00:09 Welcome to the Bank7 Corp.’s third quarter earnings call. Before we get started, I'd like to highlight the legal information and disclaimer on Page twenty two 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. 00:37 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. 01:14 Also, please note that this conference call contains references to non-GAAP financial measures. You can find reconciliations of these non-GAAP measures to GAAP financial measures in an eight K 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. 01:44 With that, I'll turn the call over to Tom Travis. Please go ahead.

01:50 Thank you. Welcome to the call for those who are joining us. For those who have joined us on past earnings calls we ask that you indulge just a bit here. We’re going to take a little more time than we usually do and will reflect on past events and current results. Today, we'll start by reflecting on two different anniversaries, then will review and discuss our exceptional third quarter results. 02:16 The first anniversary reflects upon as the third quarter of twenty years ago. Some of us on this call lost friends, family members, fellow workers and first responders and although it was long ago, those were certainly trying times. We all remember that day and we'll never forget its effects on all of us. Especially our friends back east. I'm sure some of you on this call will never forget either. 02:44 With that said, we move on to the second anniversary and that's the three-year anniversary of our IPO. Some of you on today's call were instrumental and helpful to us, whether it's bankers, advisors or investors. And we're happy to have you with us today. We reflect back to our S1 and the three-week road show and ask ourselves whether we met our representations and achieve the goals set during that time. 03:12 To that question, we affirmatively know that we have performed in accordance with what we said we would do. We're proud of our results. So, let's take a few minutes to review a few items related to that. One question posed to us was whether Bank7 would be able to maintain its high levels of return on assets and return on equity, while also experiencing strong growth. 03:36 As you can see from the compounded return data, we have maintained our strong…

09:33 [Operator Instructions] The first question comes from Brady Gailey of KBW. Please go ahead.

10:07 Hey, thank you. Good afternoon guys.

10:09 Good afternoon, Brady.

10:11 Hey, thanks for the three-year recap, congrats on that. That's a lot of hard work. I wanted to hit on loan growth. I know loan growth can be lumpy for you guys just quarter to quarter, but when you think about the pro forma company with cornerstone in the mix, what do you think your kind of longer-term loan growth rate should be?

10:37 We're still thinking in the low double-digit range, Brady?

10:45 All right. And then when you look at, it looks like you guys charged off some previously reserved for net charge-offs in the quarter. Maybe just a comment on kind of the dynamics there and then separately, that takes reserve down to about one point zero four percent of non-PPP loads. Maybe just a comment on kind of how you think that reserve level will trend from here as well?

11:18 Yes. You're right that was previously identified as specific reserve. There was litigation involved not between us and the client, but that was – it became more clear through the quarter, and so that transaction was run. As you said, it was previously specifically identified. And then as it relates to the ALLL level, part of that's driven by the NPAs and overall portfolio, performance. And so, this level is something that we're comfortable with currently and especially when we're carrying excess capital.

12:03 All right. And then the net charge offs I'm guessing are related to that mid-stream energy credit that you guys have been talking about, where there were any net charge-offs beyond that one energy credit?

12:15 No, just a minor recovery.

12:20 Alright. And then lastly for me, there's not as much focus on hospitality anymore, it seems like everybody is getting on with life, post COVID, but there is a quick update on the hospitality book, but I know you all faired pretty well through COVID, but does industry and relationships there continue to improve?

12:43 The industry does continue to improve. In our slide deck there was a comment in there about second quarter revenue in Texas hospitality exceeding twenty nineteen second quarter. And so, there was a little bit of deficit comparing the two in ADR and RevPAR, but overall, gross revenues were up. And so, as you're aware, most of our activity in the hospitality space is in Texas, specifically the Dallas/Fort Worth metro. And so, we've continued to see improvement in strong performance through the summers – through the summertime the vast majority of our portfolio properties.

13:29 Brady, I would also say that we've been kind of like a broken record on the hospitality and we've been commenting and there's really just two operating hotel loans that we had any concern about and those have also recovered. There's still the two that are the lag I would say. And so, we still expect little to no meaningful actual losses in the portfolio and really it's just a story of those two credits and their ability to continue to recover. 14:07 And I would add on top of that that the world has quickly changed, especially in Texas and I mean, we are confronted with what is it almost fifty million dollars of hospitality loans that we are going to be paying off here in the next sixty days because the buyers are back-and-forth and are recognizing value for these strong brands in these strong markets. And so, I guess my point is that it's performing the way we thought would and we're not concerned about any meaningful exposure whatsoever.

14:48 Okay, great. Thanks for the color guys.

14:54 The next question comes from Nathan Race of Piper Sandler. Please go ahead.

15:00 Hi, guys.

15:02 Hi, Nathan.

15:03 Question just on the margin outlook, actually curious how we should kind of think about the trajectory or the pressure expected there from the four forty one level that we saw here and perhaps maybe just within the context of kind of what the weighted average rate on new loan production is lately, can we start there?

15:30 Yes. Go ahead, Jason.

15:32 Well, I would say on the new loan originations, they're coming in similar to the last two quarters than what we've reported there, kind of [mid-fours] [ph] that's holding pretty consistent has remained that way throughout pretty much this entire year.

15:54 I would just on the NIM, it's been very, very difficult with what are we keeping at the Fed, Kelly, one hundred and fifty million to two hundred million. It's been really tough to maintain that margin with that much cash at the Fed and doesn't make any money. And so, at the same time, Jason and I were at lunch today, talking about the competitive pressures in, especially in the Texas market. And well I guess this is just as bad in Oklahoma City and Tulsa, but lenders are just really down in the dirt. 16:35 And so, given liquidity in the current interest rate environment and where we are, it's not going to surprise us to see our NIM degrade down, and as Jason and I were talking about at lunch, it's really, look if we wanted to grow the portfolio a lot faster, we could do it if we lowered our rates. 17:00 We still think there's plenty of economic activity to where we don't have to get crazy with our rates and we can still maintain our discipline. All this is to say that we wouldn't be surprised to see the NIM slip from here for those reasons.

