"Bank7 Core" Q2 2026 Earnings Call - Century Bank Acquisition Accelerates Amid Clean Balance Sheet and Elevated Remediation Costs
Summary
Bank7 Core delivered a quarter defined by balance sheet hygiene and strategic positioning rather than headline volume growth. Management exited a non-core oil and gas position with a $3.7 million gain, cleaned up accounting material weaknesses, and reported asset quality at a multi-year peak. Expenses ran hot in the second quarter due to IT modernization and remediation work, but the run rate should stabilize in the $9.5 million to $9.7 million range once structural fixes are complete. Deposit costs have flattened near 2.3 percent, and core net interest margin is tracking steadily between 4.45 percent and 4.53 percent, giving the bank room to absorb late-year rate moves without margin compression.
The real narrative hinges on the Century Bank acquisition. Bank7 Core is advancing as a stalking horse bidder for a 71 percent stake, with an accelerated court-supervised auction running through August and a final decision expected by September 3. Management plans to engage the remaining minority owners post-close and is signaling disciplined appetite for future M&A, provided integration capacity and capital ratios remain intact. With zero debt, heavy capital reserves, and a robust Q3 loan pipeline ready to offset anticipated paydowns, the bank is laying the groundwork for a deliberate growth phase rather than chasing volume.
Key Takeaways
- Bank7 Core secured a $3.7 million net gain on its oil and gas asset sale, exiting the position ahead of schedule and neutralizing potential losses carried from 2023.
- Second quarter expenses surged due to IT infrastructure upgrades and accounting material weakness remediation, with a stabilized Q3 run rate projected between $9.5 million and $9.7 million.
- The bank is bracing for meaningful loan paydowns in the second half of the year but expects Q3 production to double Q2 levels, supporting full-year mid-single digit loan growth guidance.
- Credit metrics hit a multi-year high, reinforcing management’s emphasis on pristine asset quality alongside a zero-debt balance sheet and substantial capital buffers.
- Deposit costs stabilized at 2.28 percent to 2.3 percent in June and are expected to remain flat, effectively insulating the bank from near-term interest rate volatility.
- Core net interest margin is guided between 4.45 percent and 4.53 percent, with June landing at 4.51 percent and the institution positioned to capture upside from any potential late-year rate hikes.
- Management is advancing as a stalking horse bidder for a 71 percent stake in Century Bank, with an accelerated court-supervised auction running through August and a final ruling expected by September 3.
- Post-close consolidation will require negotiating with the remaining 29 percent minority owners, creating a short stub period as Bank7 Core works to fully integrate the franchise.
- The bank remains open to strategic follow-on M&A but will prioritize capital preservation and integration bandwidth, avoiding aggressive near-term deals that would strain balance sheet metrics.
- Loan and deposit pricing competition shows no signs of acceleration, with management treating net interest margin management as a routine operational discipline rather than a dynamic market feature.
- Excess liquidity is currently being managed through funding and payoff cycles, reflecting a deliberate shift toward disciplined organic growth and selective consolidation.
Full Transcript
Moderator: Welcome to the Bank7 Core 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. 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, JT Phillips, Chief Operating Officer, Jason Estes, Chief Credit Officer, Kelly Harris, Chief Financial Officer, and Paul Timmons, Director of Accounting. I’ll turn the call over to Tom Travis.
Tom Travis, President and CEO, Bank7 Core: Thank you, and welcome to the call this morning. We’re very pleased with our quarter. There was a few items of noise in the quarter, specifically the oil and gas, and we reported that $3.7 million net gain. 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. That’s really an important thing to remember. 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. Management’s very pleased. We also accomplished our goal a little quicker than we thought we would.
We’re delighted with that outcome, and it’s important to remember that. 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. We spent considerable time and money doing that. In addition to those expenses, we’ve incurred expenses related to potential M&A activity. When you factor out the noise and you look at the recurring results, we’re very pleased with those. We look forward to the rest of the year. We do have some significant loan pay downs that we will need to overcome. That’s nothing new. We sometimes experience those.
Our asset quality has never been better, 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. With that said, we’re here to answer any questions. Thank you.
Moderator: We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw the question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Woody Lay with KBW. Please go ahead.
Woody Lay, Analyst, KBW: Hey, good morning, guys.
Tom Travis, President and CEO, Bank7 Core: Good morning.
Woody Lay, Analyst, KBW: Maybe just to follow up on the expenses. Have all the IT expenses been made associated with removing that material weakness? 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?
Kelly Harris, Chief Financial Officer, Bank7 Core: This is Kelly. I think for Q3, we’re projecting expenses to be in the $9.5-$9.7 range. You will see some of those similar expenses from Q2 spill over into Q3. It could be a similar clip.
Jason Estes, Chief Credit Officer, Bank7 Core: From a M&A transaction perspective, a little harder to ballpark, but from an IT and consulting fees, it’ll probably be very similar to Q2.
Woody Lay, Analyst, KBW: Got it. Maybe just moving over to deposits and deposit costs. 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. 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.
Jason Estes, Chief Credit Officer, Bank7 Core: Our deposit costs were static in the month of June, they followed the average for Q2. Currently in the 2.8%-2.3% range. I think that could fluctuate based on growth. We feel really good about where we’re at from a deposit cost perspective currently.
