Operator: Welcome to the Bank 7 Corp. Second Quarter 2026 Earnings Call. Before we get started, I'd like to highlight 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 8K that was filed this morning by the company. Representing the company on today's call, we have 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.
Tom Travis: Thank you, and welcome to the call this morning. We're very pleased with our quarter. There was a few items of noise in the quarter, specifically the oil and gas, and we reported that three point seven million dollar net gain. However, I think it's 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. And that's 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 and then we had on top of that a nice return. So management's very pleased and we also accomplished our goal a little quicker than we thought we would. So we're delighted with that outcome and it's important to remember that. And then I think the second thing is that we also have experienced some heavier expenses relative to some internal changes that we're making in the IT area specifically as a result of those material weaknesses that the new accounting firm thought that existed. So we spent considerable time and money doing that. And then in addition to those expenses, we've incurred expenses related to potential M&A activity, and so when you factor out the noise and you look at the recurring results, we're very pleased with those and so we look forward to the rest of the year. We do have some significant loan pay downs that we will need to overcome. That's nothing new. We sometimes experience those but our asset quality has never been better and we're just delighted at the position that we're in with plenty of liquidity and no debt, strong earnings, heavy capital and well positioned for growing the bank and organically and also in the M&A space. So with that said, we're here to answer any questions. Thank you.
Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone 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 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Woody Lay with KBW. Please go ahead.
Woody Lay: Hey, good morning, guys. Good morning. 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 a where you think an expected run rate for expenses going forward now that the oil and gas assets have been sold.
Kelly Harris: This is Kelly. I think for Q3 we're projecting expenses to be in the 9.5 to 9.7 range. You will see some of those similar expenses from Q2 fill over into Q3. It could be a similar clip. I think that, you know, from an M&A transaction perspective, and a little harder ballpark, but from an IT and consulting fees, it'll probably be very similar to Q2.
spk04: Got it.
Woody Lay: And maybe just moving over to deposits and deposit cost and, you know, it was a relatively stable quarter on the loan growth front, but deposits were down a little and it might have, it looks like there might have been a little, and a bit of remix going on behind the scenes given deposit costs moving lower. Would just be interested in your thoughts on where 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.
Kelly Harris: Our deposit costs were static in the month of June and so they've followed the average for Q2, currently in the 2.8 to 2.3 range. I think that, you know, based on, that could fluctuate based on growth, but we feel really good about where we're at from a deposit cost perspective currently.
Tom Travis: Wait a second, did I hear you say 2.8 to 2.3? 2.28 to 2.3. Yeah, so basically flat. I mean, we're not expecting, I think Kelly's word of static is pretty darn accurate.
Woody Lay: And then maybe just last for me, I would imagine you're pretty limited in what you could say about the stock purchase agreement, but I was just curious on the timeline that you see given there's a bidding process and when we might know whether you're the ultimate winner there.
Tom Travis: The dates are... a little bit fluid for the next few weeks. You know, there's public filings out there that talk about, you know, the court's going to listen to some motions and some objections here in the next 10 days. And so if the timelines that have been established by the court and also in our receivers, in the receivers motion, not our motion, then we would expect the I believe the proposed auction date, end date is September 3rd and there's a four week process. So everything is aligned and set up for a process during the month of August. And so as you can imagine if you go to the public record there's been objections and motions and the court came out recently and required expedited timeframe. This has been an ongoing thing for quite some time and I think the court is recognizing that. So we would expect further clarity over the next two weeks for sure. And then if the auction works, if the bidding process takes place, it will be in the month of August.
spk04: Got it. All right. That's really helpful. Thanks for taking my questions. I'll hop back in the queue.
Operator: Our next question comes from Nathan Race with Piper Sandler. Please go ahead.
Nathan Race: Hey, guys. Good morning. Thanks for taking the questions. 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 pay downs. And Jason, kind of what you're seeing in terms of pricing on new loan production relative to kind of the core yield in the quarter, which was just over 7%. Yeah, thanks, Nate.
Jason Estes: Pipeline is what I would go back to referring to as robust for real fundings in the third quarter. Probably going to produce, I would say, double what we did in Q2. But again, up against known payoffs, I still think, you know, full year guidance of a of a mid-single-digit loan growth is a nice goal for our team. Again, Tom mentioned it. We're prone to these periods where the payoffs really accelerate. Our team is fantastic at turning around and putting the money back out the door at and to your point on, you know, hey, talk to me about yield. We're really good at putting it back out, you know, in a safe manner in similar pricing ranges. And so I don't really see a meaningful move on loan interest rate. I do think that we'll do a little bit better on fee income. in the third quarter because I just think we're going to book more loans. We're going to fund more loans than we had in Q2. So all in all, that's really the story on the loan growth.
