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spk01: home growth is kind of what we expect. And again, I feel really good about that for the full year. And so as you mentioned, going quarter to quarter, you can see some blips, spikes, peaks, valleys, whatever you want to call them. But just if you look over the course of the year, I feel really good about that high single digit. But the other side of that, and we've talked about this previously as well, you really have to remember we're so focused on maintaining profit margins we do sacrifice growth for that and i think this quarter is a really really good example of that and you know we like that some investors may not but that's that's how we're going to continue to operate and and we just think it's the right thing to do yep that uh that uh that makes sense and then lastly
spk03: Capital's grown really nicely over the past couple quarters. How do you think about deploying some of that excess capital in the current environment? I'm assuming the preference would be through M&A? Clearly, that's correct.
spk06: We're very aware of the fact that we've had quite a few discussions over the last year, especially with potential targets and I think the industry refers to some of the banks as zombie banks, but there's a large number of banks that would like to do something, but their hands are tied and they're wanting to wait until they can unwind some AOCI. And so we're mindful of that, and if you believe that we're on the precipice of some rate reductions, then I think you could see opportunities that arise in the near future, and so we're not in any hurry. And I would say this, too, that we hear folks talk to us from time to time about share repurchase, and we hear those things. But let's remember, one of the great strengths of Bank 7 is this. When you're making, call it 20% to 22% return on average tangible common equity, there really shouldn't be a hyper focus on share repurchases because if we can produce really high returns, far better than most any other bank, and do it safely, we're not as driven to worry about running out and making share repurchases to support or for whatever reason the share price. And so I think it's a combination of providing great returns, reduces a sense of urgency, and at the same time, against the backdrop of knowing that there are people out there that are going to want to sell when the AOCI unwinds. And that's our view. And clearly, I think I would say that we certainly don't predict, and we're not saying that that we're going to do something at the end of the year or first quarter. But if we're sitting here in nine months and it doesn't look like there's any opportunities, then I think at some point it would be prudent to revisit that concept. But for now, we're steady as she goes.
spk05: Got it. Thanks for taking my question. And our next question will come from Nathan Race with Piper Sandler. Please go ahead.
spk00: Yeah. Hi, guys. Good morning. Thanks for taking the question. Good morning. I was wondering if you could just update us in terms of where you guys stand on the oil and gas assets that you acquired late last year in terms of specifically how we should think about the fee income and expenses associated with those assets going forward.
spk06: You know, Kelly, I think, has the exact numbers, Nate. But just from a high level, you know, what we described back in December was was when we booked those assets, it was a little over $16.5 million. And we said at the time that just harvesting the monthly cash flows off that business, we would recover between 55% and 60% of that outlay. I think we would be down to 55% or something as far as remaining. And so, Kelly, why don't you follow up on that? But I'll just say from a high level, we're we're not only on path, we're actually doing a little bit better. And so we view it as we're halfway through the year. And so the $16 million asset is really more of a $10 million asset. And compared to the size of our company, it's not that significant. But Kelly can give you the specifics.
spk04: Yeah, Nate, this is Kelly. So if you look at Q2, I mean, total non-interest income was $3,165,000. Of that, $2.4 million related to the oil and gas. And so we had core fee of $735,000, which is a little bit higher than what we anticipated of that normalized $650,000 run rate. But I think on a go forward, I mean, you could potentially use $2 million for oil and gas from a fee perspective. and then still keep that core fee number at $650,000. And on the expense side, non-interest expenses for the quarter were $9,142,000. And of that, $8,042,000 related to oil and gas. Or I'm sorry, $1.1 related to oil and gas. And so you had core expenses of $8 million, which is a little bit below what we had given guidance on in 8.3. We still think that 8.3 is a good guide from a core expense perspective for Q3 and potentially using $1 million in expenses additional for the oil and gas.
spk06: But, Kelly, if you just – I'm not being critical. That was a lot of numbers. If you just focus on the revenue and the expenses, what's the net on the oil and gas for the quarter?
spk04: Net. Yes. The net for Q2 was $1 million. Right. For Q3 – Go ahead. Yeah, for Q3, it may be $800,000 after tax. Right.
spk06: Right. And that's going to continue to go down. It's going to continue to go down from there, Nate.
spk00: Right. And to your point, Tom, it's a relatively small piece, but just is there any interest in, or is there any interest, so to speak, in, you know, other people acquiring these assets, or is the plan just to retain these assets on balance sheet?
spk06: You know, we had that discussion recently because we actually are, the properties we re-engineer to make sure our values are correct, and the current engineering indicates that the wells are performing even better, and therefore the values are higher. And so what we talked about was a high-class problem, Nate, meaning do we sell it and maybe sell it and take some small gain, or do we just keep harvesting the cash flow because we're doing so well? And so it's possible that we could sell it, but we don't feel any sense of urgency to do it.