17:19 Understood. That's great color. Thank you. Just a clarifying question Tom to your earlier point just in terms of expecting some hospitality pay-offs, is that kind of factored into Jason’s earlier comment in terms of expecting kind of low double digit growth on the combined basis with Cornerstone coming into the fold this quarter?

17:42 We have a nice pipeline Nate and so, I think that the part of what we're also faced with this quarter and I would imagine that other banks will be facing it as well is there is quite a [foray] [ph] of potential sales of assets and companies to beat this deadline to try to get ahead of any capital gains tax treatment change. And so, I would say that that's exacerbated little bit the potential payoffs, but we still have that ambient level of underlying economic activity in this part of the country that keeps our new fundings and pipelines in good shape. 18:30 And so we could experience a slight dip in our non-acquisition book for the fourth quarter, but we'd expect to recover that quickly just because of those factors that I mentioned.

18:49 Understood. Makes sense. And just maybe one last one from me, just going back to the energy credit and the charge offs this quarter. Could you update us on just in terms of what the balance remaining on books is tied to that credit particular and kind of what the outlook is for any remaining portion of that credit going forward?

19:09 Yes. So, the remaining balance of six point nine million and then that represents about seventy percent of the NPAs at quarter end and there’s actually two other credits that represent twenty seven percent combined and I would say the twenty seven percent, those two have been in the NPA category for a long time they continue to pay and perform. There's some expectation that those would come out of the bucket at some point and the same thing with the single large energy credit, it's just hard to predict exactly when, but improvement is expected from this point, continued improvement.

20:02 Okay, great. I appreciate all the color. Thank you guys. And congrats again.

20:10 The next question comes from Matt Olney of Stephens. Please go ahead.

20:16 Hey guys. Good afternoon. [Technical Difficulty] So, I guess the question is, kind of what's the view of more normalized level of liquidity at the bank at this point and then once you fold in Cornerstone deal, how do you expect that to change?

20:46 I would say that time that you're running the bank in that high eighty percent to low ninety percent loan to deposit, you really need to prudently maintain extra liquidity. And so, regardless of the fact that it hurts you because of the Fed’s interest rate policy, it's still tried and true fundamental that you just need to do it. And so, and I would say that the other thing that was on our mind during COVID was, I mean frankly, the whole world was very scared, right? 21:22 And so, it wasn't a time for us to consider pulling liquidity down and doing anything with it. And so, we're always going to be a little bit heavy on the liquidity side and we had that luxury because of our NIM and because of the earnings. And that's just the way we are. And as far as moving forward, one of the things I did not mention in the NIM is, what comes with this acquisition in the near term is a bond portfolio. 21:55 And so, clearly, we plan to reposition the balance sheet to where we gradually convert the bonds into better yielding loans. And so that's a factor as well. And so, I don't know if that answered your question other than it's something that we constantly will watch, but always maintain strong liquidity.

22:20 Yes, that's helpful. Thanks for that. And then on the operating expense side you guys had some good cost controls this quarter, anything to call out in particular in the third quarter? And then kind of rolling forward, I guess just general thoughts about managing expenses in lot of inflation and higher expenses just to run the core bank even outside of the pending acquisition? Thanks.

22:49 I would say that for the next two to three quarters, clearly, the acquisition we're going to have acquisition related expenses, and we’re going to keep those in a separate, obviously general ledger and we're going to be able to report what those extraordinary one-time expenses were. And then over and above that, there's clearly wage pressure. Clearly. 23:17 And, but outside of the wage pressure because we're a branch like model, we're not a manufacturer with raw material inputs and things like that, I would expect the non-wage expense area of the bank to be more of the same. And I mean clearly, small items like energy costs increase for us is not near what it would be if we had a lot of branches, but so I don't think outside of the wage pressures that we're experiencing, it will be more of the same.

23:56 Okay. Alright. That's all from me guys. Thanks, and congrats on the quarter.

24:01 Thank you.

24:02 Thank you.

24:04 [Operator Instructions] And our next question will come from Tim Abbott of Twin Lions. Please go ahead.

24:15 Hey, guys, congrats on a strong quarter and really consistent execution over the first three years as a public company.

24:22 Thank you.

24:23 Thank you.

24:25 So, I guess first question on the acquisition. Tom, you referenced the opportunity to take their bond portfolio and convert that into some higher yielding assets and looks like from their call reports, Cornerstone is running with a loan deposit ratio somewhere in the fifties, so quite a bit of excess liquidity. Are you – in your guidance when you talk about seven percent accretion in twenty twenty two, thirteen percent in twenty twenty three, are you factoring in the benefit from deploying some ad excess liquidity into higher yielding assets or is that sort of in addition to the, you know over and above the guided accretion?

25:09 It's all together and most of it's going to occur in twenty twenty three. I'd say in the back half of twenty twenty two, but fully into twenty twenty three.

25:21 Okay. But just to make sure, I'm understanding you correctly, I guess your modeling and your guidance on the accretion does include that, the benefit of deploying in that excess liquidity.

25:31 Correct.

25:33 Got it. And then one other quick one sort of point of clarification. When you guys talk about new production coming in at somewhere in sort of the mid-fours average yield, is that ex-fees or does that include the benefit from fee income?

25:55 That's ex-fees.

25:57 Great. Alright. That's all I got. Thanks a lot, guys.

26:02 Thank you.

26:03 Thank you.

26:06 This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.

26:14 Thank you for joining the call. We appreciate your involvement and look forward to talking to you in the near future.

26:24 The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect.