Bank7 Corp. Aktie

Thank you. Welcome to the Bank7 Corp. Third Quarter 2026 Earnings Call. Before we get started, I'd like to highlight the legal information and disclaimer on page 25 of the Investor's 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 be proved 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 the banking regulators. Should one or more of these risks materialize, or should underlying assumptions prove incorrect, financial 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 William B. Haines, Chairman, Thomas L. Travis, President and CEO, John T. Phillips, Senior Executive Vice President and Chief Operating Officer, Jason Estes, President and Chief Credit Officer, Kelly Harris, Executive VP and CFO, Paul Timmons, Director of Accounting. With that, I'll turn the call over to Thomas L. Travis. Thank you and welcome to the call. First and foremost, what a great company we have here at Bank7.

It doesn't happen by accident. Our team's been together a long time. We execute at a high level every day. We like to say it takes courage to be great and we're proud of our consistent top-tier results. Just a fantastic company and really good results, especially given all the things that we're having to do at the same time, closing our recent acquisition. So, a really great quarter. I would say that highlights would start out with very strong loan growth that is stronger than what it appears because we overcame substantial unscheduled paydowns from large customers. So our loan team, as usual, is functioning at a very high level, and we're very thankful for them. Then we discipline ourselves with our loan pricing and our deposit pricing, and we properly manage that balance sheet, which enables us to continue benefiting from that strong and consistent NIM.

We also benefit from the robust economy and the business-friendly markets down here in Texas and Oklahoma. And it's a real blessing, and we're mindful of that. For a long time, people on the call were asking us what we were going to do with the excess capital and it was tempting to distribute some of those funds while the calls were being made asking us what we were going to do. But we waited and we're glad we did and we're very excited about the pending merger with Century in New Mexico, and it's a really good example of discipline and patience and prudent use of capital, which really drives the metrics on how transformational and beneficial this transaction will be. Century is an outstanding deposit and banking franchise that is well entrenched in the communities in New Mexico, especially Santa Fe and its surrounding areas. And we really look forward to that merger, we look forward to continuing serving our existing communities and customers as well as theirs and coming together as one team. So we're well positioned for the future, looking forward to executing on our plans and with that we're here to answer any questions anyone might have.

Thank you.

We will now begin the question and answer session. [Operator Instructions] We will pause momentarily to assemble our roster. The first question today comes from Woody Lay with KBW. Please go ahead.

Hey, good morning, guys. Good morning. I wanted to start on the organic growth in the quarter and as you mentioned, you know it's impressive. It was very impressive considering all the things you were juggling inter-quarter. Maybe specifically on the deposit strategy. Deposits were up pretty significantly in the quarter and you're about to add a really good source of cheap core funding with Century Financial. So it's just curious what you sort of plan to do with the excess liquidity that's on the balance sheet? Is this a sign that the loan pipeline is pretty strong in your eyes?

Hey Woody, this is Kelly. Yes, during the quarter, you know, we experienced, as Thomas L. Travis mentioned, substantial loan paydown. We chose to be conservative from an excess liquidity, higher deposit balance because of the known loan fundings as well as the pending merger and some of that cash that goes out related to that. And so that's kind of the game plan going forward. You know, strong pipeline as well as closing this merger.

Got it. And then, you know, I know the merger is closing November 1, so midway through the fourth quarter. But just any sort of NIM guidance you could provide, you know, pro forma with Century Financial plus, you know, the potential for an additional rate hike from here? I feel like that would be helpful.

Yes, I think from a deal perspective, we currently view the deal as neutral to our NIM. And we intend to sell some to all of Century's bonds. And depending on when those sales occur, it'll generate a meaningful amount of cash, and we will be methodical about how we deploy that cash. In some scenarios, it'll be more accretive to our margin. In other scenarios, it'll be more neutral to our margin. And from a Bank7 legacy perspective, the loan beta in the quarter was close to 60%. The deposit beta was around 52%. I think, you know, forward-looking, assuming a rate hike in Q4, we anticipate that loan beta being in the 65% to 70% range, and the deposit beta a little bit harder to project, but we assume less.

Yes, and I would add to that. That's really good, Kelly, and accurate. And I would add to that, if you could think of the word bias, or think of the word tendency, once the merger happens, we're going to have a bias or a tendency to be able to more easily maintain that margin due to the influx of a cheaper cost of funds. And that advantage will gradually dissipate over time as we redeploy our and some of it could be redeployed into slightly lower yielding loans. So, you think of a tradeoff between growing slower by maintaining existing pricing, compared with growing faster potentially on the loan book because you decide that you want to capitalize on slightly lower cost of funds, and therefore you can lower your loan rates. And so I don't think that's going to be a material thing.

It's not like you're going to see all of a sudden lower loan pricing. I'm just pointing out that we're going to have some flexibility in the near-term to medium-term because of that advantage of a slightly lower cost of funds.

Yeah, got it. And then maybe just last for me, and you've kind of hit on it a little bit, you know, on the bond portfolio, but longer term with the acquisition of Century, it would feel like there's an opportunity on the balance sheet remix side to help that 25% plus accretion longer term. Do you think about remixing Century's loan portfolio over, you know, the medium to longer term?

I think you're going to see us continue to do what we've done in the past. And they have commercial banking talent that aligns philosophically with us. And so you'll see us kind of expanding into a couple of new markets there, but doing the same thing. The same thing that we've traditionally done, which is, you know, catering to business owners, entrepreneurs, high net worth individuals and really pursuing that commercial loan and it'll look similar to what we've done in our other markets. And it also gives us some more opportunity, specifically in our Dallas operation. You know, where we're constantly funding challenged there. A lot more loan growth than there is deposit growth. And so maybe we can share some of the newly acquired funds into our Dallas market.

Got it. All right. Well, that's all for me.

The next question comes from Nathan Race with Piper Sandler. Please go ahead.

Hey guys, good morning. Thanks for taking the questions. Um, just going back to one of the previous questions, you know, just thinking about, you know, any potential run off that you're anticipating at the Century loan portfolio and just maybe bigger picture, you know, how do you, you know, anticipate the addition of Century kind of impacting, you know, Bank7's historical kind of high single to double-digit loan trajectory that we've seen kind of longer term from you guys.

