Bank7 Corp.

Welcome to the Bank 7 Corp's third quarter 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 belief 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 contains references to non-GAAP financial measures. You can find reconciliation of these non-GAAP financial measures to GAAP financial measures in our 8K that was filed this morning by the company. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. Representing the company on today's call, we have Brad Haynes, Chairman, Tom Travis, President and CEO, J.T. Phillips, Chief Operating Officer, Jason Estates, Chief Credit Officer, Kelly Harris, Chief Financial Officer, With that, I'll turn the call over to Tom Travis.

Thank you. Good morning, and thank you for joining us today. We recently celebrated our five-year anniversary of our IPO, and we're happy with our results over the last five years and how we've had consistently strong earnings and compounded our shareholder value. And we've done that far better than just about any other financial institution, our equity compounding and total shareholder returns are in pretty rare air and I'm sure in the top few percent of all banks. You can see these dynamics on page six of our deck as it shows the doubling of both of our EPS and tangible book value metrics. You can also see our total return when including dividend payments. Since the IPO, we've doubled our equity and our earnings, and on top of that, provided competitive dividend yields while doing so. Our recent quarter was strong, clearly negatively affected by a one-off large credit event. We'll touch on that shortly. In the meantime, we report record PPE, continued discipline expense management, NIMS strength, stable liquidity, properly matched balance sheet, And we also note the absence of a meaningful AOCI adjustment. And with the exception of the one adverse credit, our asset quality strength is consistent with our history. We take comfort knowing that our fundamentals carry the day. Before we move into a Q&A, let's spend some time on that one large one-off credit. First, this is clearly a one-off situation. As the rest of the portfolio is very strong, we do not see any weakness in fact excluding that one credit. Our past due loans and adverse credit grades are even better than the prior quarters, and those quarters were strong as well. So our team has been together for decades, and we've never experienced anything like what we are faced with on this one credit. And I'll tell you on a personal level, it's an extreme letdown for sure. The credit in question is in litigation. The underlying borrower is in bankruptcy. So we have the need to be cautious with our comments. In addition to the specific reserve we took in Q3, shortly after closing the books, we became aware of a few significant new bankruptcy related claims. And we became also aware that the borrower and their consultants will take a significant amount of additional time to wrap it up, all of which costs money. And so it required us in good faith to include a subsequent event note. In Q4, We will make an additional ACL increase or we'll take an actual write-down. The amount will exceed the $3 million reserve we made in Q3. The range of possibilities is wide, and while it's difficult to provide specifics due to the bankruptcy process, the outside larger possible amount could soak up much of the Q4 earnings. We would still expect, even if that were to happen, to report a strong return on equity here. Based on information available today, even using the large possible loss amount, our ROE would still be somewhere in the industry average and a little bit better. So really in a perverse way, it illustrates the strength of our core earnings to be able to take a meaningful hit and still perform where the industry performs. Regarding the one trouble credit, again, we're involved in litigation. But I want to make it really clear that this situation is not caused by errors in underwriting or collateral perfection or collateral valuation. Rather, it is a case of, we believe, severe management failures, which are then compounded by outside consulting and legal fees that are being paid from the cash collected from the sale of our collateral. It is unfortunate to be in a position where the sale of our collateral will generate almost twice as much as what the senior secured lender is owed, yet that won't be sufficient enough to avoid a loss. The bottom line is the bankruptcy process is slow, it's very expensive, and it's very lucrative for consultants and attorneys. And so without further commenting on that one situation, We're moving forward. We have a very strong company. Our fundamentals are very good. And we expect to do what we've always done, and that is to continue compounding equity in a very meaningful way. And we're really excited about our company in spite of the one event. So with that being said, we're here to answer any questions we can. Thank you.

OK. 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're 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 your question, please press star, then two. Our first question comes from Thomas Wendler with Stevens. Please go ahead.