Bank7 Corp. 10-Q Summary
Business Context and Reporting Period
Bank7 Corp. is an Oklahoma City-based bank holding company operating Bank7, which provides commercial and consumer banking services through 12 locations in Oklahoma, Texas and Kansas. The company focuses on business owners and entrepreneurs and also owns oil and gas assets acquired in November 2023. This unaudited Form 10-Q covers the three months ended March 31, 2024, with comparisons to the three months ended March 31, 2023 and December 31, 2023 balances.
Key Financial Metrics
| Metric | Q1 2024 | Comparable Period / Change |
|---|---|---|
| Total interest income | $33.3 million | $27.4 million in Q1 2023 |
| Net interest income | $22.0 million | $20.0 million in Q1 2023 |
| Net interest margin | 5.14% | 5.14% in Q1 2023 |
| Provision for credit losses | $0 | $475,000 in Q1 2023 |
| Noninterest income | $2.0 million | $672,000 in Q1 2023 |
| Noninterest expense | $9.1 million | $7.6 million in Q1 2023 |
| Pre-tax income | $14.9 million | $12.6 million in Q1 2023 |
| Net income | $11.3 million | $9.6 million in Q1 2023 |
| Diluted EPS | $1.21 | $1.04 in Q1 2023 |
| Pre-tax return on average assets | 3.40% | 3.18% in Q1 2023 |
| Return on average equity | 33.97% | 34.17% in Q1 2023 |
| Efficiency ratio | 38.29% | 36.62% in Q1 2023 |
- Average total loans increased 7.8% year over year to $1.37 billion, while loan yield increased to 8.82% from 8.09%.
- Interest expense increased to $11.3 million from $7.4 million, reflecting higher deposit costs. The average rate on interest-bearing deposits increased to 4.07% from 2.94%.
- Loan growth and higher earning-asset yields increased interest income, but deposit repricing substantially offset the benefit. Net interest margin was unchanged.
- Total assets were $1.775 billion at March 31, 2024, compared with $1.772 billion at December 31, 2023.
- Gross loans were $1.376 billion, up from $1.364 billion at year-end 2023. Net loans were $1.354 billion.
- Total deposits were $1.580 billion, down from $1.591 billion at year-end. Noninterest-bearing deposits declined to $452.3 million from $482.3 million, while interest-bearing deposits increased to $1.128 billion from $1.109 billion.
- Cash and due from banks were $193.2 million, and available-for-sale debt securities were $151.9 million. The filing does not show borrowings or other traditional debt as a separate balance-sheet liability; deposits are the primary funding source.
- Shareholders’ equity increased to $180.4 million from $170.3 million, primarily reflecting quarterly earnings and accumulated other comprehensive income, partly offset by dividends.
Cash Flow and Liquidity
- Operating activities provided $20.4 million of cash, compared with $13.6 million in Q1 2023.
- Investing activities provided $5.2 million, compared with $6.2 million used in Q1 2023. Securities maturities, prepayments and calls totaled $102.3 million, partially offset by $83.9 million of securities purchases and $13.0 million of net loan growth.
- Financing activities used $13.5 million, principally due to an $11.2 million decrease in deposits and $1.9 million of cash distributions.
- Cash and due from banks increased by $12.2 million during the quarter to $193.2 million.
- FHLB borrowing availability based on pledged collateral was $166.2 million at March 31, 2024, compared with $159.2 million at December 31, 2023. The company reported no unsecured fed funds lines or outstanding advances.
- The Bank was categorized as well capitalized. At March 31, 2024, the Bank’s total risk-based capital ratio was 13.36%, CET1 ratio was 12.11%, Tier 1 risk-based capital ratio was 12.11%, and Tier 1 leverage ratio was 10.10%.
Material Changes Versus Prior Periods
- Net income increased 17.5% to $11.3 million, and diluted EPS increased to $1.21 from $1.04.