I don't think there's any day 1 plan to specifically run off loan balances. I think you'll hopefully see a steady, similar to what we typically do, and as you just referenced, a 5% mid-single-digit to low double-digit company-wide growth, whichever markets are able to contribute to that consistently. And remember, we still run into these chunky periods of payoffs. And you can't see it in the numbers, but our payoffs this quarter were over $130 million. And so we backfilled that and were able to grow nicely over time. The prior, but that is a very atypical amount of payoffs followed on the heels of reasonably significant payoffs in Q2. But we knew going at least midway through Q2 that we were stacked with a big loan pipeline to fund throughout the rest of the year. And most of that funding has occurred, but we still have some clarity, some visibility to a little bit of additional funding in the fourth quarter.

So it's really, you know, go back to Thomas L. Travis's opening statement about the strong economies that we operate within. And we have a great team of bankers. They're out working and we are finding deals. And we're not going to stop, we're not going to change. I don't see, you know, a consistent move up or down. I want us to keep doing more of the same, right? Let's just be what we are. And if we run into a couple periods where we can grow a little faster because things are going well, then let's do it. Not going to take unnecessary risk and we're not going to give away our margin.

Yes, there's 1 minor addition I would say that Century did have a more aggressive use of buying loan participations. And it's certainly not the majority of the portfolio, but it's a healthy amount that we intend to, we're not going to pursue that in those areas. Those particular loan participations as they mature, as we have the opportunity to exit those, we would, which would then provide additional funding sources.

Got it. That's really helpful. And just curious on the some competitive dynamics in your geographies these days, I think there's some growing competition across some of those markets. So just curious what you're seeing in terms of kind of new loan pricing these days. You know, it was great to see, I think, core loan yields ticked up 2 basis points quarter over quarter. So just curious kind of what you're seeing from a competitive perspective, particularly across some of the specialties that you guys operate within.

I haven't seen any dynamic changes there, Nate. I mean, it's very consistent. We always have tough competition in all the markets where we're actively loaning money. I don't see that changing. I guess there was a period during COVID where there were some people that were not particularly aggressive in loaning out money, but it's been very consistent for the last 3 to 4 years. Lots of banks looking to deploy into loans and that's where the relationship bankers, you know, win the day.

Got it. That's helpful. Maybe 1 more for Kelly just on the expense outlook. I think Century is running around $12 million a quarter over the last handful of quarters. In terms of overhead costs. So obviously it'll be noisy the next couple quarters, but just any sense in terms of as you get to kind of the 30% cost saves the timing around the systems conversion to, I imagine, realize the large majority of those cost saves.

Yes, I mean, I like to look at our previous deal with Cornerstone. I mean, you saw efficiency ratio creep up a couple hundred basis points initially. And then over time, we feel very confident that we can operate non-interest expense at or below where we currently operate ours. I think from the timing of systems conversions, is that more of a Q3?

Yes, I would say, we modeled when we sent that deck out, we talked about expected efficiencies and the numbers in there. And I've got 2 numbers that I'm looking at in my head. I don't know the percentage, but I would say that it's least 75% or 80% of the cost savings will occur immediately in the first quarter and then there'll be the remainder spread out between the end of the second quarter and the end of, I'm sorry, the end of the first quarter and the end of the second quarter. At 75%, 25%, 75% cost savings to be achieved right away. But back to Kelly's point, I think you can look at that. What are we at? 2.05% of non-interest expense? Is it close to that number? And so when you think about that number, Nate, we should be well south of 2% if you just look at, if you want to call it the Century standalone, because you always have heavier at the headquarters.

Maybe if I could just take 1 more. Obviously, it's a pretty transformational deal. I think Century is a large-scale acquisition history of the company. But just curious, is 2027 kind of more of a digest and integrate type of year for Bank7? Or do you guys maybe anticipate some additional M&A coming your way to the extent those opportunities are still there for you guys?

Nate, we're always in a shoot, move, communicate mode, and we would be disappointed as a group if we allowed much of the noise and expense to linger into far into 2027. And so with the exception of the burden that we have because the providers are always slow to give us conversion dates. I believe our conversion date is in July. And so we don't have any choice but to allow, call it that 20% to 25% of last cuts to the efficiencies to be realized. But we're not going to be slow. We're not going to take a casual approach to this. We're going to do what we always do and we're going to make those adjustments and create as many efficiencies as we can day 1.

And so, yes, the back half of the year will be more profitable than the front half of the year, but you're going to see us really achieve very, very meaningful results starting immediately.

Yep, got you. Makes sense. Thanks for that, Thomas. If I could actually just make 1 housekeeping question for Kelly. On the goodwill number for Century, the slide deck indicated you're expecting a material write-up on some assets. Within some of the locations, any sense of what kind of all-in goodwill number we can anticipate for the fourth quarter once the deal closes?

Yes, Nate, I think it's too soon. I know that the increase in rates are going to impact some of the marks, and so I think, and then some of the valuation pieces. I think it's too soon to confirm that.

Fair enough. I appreciate all the color, guys. Congrats on the great quarter again.

Thank you.

Thank you.

As a reminder, if you would like to ask a question, please press star then 1 to join the question queue. The next question comes from Jordan Ghent with Stephens. Please go ahead.

Hey, good morning. Thanks for taking my question. I just wanted to kind of talk about the loan deposit ratio. I mean, historically, you guys have been operating with a higher loan deposit ratio kind of in the mid-90s. Kind of now with Century, where do you see that kind of going? Do you expect it to go? Go back up to the kind of mid-90s, towards 100%? Or do you expect to keep?

Keep it a little lower. Thanks. That's a function, as you well know, that's a function of a lot of different things, which include liquidity, capital, and debt instruments, and ability to capture liquidity if necessary. And so, you know, it also is impacted by the loan maturity distribution schedule. We have our loan portfolio. We have a high number of notes that mature during the year. And so it's much more complex, it's much more dynamic than a simple answer. I would just say that, similar to our NIM, you probably won't see us operate much below 80% in our in our world. There will be times, depending on all those various factors that I just mentioned, that we may sneak up to that 95% level. Um, and, and again, that would just depend on the circumstances as far as capital and liquidity and markets and all the things that we see. Generally speaking, 1 thing I will say is that if you see us operating in those higher ranges, we're going to be doing that only if we have tremendous sources of funding that are overnight capable sources to make darn sure that the bank is well positioned for any kind of a macro event, for any kind of liquidity scare like we saw in March of 2023.

And so, I know that's a long potential non-answer, but the fact is that we're comfortable operating in that band and those ranges depending on all those factors and circumstances.

