Prepared remarks
Welcome to the Bank7 Corp. Second Quarter 2026 Earnings Call. Before we get started, I would like to cover the legal information and disclaimer on Page 27 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 Tom Travis, President and CEO; JT Phillips, Chief Operating Officer; Jason E. Estes, Chief Credit Officer; Kelly J. Harris, Chief Financial Officer; and Paul Timmons, Director of Accounting. With that, I will turn the call over to Tom Travis.
Thank you, and welcome to the call this morning. We are very pleased with our quarter. There were a few items of noise in the quarter, specifically the oil and gas asset, and we reported a $3.7 million net gain. However, I think it is important that we all remember that by us making that investment, we also precluded ourselves, or eliminated the possibility that we would have had a larger loss when we suffered that loss back in 2023 on the assets. That is really an important thing to remember. So not only did we recover more as a result of that, but once we recovered all the cash that we had spent for the asset, we had on top of that a nice return. Management is very pleased, and we also accomplished our goal a little quicker than we thought we would. So we are delighted with that outcome, and it is important to remember that. The second thing is that we also have experienced some heavier expenses relative to some internal changes that we are making in the IT areas, specifically as a result of those material weaknesses that the new accounting firm identified. We spent considerable time and money addressing that. In addition to those expenses, we have incurred expenses related to potential M&A activity. When you factor out the noise and you look at the recurring results, we are very pleased with those. We look forward to the rest of the year. We do have some significant loan paydowns that we will need to overcome; that is nothing new. We sometimes experience those. Our asset quality has never been better, and we are just delighted with the position we are in with plenty of liquidity, no debt, strong earnings, heavy capital, and we are well positioned for growing the bank organically and also in the M&A space. With that said, we are here to answer any questions. Thank you.
Questions and answers
We will now begin the question-and-answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. Please press *2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Woody Lay with KBW. Please go ahead.
Hey. Good morning, guys. Maybe just to follow up on the expenses: have all the IT expenses been made associated with removing that material weakness? And could you kind of just give where you think an expected run rate for expenses will be going forward now that the oil and gas assets have been sold?
This is Kelly. For Q3, we are projecting to be in the $9.5 million to $9.7 million range. You will see some of those similar expenses from Q2 roll over into Q3. It could be a similar clip. From an M&A transaction perspective, it's a little harder to ballpark. But from an IT and consulting fees perspective, it will probably be very similar to Q2.
And maybe just moving over to deposits and deposit cost — it was a relatively stable quarter on the loan growth front, but deposits were down a little. It looks like there might have been a little bit of remix going on behind the scenes given deposit cost moving lower. I would be interested in your thoughts on where you think deposit costs are bottoming out here in the third quarter and how you think deposit costs trend given it feels like rates may be flat for a little while.
Deposit costs were static in the month of June, and so they followed the average for Q2. Currently, they are in the 2.28% to 2.30% range. Based on that, it could fluctuate depending on growth, but we feel really good about where we are from a deposit cost perspective currently.
Wait a second. Did I hear you say 2.28% to 2.30%? Yeah, so basically flat. We are not expecting... I think Kelly's word of 'static' is pretty accurate.
Mm-hmm. And then maybe just last for me, I would imagine you are pretty limited in what you can say about the stock purchase agreement. But I was curious on the timeline that you see given there is a bidding process and when we might know whether you are the ultimate winner there.
The dates are a little bit fluid for the next few weeks. There are public filings out there that talk about the court listening to some motions and some objections here in the next 10 days. If the timelines that have been established by the court and also in the receiver's motion hold, then we would expect the proposed auction end date to be September 3rd. There is a four-week process, so everything is aligned and set up for a process during the month of August. As you can imagine, if you go to the public record, there have been objections and motions, and the court required an expedited timeframe. This has been an ongoing thing for quite some time, and I think the court has recognized that. We would expect further clarity over the next two weeks for sure. If the auction and bidding process take place, it will be in the month of August.
Alright. That is really helpful. Thanks for taking my questions. I will hop back in the queue.
Our next question comes from Nathan Race with Piper Sandler. Please go ahead.
Tom, you mentioned some expectations for some large paydowns in the back half of the year. Curious if you can maybe size that up and maybe Jason can comment on kind of what the loan pipeline looks like today to kind of offset some of those large paydowns. Jason, what are you seeing in terms of pricing on new loan production relative to the core yield in the quarter, which was just over 7.0%?
