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Bank7
BSVN
#7570
Rank
$0.39 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$41.07
Share price
0.69%
Change (1 day)
4.96%
Change (1 year)
๐Ÿฆ Banks๐Ÿ’ณ Financial services
Categories
  1. Bank7
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2022 Q1

Bank7 - 10-Q quarterly report FY2022 Q1


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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022

or

☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                 to

Commission File Number: 001-38656

Bank7 Corp.
(Exact name of registrant as specified in its charter)

Oklahoma

20-0763496
( State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)



1039 N.W. 63rd Street, Oklahoma City, Oklahoma

73116-7361
(Address of principal executive offices)

(Zip Code)
 
Registrant’s telephone number, including area code: 405-810-8600
Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.01 Par Value Per ShareBSVN
NASDAQ Global Select Market System

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
☐
Accelerated filer
☐
    
Non-accelerated filer
☒
Smaller reporting company
☒
    
Emerging growth company
☒
  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ☐  No  ☒

As of May 13, 2022, the registrant had 9,098,655shares of common stock, par value $0.01, outstanding.

TABLE OF CONTENTS
 
  
Page
PART I.
FINANCIAL INFORMATION
 
   
Item 1.
Financial Statements
 
 
Unaudited Condensed Consolidated Balance Sheets
2
 
Unaudited Condensed Consolidated Statements of Comprehensive Income
3
 
Unaudited Condensed Consolidated Statements of Shareholders’ Equity
4
 
Unaudited Condensed Consolidated Statements of Cash Flows
5
 
Notes to Unaudited Condensed Consolidated Financial Statements
6
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
30
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
49
Item 4.
Controls and Procedures
49
  
PART II.
OTHER INFORMATION
49
  
Item 1.
Legal Proceedings
49
Item 1A.
Risk Factors
49
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
50
Item 6.
Exhibits
51
 
Signatures
51
 
Forward-Looking Statements

This Form 10-Q contains forward-looking statements. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. Any statements about our expectations, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “intends” and similar words or phrases. Any or all of the forward-looking statements in (or conveyed orally regarding) this presentation may turn out to be inaccurate. The inclusion of or reference to forward-looking information in this presentation should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. We have based these forward-looking statements largely on its current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of risks, uncertainties and assumptions that are difficult to predict. Factors that could cause such differences are discussed in the section titled “Risk Factors” in our most recent Annual Report on Form 10-K, and may be discussed from time to time in our other SEC filings, including our Quarterly Reports. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. You are cautioned not to place undue reliance on forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, except as may be required by law. All forward-looking statements herein are qualified by these cautionary statements.

Bank7 Corp.
Unaudited Condensed ConsolidatedBalance Sheets
(Dollar amounts in thousands, except share data)
 
Assets
 
March 31,
2022
(unaudited)
  
December 31, 2021
 
       
Cash and due from banks
 
$
126,275
  
$
195,359
 
Federal funds sold
  8,088   9,493 
Cash and cash equivalents
  134,363   204,852 
Interest-bearing time deposits in other banks
  
2,241
   
3,237
 
Available-for-sale debt securities
  198,356   84,808 
Loans, net of allowance for loan losses of $10,599 and $10,316 at March 31, 2022 and December 31, 2021, respectively
  
1,051,222
   
1,018,085
 
Loans held for sale, at fair value
  
597
   
464
 
Premises and equipment, net
  
13,775
   
17,257
 
Nonmarketable equity securities
  
1,195
   
1,202
 
Core deposit intangibles
  1,565   1,643 
Goodwill
  
8,807
   
8,479
 
Interest receivable and other assets
  
9,111
   
10,522
 
         
Total assets
 
$
1,421,232
  
$
1,350,549
 
         
Liabilities and Shareholders’ Equity
        
         
Deposits
        
Noninterest-bearing
 
$
420,972
  
$
366,705
 
Interest-bearing
  
862,307
   
850,766
 
         
Total deposits
  
1,283,279
   
1,217,471
 
         
Income taxes payable
  
2,610
   
-
 
Interest payable and other liabilities
  
6,695
   
5,670
 
         
Total liabilities
  
1,292,584
   
1,223,141
 
         
Shareholders’ equity
        
Common stock, $0.01 par value; 50,000,000 shares authorized; shares issued and outstanding: 9,094,468 and 9,071,417 at March 31, 2022 and December 31, 2021 respectively
  