spk00: Got it. Very helpful. And then just maybe staying on credit and switching to the hospitality book. Curious what you guys are seeing just in terms of NOI levels across your client base. Obviously, it seems like a lot of those loans are tied to floating rates. So just curious how a lot of those clients are dealing with the higher cost of debt these days.
spk01: Yeah, so remember, just as a reminder to everybody, the hospitality activity in our portfolio is largely concentrated in Texas and specifically the Dallas-Fort Worth metro. And business as usual there, first quarter NOIs were up slightly from last year. And we really don't have the second quarter data yet, but based on performance and conversations with borrowers, I expect second quarter to probably be all-time high NOIs. And so business as usual in the Texas hospitality industry.
spk00: And Jason, you know, as you guys provide for some growth returning going forward in terms of loans, do you guys kind of expect the reserve to kind of remain where it is coming out of the second quarter? How do you guys kind of think about the relative reserve level? in the back half of the year.
spk01: Yeah, there may be a small provision to keep up if the growth, you know, kind of comes in on the top line or top end of what we think could happen. You know, we may have to put a little bit more to it. But, yeah, I think that percentage is pretty good, something in that 125, you know, our historical range.
spk06: Well, I also would add to that that, you know, the rapid growth in equity, you know, it's really comforting. And so we feel like because of the increase in equity so quickly that it's not as critical for us to worry about immediately adding to the reserves. And, you know, when you look at the portfolio and you look at the CECL methodology and, you know, how we look, we just can't find a lot of stress right now. And so... I guess what I'm trying to say is that we've got flexibility relative to the capital building up very quickly, and we really feel like we're in a good spot.
spk00: Okay, great. And then just one last one for me, perhaps for Kelly on the NIM going forward. Obviously, you guys are asset-sensitive, so just curious how we should think about the margin impact from each 25-bit cut.
spk04: Yeah, Nate, and I think I would highlight to our historical NIM, and you can even look, we threw another slide in there on our spread overlay with the loan yields and the cost of funds with the five- and ten-year treasury, and I think, you know, we just feel comfortable operating in our normal historical range, irrespective of rate hikes and rate cuts. You know, Tom mentioned we may have to pick up some higher cost of funds to fund some of this loan growth, and so a lot of that compression would relate to that and not necessarily the rate cut per se.
spk06: But with that said, Nate, we have the same, we're not worried at all and Kelly's comments are so accurate, but with that said, we had an ALCO meeting yesterday morning and we assigned ourselves a project which won't take us more than a couple of days and we're going to go do some testing on the ballot sheet to say, okay, what happens? And we'll be able to tell exactly. We think it's going to be pretty neutral because if you look at, I don't know the numbers off the top of my head, it's in the deck, but we have so many that are daily floaters on the loan side. And then we've got some deposits that won't reprice, you know, the non-interest bearing. And so we're going to run some scenarios and just really precisely test and see what happens on 25, what happens on 50, and what happens on 75, but we're very confident. But we'll know the answer to that exactly, and I would be surprised if it, I would be really surprised if our core NIM ever got below the, you know, the long-term average.
spk00: Yeah, and just to clarify, it seems like that long-term average is about 4.5%. Is that kind of what you guys are referencing?
spk06: I You know, I don't even want to give a number, but I was thinking it was more like 4.3 or 3.5, but I think we're almost splitting hairs here, you know? Sure, sure.
spk00: Got it. Okay. I appreciate all the color. Thanks, guys.
spk05: And again, if you would like to ask a question, please press star then 1. Our next question is going to come from Jordan Gent with Stevens. Please go ahead.
spk02: Hey, good morning. My question is just on the charge-offs. I know you mentioned that it was for the quarters, the remnants of the larger charge-offs historically, but kind of going forward, were you guys expecting to see charge-off levels? Are they kind of normalized, or do you expect them to be a little bit lower?
spk01: Yeah, I would say lower than the last few quarters, definitely, and returning kind of a historical, just look over a 10-year period and come up with a very small number and roll that forward. There's not – the credit quality is as good as it's been, you know, since really the last seven or eight, nine, ten years. So feeling really good about the loan book and asset quality.
spk02: Perfect. And then just one more, actually. So on the interest-bearing deposit costs, you guys had like a minimal – amount increasing, and I know you guys talked about that some of the loan funding got pushed out to July and that you might have to go get some funding that's a little bit more expensive, but where do you guys see the interest-bearing deposit costs going from this quarter?
spk05: That's a good question.
spk04: I think from a total cost of funds perspective, we're right now currently at $310, and so I think it really just depends on the balance sheet needs from a funding perspective.
spk05: Okay, perfect. Thank you for answering my questions. And this will conclude our question and answer session. I'd like to turn the conference back over to Tom Travis for any closing remarks.
spk06: Well, great quarter, great company, great culture. Thanks to our teammates and we're going to keep doing what we've always done and keep our heads down and work hard. So we appreciate the partnerships and investors and analysts and thank you. The conference is now concluded.
spk05: Thank you for attending today's presentation. You may now disconnect your lines at this time.
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