Got it. And then maybe just 1 more on the 1-time transaction expenses that you guys had in the IP of I think it was around $16 million. Has any of that been realized already and maybe what's remaining or how much of it is remaining, I guess?

Question. The sorry the 1-time merger expenses you guys had I think you said It was $16.2 million you guys put in the slide deck. Yes. Oh, those are, you've got, that's the catch-all. Investment banker fees, those are conversion fees, early contract termination, and then you've got the, you know, Yes, all those things that will be realized. It's just like any other M&A transaction.

Okay, thank you. This concludes our question and answer session. I would like to turn the conference back over to Thomas L. Travis for any closing remarks.

Thank you again for participating. We appreciate our investment partners and we appreciate the analysts covering us the way they do. If there's any of our team members that are on the call, we appreciate you a lot. And if there's anybody from Century that's on the call, we're super excited to be joining forces together and looking forward to the future together and onward and upward for more good results for our great company. So thank you very much.

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

This live transcript is auto-generated without human intervention or review.

Welcome to the Bank7 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 8-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; and Paul Timmons, Director of Accounting.

With that, I'll turn the call over to Tom Travis.

Thank you and welcome to the call this morning. We're very pleased with our quarter. There were a few items of noise in the quarter, specifically the oil and gas. We reported that $3.7 million 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 is 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 paydowns 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 organically and also in the M&A space.

So with that said, we're here to answer any questions. Thank you.

[Operator Instructions] Our first question comes from Woody Lay with KBW. Please go ahead.

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 going forward now that the oil and gas assets have been sold?

This is Kelly. I think for Q3, we're projecting expenses to be in the $9.5 million to $9.7 million range. You will see some of those similar expenses from Q2 spill over into Q3. It could be a similar clip. I think that from an M&A transaction perspective, a little harder ballpark, but from an IT and consulting fees, it'll probably be very similar to Q2.

Got it. And maybe just moving over to deposits and deposit costs. And it was a relatively stable quarter on the loan growth front, but deposits were down a little, and it looks like there might have been a little bit of remix going on behind the scenes given the deposit costs moving lower. I 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?

Our deposit costs were static in the month of June, and so they followed the average for Q2, currently in the 2.8% (sic) [ 2.28% ] to 2.3% range. I think that could fluctuate based on growth, but we feel really good about where we're at from a deposit cost perspective currently.

Did I hear you say 2.8% to 2.3%?

2.28% to 2.3%.

Yes. So, basically flat. I mean, we're not expecting -- I think Kelly's word of static is pretty darn accurate.

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 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?

The dates are a little bit fluid for the next few weeks. There's public filings out there that talk about -- the court is 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 receiver's motion, not our motion, then we would expect the -- I believe the proposed auction end date is September 3, and there's a 4-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 an 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 2 weeks for sure. And then if the auction works, if the bidding process takes place, it will be in the month of August.

Our next question comes from Nathan Race with Piper Sandler.

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 what the loan pipeline looks like today to offset some of those large paydowns. And Jason, what you're seeing in terms of pricing on new loan production relative to the core yield in the quarter, which was just over 7%?

Yes, thanks, Nate. The pipeline is what I would go back to referring to as robust for loan 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 full year guidance 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. And to your point on, hey, talk to me about yield, we're really good at putting it back out 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.

Got you. 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?

Yes, I'm measuring year-over-year, not quarter-to-quarter. But yes, 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.

Okay, great. And then just going back to the acquisition announcement, I appreciate that it's a fluid process at this point in the court's hands to some degree. But maybe, Tom, just 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 nuanced accounting components until that minority stake is acquired hopefully?

Yes, I think, should the receiver bidding and auction go through, and should we be successful as a stalking 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 3 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.

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%.

Got you. And just given the magnitude of this deal potentially with Century, I mean, is it fair to assume M&A is probably off the table additionally, maybe through the first half of next year, just given the implied decline in capital ratios and so forth contemplated by this deal? 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?

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 fit for us, we're going to pursue it.

Now when I say that, clearly you have to be careful with any follow-on transactions, 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.

Our next question comes from Jordan Ghent with Stephens.

I just wanted to ask about the margin. I think previously you indicated that 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 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?

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 to Q3 while we're waiting for the loan funding. But I think from a range perspective, 4.53% to 4.45% (sic) [ 4.55% ] is probably a good guide for our core NIM. And then, you know, 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. And then do you happen to have what that margin was for the month of June?

It was 4.51%.

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?

The more things change, the more they remain the same. Amen. I think if you look at our NIM management over the years 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.

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, 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 is 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.

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

Welcome to Bank7 Corp. First Quarter 2026 Earnings Call. Before we get started, I'd like to highlight the legal information and disclaimer on Page 25 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 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 Paul Timmons, Director of Accounting.

With that, I'll turn the call over to Tom Travis. Please go ahead.

Thank you. Welcome to the -- as you can see, we are happy with our results today. As we regularly say, we're probably a little boring in this area, but we have to thank our team of bankers and I know some of them listen to these calls and if you're on the call, thank you. And we have a great group that's been together for a few decades. And it's very comforting to have such a strong, deep, broad team, and that's why we produce the results that we do. And so I suppose it's a little boring for some people quarter after quarter, where we're always putting up these fantastic results, but it takes a lot of effort. And we don't take many days off around here, and we do it the right way and the results speak for themselves.

And so last quarter, we were I think the markets were expecting rate cuts in this quarter. Now the market thinking maybe the rates will go the other way due to the increase in commodity prices associated with the Middle Eastern conflict. Who knows? But the reason that I bring it up is that we are really proud of our ability to manage our NIM and to properly mix our balance sheet, and we're not concerned about rates going out or rates going up, we're positioned either way. And so with all of that said, you can see the major metrics in the deck, and we're here to answer any questions. So thank you.

[Operator Instructions] Our first question comes from Nathan Race with Piper Sandler.

This is Adam Kroll on for Nathan Race. Yes. So maybe just starting on loan growth. It looks like average loan growth was pretty solid while some payoffs later in the quarter dragged down end-of-period balances. So I guess, I'm curious if your expectations for loan growth has changed for the remainder of the year? And along with that, if you're seeing any noticeable change in demand within your energy portfolio?

Yes. Thanks for the question. This is Jason. And I think our goals for the year remain intact. We're still thinking moderate single digit. But I would say that coming off of the third and fourth quarter we had last year where we had really robust growth that kind of exceeded expectations in both quarters. We're not at that pace. So I would say that it has slightly slowed down, but we had really nice bookings in the first quarter.