91
   
91
 
Additional paid-in capital
  
94,310
   
94,024
 
Retained earnings
  
38,242
   
33,149
 
Accumulated other comprehensive income (loss)
  (3,995)  144 
         
Total shareholders’ equity
  
128,648
   
127,408
 
         
Total liabilities and shareholders’ equity
 
$
1,421,232
  
$
1,350,549
 

See accompanying notes to Unaudited Condensed Consolidated Financial Statements

2
Bank7 Corp.
Unaudited Condensed Consolidated Statements of Comprehensive Income
(Dollar amounts in thousands, except share data)

  
Three Months Ended
March 31,
 
  
2022
  
2021
 
Interest Income
      
Loans, including fees
 
$
14,377
  
$
13,094
 
Interest-bearing time deposits in other banks
  
16
   
68
 
Debt securities, taxable
  364   - 
Debt securities, tax-exempt
  98   - 
Other interest and dividend income
  
70
   
26
 
         
Total interest income
  
14,925
   
13,188
 
         
Interest Expense
        
Deposits
  
717
   
875
 
         
Total interest expense
  
717
   
875
 
         
Net Interest Income
  
14,208
   
12,313
 
         
Provision for Loan Losses
  
276
   
1,275
 
         
Net Interest Income After Provision for Loan Losses
  
13,932
   
11,038
 
         
Noninterest Income
        
Secondary market income
  
166
   
14
 
Loss on sales of available-for-sale debt securities (includes accumulated other comprehensive loss reclassification of $144 and $0, respectively)
  (127)  - 
Service charges on deposit accounts
  
249
   
120
 
Other
  
387
   
203
 
         
Total noninterest income
  
675
   
337
 
         
Noninterest Expense
        
Salaries and employee benefits
  
4,026
   
2,790
 
Furniture and equipment
  
358
   
202
 
Occupancy
  
551
   
472
 
Data and item processing
  
387
   
279
 
Accounting, marketing and legal fees
  
233
   
148
 
Regulatory assessments
  
196
   
141
 
Advertising and public relations
  
110
   
34
 
Travel, lodging and entertainment
  
48
   
89
 
Other
  
511
   
390
 
         
Total noninterest expense
  
6,420
   
4,545
 
         
Income Before Taxes
  
8,187
   
6,830
 
Income tax expense
  
2,003
   
1,726
 
Net Income
 
$
6,184
  
$
5,104
 
         
Earnings per common share - basic
 
$
0.68
  
$
0.56
 
Earnings per common share - diluted
  
0.67
   
0.56
 
Weighted average common shares outstanding - basic
  
9,088,975
   
9,049,007
 
Weighted average common shares outstanding - diluted
  
9,182,055
   
9,058,685
 
         
Other Comprehensive Income (Loss)
        
Unrealized losses on securities, net of tax benefit of $1,500
 $
(3,995) $- 
Reclassification adjustment for realized loss included in net income, net of tax of $17
 
(144) 
- 
Other comprehensive loss, net of tax benefit of $1,500
 $(4,139) $- 
Comprehensive Income (Loss)
 $2,045  $5,104 

See accompanying notes to Unaudited Condensed Consolidated Financial Statements

3
Table of Contents
Bank7 Corp.
Unaudited Condensed Consolidated Statements of Shareholders’ Equity
(Dollar amounts in thousands, except per share data)

  
Three Months Ended
March 31,
 
  
2022
  
2021
 
Common Stock  (Shares)
      
Balance at beginning of period
  
9,071,417
   
9,044,765
 
Exercise of employee stock options
  10,625   -
 
Shares issued for restricted stock units
  
12,426
   
4,491
 
Balance at end of period
  
9,094,468
   
9,049,256
 
         
Common Stock (Amount)
        
Balance at beginning of period
 
$
91
  
$
90
 
Shares issued for stock options
  -   - 
Shares issued for restricted stock units
  -   - 
Balance at end of period
 
$
91
  
$
90
 
         
Additional Paid-in Capital
        
Balance at beginning of period
 
$
94,024
  
$
93,162
 
Stock-based compensation expense
  
286
   
302
 
Balance at end of period
 
$
94,310
  
$
93,464
 
         
Retained Earnings
        
Balance at beginning of period
 
$
33,149
  
$
14,067
 
Net income
  
6,184
   
5,104
 
Cash dividends declared ($0.12 and $0.11 per share for March 31, 2022 and 2021, respectively)
  
(1,091
)
  
(995
)
Balance at end of period
 
$
38,242
  
$
18,176
 
         
Accumulated Other Comprehensive Income (Loss)
        
Balance at beginning of period
 $
144  $
- 
Net change due to unrealized loss
  (4,139)  - 
Balance at end of period
 $
(3,995) $
- 
         
Total Shareholders’ equity
 
$
128,648
  
$
111,730
 

See accompanying notes to Unaudited Condensed Consolidated Financial Statements

4
Table of Contents

Bank7 Corp.
Unaudited Condensed Consolidated Statements ofCash Flows
(Dollar Amounts in thousands)

  
Three Months Ended
March 31,
 
  
2022
  
2021
 
       
Operating Activities
      
Net income
 
$
6,184
  
$
5,104
 
Adjustments to reconcile net income to net cash provided by operating activities
        
Depreciation and amortization
  
365
   
262
 
Provision for loan losses
  
276
   
1,275
 
Amortization of premiums and discounts on securities
  155   - 
Gain on sales of loans
  
(166
)
  
(14
)
Net loss on sale of available-for-sale debt securities
  127   - 
Stock-based compensation expense
  
286
   
302
 
Cash receipts from the sale of loans originated for sale
  
7,617
   
2,267
 
Cash disbursements for loans originated for sale
  
(7,584
)
  
(1,929
)
Deferred income tax benefit
  
(1,497
)
  
(314
)
Changes in
        
Interest receivable and other assets
  
2,764
   
805
 
Interest payable and other liabilities
  
3,633
   
1,481
 
         
Net cash provided by operating activities
  
12,160
   
9,239
 
         
Investing Activities
        
Maturities of interest-bearing time deposits in other banks
  
1,245
   
9,449
 
Purchases of interest-bearing time deposits in other banks
  
(249
)
  
-
 
Proceeds from sale of available-for-sale debt securities
  11,820   - 
Maturities, prepayments and calls of available-for-sale debt securities
  1,407   - 
Purchases of debt securities available-for-sale
  (131,052)  - 
Net change in loans
  
(33,413
)
  
(24,845
)
Purchases of premises and equipment
  
(66
)
  
(117
)
Proceeds from sale of premises and equipment  2,933   - 
Change in nonmarketable equity securities
  
7
   
(15
)
         
Net cash used in investing activities
  
(147,368
)
  
(15,528
)
         
Financing Activities
        
Net change in deposits
  
65,808
   
23,515
 
Cash distributions
  
(1,089
)
  
(995
)
         
Net cash provided by financing activities
  
64,719
   
22,520
 
         
(Decrease) Increase in Cash and Cash Equivalents
  
(70,489
)
  
16,231
 
         
Cash and Cash Equivalents, Beginning of Period
  
204,852
   
153,901
 
         
Cash and Cash Equivalents, End of Period
 
$
134,363
  
$
170,132
 
         
Supplemental Disclosure of Cash Flows Information
        
Interest paid
 
$
731
  
$
969
 
Dividends declared and not paid
 
$
1,091
  
$
995
 
Measurement period goodwill adjustment
 $328  $- 

See accompanying notes to Unaudited Condensed Consolidated Financial Statements

5

Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1:
Nature of Operations and Summary of Significant Accounting Policies
 
Nature of Operations
 
Bank7 Corp. (the “Company”), formerly known as Haines Financial Corp, is a bank holding company whose principal activity is the ownership and management of its wholly owned subsidiary, Bank7 (the “Bank”). The Bank is primarily engaged in providing a full range of banking and financial services to individual and corporate customers located in Oklahoma, Kansas, and Texas. The Bank is subject to competition from other financial institutions. The Company is subject to the regulation of certain federal agencies and undergoes periodic examinations by those regulatory authorities.
 
