Participants

Tom Travis; President, CEO, & Director of the Company and the Bank; Bank7 Corp

Kelly Harris; Chief Financial Officer, Executive Vice President; Bank7 Corp

Jason Estes; Executive Vice President, Chief Credit Officer, President and Chief Credit Officer of the Bank; Bank7 Corp

Woody Lay; Analyst; Keefe, Bruyette & Woods, Inc.

Thomas Wendler; Analyst; Stephens Inc.

Nathan Race; Analyst; Piper Sandler Companies

Presentation

Operator

Welcome to Bank7 Corp's first quarter earnings call. Before we get started, I'd like to highlight the legal information and disclaimer on page 23 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 inter interest rates, credit quality, loan demand, liquidity, monetary and supervisory policies of banking regulators.
Should one or more of these risks materialize or should underlying assumptions prove incorrect, actual results may differ materially from those expected. Also, please note, as 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 Tom Travis, President and CEO; Jason Estes, Chief Credit Officer; Kelly Harris, Chief Financial Officer. Please note this event is being recorded. And with that, I'll turn the call over to Tom Travis. Please go ahead.

Tom Travis

Good morning, everyone, and thank you for joining us. Well, as you can see, we posted record earnings and record earnings per share. And we are obviously very pleased with those results and it reflects our continued discipline on the way we manage our balance sheet, match up the interest rate risk and maintain our liquidity. And you can tell that it's been successful with our steady and strong NIM. And you can also see that the cost controls continue to be in place, which which all add up to really good results.
And with regard to the loan book, the asset quality is very good regardless of which vertical you view and I know this day in time, there's a hyper focus on CRE. And I will tell you we have no issues with our portfolio and no issues with our CRE and and feel very confident about where we are and how we're doing with the with asset quality.
So with all that being said, we'll have I'll turn it over for any questions that people might have.

Question and Answer Session

Operator

(Operator Instructions) Woody Lay, KBW.

Woody Lay

Hey, good morning, guys. Or I would I wanted to start with the at the Treasury maturity that occurred in the first quarter on I was hoping you could just give some color on on where the funds that went into. It wasn't super clear to me if it all went into cash or if you redeployed some of that back into the bond book. So any color there would be helpful.

Kelly Harris

Woody, this is Kelly. We had the maturity occurred at the end of February. We reinvested around $85 million into a three-month treasury products and then $15 million with the cash.

Woody Lay

Got it. And do you have the NIM in the month of March post that reinvestment?

Kelly Harris

Yes, for NIM, excluding fees for March, was 40 58.

Woody Lay

Okay. Got it. I wanted to shift over to M&A. Just get your thoughts on sort of your appetite for M&A in this current back to you?

Tom Travis

Woody, as you know, we're constantly working on potential acquisitions. We were a finalist in one recently, and it didn't work out, but we are constantly meeting with people and sticking to our strategy, pursuing what we call the right side of the balance sheet and heavily focused on core deposits and good fundamental banks. And so I would say that nothing has changed in regard to our commitment to doing that, and we're going to continue to do that.

Woody Lay

Got it. And then if you know, if an M&A deal feels pushed out, what would you look to the buyback as a potential lever just to deploy your excess capital? Or is that and is that less likely in the future?

Tom Travis

I guess I don't understand the question well enough.

Woody Lay

Yes, I mean, would you be interested in the buyback with where the stock currently traded are trading or, you know, is that less appealing to you right now?

Tom Travis

I think what happens is that there's a couple of factors and we have been, as you know, you've followed us for a long time. And we have been very disciplined on the buybacks with regard to how high the multiple of the stock is. And also we want to maintain a little bit of extra capital in case we can find an acquisition that makes sense.
And so it's a delicate balance there because we understand that piling up capital doesn't really benefit people us anyone other than if we were able to use that to deploy into an acquisition. So as every month that goes by because we're a strong earner and a strong compounder. It just has a tendency to cause that question to come up increasingly. And so at some point, absent an acquisition, then it may motivate us to to think more favorably about stock buybacks, even though multiple may be a little higher than where we would like it to be. And so that's how we view it.

Woody Lay

Yes, that's helpful. Thanks for taking my questions guys.

Operator

Thomas Wendler, Stephens.

Thomas Wendler

Good morning, everyone.

Tom Travis

Good morning.

Thomas Wendler

I just wanted to go back to the securities can you give us an idea of the yields on the securities that you purchased?

Kelly Harris

Yes. I believe there are 538 at the end of February, and so we picked up go for 15 basis points in NIM, although because of what it was only one month in Q1, it was five basis points.