So just expect kind of the same from us this year. I do think like last year, we offset really sizable early payoffs throughout last year. That's a routine thing for us. I think you'll see more of that this year in the second quarter, in particular. We expect pretty sizable payoffs, and then we'll just offset that with new loan bookings throughout the rest of the year.

And as it relates to the energy portfolio, it's -- I believe it's at a 10-year low. It's about -- it was 8 -- a little over 8% of the portfolio. And so on the energy space, most of your well-capitalized professional organizations, really are not changing a lot as it relates to rushing out to drill, so to speak, I would say, just because of the spike in energy prices, I don't think anyone believes that there's any stability in the oil prices when it goes up due to what's going on in the Middle East.

And so for us, we're opportunistic when those energy loan opportunities come along, but it's not a huge driver for our company. We're active, and we like the portfolio we have, but I wouldn't expect the energy piece to be causing a lot of dynamic change one way or the other.

Got it. No, that's super helpful color. Maybe shifting to the net interest margin. Some really nice expansion during the quarter. I was wondering if you could provide some color on how you expect the net interest margin ex loan fees to trend, assuming rates remain here through '26?

Adam, this is Kelly. We did make some really good progress on the liability side, cost of funds, and that was related to our talented bankers continuing to bring in some quality core deposits. That said, we are modeling in that same range, 4.40% to 4.45% from a core NIM perspective, and on the loan fee side of things, kind of reverting back to the normal of 28 to 35 basis points.

Got it. And then lastly for me on capital management. Just given the strong profitability metrics, you should be building capital at a pretty strong clip. So I guess I'd be curious to hear your updated thoughts on M&A and just overall comfort level and letting capital levels build from here if the right partner doesn't come along?

Well, clearly, as we sit here today, I think we ended the quarter at 15.96% on risk base. So we're probably over 16% today, who knows. But clearly, the need for us to accumulate more capital is not on the top of our minds, and we're more into growing and organically and then on the M&A side. And so we've always been active in the M&A space. And for the right strategic opportunities, we're going to continue to pursue those, and we think that would be an efficient use of the capital.

Our next question comes from Will Jones with KBW.

Jumping in for Woody Lay. I wanted to follow up on the margin discussion and specifically just talk about deposit costs. It feels just -- Tom, you alluded that the market has all but pulled cuts out of the forecast, maybe even we see up rates this year, but you guys kind of see the margin more stable in that setting.

But specifically with deposit costs, how would you guys kind of characterize the competitive environment right now? And in that scenario, is there a chance we actually see deposit costs trickle up towards the back half of the year just as competitive dynamics kind of increase?

I don't think you're going to see -- I don't think it's that dynamic, so to speak. And if you -- so it's really kind of a two-part question you asked. And I don't see a massive fluctuation or any meaningful fluctuation in deposit costs. And then second -- now that's absent a rate increase, right? So I'm assuming that there's no rate increase. And then the second part is, as far as the margin goes related to that, we just look back at our -- we provide that in the deck on the stability and the lack of volatility in the margin. So we don't expect anything materially different.

Okay. Got it. That's helpful. And then maybe could you guys just -- you guys called out some interest recoveries you saw this quarter. Would you be able to just quantify that just so we can think about kind of a clean, more recurring margin run rate this quarter?

Yes, from a core NIM perspective, I think the nonaccrual interest net up was $1.1 million, a little bit under. And then on a fee perspective, it's closer to 1.7. And so again, that reverts us back to that normalized core NIM of 4.40% and then 28 to 30-plus basis points on the fee side.

Got it. Okay. Very helpful there. I wanted to just pivot to the credit discussion. I know there's just puts and takes on credit each quarter, very little migration, generally speaking, asset quality is strong. And you guys have really kind of hit a 0 provision for the past, call it, 4 out of 5 quarters. But what is the messaging on the provision and reserve levels going forward? It feels like at some point, that trend may have to give a little bit, but I just wanted to kind of get your views on the provision and where you see the credit story today.

A little bit challenging of the question to answer when we really don't know what the economy is going to do for the rest of the year. But what we're looking at today is, I mean, I think our credit book is as clean as it's ever been. And there was some migration during the quarter. When you see that nonaccrual interest recovery, I mean, those loans were paid in full. And so we had multiple credit transition out, full payoffs and then we had a couple of downgrades during the quarter.

But on the surface, it looks like the numbers were fairly neutral, but I can't overstate how active we are managing the loan portfolio from a credit quality standpoint. And so let's say we grow the book again a pretty sizable amount and the economy stays the same, yes, we'll have to provision a little bit more. But if the loan growth is more timid, think low single digits, then we may not have to provision more. It just -- and let's see what's going on. There's quite a conflict going in the Middle East.

And so does that intrude into our daily lives here in a bigger way? So far, it's been a nonevent, especially within our credit book. But we're going to stay true to our fundamentals and do the same things we've done for the last decade.

I would also add to that, that we have quoted a payoff for this Friday that for the only really material remaining NPA that we have, we have a high confidence factor that that's going to happen. And if that happens, the net effect would be NPAs of somewhere in that $4 million to $5 million range. And when you look at $4 million and $5 million on our portfolio, I think that equates to 25 bps or something like that. So to echo Jason's comments, we certainly don't feel any pressure absent the macro worry about building more ACL loan loss reserve.

Yes. Okay. I appreciate all that context. I know I'm asking you to look into a crystal ball a little bit there. I guess just one last one for me, just on capital. We've talked about buybacks not really being an efficient use for you guys just through your lens. Just could you just remind us, is that still kind of how you're viewing the buyback? And does it look any more attractive today than it did, say, 90 days ago? I would love your thoughts there.

Well, look, buybacks are - we've often said this that we're blessed with a very top 1% return on equity in our company. And because of that, we produce really good earnings per share and we're not driven to reach for increasing EPS by doing some share buybacks. We've been beneficiaries of strong earnings and growth.

And so now with that said, as we've said in the last few quarters, we recognize that we're very, very capital heavy. And especially for a company with no debt, and so at some point, the rubber meets the road. But just generally speaking, our philosophy is too strong of a word. Our view is that the share buybacks really don't add franchise value and it's more of a short-term mechanism. So I'm not trying to suggest that we would never do one.

What I'm simply saying is that it hasn't been a critical need for us in the past. But clearly, if there were ever a time in the future where we felt like that the buybacks would make sense, it would probably be driven by a good share repurchase price and no other alternatives.