Basis of Presentation
 
The accompanying unaudited interim consolidated financial statements contained herein reflect all adjustments which are, in the opinion of management, necessary to provide a fair statement of the financial position, results of operations, and cash flows of the Company for the interim periods presented. All such adjustments are of a normal and recurring nature. There have been no significant changes in the accounting policies of the Company since December 31, 2021, the date of the most recent annual report. The condensed consolidated balance sheet of the Company as of December 31, 2021 has been derived from the audited consolidated balance sheet of the Company as of that date. Certain information and notes normally included in the Company’s annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The information contained in the financial statements and footnotes included in Company’s annual report for the year ended December 31, 2021, should be referred to in connection with these unaudited interim consolidated financial statements. Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.

Principles of Consolidation
 
The accompanying consolidated financial statements include the accounts of the Company, the Bank and its subsidiary, 1039 NW 63rd, LLC, which holds real estate utilized by the Bank. All significant intercompany accounts and transactions have been eliminated in consolidation.
 
Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.
 
Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, valuation of other real estate owned, other-than-temporary impairments, income taxes, goodwill and intangibles and fair values of financial instruments.
 
6

Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
Recent Accounting Pronouncements
 
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The ASU requires lessees to recognize a lease liability and a right-of-use asset for all leases, excluding short-term leases, at the commencement date. The guidance in the ASU is effective for annual reporting periods beginning after December 15, 2021. Additionally, a modified retrospective transition approach is required for a leases existing at the earliest comparative period presented.  Management is in the process of planning implementation of this ASU; however, it is not expected to have a significant impact on the Company’s financial condition, results of operation, or capital position, but will impact the presentation on the balance sheet of the Company’s current operating leases. The Company will adopt this ASU in the fourth quarter of 2022.
 
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326). The ASU requires the replacement of the current incurred loss model with an expected loss model, referred to as the current expected credit loss (CECL) model. The guidance in the ASU is effective for reporting periods beginning after December 15, 2022 with a cumulative-effect adjustment to retained earnings required for the first reporting period. Management is in the process of planning implementation and has established a committee to assist in implementation and evaluation. The Company will adopt this ASU in the first quarter of 2023.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) which provides relief for companies preparing for discontinuation of interest rates such as the London Interbank Offered Rate (“LIBOR”). On March 5, 2021, the U.K. Financial Conduct Authority (“FCA”) announced that the majority of LIBOR rates will no longer be published after December 31, 2021, although a number of key settings will continue until June 2023, to support the rundown of legacy contracts only. As a result, LIBOR should be discontinued as a reference rate. The main provisions for contract modifications include optional relief by allowing the modification as a continuation of the existing contract without additional analysis and other optional expedients regarding embedded features. ASU 2020-04 was effective upon issuance and generally can be applied through December 31, 2022. The adoption of ASU 2020-04 did not significantly impact the consolidated financial statements.

Note 2:
Recent Events, Including Mergers and Acquisitions

Business Combinations

On December 9, 2021, the Company acquired 100% of the outstanding equity of Watonga Bancshares, Inc. (“Watonga”), the bank holding company for Cornerstone Bank, for $29.3 million in cash. Immediately following the acquisition, Watonga was dissolved and Cornerstone Bank merged with and into Bank7.

7

Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
An updated preliminary summary of the fair value of assets acquired and liabilities assumed from Watonga are as follows:

  
Estimated Fair Value
 
(in thousands)
   
Assets Acquired
   
Cash and cash equivalents
 
$
41,747
 
Available-for-sale debt securities
  
86,166
 
Federal funds sold
  
7,941
 
Loans
  
117,335
 
Premises and equipment
  
8,815
 
Core deposit intangible
  
1,254
 
Prepaid expenses and other assets
  
4,512
 
Total assets acquiried
  
267,770
 
Liabilities Assumed
    
Deposits
 
$
243,487
 
Accounts payable and accrued expenses
  
2,580
 
Total liabilities assumed
  
246,067
 
Net assets acquired
 
$
21,703
 
Consideration transferred
  
29,498
 
Goodwill
 $
7,795
 

During the quarter, goodwill increased $328,000 related to the continued assessment of the fair value and assumed tax position of Watonga Bancshares, Inc.