Yeah, thanks, Nate. The pipeline is what I would describe as robust for yield fundings in the third quarter. We're probably going to produce, I would say, about two times what we did in Q2. But again, up against known payoffs, I still think full-year guidance of a mid-single-digit loan growth is a nice goal for our team. We are prone to these periods where the payoffs really accelerate. Our team is excellent at turning around and putting the money back out the door. On yield and pricing, we are really good at putting it back out in a safe manner in similar pricing ranges, so I do not really see a meaningful move on loan interest rates. I do think we will do a little bit better on fee income in the third quarter because we are going to book more loans and fund more loans than we did in Q2. So all in all, that's the story on loan growth.
Gotcha. And just to clarify, Jason, to get to a mid-single-digit growth number for this year, that would imply kind of high single-digit growth given maybe a slower start in the first half of the year?
Yeah. I am measuring year over year, not quarter to quarter. But the third quarter is going to be good on loan fundings—again, up against really large payoffs—but it will be a good quarter on loan fundings.
Okay, great. And then, just going back to the acquisition announcement, I appreciate that it is a fluid process at this point in the court's hands to some degree. But any visibility on the prospects to acquire the full or the minority interest in that franchise and what those conversations are looking like these days just to avoid some kind of nuanced accounting components until that minority stake is acquired, hopefully?
Should the receiver bidding and auction go through and should we be successful as a stalking horse bidder, it certainly would be our intention at some point to engage with the other 29 percent owners of the bank. I do not know at this point whether we would engage with them prior to that September 3rd date; it is possible, it just depends on the dynamics of the transaction and what's going on. It is clearly our intention, and we are confident that we could meet with that group of owners and strike a good transaction. We are not bottom-feeder people—we have had plenty of transactions in our history where we deal fairly and professionally with people—so we are highly confident that will eventually happen. Clearly, the sooner the better. But there will be a stub period if we are successful acquiring the 71 percent; there will be a short period while we work to consolidate the remaining 29 percent.
Gotcha. And given the magnitude of this deal potentially with Century, is it fair to assume M&A is probably off the table through maybe the first half of 2027 just given the implied decline in capital ratios and so forth contemplated by this deal? Any thoughts on what you are seeing on the M&A front otherwise these days and what appetite would look like?
No, I would say our ability to go to the market and raise capital or issue debt instruments, should we desire to do that, remains. The bottom line is we are in a growth mode, and our team has always said this is what we wanted to do—we have continued to pursue that. Anything that comes up that is a strategic good fit for us, we are going to pursue it. That said, you have to be careful with any follow-on transaction so that you have plenty of time to make the purchase, plan the conversion, and integrate people. That takes time. But we are not afraid of, and would look forward to, relatively short- to mid-term follow-ons that would allow us to continue expanding the company and achieving our objectives.
Makes sense. I appreciate all the color. I will step back. Thanks, guys.
Our next question comes from Jordan Gendt with Stephens. Please go ahead.
Hey, good morning. Thanks for taking my question. I wanted to ask about the margin. Previously you indicated you would be reverting back to that 4.40% to 4.45% range, call it core margin ex-loan fees. Is that still the case based on what you are seeing with loan pricing and deposit cost? And how would that change if we were to get a rate hike at the end of the year given how sensitive you guys are? Thanks.
The margin performed very well in Q2. It's more of a story of managing excess liquidity and the ebbs and flows of fundings and paydowns. If June was a little bit lower on the margin than the quarter average, you could see some of that bleed over into Q3 while we are waiting for loan funding. From a range perspective, 4.45% to 4.53% is probably a good guide for our core NIM. If a rate hike does occur at the end of the year, we would benefit from that given we are asset sensitive.
Got it. Do you happen to have what that margin was for the month of June?
It was 4.51%.
Perfect. And then just one follow-up: can you talk about what you are seeing on loan and deposit pricing competition out in the market?
The more things change, the more they remain the same. If you look at our NIM management over the years, it's been consistent for us. I would suggest there is nothing extraordinary or dynamic either on the loan pricing or the deposit pricing side.
Got it. Thanks for taking my questions.
This concludes our question-and-answer session. I would like to turn the conference back over to Tom Travis for closing remarks.
Again, we were really happy with the quarter and that we accomplished our objective on the energy asset. We are out of the oil and gas business on that basis and accomplished it a little quicker than we thought. We still have a little bit of work to do on some expenses related to the structural changes on the IT side and the material weakness remediation. I expect most of that to be completed through the third quarter. In the meantime, the bank is doing very well. We thank our team members and our great group of bankers—it is just a great group of professional people to work with and to produce these results. So thank you.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.