Bank7 Corp. 10-Q Summary
Business Context and Reporting Period
Bank7 Corp. is an Oklahoma-based bank holding company operating Bank7, which provides banking and financial services to individuals and businesses in Oklahoma, Kansas and Texas through nine locations. The filing covers the unaudited quarter and nine months ended September 30, 2021, compared primarily with the same periods in 2020 and December 31, 2020 for balance-sheet items.
Key Financial Metrics
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Total interest income | $14.0 million | $12.9 million | $41.6 million | $40.0 million |
| Net interest income | $13.3 million | $11.6 million | $39.3 million | $35.0 million |
| Provision for loan losses | $0.8 million | $1.3 million | $3.3 million | $3.3 million |
| Noninterest income | $0.6 million | $0.3 million | $1.5 million | $1.0 million |
| Noninterest expense | $4.8 million | $4.6 million | $14.2 million | $13.1 million |
| Net income | $6.3 million | $4.4 million | $17.5 million | $14.5 million |
| Diluted EPS | $0.69 | $0.48 | $1.92 | $1.53 |
| Net interest margin | 5.04% | 4.81% | 5.18% | 5.02% |
| Efficiency ratio | 34.49% | 38.40% | 34.84% | 36.35% |
- Q3 net income increased 41.1%, while nine-month net income increased 20.3% year over year.
- Return on average assets was 2.36% in Q3 and 2.29% for the nine-month period; return on average equity was 20.86% and 20.53%, respectively.
- Average total loans increased to $924.4 million in Q3 from $847.1 million, and to $887.4 million for nine months from $807.1 million. Loan yields declined modestly to 5.98% in Q3 and 6.23% for nine months.
- Loan fees were $1.6 million in Q3 and $6.2 million for nine months, benefiting from loan growth and PPP fees.
Financial Condition, Liquidity and Capital
- Total assets were $1.146 billion at September 30, 2021, up 12.7% from $1.017 billion at December 31, 2020.
- Gross loans were $928.0 million, up from $839.1 million; net loans were $915.4 million. Commercial real estate represented 50.0% of gross loans and commercial and industrial loans represented 42.8%.
- Total deposits were $1.018 billion on the consolidated balance sheet, up from $905.5 million. Noninterest-bearing deposits increased to $335.6 million from $246.6 million.
- Cash and due from banks totaled $205.8 million, compared with $153.9 million at year-end. Nine-month operating cash flow was $22.8 million, investing cash flow was negative $80.8 million, and financing cash flow was $109.9 million, producing a $51.9 million increase in cash.
- The filing reports no outstanding securities sold under repurchase agreements or other debt balances on the balance sheet. FHLB borrowing availability was $76.1 million, and the company reported no unsecured fed funds borrowings.
- Shareholders’ equity increased 14.1% to $122.4 million. The Bank was categorized as well capitalized; its September 30 total risk-based capital ratio was 14.82%, CET1 ratio was 13.76%, and Tier 1 leverage ratio was 11.51%.
Material Changes Versus Prior Periods
- Net interest income increased 14.5% in Q3 and 12.3% for nine months, driven primarily by loan growth and lower deposit funding costs.
- Deposit interest expense declined 45.0% in Q3 and 52.7% for nine months despite higher average interest-bearing deposits, reflecting lower deposit rates.
- Noninterest income increased 72.8% in Q3 and 54.7% for nine months, led by secondary-market income, service charges and other fees.
- Noninterest expense increased 4.3% in Q3 and 8.7% for nine months, with salaries and employee benefits the largest contributor.
- The allowance for loan losses declined to $9.3 million from $9.6 million, or 1.01% of loans versus 1.15% at year-end. The change reflected a $3.8 million charge-off related to one substandard commercial and industrial relationship, partly offset by provisions and recoveries.
- Nonperforming loans declined to $9.9 million, or 1.07% of total loans, from $16.5 million, or 1.98%. Substandard loans increased to $24.3 million from $23.1 million, while special-mention loans increased to $30.3 million from $10.4 million.
- No shares were repurchased during the first nine months of 2021. A new plan adopted October 28, 2021 authorizes repurchases of up to 750,000 shares.
Outlook, Commentary, Risks and Unusual Items
- No formal earnings or financial guidance is provided.
- On October 6, 2021, the company agreed to acquire Cornerstone Bank and its parent, Watonga Bancshares, for estimated cash consideration of $32.0 million. Closing was expected in the fourth quarter of 2021, subject to regulatory approvals and other closing conditions; the transaction had not closed as of November 5, 2021.
- As of September 30, 2021, PPP exposure consisted of 73 loans totaling $27.3 million, down from 166 loans totaling $44.9 million at December 31, 2020.
- Hospitality loans were $188.0 million, or 20% of gross loans, and energy loans were $119.4 million, or 13%. These concentrations expose results to industry-specific and economic conditions.
- COVID-19 could affect loan performance, liquidity, asset valuations, goodwill and deferred tax assets. One COVID-related modified loan totaling $3.1 million was outstanding and was not treated as a troubled-debt restructuring.
- Off-balance-sheet commitments totaled $190.4 million, including $184.2 million of commitments to extend credit and $6.2 million of standby letters of credit.
- The company expects to adopt the current expected credit loss standard in the first quarter of 2023. It stated that the future impact was still under assessment.
- Management reported effective disclosure controls, no material changes in internal control, no material legal proceedings, and no material changes to previously disclosed risk factors.
Most Important Facts to Verify
- Confirm the closing date, accounting treatment, funding and capital impact of the Cornerstone Bank acquisition.
- Monitor hospitality and energy loan performance, criticized and substandard loan migration, charge-offs and allowance adequacy.
- Reconcile the balance-sheet deposit total of $1.018 billion with the MD&A deposit table reporting $1.026 billion.
- Assess the effect of continued low interest rates, deposit repricing and loan-yield compression on net interest margin.
- Evaluate the timing and earnings impact of the new 750,000-share repurchase authorization and quarterly dividends.
- Review the eventual CECL adoption impact and the company’s liquidity after acquisition-related cash consideration.