As of the acquisition date, the Company evaluated $117.3 million of net loans ($118.5 million gross loans less $1.2 million discount) purchased in conjunction with the acquisition of Watonga Bancshares, Inc. in accordance with the provisions of FASB ASC Topic 310-20, Nonrefundable Fees and Other Costs. As of March 31, 2022, the net loan balance of the ASC Topic 310-20 purchased loans is $101.9 million ($102.9 million gross loans less $1.0million discount). The fair value discount is being accreted into interest income over the weighted average life of the loans using a constant yield method.

The fair values of assets acquired and liabilities assumed are preliminary and based on valuation estimates and assumptions. The accounting for business combinations require estimates and judgments regarding expectations of future cash flows of the acquired business, and the allocations of those cash flows to identifiable tangible and intangible assets. The estimates and assumptions underlying the preliminary valuations are subject to collection of information necessary to complete the valuations (specifically related to projected financial information) within the measurement periods, which are up to one year from the acquisition date. Although the Company does not currently expect material changes to the initial value of net assets acquired, the Company continues to evaluate assumptions related to the valuation of the assets acquired and liabilities assumed. Any adjustments to our estimates of purchase price allocation will be made in the periods in which the adjustments are determined, and the cumulative effect of such adjustments will be calculated as if the adjustments had been completed as of the acquisition date.

8

Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 3:
Restriction on Cash and Due from Banks
 
On March 26, 2020, the Federal Reserve Board reduced reserve requirement ratios to zero percent, effectively eliminating reserve requirements for all depository institutions. There was no reserve requirement as of March 31, 2022.

Note 4:
Earnings Per Share
 
Basic earnings per common share represents the amount of earnings for the period available to each share of common stock outstanding during the reporting period. Basic EPS is computed based upon net income divided by the weighted average number of common shares outstanding during the year.
 
Diluted EPS represents the amount of earnings for the period available to each share of common stock outstanding including common stock that would have been outstanding assuming the issuance of common shares for all dilutive potential common shares outstanding during each reporting period. Diluted EPS is computed based upon net income divided by the weighted average number of common shares outstanding during each period, adjusted for the effect of dilutive potential common shares, such as restricted stock awards and nonqualified stock options, calculated using the treasury stock method.
 
The following table shows the computation of basic and diluted earnings per share:
 
  
As of and for the three months ended March 31,
 
  
2022
  
2021
 
(Dollars in thousands, except per share amounts)
      
Numerator
      
Net income
 
$
6,184
  
$
5,104
 
         
Denominator
        
Weighted-average shares outstanding for basic earnings per share
  9,088,975
   9,049,007
 
Dilutive effect of stock compensation (1)
  93,080
   9,678
 
Denominator for diluted earnings per share
  9,182,055
   9,058,685
 
         
Earnings per common share
        
Basic
 
$
0.68
  
$
0.56
 
Diluted
 
$
0.67
  
$
0.56
 

(1)
The following have not been included in diluted earnings per share because to do so would have been antidilutive for the periods presented: Nonqualified stock options outstanding of 0 and 265,750 for the three month periods ended March 31, 2022 and 2021, respectively; Restricted stock units of 0 and 30,000 for the three month periods ended March 31, 2022 and 2021, respectively.

9

Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements

Note 5: Debt Securities

The following table summarizes the amortized cost and fair value of debt securities available-for-sale at March 31, 2022 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss):

 
(in thousands)
 
Amortized Cost
  
Gross Unrealized
Gains
  
Gross Unrealized
Losses
  
Fair Value
 
Available-for-sale as of March 31, 2022
            
U.S. Federal agencies
 
$
254
  
$
-
  
$
(3
)
 
$
251
 
Mortgage-backed securities(1)
  
57,697
   
-
   
(2,021
)
  
55,676
 
State and political subdivisions
  
34,369
   
-
   
(1,406
)
  
32,963
 
U.S. Treasuries
  
106,045
   
-
   
(1,990
)
  
104,055
 
Corporate debt securities
  
5,500
   
-
   
(89
)
  
5,411
 
Total available-for-sale
  
203,865
   
-
   
(5,509
)
  
198,356
 
Total debt securities
 $
203,865
  $
-
  $
(5,509
)
 $
198,356
 

 
(in thousands)
 