Tom Travis

And let me add some color here. Correct me if I'm wrong, Kelly, but I think people need to understand the only reason we went back into some securities was the final tail end of wind down of us needing to pledge to the core related to that large bankruptcy court.
Okay. So very short time. So of the wind down in the bankruptcy court of a of that large credit, the money is posted and they wanted securities. And so if not for that, we would not have redeployed the $100 million that matured went down to 85 as far as requirement. And so we would not have done that. And so this is not some conscious strategy on our part to pivot to to move into that we would much rather have just put the money at the Fed.

Thomas Wendler

Okay. No, I appreciate that color. And then just sticking on the yield side, we saw a large step-up in loan yields during the quarter. Can you give me an idea of what drove the increase there and how should we think about loan yields moving forward?

Jason Estes

I believe that's due to that $1 million of lift if you look at the slide deck investor presentation that we put out, you'll see there was a $1 million one-time item related to the full collection of it have a workout loan that had been showing up in our past dues for oh, gosh, probably six quarters in a row. And so I think that's a good signal. A reminder, you know, of our commitment to behaving like owners because we are owners.
Okay. And I think that there's probably financial institutions out there that maybe would have walked away from that deal without realizing that income. But just another good result from, you know, a hard hard-working team committed to doing things the right way and maximizing our returns.

Thomas Wendler

Perfect. Thank you. And then if I can sneak one more in here previously. I think we were expecting to collect 60% of the $16.9 million in asset value from the oil and gas business in cash flows and 2024. Is that still how we should be thinking about it? And I'm just looking for any update on from last quarter's call on the revenue and expenses from the oil and gas business?

Jason Estes

Yes, thanks for the question. We are spot on with that projection through the first quarter and so no deviation whatsoever so far.
Yes, just for your knowledge, $6.4 million of revenue has been recognized. $5 million of cash has been collected. There is $1.4 million due to us that will come in in the next 30 days. And then we've got the updated engineering projections for the rest of the year, and we are exactly in line with those previous estimates.

Tom Travis

I would also add that we are hedged and just think of you 70% more or less is a good number. And so of the portion that's unhedged, the with the oil and gas front?
Well, the oil prices are significantly more than they were six weeks ago. And so we're in a we're in a good position, I guess one could argue that we bought the insurance, the hedge, so to speak, to protect against the downside and the typical hedge. If we hadn't done it well, we'd be collecting more, but we all understand the reason that we're doing this is to recover most of the assets and not speculate. So in addition to and being on target with the production amounts, we're in a strong position financially with regard to the hedging and the pricing.
All right.

Thomas Wendler

Those are all my questions. Thank you.

Operator

(Operator Instructions) Nathan Race, Piper Sandler.

Nathan Race

Yes, hi, guys.

Tom Travis

Good morning.

Nathan Race

Going back to the last question, just curious if you guys are actively shopping those oil and gas assets? Or is the expectation that you're going to kind of maintain those assets through the year, a recuperation period going forward that we just touched on, honestly, Nate, it's such a small item on our balance sheet.

Tom Travis

It's really small. It's working as we thought it would, and it's rapidly being reconnected. I mean, collected. So it's I'm not going to say that we ignore it, but we've been really busy around here, and we just really haven't focused hard on selling off the asset. So we may look at that over the next two or three months, and we may do that, but it just isn't enough for us to worry about.

Nathan Race

Got you. And then just maybe a technical question on fees and expenses for Kelly. Can you just kind of help us think about the fee income and expense run rate that we should be expecting as these assets we remain going forward?

Kelly Harris

Yes, I think for a core non-interest income number, $650,000 is a good, good guide. And then on non-interest expense, I believe we were closer to $8 million excluding oil and gas activity. I think on a go forward, maybe for Q2, $8.3 million is a better run rate, excluding the oil and gas activity. But I think that maybe the first quarter would provide a good estimate on your go forward for the oil and gas gross revenue and gross expense.

Nathan Race

Got it. Great. And then just thinking about the margin outlook ex fees going forward. I think you mentioned the core margin in March was around 40 50 or so or more 45 how you guys kind of think about the margin trajectory in a higher for longer interest rate environment going forward?

Kelly Harris

Yes. And then just a correction, the core NIM, excluding fees in March was 48. And so that was with the fully baked in migration of treasuries into higher-yielding assets on a go forward, we still feel really comfortable operating in that similar range and you may see some some slight movement either way, but more of the same.

Nathan Race

And then how do you guys anticipate the margin reacting or responding to it Fed cut as they occur.

