A Quality Company at a Fair Price: $BSVN
61% Y/Y net income growth, never lost money in a quarter, trading at 7x FCF, 10x earnings, and 1.9x book value.
Warren Buffett once said, "If I were running $1 million today, or $10 million for that matter, I would be fully invested. It’s a huge structural advantage not to have a lot of money. I think I could make 50% a year on $1 million."
That quote has stuck with me. Smaller managers can beat the market if we’re willing to pour through tons of annual reports, comb financials, and pick through the market’s forgotten corners.
Which turns out to be exactly how I found Bank7 Corp BSVN 0.00%↑ , a sleepy little regional bank trading at a compelling price. The stock checks almost every box: earnings growth, strong returns on invested capital, and a valuation that left me scratching my head wondering how this isn’t better appreciated by the market.
Let me explain why I am long.
The Setup
I stumbled upon Bank7 through a simple screener: looking for companies with steady earnings growth, healthy operating margins, and available at a fair valuation. At the time of my entry, Bank7 was trading at roughly:
10.4x Price-to-Earnings
7.4x free cash flow (FCF)
1.9x price-to-book (P/B)
Those metrics caught my attention. But as always, a cheap multiple alone isn’t enough. We need a business with solid fundamentals, shareholder-friendly management, and some evidence of operational excellence. As it turns out, Bank7 has all of this in spades.
Earnings Growth
Bank7 has been consistently growing its earnings. Looking at the Q4 and full-year 2024 financials, the bank reported:
Net income growth of 61.62% year-over-year, ending 2024 with $45.7 million.
Earnings per share (EPS) of $4.84, a 58.69% increase from the prior year.
Return on equity (ROE) of 22.4%, which blows away industry averages.
ROE above 20% signals that management is deploying capital efficiently. But what’s most impressive is how this growth has been achieved while maintaining conservative underwriting standards and a focus on high-quality borrowers.
Free Cash Flow: A Cash Machine
Bank7’s free cash flow generation is another reason I’m bullish. For 2024, the company generated $58.2 million in free cash flow, growing more than 25% in the past year and more than doubling in just five years. In a market environment where quality FCF often commands double digit price multiples, it seems like a miracle to be able to buy Bank7 for just 7.4x at this growth rate.
Banks can play games with earnings, but free cash flow doesn’t lie. Bank7’s ability to consistently produce cash is a testament to its operational efficiency and prudent financial management.
The Balance Sheet: Fortress-Like
Bank7’s balance sheet is a fortress:
Liquid assets cover over 30% of total deposits, ensuring a strong buffer in times of stress.
Asset quality remains pristine, with non-performing assets at just 0.20% of total assets.
The bank’s loan-to-deposit ratio stands at 75%, leaving plenty of room for future loan growth without stretching liquidity.
Compare this to peers who often push loan-to-deposit ratios north of 90% to chase yield—Bank7’s discipline stands out.
Shareholder Returns: Aligned with Investors
Management’s alignment with shareholders is critical in the microcap world, and Bank7’s track record here is excellent. In 2024:
$16 million was returned to shareholders via dividends and buybacks.
The dividend payout ratio is a conservative 23%, leaving ample room for reinvestment and future increases (peers go up to as high as 35%)
Insiders own over 35% of the company, ensuring their interests are aligned with ours.
In an industry where overleveraged banks often implode at the first sign of stress, Bank7’s careful capital allocation and shareholder-friendly policies give me confidence in the company’s ability to weather all sorts of economic conditions.
Risks: No Investment is Perfect
There are risks, of course. Bank7 is concentrated in the Oklahoma and Texas markets, which means it is somewhat tied to the fortunes of local economies—including exposure to energy markets. However, management has successfully navigated downturns in the past, as evidenced by strong performance during oil price collapses in 2020. Also, in recent years, management has been consciously managing their loan exposure to the energy and hospitality sectors. They are looking to backfill some of these assets in 2025 to gently improve diversification in their loan mix.
Additionally, interest rate volatility can impact net interest margins (NIM). Going into the year the Fed was looking to cut rates in 2025, which would have compressed NIM for Bank7. However, with the Fed committee slightly tapering their plans, we might see continued stronger-for-longer NIM from the company. Bank7’s NIM of 5.2% is among the highest in the industry, providing a cushion against future rate cuts.
Looking Ahead
At $43/share, Bank7 appears to be a high quality business at a fair price. The stock has appreciated substantially over the past 5 years at 137% compared to the S&P 500’s 78%.
10x earnings: Compare this to the S&P 500’s current 28x earnings multiple.
7.4x FCF: A steal for a bank with double-digit ROE, consistent growth, sound management, and inorganic growth opportunities.
1.9x P/B: Higher than some peers, but justified given the quality.
If Bank7 is just able to continue growing organically at their current rate, shareholders will enjoy a 15% IRR over the next 5 years. However, management has also mentioned on the past two quarterly earnings calls they are actively in talks with multiple potential acquisition targets to accelerate growth inorganically as well.
With stable earnings and sound management, Bank7 enjoys a valuable margin of safety. The bull case appears fantastic and the bear case not that bad. As Warren Buffett would say, “heads I win, tails I don’t lose much.”
Final Thoughts
Bank7 is the type of investment that value investors dream about: a growing, cash-generative business trading at a fair price. In a market obsessed with quantum computing, LiDar, and semiconductors, this little bank in Oklahoma is quietly compounding wealth for patient investors.
Disclosure: I am long $BSVN at $43/share.