Bank7 Corp. 2023 First-Quarter Form 10-Q Summary
Business context and reporting period
Bank7 Corp. is an Oklahoma-based bank holding company operating Bank7 through 12 locations in Oklahoma, the Dallas/Fort Worth metropolitan area and Kansas. The Bank provides commercial and consumer lending, deposit and other banking services, with a focus on business owners and entrepreneurs. This unaudited Form 10-Q covers the three months ended March 31, 2023, compared primarily with the three months ended March 31, 2022 and December 31, 2022 balance-sheet data.
Key financial metrics
| Metric | Q1 2023 | Comparable period or prior date |
|---|---|---|
| Total interest income | $27.4 million | $14.9 million in Q1 2022 |
| Net interest income | $20.0 million | $14.2 million in Q1 2022 |
| Net interest margin | 5.14% | 4.42% in Q1 2022 |
| Provision for credit losses | $475,000 | $276,000 in Q1 2022 |
| Noninterest income | $672,000 | $675,000 in Q1 2022 |
| Noninterest expense | $7.6 million | $6.4 million in Q1 2022 |
| Pre-tax income | $12.6 million | $8.2 million in Q1 2022 |
| Net income | $9.6 million | $6.2 million in Q1 2022 |
| Diluted EPS | $1.04 | $0.67 in Q1 2022 |
| Return on average equity | 26.15% | 19.26% in Q1 2022 |
| Total assets | $1.66 billion | $1.58 billion at December 31, 2022 |
| Gross loans | $1.28 billion | $1.27 billion at December 31, 2022 |
| Total deposits | $1.49 billion | $1.43 billion at December 31, 2022 |
| Shareholders’ equity | $154.0 million | $144.1 million at December 31, 2022 |
| Cash and due from banks | $177.4 million | $109.1 million at December 31, 2022 |
Net cash provided by operating activities was $13.6 million. Investing activities used $6.2 million, principally reflecting net loan growth, while financing activities provided $60.9 million, primarily from a $62.3 million increase in deposits. Cash increased $68.3 million during the quarter.
The filing does not show outstanding borrowings or other debt as a separate balance-sheet liability at March 31, 2023. The Bank reported $143.3 million of borrowing availability with the Federal Home Loan Bank. Regulatory capital remained strong: the Bank reported total risk-based capital of 12.50%, Tier 1 risk-based capital of 11.35%, CET1 capital of 11.35% and a Tier 1 leverage ratio of 9.48%; the Bank was classified as well capitalized.
Material changes versus prior comparable periods
- Net income increased approximately 55% year over year, supported by higher loan balances and loan yields. Average loans increased 26.6% to $1.27 billion, while the average loan yield increased to 8.09% from 5.81%.
- Net interest income increased approximately 41%, although interest expense rose sharply to $7.4 million from $717,000 as deposit costs increased. Interest-bearing deposit costs rose to 2.94% from 0.36%.
- Noninterest expense increased 19%, driven primarily by higher salaries and benefits, occupancy, regulatory assessments and other expenses. Noninterest income was essentially unchanged.
- Total assets increased 4.8% from year-end 2022. Gross loans increased 0.7%, with commercial real estate representing 54.9% of gross loans and commercial and industrial loans representing 39.2%.
- Total deposits increased 4.4%, while noninterest-bearing deposits declined to 28.6% of total deposits from 30.8%. Interest-bearing deposits increased to 71.4% of total deposits.
- The allowance for credit losses increased to $15.5 million, or 1.21% of loans, from $14.7 million, or 1.16%. The allowance included a $250,000 increase upon adoption of CECL and a $475,000 first-quarter provision.
- Other comprehensive income was $1.8 million, compared with a $4.1 million loss in Q1 2022, principally reflecting changes in unrealized available-for-sale securities losses.
Guidance, outlook, commentary and risks
The filing provides no formal quantitative earnings or revenue guidance. Management stated that it intends to grow organically through selective branch expansion and strategic acquisitions and expects to meet contractual obligations through profitability, loan repayments, maturities and continued deposit gathering.
- Effective January 1, 2023, Bank7 adopted the CECL expected-loss model. The adoption reduced retained earnings by $572,000 net of tax and established a $500,000 reserve for unfunded loan commitments.
- Credit quality requires monitoring. Nonperforming assets were $18.3 million, or 1.10% of total assets, at March 31, 2023. Nonaccrual loans were $7.8 million, while $10.5 million of loans were more than 90 days past due and accruing.
- Hospitality loans totaled $272.0 million, or 21% of gross loans, and energy loans totaled $172.3 million, or 13%. These concentrations expose results to borrower cash-flow, industry and economic conditions.
- Regulatory CRE represented 290.49% of Bank capital at March 31, 2023, near the 300% supervisory concentration threshold. Management reported that construction, land development and other land loans represented 86.38% of Bank capital. Regulators could restrict growth, require additional capital or require reductions in concentrations.
- Available-for-sale securities had a fair value of $173.0 million and gross unrealized losses of $9.8 million. Management stated that it had the ability and intent to hold the securities long enough for recovery and recognized no impairment loss.
- Management identified heightened banking-industry liquidity and deposit-retention risks following recent bank failures. Higher deposit costs, deposit outflows or reduced access to wholesale funding could adversely affect liquidity, loan funding and earnings.
- Off-balance-sheet commitments totaled $203.9 million, including $202.1 million of commitments to extend credit and $1.7 million of standby letters of credit. The filing states that many commitments may expire undrawn.
- The company reported no material pending legal proceedings, no material changes to previously disclosed risk factors other than the CRE and banking-industry risks described above, and effective disclosure controls as of March 31, 2023.
Important facts for investors to verify
- Whether deposit pricing and mix continue to pressure the net interest margin as interest rates and competition for deposits evolve.
- Trends in commercial real estate, hospitality and energy exposure, including criticized, classified, nonaccrual and past-due loans.
- The adequacy of the CECL allowance, including the $500,000 reserve for unfunded commitments and future changes in economic forecasts.
- The market value and unrealized losses of the available-for-sale securities portfolio, particularly if liquidity needs require sales before maturity.
- Whether the Bank maintains well-capitalized status and sufficient liquidity, including access to its reported $143.3 million of FHLB borrowing capacity.
- The impact of rising deposit costs, potential deposit outflows and the absence of separately reported borrowings on future liquidity and funding flexibility.