasn't been a critical need for us in the past, but clearly if there were ever a time in the future where we felt like that the buybacks would make sense. It would probably be driven by a good share repurchase price and no other alternatives.

Will Jones

Yeah, okay. That's all. Fair enough. I appreciate all the color, guys. Thank you.

OPERATOR

Our next question is from Jordan Gent with Stevens. Please go ahead.

Jordan Gent

Hey, good morning. Thanks for taking my question. I just had a follow up on the migration on those downgrades during the quarter. Is there any additional details you could give on the type of credits they were and kind of the loan type and things like that?

Jason Estes (Chief Credit Officer)

Yeah, so we had a large builder developer relationship that we downgraded during the quarter and that was the one Tom referenced that we think will pay off this week. So that's the only industry specific thing that I could get into.

Jordan Gent

Okay, got it. And then just one more follow up for me around kind of the M and A discussion. I think previously you've brought up the idea of doing an moe. Is that something that's still on the table or would you be kind of looking more towards downstream partners?

Tom Travis (President and CEO)

I think the answer is both. And we don't, you know, strategic matters are inherently long term in nature and so we've not deviated from our thinking on that.

Jordan Gent

Perfect. And then actually just one more. Could you guys maybe touch on the fees and expense guidance going forward and maybe excluding the oil and gas impact? Yeah. For Q2 on the expense side, we're projecting internally in that range of 9 million to 9.25. And on the fee side, low end of 750,000. Upwards of 850. What are you talking about? Fee? I didn't know. Non interest income. Oh, thanks. Yeah, non interest income. Perfect. And that's it for me. Thanks for taking my questions.

OPERATOR

Our next question comes from Nathan Race with Piper Sandler. Please go ahead.

Nathan Race (Equity Analyst)

Hi. Yeah, maybe just a follow up for Kelly. Just on updated expectations for the impact to fees and expenses from the oil and gas.

Kelly Harris (Chief Financial Officer)

I mean, I think that it'll be continued the expense offsetting the income. So not really material to the bottom line, but you know, temporarily grossing up both sides of the P and L. And Nate, this is Tom. We've, as we mentioned, the last, I know, last quarter and I think the last two quarters, perhaps three, we have accomplished Our goal, as you recall, the goal was to reduce the hit that we had on an energy loan. And we're delighted with the results. And we're. What are we, 20 months in?

Nathan Race (Equity Analyst)

20. I mean, yeah, 20. 20 months into it, and we've accomplished our goal. And I think that for us to continue to hold that asset is just not something that we would. We would plan to do. And I think that, you know, as a reminder, you know, we have signaled to the market that, you know, we look at it as a cash recovery versus a GAAP income item. And so if we do exit that portfolio, then we may have an adjustment, very slight on the gaap, the way they've recognized income on the GAAP basis. But on a cash basis, we will have. We already have accomplished what we wanted to accomplish. And so I bring all that up to say that it's a really small item, it's a real outlier item. We're delighted with what we've done and what we've accomplished, and I would expect that to be either gone altogether or diminished quite a bit over the next few months. Got it. Thanks for taking my questions.

OPERATOR

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

Tom Travis (President and CEO)

Again, thank you for joining the call. We're delighted to be where we are and continue to produce these results. And we're mindful of the macro Middle Eastern situation and when the inflation starts biting as predicted because of the higher oil prices, you know, we're prepared as much as anybody can be for it. And in the meantime, it's steady as she goes for Bank 7. Thank you.

OPERATOR

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

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.