Our next question is from Jordan Ghent with Stephens.

I just had a follow-up on the migration on those downgrades during the quarter. Is there any additional details you can give on the type of credits they were? And kind of the loan type and things like that?

Yes. So we had a large builder developer relationship that we downgraded during the quarter, and that was the one Tom referenced that we think will pay off this week. So that's the only industry specific thing that I could get into.

Okay. Got it. And then just one more follow-up for me around kind of the M&A discussion. I think previously, you've brought up the idea of doing an MOE. Is that something that's still on the table? Or would you be kind of looking more towards that downstream partners?

I think the answer is both. And we don't -- strategic matters are inherently long term in nature. And so we've not deviated from our thinking on that.

Perfect. And then actually just one more. Could you guys maybe touch on the fees and expense guidance going forward? And maybe excluding the oil and gas impact?

Yes. For Q2 on the expense side, we're projecting internally in the range of $9 million to $9.2 -- and on the fee side, low end of $750,000, upwards of $850,000.

What are you talking about fee...

Noninterest income.

Our next question comes from Nathan Race with Piper Sandler.

Yes, maybe just a follow-up for Kelly, just on updated expectations for the impact to fees and expenses from the oil and gas?

I mean, I think that it will be continued the expense offsetting the income. So not really material to the bottom line, but temporarily grossing up both sides of the P&L.

And Nate, this is Tom. We -- as we've mentioned in the last -- I know last quarter and I think the last 2 quarters, perhaps 3, we have accomplished our goal. As you recall, the goal was to reduce the hit that we had on an energy loan, and we're delighted with the results. And we're -- what are we 20 months...

Yes, 20 months.

20 months into it. And we've accomplished our goal. And I think that for us to continue to hold that asset is just not something that we would plan to do. And I think that, as a reminder, we have signaled to the market that we look at it as a cash recovery versus a GAAP income item.

And so if we do exit that portfolio, then we may have an adjustment very slight on the GAAP, the way they've recognized income on a GAAP basis, but on a cash basis, we will have -- we already have accomplished what we wanted to accomplish. And so I bring all that up to say that it's a really small item. It's a real outlier item. We're delighted with what we've done and what we've accomplished, and I would expect that to be either gone altogether or diminished quite a bit over the next few months.

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

Again, thank you for joining the call. We're delighted to be where we are and continue to produce these results, and we're mindful of the macro Middle Eastern situation. And when the inflation starts biting as predicted because of the higher oil prices, we're prepared as much as anybody can be for it.

And in the meantime, it's steady as she goes for Bank7. Thank you.

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

Welcome to the Bank7 Corp. Fourth Quarter of the year 2025 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 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 Paul Timmons, Director of Accounting. Please also note today's conference is being recorded.

With that, I'd like to turn the call over to Tom Travis. Please go ahead.

Thank you. Good morning to everyone. We are delighted with our 2025 results. It seems like a broken record every quarter but we have to acknowledge the great work done by our bankers in especially this year. The outstanding loan growth, the strong loan fee income and very solid organic deposit growth is not easy to do. And we are very fortunate to have such a dynamic and professional group of bankers, people that have worked together for a very, very long time. And so always, always appreciate what they do and especially this year.

And at the same time, while they were producing that tremendous growth in the loan fee income, they did it without sacrificing underwriting, and that enables us to really enjoy asset quality that is probably better than it's ever been. And it's also why we felt comfortable not increasing the provision more than we did this year or last year, even though we made such tremendous strides in the growth. So just again, a real congratulations and shout out to our great team.

And at the same time, our operations, IT, finance functions continue to evolve and they make our lives easy and something we don't take for granted. So we want to thank and acknowledge the leadership in those functions as well. So we're well positioned to continue performing at a very high level, and we're here to answer any questions anyone might have. Thank you.

[Operator Instructions] Today's first question comes from Wood Lay at KBW.

I wanted to start on loan growth, another really strong quarter of growth. I know in the past, you kind of talked about sometimes growth is lumpy quarter-over-quarter. But we never really saw the downside in 2025. Has payoff activity been lighter than you expected? And how should we think about forward expectations for growth?

Woody, this is Tom. Before Jason jumps in, I just want to tell you, I love the way you start your piece when you send it out. I opened your -- early this morning, and you start out with rock and I like that. So thank you. Jason will take the question.

Woody, it's interesting you bring up the payoffs because we study this every quarter, we try and look at origination and payoff volumes. And not to sound like a broken record, but we're doing a lot of business in Oklahoma and Texas. And those economies, we're just surviving in this part of the country, okay? And so we had, I would call it, accelerated payoffs throughout the year. There was just so much demand and loan opportunities. And look, part of it is that geography and part of it is our team. And so we're over here now with some more scale. And I'll just liken it to the snowball rolling down the hill, right? And so now each year when we start January and you just -- you know your payoff pace is going to be a lot, okay? Like I think we'll have $25 million a month of payoffs this year. So to grow we need $35 million, $45 million a month of new funding. And so last year was no exception. I will say that the fourth quarter payoffs were lighter than they'd been in the first, second and third. You're going to see some of that come in, in the first quarter, but we're really, really fortunate and very focused on making sure we go out and capture market share in these dynamic Oklahoma City, Tulsa, Dallas-Fort Worth Metroplex. I mean we are after every day with really talented people.

And it's not just on the loan side. As great as it looks on the loan side for last year, we actually did better on the deposit side. And it's just a -- it's a great testament to the team in how hard they worked last year and just great results.

Yes. That's helpful color. And then, I mean, I guess just a follow-up there, knock on wood, but it feels like the momentum in your local market is continuing to be strong in 2026. I mean can growth look like '25 again in the year ahead? Or would that be a little bit of a stretch?

That sounds like a stretch to me. Where we're seeing the most pressure is pricing wise, and we are not going to lose our discipline, Woody. So we are weekly meeting with clients, talking to bankers, and we're trying to make sure we're within market, and we are doing our best job of maximizing these loan dollars because we do think that we could grow loans at a similar pace, but you have to fund that, and you have to maintain those margins. And so we're balancing those items.

And then last for me, just wanted to shift over to the net interest margin. And got some compression this quarter, which I don't think was a huge surprise given some of the commentary you gave last earnings call, but can you talk about how you expect the margin to trend if we get a couple of additional cuts from here and remind us sort of the historical ranges you would expect on the NIM?

