Hello, and welcome to the Bank7 Corp. Second Quarter Earnings Call. Before we get started, I'd like to highlight the legal information and disclaimer on Page 20 of the investor presentation. For those of you who 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 and by information currently available to management. Although management believes 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, direct and indirect effects 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 the reconciliations of the non-GAAP 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 Haines, Chairman; Tom Travis, President and CEO; J.T. Phillips, Chief Operating Officer; Jason Estes, Chief Credit Officer; Kelly Harris, Chief Financial Officer; and Henry Litchfield, Legal Counsel. With that, I'll turn the call over to Tom Travis.

Thank you. Welcome to the call. As you can see from our second quarter results, it's been a really busy year, and the snowball started to grow for us early in the year, and the results are starting to show up. So we benefit from the geographic area that we're in. We're pleased with our second quarter, and we're here to answer any calls. So with that, I'll yield the floor.

[Operator Instructions]. And the first question comes from Matt Olney with Stephens.

I want to start with the organic loan growth. Really impressive numbers once I back out the PPP. Looking at the disclosures it looks like it's C&I, Ag, CRE and energy, I'd be curious if you can share on the growth and in particular can you hit on the growth in the Ag portfolio? We haven't seen this in a while.

Yes. The Ag portfolio growth is largely related to a single transaction with a corporate borrower that invested into a large operation. But as you noted, a little bit unusual. I will comment that you may see an additional small uptick there because we are seeing some activity in our normal Ag market but it will be to a much lesser extent than that prior quarter.

Okay. Thanks for that. Anything just more broadly that you can share as far as the growth I mean, the -- as far as the yields on some of the new production. And you mentioned, it sounds like some of these are some larger credits, was that the largest addition with the single Ag credit or are there any other sizable individual credits this quarter?

That would have been the largest individual credit. And then we've had nice broad-based growth in addition to some of these larger credits that we've originated. And the gross interest rate on these is coming in, in line with prior guidance. We're seeing a lot of stuff in the mid-to-high 4s. That's kind of the range we're landing in.

I guess like you're saying, Jason, it's just a broad and deep recovery in our part of the world.

Yes.

Plus on the Ag side you have wonderful rain in the Midwest and the grain markets are up, harvesters are looking good. So this is just kind of the Ag time that's come around. And it's time when we'll make some real money and it looks like we're going to.

Okay. Great. And then on the credit front and on the hospitality portfolio, I think the last time we talked I think the only concern was maybe 2 hotel loans that had any potential for loss content at all, would love to hear more, any kind of update on these two loans in particular?

Yes. No changes there, still eye on the same two properties. Nice, steady ADR and occupancy within the slide deck. You can just see this nice rebuild in both the occupancies recovered first and now the ADR is coming with it, and that's a broad-based recovery as well.

Okay. Great. And then on loan fees, if I back out the PPP fees that were disclosed it looks like the remaining loan fees I think it's around $1.5 million. I think that's the highest we've seen in a few quarters. Just remind us about these fees, are these more based off origination fees or are these early payoff fees? Just kind of any color on that. And then from a forecasting perspective, I think we once talked about those fees in a normal quarter representing around 50 bps of loan balances, is that still the right way to think about this from a longer-term perspective?

It is. It is.

And any color as far as those fees? Is that more based off of originations or early payoffs or any color at all, and that's outside of the PPP fees?

Yes. The first half of the year that's been largely driven by new loan originations. You do get some mix of early payoff or pre-payment penalty, but that's going to be very minor compared to the new loan origination.

I think it just goes hand-in-hand with the robust growth. When the market is really growing and the transactions are flowing and our book has a tendency to generate that fee income, and that's what you're seeing.

And the next question comes from Brady Gailey with KBW.

I know you guys are notable energy lenders but the exposure to energy has come down kind of post-IPO. I mean, if you look at the pricing on the commodity -- on the commodities within energy and they've recovered so nicely, is now a time to think about increasing your energy exposure back up to potentially where it used to be?

Yes. Not to the levels that we had it in the past but we continue to be somewhat active and opportunistic there. But no, it won't return to the same level.

Brady, I'd add to Jason's comment. It's a little bit counterintuitive. I think really it's more dangerous to start doing it now when prices are so high. Natural gas hasn't been this high since 2014, oil since 2018. And so last year, you remember the third quarter last year, we had a couple of very nice safe transactions where people with serious money went in and they bought on the dip. And so I would say to you it's more of a counterintuitive thing and we're certainly not going to be loading up when prices are higher. Now, we do have a few transactions but if we do them we're going to require hedging. So Jason is spot on. We're not -- you're not going to see an increase in -- a meaningful increase in the mixture of oil and gas.

Yes. That makes sense. Then my next question is on the reserve ex-PPP I mean the ratio has been growing, if you look at it at the end of last year it was 121 basis points, been 135 basis points last quarter now up to 139 basis points, seems like most banks with the improving backdrop are seeing reserve ratios go the other way down. So just wondering it's at roughly 140 basis points right now, it seems a little high but maybe not, just maybe comments on how you think the reserve ratio trends from here?

Well, 3 basis points is -- it's not even a rounding error. So we really were pretty static and the answer to your question is, yes. It was driven by growth.

Okay. And then finally maybe just an update on M&A. I know you guys have been active looking around at potential targets especially in Texas. Anything new on the M&A front, you feel like you're getting closer to a transaction possibly?

We're talking to a lot of people and it seems to be in vogue to talk a lot and whether that translates into a transaction or not, I don't know, but our team is highly motivated and highly focused and we're talking to a lot of people. And so that's still our intent.

[Operator Instructions]. And the next question comes from Nathan Race with Piper Sandler.

Just maybe a question on expenses. Growth in the quarter obviously, I imagine that's just kind of reflective of some incentive true-ups just given the strong performance through the first half of the year. I would just love to get some commentary around kind of the run rate for the back half of this year if you plan for any additional hires on the production side of things or if there's any kind of impending technology costs as well that could mean to the run rate going forward?

Not significant changes to the run rate going forward. With the robust loan growth, you've got salespeople and operations people involved in those great results from the first half. And so you see a little bit more there on the compensation side and those go hand in hand. They earned it. And so that's the primary driver of the difference you've seen so far. And so if you see continued difference it's because the revenue is exceeding expectations as well.

Okay. Got it. And then just maybe going back to the capital discussion. With M&A still -- opportunities still being reviewed just curious how you guys are thinking about the dividend going forward? Obviously, you guys have a payout ratio that is below some peers, so just curious what the upside is to increase the dividend with capital ratios like we continue to build as this profitability profile continues.

Well, the first order of business is to see if we can find a nice transaction. And so I think in the near and medium term if we can get that accomplished then it's a moot point. If not, then we'll have to address it. Not have to but we would.

Okay. Great. And then just thinking about the right side of the balance sheet, obviously, really impressive growth on the lending side but just on thinking about deposit growth, was that largely a function of just some of the new clients that added in terms of capturing that full relationship or would love to just hear some color on the drivers of the deposit growth and if the expectation is that deposits will continue to build along with -- or build commensurately with loans going forward?

Yes. A lot of that is related to the new relationships and remember it's only been a couple of years since we were active in Tulsa, in the Dallas, or the Irving. and Frisco branches that we have, they're maturing as well. And so you're seeing the benefit of the investments that were made there in the people.

And I'll give a shout out to Estes and his lending apparatus. The people are sticklers about getting deposits and not just making loans, and I think it's correct that our percentage of borrowers with deposit relationships is still at that low-80% range. So it's not like Jason and his crowd went out and just said, hey, let's go make loans. They're relationship loans.

That's great to hear and obviously, evident in the numbers as well.

And the next question is follow from Matt Olney with Stephens.

Yes. I just want to ask about energy. I think on Slide 11 of the presentation I didn't see any notable changes in any of the risk ratings on the energy portfolio, I didn't know if more broadly if you give any more commentary on some of the higher risk loan grades out there and for some of those loans to be eventually upgraded, I'm curious if we need to see these current commodity prices just holding it for a few more quarters or is it a bit more nuanced than that? Just any commentary. I'm trying to move those up the balance sheet.

Yes. I think you're hitting it right on the head. A few more quarters you'll see some more migration is what I would call it. But I also still think you're going to see some continued payoffs through some of the higher risk stuff. Our philosophy here as a management team and it's been driven into the lending staff by Tom, our CEO here, that you manage them up or you manage them out. And so letting that balance sit stagnant is not something that interests us. You'll see large-scale changes over the past 12 months in these numbers and that will continue.

And Jason, isn't it fair to say that more than 50% of what we're talking about is still that one credit.

Yes.

So Matt, listen on the energy book we're delighted, we're really happy. We did have one credit that frankly, we're tired of talking about it. We've reserved for it. And if you take that out of the mix man, I don't want to sound arrogant, but the energy portfolio is a nothingburger as far as risk or expectations of loss.

Thank you, and that does conclude the question-and-answer session, and I'd like to turn the floor back over to management for any closing comments.

No. We appreciate your involvement and interest in the company, and we look forward to the back half of the year.

Thank you, and that does conclude today's teleconference. Thank you for attending today's presentation. You may now disconnect your lines.