Nathan Race: Gotcha. And just to clarify, Jason, I mean, to get to a mid-single-digit growth number for this year, I mean, that would imply kind of high single-digit growth just given maybe kind of a slower start in the first half of the year.
Jason Estes: Yeah, yeah, I'm measuring year over year, not quarter to quarter. But yeah, third quarter is going to be good on loan fundings. Again, up against really large payoffs, but it'll be a good quarter on loan fundings.
Nathan Race: Okay, great. And then, you know, just going back to the acquisition announcement, I appreciate that, you know, it's a fluid process at this point, you know, in the court's hands to some degree. But, you know, maybe, Tom, just any visibility on kind of the prospects to, you know, acquire the full or the minority interest in that franchise and kind of what those conversations are looking like these days just to avoid some kind of nuanced accounting issues. components until that minority sink is acquired, hopefully.
Tom Travis: Yeah, I think should the receiver bidding and auction go through and should we be successful as a stocking horse bidder, then it certainly would be our intention at some point to engage with the other 29% owners of the bank. I don't know at this point whether we would engage with them prior to that September 3rd date. It's possible. It just depends on the dynamics of the transaction and what's going on. And so it's clearly our intention and we're confident that we could meet with that group of people or with them and strike a really good transaction. You know, we're not adversarial people. We're not bottom feeder people. We've had plenty of transactions in our history where we deal fairly and professionally with people. And so we're highly confident that that will eventually happen. And clearly, the sooner the better. But you're right, there will be, I'll call it a stub period. If we are successful acquiring the 71%, there will be a stub period there for a short while while we work to consolidate the remaining 29%.
Nathan Race: Gotcha. And just given the magnitude of this deal potentially with Century, I mean, is it fair to assume, you know, M&A is probably off the table additionally, you know, maybe through the first half of next year, just given, you know, the implied decline in capital ratios and so forth contemplated by this dealer? Just any thoughts, Tom, in terms of what you're seeing on the M&A front otherwise these days and what the appetite would look like?
Tom Travis: No, I would say to you that our ability to go to the market and raise capital or issue debt instruments should we desire to do that, the bottom line is that we're in a growth mode and our team is, this is what we've always said that we wanted to do and we've continued to pursue that. And so anything that comes up that's a strategic good are all going to pursue it. Now, when I say that, clearly, you have to be careful with any follow-on transaction so that you've got plenty of time to make the purchase, make the acquisition, plan the conversion, and integrate people. And of course, that takes time. But I think for us, we're not afraid of and we would look forward to any kind of a relatively short to midterm follow-on that would allow us to continue expanding the company and achieving our objectives.
Nathan Race: Makes sense.
spk04: I appreciate all the color. I'll step back. Thanks, guys.
Operator: Our next question comes from Jordan Gent with Stevens. Please go ahead.
Jordan Gent: Hey, good morning. Thanks for taking my question. I just wanted to asked about the margin. I think previously you indicated that you would be reverting back to that 440, 445 range, call it core margin X loans fees. Is that still the case for you as kind of based on what you're seeing with loan pricing and deposit costs? And then how would that change if we were to get a rate hike at the end of the year, just given how sensitive you guys are? Thanks.
Kelly Harris: The margin performed very well in Q2. I think it's more of a story of managing excess liquidity and the ebbs and flows of the fundings and paydowns. I think if June was a little bit lower on the margin than the quarter average, I think that you could see some of that bleed over into Q3 while we're waiting for the loan fundings. But I think from a range perspective, 453 to 445 is probably a good guide for our core NEM. and then obviously if a rate hike does occur at the end of the year, I think we would benefit from that from an asset-sensitive perspective. Got it.
Jordan Gent: And then do you happen to have what that margin was for the month of June?
Kelly Harris: It was 451.
Jordan Gent: Perfect. And then just maybe one follow-up. I guess can you talk about what you're seeing on the loan and deposit pricing competition? what you're seeing out in the market?
Tom Travis: The more things change, the more they remain the same. I mean, I think if you look at our NIM management over the years that's in the deck, it's like watching paint dry for us, right? So I would suggest that there's nothing extraordinary or dynamic either on the loan pricing or the deposit pricing side.
Jordan Gent: Got it. Thanks for taking my questions.
Operator: This concludes our question and answer session. I would like to turn the conference back over to Tom Travis for closing remarks.
Tom Travis: Again, we were really happy with the quarter, happy that we accomplished our objective on the energy asset. We're out of the oil and gas business on that basis, accomplished it a little quicker than we thought, and still have a little bit of work to do, some expenses relative to the structural changes on the IT side and the material weakness remediation. I expect most of that to be done through the third quarter. But in the meantime, the bank's doing very, very well. We thank our team members, our great group of bankers, and it's just a great group of professional people to work with and produce these results. So thank you.
Operator: The conference is now concluded. Thank you for attending today's presentation you may now disconnect.