Tom Travis

I would say that, Nate, as you know, if we had a slide in here, if we expanded the NIM. slide back to for the last 10 years, you would see that we just operate in our normal ranges and we really don't see a big change to that. I think that it wouldn't surprise me if and if the margin, would you say 40 58 real time? I mean, it wouldn't surprise me if we were to bleed down a little lower than that, just given the dynamics of the yield curve in the markets.
I have noticed the last couple of weeks though, that some of the online and some of the banks, money markets and high-yield savings accounts actually have come down and without the Fed making any changes. And so I think that we're very close to the end of any cost of funds increases for us. I don't even know if we have $100 million of CDs left to reprice.
Yes, right. So I think when you think about our cost of funds and our margin, it's really a function of, you know, do we have to go obtain more deposits to keep up with the loan book? And if you do that, you have to pay a little bit more. So I think that's the only dynamic that could cause the margin to come down a little bit, but we're going to be in our historical ranges and we should be fine there Okay. Great.

Nathan Race

And then maybe a question for Jason. Just on kind of the loan growth outlook. You may see some growth in the first quarter here. I think you were a little more guarded last year in terms of growth here starting out the year. So just curious to get your updated thoughts on how we should be thinking about loan growth and also on deposit growth in 2024?

Jason Estes

Sure. Thanks. I think you're going to see us continue our commitment to profitability over growth, right? And so when we were talking three months ago, I kind of emphasized heavily don't expect a 2022 type growth year. We're going to be absent some kind of meaningful change in interest rates or something that really gives us an opportunity to maintain our margins while growing. It's just going to be a single digit number, in my opinion. And so I think that I'm just going to reiterate what I said then we are valuing profitability over growth.

Nathan Race

Got it. And then maybe one last one for you, Jason, just curious what you saw in terms of criticized classified trends in the quarter?

Jason Estes

Yes, there was a great quarter in that regard, and I think you're going to see us return to our historical levels out throughout this year. Maybe maybe bleeding into the first quarter of next year. As you know, there's some litigation going on with that large energy credits. So we don't really want to and much to that other than there is going to be any into that thing.
At some point, we feel really comfortable with the provision we've made in the $2 million specific reserve. We still have out there. We think that as of today right now that we've fully accounted for through the income statement.
And so that's also a nice thing to have behind us and credit wise and knock on wood, everything just lined up really well here and really looking forward and moving past that that issue. But in the meantime, you know, the book's performing really, I would say it's exceeded my expectations when you take into account all those interest rate moves and the impact that has on borrowers. And it's just a really nice thing. And it just reemphasizes to our team here internally. We do underwrite loans in a proper way, and we're getting we're seeing the rewards for that right now.

Nathan Race

All right. That's great to hear and then Tom, lastly, can you just remind us in terms of acquisition partners, kind of the size of targets that you're looking at them and just kind of the overall range there and also of it and geography to notice that JPMorgan was down 3% today.

Tom Travis

They may become a target. Looks like they missed a little bit on their on their margin. And so we're going to we're going to we're going to call you after this nascency West, what how much capital do we need to raise, but they have if they're not a minute. If they're not amenable to that, then we'll just we'll pivot All kidding aside, we are yes, I would just say this about our company. We're just so proud of our team. And I think when if people don't know us and they haven't followed us for a long time, and I am so I'm trying not to come across as overconfident or arrogant.
But the truth is, we are not a billion -- $7 billion, $8 billion company. We are we are a company that operates and can manage a much larger institution and so because of that, I believe that it wouldn't bother us too to do anything that that made sense.
That was larger and done. And I think that in so I want to go back to something that we said very early in the conversation. And that is that we're not a bank that's going to go out and buy someone because they have this great loan book or because they have this special vertical, we're going to buy people based on tried and true liquidity and the ability of this team and the history of this team to then take that and efficiently deploy it into what I consider to be the greatest geographical economic area on the planet, which is Texas and Oklahoma.
And I mean, it's just a really nice environment. So I think that clearly be we don't want to get distracted by anything that's too small. But if something comes along, it's larger that fits those parameters and we're not going to be afraid of it, and that's our view.

Nathan Race

Okay, great. Thanks, guys. Appreciate all the color.

Tom Travis

Thank you, Nate.

Operator

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

Tom Travis

Well, thank you again to everyone, and I think we've covered most of the components. And again, we're really proud of our team. We're proud of our results. We're really happy with the breadth and depth of the company in all facets and just look forward to continuing to do what we do. So thank you.

Operator

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