- Pre-tax income increased 18.6% to $14.9 million.
- Net interest income increased $2.0 million, or approximately 10%, despite a stable net interest margin because loan growth and asset yields exceeded the increase in funding costs.
- Noninterest income increased $1.3 million, or approximately 199%, primarily because of oil and gas operations acquired in the fourth quarter of 2023.
- Oil and gas assets and related receivables totaled $13.9 million at March 31, 2024. Oil and gas revenue was $1.4 million and related expense was $1.2 million during Q1 2024.
- Noninterest expense increased $1.5 million, or 19.4%, primarily due to oil and gas operating expenses, higher salaries and benefits, and higher other expenses.
- The allowance for credit losses was $19.7 million, or 1.43% of gross loans, compared with 1.45% at year-end 2023. There were no loan charge-offs and $5,000 of recoveries in Q1 2024.
- Nonperforming assets declined to $24.3 million from $29.0 million at year-end, but nonaccrual loans increased to $24.3 million from $18.9 million. The change primarily reflects the removal of $10.0 million of accruing loans more than 90 days past due at year-end.
Guidance, Outlook, Risks and Unusual Items
- No quantitative earnings or operating guidance is provided in the filing. Management states that it intends to grow organically through selective branch expansion and strategic acquisitions.
- Management believes liquidity is sufficient to meet contractual obligations through profitability, loan repayments and maturities, deposit gathering and borrowing sources.
- Credit exposure is concentrated in hospitality and energy. Hospitality loans represented 21% of gross loans, or $292.2 million, and energy loans represented 14%, or $187.6 million, at March 31, 2024.
- Commercial real estate represented 56.1% of gross loans and commercial and industrial loans represented 38.3%, creating sensitivity to borrower cash flows, property values, economic conditions and interest rates.
- Nonaccrual loans were $24.3 million, including $10.1 million of loans modified for borrowers experiencing financial difficulty. That modified balance was nonaccruing at quarter-end.
- Available-for-sale securities had $7.6 million of gross unrealized losses, largely attributable to higher market interest rates. Management stated that it had the ability and intent to hold the securities until recovery and recognized no impairment loss in earnings.
- Interest-rate sensitivity modeling indicated that a 400-basis-point increase could increase projected 12-month net interest income by 19.08%, while a 100-basis-point decrease could reduce it by 1.44%. Actual results may differ materially from the model.
- Off-balance-sheet commitments totaled $306.2 million, including $304.7 million of commitments to extend credit and $1.6 million of standby letters of credit. The reserve for unfunded commitments was $464,000.
- Goodwill was $8.5 million. Management notes that prolonged economic weakness could result in partial or full impairment.
- The oil and gas acquisition involves asset retirement obligations and operational, commodity-price, environmental and regulatory risks. Related liabilities and oil and gas obligations totaled approximately $850,000 at March 31, 2024.
- Management reported no material pending legal proceedings, no material changes to previously disclosed risk factors, and effective disclosure controls as of March 31, 2024.
Important Facts for Investors to Verify
- Whether deposit costs continue to rise faster than loan yields and pressure the 5.14% net interest margin.
- The performance, collateral coverage and resolution timeline of the $24.3 million of nonaccrual loans and the $10.1 million of modified troubled loans.
- Credit quality trends in the hospitality, energy, commercial real estate and commercial and industrial portfolios.
- Whether the $0 quarterly credit-loss provision remains appropriate as loan balances and criticized loans change.
- The recurring profitability of the oil and gas subsidiary, including commodity prices, production results, operating expenses and asset retirement obligations.
- Liquidity and deposit stability, including the shift from noninterest-bearing to interest-bearing deposits and the maturity of $246.8 million of time deposits.
- The duration, unrealized losses and liquidity role of the $151.9 million available-for-sale securities portfolio.
- Execution of the authorized 750,000-share repurchase plan, under which no repurchases had occurred by March 31, 2024.