Before Kelly jumps into that, Woody, I would just a quick reminder that the slight compression that we experienced was we were coming off of almost an all-time high and we tried to signal that last year. We knew we were running at a higher margin still within our historicals with really way up there in the range. And so we need to be mindful of that. But go ahead, Kelly.

And Woody, we had a couple of rate cuts during the quarter. And you could tell in the slides in the deck that we've kind of reached an inflection point where we had a number of loans that reached their floors. And so I think if you look on a forward-looking basis, using that with the loan growth. I mean, we feel really good about our current NIM. Could it go down slightly? Potentially. We do have some time deposits that are repricing during the quarter that would help offset some of that. And so I think going within that high band, 4.5 is a great starting point for us.

What was our historical low? Was it around 4.15 or 4.20, Kelly?

4.35.

Yes. Well, listen, if we get 75 basis points of cuts. And we put a lot of material in this deck, maybe specifically on Page 10 as a good illustration. But we've always said the more -- the deeper the cuts are, the more challenging it becomes. And our loan floors really help us, but then the depositors at the same time are insisting on higher rates. And so I think we've said in the past, in the recent past, it wouldn't surprise us to dip down and touch our historical lows, which is below the number that Kelly said, but it's not to be -- it wouldn't surprise us if it bled down a little further.

And our next question today comes from Nathan Race at Piper Sandler.

Just thinking about the direction of deposit costs going forward. I appreciate the commentary around having some opportunities to reduce CD pricing going forward. But wondering if you could speak to the non-maturity side of the deposit equation in terms of how much additional leverage we have to reduce those deposit costs and what that implies for deposit competition these days?

Dave, this is Kelly. Our current cost of funds dipped from Q4, I think the current run rate is 2.40. I think that's being really driven off of balance sheet growth incoming in new deposits. We did pick up a couple of nice deposits post year-end that helped reduce that cost to fund. And so I think it's it ebbs and flows. I don't know if there's really a straight answer to give you.

Okay. That's helpful. And maybe for Jason, if you could maybe just speak to some of the deposit pricing competition you're seeing out there. Obviously, you had really strong loan growth in the quarter. So you had to fund that with deposits. But just curious what you're seeing across the ground.

Yes. I think it's fair to say the last couple of cuts didn't really flow into deposit betas as strongly as maybe the first couple. And that's not, I don't think, unique to Bank7. I think that's just kind of across the industry. If you go out to the Internet and just look at what's available, money market, CDs, it's just -- clearly you're hitting a point where the depositors are keenly aware now, right? Interest rates are top of mind and that was a little bit easier 12 months ago, 18 months ago, but as these cuts have taken place, people are just paying attention to it. And so are we, and we're trying to make sure we're getting our market share. So I think to your point or your question of what are we seeing real time, and I think it's tough on the deposit side. Those last two cuts didn't really translate into typical betas.

Understood. That's really helpful. And then maybe one last question for Tom. Maybe just zooming out a bit. I think 2025 was a tough year. Just looking at the performance of the stock relative to peers. So just curious, you guys are still building capital at nice clips despite even the strong growth yet in the fourth quarter and throughout last year. So just curious if you're thinking more about buybacks to support the stock these days or just more broadly, how you're thinking about excess capital?

Regarding the stock price, it's -- we've always -- everybody knows on this call and around the world that markets are going to do what the markets are going to do, and we really can't control that. Obviously, we can control it a little bit if we wanted to go and repurchase shares, which is not our objective. And we understand it's one of the levers in addition to others. But we're just focused on producing top-tier results. And over time, the market will understand that and the stock price will respond.

And I think the proof is in the pudding. I don't know what page it's on the deck. But if you look at our total shareholder return compared to the major exchange traded banks or if you want to compare it to the KBW Index, we are just top, top tier. So there's going to be quarters and times where we don't look favorable compared to other banks, but that's okay because over time, we're going to outperform them and the market will understand that.

Today's next question comes from Jordan Ghent with Stephens.

I had a question kind of following up on that capital. And regarding M&A. In the past, you guys have mentioned sellers having high pricing valuation expectations along with an AOCI overhang. Are those still some of the biggest headwinds you guys are seeing as more sellers come to the table and willing to negotiate?

I think the AOCI has slightly come down. Many, many of the people that were burdened with that, I think they were using hope as a strategy and they believed some of the wishful thinking that the rates are going to come down and reality is really here. And then as it relates to other factors, there is still -- if you run across a quality deposit franchise, it's going to be very difficult to buy that kind of operation. I don't want to use the word bargain, but it's just increasingly difficult, and the market is a mature market. It's an efficient market and it recognizes that value. So I think all of those things are going to always be in play, and we're scouring the country side. We had a couple of opportunities over the last year in Oklahoma. One, it was -- didn't quite make it at the end. One, we were ready to go, but we didn't -- we pulled away after doing our diligence. We had an out of market good opportunity that we also pulled away from. And so there's -- it's never the same.

But to your question about being able to make things work. We're going to stay very, very disciplined. And obviously, we're not even going to -- when it comes to asset quality, that's nonnegotiable, right? But as it relates to price, the higher quality as the deposit franchise, the long and the two deposit relationships that some banks have, that's going to force you into a higher multiple and there's just nothing you can do about it. So while we're out talking to people, it's a high-class problem, but the capital is just going to continue to pile up.

And the good news about that is that it gives you more optionality when you finally do find something. And so I think for us, it's going to be stay disciplined, resist the urge to do any meaningful share buyback so that we can pile up capital and just be prepared for a nice opportunity. And we've mentioned that we're not opposed to an MOE. And so it's a really good position to be in, but we also understand that we have to fade the heat because the capital is piling up so rapidly that the return on equity has come down.

But the last thing I would say is that, that return on equity may be coming down, but I don't know what the percentage of banks is, but I bet it's greater than 90%. I would love to have their capital ratio returns go down to 18% or whatever it is. So that's why I call it a high-class problem.

Perfect. And then just kind of one follow-up question on the deposits on the -- particularly the noninterest-bearing. Looks like it kind of went down a little bit this quarter. And could you kind of maybe give a little color on that? And then maybe remind us of any seasonality that we should be expecting with -- on the deposit side in 1Q?

Yes. I think what you're seeing as those noninterest-bearing accounts, that percentage bleeds down, go back to my comments a minute ago about top of mind awareness. When rates were zero, nobody cared if it was a money market account, a savings account or a checking account because it just didn't matter, and that's changed with the last rate cycle and it's just a thing that people are aware of, and we accept that, and we're responding to what the customer wants in that regard.