Tom Travis, President and CEO, Bank7 Core: Wait a second. Did I hear you say 2.8%-2.3%?
Jason Estes, Chief Credit Officer, Bank7 Core: 2.28%-2.3%.
Tom Travis, President and CEO, Bank7 Core: Okay. Yeah. Basically flat. We’re not expecting I think Kelly’s word of static is pretty darn accurate.
Woody Lay, Analyst, KBW: Mm-hmm. 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.
Tom Travis, President and CEO, Bank7 Core: The dates are a little bit fluid for the next few weeks. There’s public filings out there that talk about the court’s going to listen to some motions and some objections here in the next 10 days. If the timelines that have been established by the court and also in the receiver’s motion, not our motion, then we would expect I believe the proposed auction end date is September 3rd, and there’s a four-week process. Everything is aligned and set up for a process during the month of August. 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 expedited timeframe. This has been an ongoing thing for quite some time, and I think the court is recognizing that.
We would expect further clarity over the next two weeks for sure, if the auction works, if the bidding process takes place, it will be in the month of August.
Woody Lay, Analyst, KBW: Got it. All right. That’s really helpful. Thanks for taking my questions. I’ll hop back in the queue.
Moderator: Our next question comes from Nathan Race with Piper Sandler. Please go ahead.
Nathan Race, Analyst, Piper Sandler: Hey, guys. Good morning. Thanks for taking the questions.
Tom Travis, President and CEO, Bank7 Core: Nate.
Nathan Race, Analyst, 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. 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%.
Jason Estes, Chief Credit Officer, Bank7 Core: Yeah. Thanks, Nate. The pipeline is what I would go back to referring to as robust for deal fundings in the third quarter. Probably going to produce, I would say, double what we did in Q2. 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. 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. 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. All in all, that’s really the story on the loan growth.
Nathan Race, Analyst, Piper Sandler: Gotcha. Just to clarify, Jason, to get to a mid-single digit growth number for this year, that would imply high single digit growth, just given maybe the slower start in the first half of the year?
Jason Estes, Chief Credit Officer, Bank7 Core: Yeah. I’m measuring year-over-year, not quarter-to-quarter. Yeah, 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.
Nathan Race, Analyst, Piper Sandler: Okay, great. 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. Maybe, Tom, just any visibility on kind of the prospects to acquire the full or the minority interest in that franchise and kind of what those conversations are looking like these days just to avoid some kind of nuanced accounting components until that minority stake is acquired, hopefully.
Tom Travis, President and CEO, Bank7 Core: Yeah. I think should the receiver bidding and auction go through, and should we be successful as a stalking horse bidder, 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 3rd date. It’s possible. It just depends on the dynamics of the transaction and what’s going on. 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, so we’re highly confident that that will eventually happen. Clearly, the sooner the better.
You’re right, there will be a, 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 we work to consolidate the remaining 29%.
Nathan Race, Analyst, Piper Sandler: Got you. Just given the magnitude of this deal potentially with Century, 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? Or 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?
Tom Travis, President and CEO, Bank7 Core: 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, this is what we’ve always said that we wanted to do, and we’ve continued to pursue that. 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 transaction so that you’ve got plenty of time to make the purchase, make the acquisition, plan the conversion, and integrate people. Of course, that takes time.
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.
Nathan Race, Analyst, Piper Sandler: Makes sense. I appreciate all the color. I’ll step back. Thanks, guys.
Moderator: Our next question comes from Jordan Ghent with Stephens Inc.. Please go ahead.
Jordan Ghent, Analyst, Stephens Inc.: Hey, good morning. Thanks for taking my question. I just wanted to ask about the margin. I think previously you indicated that you would be reverting back to that 440, 445 range, call it core margin ex loans fees. Is that still the case for you as kind of based on what you’re seeing with loan pricing and deposit costs? 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? Thanks.
Kelly Harris, Chief Financial Officer, Bank7 Core: 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 pay downs. I think June was a little bit lower on the margin than the quarter average. I think that you could see some of that bleed over into Q3 while we’re waiting for the loan funding. I think from a range perspective, 4.53%-4.45% is probably a good guide for our core NIM. 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.
Jordan Ghent, Analyst, Stephens Inc.: Got it. Do you happen to have what that margin was for the month of June?
Kelly Harris, Chief Financial Officer, Bank7 Core: It was 4.51%.
Jordan Ghent, Analyst, Stephens Inc.: Perfect. 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?
Tom Travis, President and CEO, Bank7 Core: The more things change, the more they remain the same. I think if you look at our NIM management over the years, it’s in the deck, it’s like watching paint dry for us, right? I would suggest that there’s nothing extraordinary or dynamic either on the loan pricing or the deposit pricing side.
Jordan Ghent, Analyst, Stephens Inc.: Got it. Thanks for taking my questions.
Moderator: This concludes our question and answer session. I would like to turn the conference back over to Tom Travis for closing remarks.
Tom Travis, President and CEO, Bank7 Core: 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. In the meantime, the bank’s 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. Thank you.
Moderator: The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.