Amortized Cost
  
Gross Unrealized
Gains
  
Gross Unrealized
Losses
  
Fair Value
 
Available-for-sale as of December 31, 2021
            
U.S. Federal agencies
 
$
311
  
$
2
  
$
-
  
$
313
 
Mortgage-backed securities(1)
  
33,085
   
69
   
-
   
33,154
 
State and political subdivisions
  
45,245
   
49
   
-
   
45,294
 
U.S. Treasuries
  
6,052
   
-
   
(5
)
  
6,047
 
Corporate debt securities
  
-
   
-
   
-
   
-
 
Total available-for-sale
  
84,693
   
120
   
(5
)
  
84,808
 
Total debt securities
 $
84,693
  $
120
  $
(5
)
 $
84,808
 

(1) All of our mortgage-backed securities and collateralized mortgage obligations are issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored entities.

10

Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
The amortized cost and estimated fair value of investment securities at March 31, 2022, by contractual maturity, are shown below. The expected life of mortgage-backed securities will differ from contractual maturities because borrowers may have the right to call or prepay the underlying mortgage loans with or without call or prepayment penalties.

(in thousands)
 
Amortized Cost
  
Fair Value
 
Available-for-sale as of March 31, 2022
      
Due in one year or less
 
$
3,724
  
$
3,721
 
Due after one year through five years
  
117,047
   
114,968
 
Due after five years through ten years
  
22,378
   
21,111
 
Due after ten years
  
3,019
   
2,880
 
Mortgage-backed securities(1)
  
57,697
   
55,676
 
Total available-for-sale
 $
203,865
  $
198,356
 

(in thousands)
 
Amortized Cost
  
Fair Value
 
Available-for-sale as of December 31, 2021
      
Due in one year or less
 
$
3,622
  
$
3,623
 
Due after one year through five years
  
22,030
   
22,076
 
Due after five years through ten years
  
22,819
   
22,821
 
Due after ten years
  
3,137
   
3,134
 
Mortgage-backed securities(1)
  
33,085
   
33,154
 
Total available-for-sale
 $
84,693
  $
84,808
 

(1) All of our mortgage-backed securities and collateralized mortgage obligations are issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored entities.

There were two holdings of securities of issuers in an amount greater than 10% of stockholders equity at March 31, 2022, one mortgage-backed security with a fair value of $17.51million, and one U.S. Treasury note with a fair value of $98.43 million.

The following table presents a summary of realized gains and losses from the sale of investment securities for the three months ended March 31, 2022. Note, the Company did not have available-for-sale debt securities at March 31, 2021.

(in thousands)
   
Proceeds from sales
 
$
11,820
 
Gross realized gains on sales
 
$
-
 
Gross realized losses on sales
  
(127
)
Total realized (losses), net
 
$
(127
)

The following table details book value of pledged securities as of March 31, 2022:

  
March 31,
2022
  
December 31,
2021
 
Book value of pledged securities
 
$
36,728
  
$
37,477
 

11

Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
The following table details gross unrealized losses and fair values of investment securities aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position at March 31, 2022. As of March 31, 2022, the Company had the ability and intent to hold the debt securities classified as available-for-sale for a period of time sufficient for a recovery of cost. The unrealized losses are due to increases in market interest rates over the yields available at the time the underlying debt securities were purchased or acquired. The fair value of those debt securities having unrealized losses is expected to recover as the securities approach their maturity date or repricing date, or if market yields for such investments decline. Management has no intent or requirement to sell before the recovery of the unrealized loss; therefore, noimpairment loss was realized in the Company’s consolidated statements of comprehensive income.

  
Less than Twelve Months
  
Twelve Months or Longer
  
Total
 
  
Fair Value
  
Gross Unrealized
Losses
  
Fair Value
  
Gross Unrealized
Losses
  
Fair Value
  
Gross Unrealized
Losses
 
(in thousands)
                  
Available-for-sale
                  
U.S. Federal agencies
 
$
251
  
$
(3
)
 
$
-
  
$
-
  
$
251
  
$
(3
)
Mortgage-backed securities
  
55,676
   
(2,021
)
  
-
   
-
   
55,676
   
(2,021
)
State and political subdivisions
  
32,963
   
(1,406
)
  
-
   
-
   
32,963
   
(1,406
)
U.S. Treasuries
  
104,055
   
(1,990
)
  