I don't think that we're not heavy, heavy in public funds, those are seasonal with regard to seasonality. Those balances do fluctuate. But other than that, I don't think we have much seasonality in the portfolio.

Okay. Perfect. And then just one more question on kind of the expense and fee guide. If you guys could give any additional commentary on that on kind of what you're seeing? And then maybe just remind us of how many more cores we can expect to see impact from the oil and gas revenues?

As it relates to expense, it's nice and comforting that two of our three primary coverage people, I read their pieces this morning, and it's nice to see you recognize how good we are at controlling expenses. That's not going to change.

As it relates to the oil and gas, yes, with all due respect, we think it's a nothing burger. It's a -- I don't know if I want to call it a rounding error, but for the next -- unless we were to sell the asset for the next three or four years, it's just going to be a gradual decline of any meaningful dollars as we harvest the revenue.

And so -- and as a reminder, we didn't really agree with our accountants 1.5 years ago when they were using their formulas to recognize the revenue off the oil and gas, and we warned people that, from a GAAP perspective, that we felt like they were front-end loading it too much. And I still think that exists. And so from a strategic perspective, we've accomplished our goal. We continue to harvest, and we're happy with it. But from a GAAP accounting perspective, it's going to continue to be a very insignificant portion of the bank, but we do recognize that we might have some fluctuations. And so from a GAAP perspective, it could negatively impact net income in a small and material way.

And from a dollars perspective, using Q4 as a really solid guide, I think it was $9.1 million in core expense, $1 million in oil and gas. And then similar on the fee income side, $1 million split, $1 million on the oil and gas and $1 million in core fee income, $2 million in total. Very, very similar to Q4.

That concludes the question-and-answer session. I would like to turn the conference back over to the company for any closing remarks.

Thank you, everyone, for your coverage and any shareholders that are on the line. We're excited about 2026 in our company, and we appreciate the partnership. Thank you.

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.

Welcome to the Bank7 Corp. Third Quarter 2025 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 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 Paul Timmons, Director of Accounting.

With that, I'll turn the call over to Tom Travis.

Good morning. Thank you for joining us. As you can see, we had a very solid quarter. Essentially, we just are a broken record, but it's a shout out to our bankers. And if you look at the organic growth in both the loan and deposit portfolios. We had a very, very good quarter, and it's not a surprise. Again, it's -- we don't take them for granted. But I think sometimes people take our great result for granted. But organic growth has just been really good all year and it's continuing to drive the institution forward. And so when you look at our income and strong capital accumulation, you can see the effect it has, effects on the capital ratios, which are really, really strong and have us well positioned and so all the elements of the bank look fantastic, the liquidity, the capital, earnings and the margin. And so we're excited about where we are. We're excited about the markets we operate in, and we're just delighted for the results. And so with that said, we'll -- we're here for any questions.

[Operator Instructions]

The first question comes from Nathan Race with Piper Sandler.

This is Adam Kroll on for Nate Race. Yes, so maybe just to start on loan growth. You guys obviously had another really strong quarter in terms of growth. So I'd just be curious how the pipeline stands today and how you're thinking about growth in the fourth quarter and into '26.

Yes. Thanks, Adam. This is Jason. And the quarter was outstanding. And as Tom mentioned, the team of bankers, they just keep delivering. And it's not just loans, it's deposits as well, which are so vital to us continuing to be able to expand like this. So the current pipeline, it's good. But again, as we caution each quarter, we're prone to lumpy paydowns as people exit. There's a lot of conversations about what kind of economy we're going to have here in the near term. And so you see a lot of people exiting businesses or specific assets. And so we're not immune to that.

We've been able to overcome significant exits this year just with robust growth. I think continuing the theme that we've had here for really the whole year, I really expect kind of a high single-digit year-over-year growth. That's our target. That's our goal. I think we'll be able to deliver on that. But -- so right now, pipeline still has plenty of activity in it. But again, we're always careful with those lumpy paydowns.

Got it. I really appreciate that. And kind of going off of that, I'd be curious if you could touch on what you're seeing in terms of loan pricing dynamics among competition and what you're seeing new loans come on the portfolio relative to maybe that 7.4% or so that you saw in September?

Yes. I think if you look at the average, we'd be slightly below that 7.4%, somewhere in between 7% and 7.25%, I think, for the bulky new funding. And then I think there's more pressure. You talk about the competitors. From a loan standpoint, it seems to be less pressing than the deposit side, which that ebbs and flows, but that seems to be the flavor of the week right now. It's -- there's a little more pressure on the deposit side than the loan side.

Got it. And then last one for me is, obviously, there's been plenty of deal activity within your markets. So just any update on the M&A front?

We're constantly out there. And we've had opportunities over the last few months and looked at various transactions, and we're active in that space, and we continue to proceed with a nod towards strategic combinations, and that hasn't really changed. And so one of these days, we're going to find something that works. And so really, our posture hasn't changed.

The next question comes from Woody Lay with KBW.

I wanted to touch on the net interest margin to start, really strong quarter in the third quarter, but it did look like with the rate cut in September, the quarter end margin was a little bit lower than where it was in the third quarter. I guess if we get a couple more rate cuts through year-end, can you just talk about how we should think about the trajectory of the margin from here?

Yes. Woody, this is Kelly. We ended the quarter at 4.55% from a core NIM perspective. I think as Jason mentioned, we did experience some deposit upward pressure on cost of funds towards the end of the quarter. I think if you look at the first rate cut in Q4, you could see further NIM compression slightly down to 4.50%, and that starts to flow with additional rate cut towards the latter half of the quarter, that could creep down to 4.47% as those loan floors kick in, but then also assuming that we can keep pace on the liability side.

Got it. That's helpful. And then I also wanted to touch on the loan fee income. It's -- the past couple of quarters have come up pretty nicely, and it now represents about 40 basis points of the margin. Could you just talk about the dynamics there on what's been driving that income up? And how sticky can that be going forward?

Yes. I think, again, that goes back to successful efforts by the sales team a robust deal market. We've just seen a lot of activity, a lot of opportunities. Our salespeople have done a fantastic job of converting. And so when you say how sticky is that, gosh, it feels like we've really beat the mean here for a couple of quarters in a row. I think you'll see it trend back towards normal, though fourth quarter, who knows the pipeline is strong, but definitely feels like a bit of outperformance for the last couple of quarters.

Got it. And then lastly, just on credit. I mean credit trends were really strong in the quarter, but you did elect to increase the reserve, some just on a percentage basis. Can you just sort of walk through the decision there and just any over broader thoughts on credit?

Yes, I think -- this is Tom. The real key here is the growth in the portfolio and when you look at the macro events in the world right now, it's frightening in a lot of areas. And it's increased, what I think, is the volatility of the overall credit markets. And so when we grow the portfolio and we see increased volatility in the macro world out there, we believe it's prudent to put hay in the barn, so to speak, relative to all those factors. And it gives us a lot of comfort. And we benefit from really strong, strong capital levels. And it's always been fascinating to me that when people around the world in our space talk about loan loss reserves, there doesn't -- there isn't really much discussion usually on the capital levels.

And so one could argue and say, why do you even need to worry about anything, you're going to maintain capital levels the way you are. But I think the importance for us is the Rubik's cube, so to speak, and we stay really focused on the loan book, the macro factors. And so when you look at that growth, we felt like it was prudent and to maintain the integrity of our process, that's why we did it.

Got it. So just as a follow-up. Was it driven by some changes in the scenario weightings? And if that's the case, do you think we could see some additional reserve build from here?

I think it was driven by all of the above. And could we see us increasing and putting more provision? It's possible. It's really -- it depends on the macro factors, and it depends on the growth. But I would say that -- I don't want to signal anything, but I would say that we're pretty set right now for the foreseeable future. But again, if macro conditions change, adjustments need to be made or if we have additional growth, then you could see more provisioning.

The next question comes from Matt Olney with Stephens.

Just wanted to ask about the outlook for fees and expenses. And I know this can be impacted by the oil and gas revenues. So just any kind of color you can give with and without that.

Matt, this is Kelly. I think we got pretty close on the core fee income for Q3, and we anticipate a similar run rate, both on the core fee and the expense side, the $1 million core fee and then $9 million to $9.5 million on the noninterest expense side. And then yes, you're correct. The oil and gas is a little bit less predictable, but we're also utilizing the Q3 as a good guide for Q4.

Okay. And then on what about the expectations around mortgage? I know you guys made an investment there recently. I would love to get your -- a bit of thoughts about expectations for this investment, especially within 2026.

I think right now, the mortgage business, at least here locally, it's pretty slow still, maybe not as bad for the mortgage lenders as it is for the realtors. But until you see something give whether it's discount or lower rates, I think we're kind of expecting more of the same, where it's covering itself. It makes a little bit of money, but it's definitely not what we think is possible if you see a real change in the rate scenario or you know -- we think there's a lot of headwinds against that business. And it's not just rate. The affordability of housing is a big deal. And it's a little hard for us to handicap, but personally, I'd be surprised if '26 isn't better than '25. But who knows?

There's so much going on really across the globe that impacts our economy and people's ability to get wage gains and afford a new house. And so we're as curious as you are. I wish I had a more specific answer, but I would think that next year would be a little bit better for us in the mortgage business.

I will say the pipeline has picked up compared to what it was 6 months ago, we're sitting here with probably, I would say, 3x the number of transactions and dollar volume that will close in the next 60 days than what we had. But I'll also tell you the fallout rate is quite high. I don't know how closely you follow the industry, but we're seeing a lot more contracts break and people not close than historically has been the case.

Yes, this is Tom. I would add also just a reminder on who we are and what we are. And specifically as it relates to mortgage, it was an important acquisition for us, and it was obviously a relatively small amount of dollars given our earnings and our -- the size of the company. But we're more of a rifle shooter than the shotgun shooter, in the business and the strategic implication of buying that company and Dale built a really fine mortgage operation. We're really glad to have him. But we feel like we're a professional mortgage provider now.

And when you look at what the mortgage space will be for us going forward, we're delighted that we have the ability to deliver to our high net worth clients and other people. And so I don't want to minimize mortgage at all because it's a wonderful, nice little segment, but it's always going to be that more niche specialized service that we provide our customers. And hopefully, 1 day, it will grow into a much more significant income provider, but I think that's going to take some time. And in the meantime, we're really, really happy with the acquisition.

Yes. Okay. Well, I appreciate the commentary on mortgage. And if I could just circle back to the M&A topic. It sounds like there's still conversations with potential candidates and I guess, Tom, I'm curious kind of what do you see as a major challenge for M&A today? And what do we need to see to see just improved volumes within the region?

I would say that we still have the overhang of the AOCI that's keeping some sellers on the bench. It's a slow boat to China. And it's not just the AOCI in the bond portfolio, but there are -- it's disappointingly surprising how many bankers booked really long maturity and lower fixed rate loans and it's just going to take some time to work out. So that has a dampening effect on -- you know, the sellers, they all think they're worth fill in the blank, whatever. They all think they're worth 1.5 to 2x. And when you factor all those purchase accounting marks into the equation, it makes it more difficult.

I would also say that we own more than 50% of the shares of this company. And we act like owners, and we act like owners every day and especially in the M&A space. And so I think when you look at our disciplined approach and just following the numbers, it makes it a little more challenging as compared to -- I'm not going to reference any particular transactions, but there have been 2 or 3 transactions recently that are real head scratchers. And I'm not sure that those transactions should have happened the way they did, but they did. So I just think the landscape is going to be -- it's better. There's a lot of excitement out there, but those factors are always going to make it more challenging for Bank7.

Now with that said, I can't get into specifics on what we've looked at over the last 9 months or so. But we've come close on a few transactions and so I don't want anybody to think that we're not competitive because we are, but I think that you're going to see continued eagerness in the M&A space in our industry and eventually, we'll find something that works strategically for us.

Okay. Well, thanks for the commentary. And it feels like Bank7 is in a nice spot for M&A. So I appreciate it.

We have a follow-up from Nathan Race with Piper Sandler.

Just a follow-up on credit. You obviously had really strong credit performance during the quarter. But Tom, you mentioned the concerns within the macro environment. So I was just curious if you're seeing anything in terms of criticized or classified migrations during the quarter.

No, it was very benign in the quarter, migrations. We had a couple of move down, a couple of move up, a couple of payoffs that were on our special mention ratings. So all in all, very, very neutral. If I had to cap it, was it slightly positive or slightly negative. I would say it was slightly positive, but in general, couldn't be happier with where we are credit-wise within the whole portfolio.

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

Thank you again for joining us. We're happy with our quarter, looking forward to our near future, and thank you.

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