-
   
-
   
104,055
   
(1,990
)
Corporate debt securities
  
5,411
   
(89
)
  
-
   
-
   
5,411
   
(89
)
Total available-for-sale
 
$
198,356
  
$
(5,509
)
 
$
-
  
$
-
  
$
198,356
  
$
(5,509
)

  
Less than Twelve Months
  
Twelve Months or Longer
  
Total
 
  
Fair Value
  
Gross Unrealized
Losses
  
Fair Value
  
Gross Unrealized
Losses
  
Fair Value
  
Gross Unrealized
Losses
 
(in thousands)
                  
Available-for-sale
                  
U.S. Federal agencies
 
$
-
  
$
-
  
$
-
  
$
-
  
$
-
  
$
-
 
Mortgage-backed securities
  
-
   
-
   
-
   
-
   
-
   
-
 
State and political subdivisions
  
-
   
-
   
-
   
-
   
-
   
-
 
U.S. Treasuries
  
6,047
   
(5
)
  
-
   
-
   
6,047
   
(5
)
Corporate debt securities
  
-
   
-
   
-
   
-
   
-
   
-
 
Total available-for-sale
 
$
6,047
  
$
(5
)
 
$
-
  
$
-
  
$
6,047
  
$
(5
)

12

Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 6:
Loans and Allowance for Loan Losses
 
A summary of loans at March 31, 2022 and December 31, 2021, are as follows (dollars in thousands):
 
  
March 31,
2022
  
December 31,
2021
 
       
Construction & development
 
$
172,381
  
$
169,322
 
1 - 4 family real estate
  
58,184
   
62,971
 
Commercial real estate - other
  
334,835
   
339,655
 
Total commercial real estate
  
565,400
   
571,948
 
         
Commercial & industrial
  
416,676
   
361,974
 
Agricultural
  
62,984
   
73,010
 
Consumer
  
19,439
   
24,046
 
         
Gross loans
  
1,064,499
   
1,030,978
 
         
Less allowance for loan losses
  
(10,599
)
  
(10,316
)
Less deferred loan fees
  
(2,678
)
  
(2,577
)
         
Net loans
 
$
1,051,222
  
$
1,018,085
 
Included in the commercial & industrial loan balances are $14.2 million and $18.7 million of loans that were originated under the SBA PPP program as of March 31, 2022 and December 31, 2021, respectively.
 
13

Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
The following table presents, by portfolio segment, the activity in the allowance for loan losses for the three months ended March 31, 2022 and 2021 (dollars in thousands):
 
  
Construction &
Development
  
1 - 4 Family
Real Estate
  
Commercial
Real Estate -
Other
  
Commercial
& Industrial
  
Agricultural
  
Consumer
  
Total
 
                      
March 31, 2022
                     
Balance, beginning of period
 
$
1,695
  
$
630
  
$
3,399
  
$
3,621
  
$
730
  
$
241
  
$
10,316
 
                             
Charge-offs
  
-
   
-
   
-
   
-
   
-
   
(2
)
  
(2
)
Recoveries
  
-
   
-
   
-
   
-
   
-
   
9
   
9
 
                             
Net (charge-offs) recoveries
  
-
   
-
   
-
   
-
   
-
   
7
   
7
 
                             
Provision (credit) for loan losses
  
22
   
(51
)
  
(65
)
  
527
   
(103
)
  
(54
)
  
276
 
                             
Balance, end of period
 
$
1,717
  
$
579
  
$
3,334
  
$
4,148
  
$
627
  
$
194
  
$
10,599
 
  
Construction &
Development
  
1 - 4 Family
Real Estate
  
Commercial
Real Estate -
Other
  
Commercial
& Industrial
  
Agricultural
  
Consumer
  
Total
 
                      
March 31, 2021
                     
Balance, beginning of period
 
$
1,239
  
$
334
  
$
3,337
  
$
4,035
  
$
580
  
$
114
  
$
9,639
 
                             
Charge-offs
  
-
   
-
   
-
   
-
   
-
   
(50
)
  
(50
)
Recoveries
  
-
   
-
   
-
   
-
   
-
   
-
   
-
 
                             
Net (charge-offs) recoveries
  
-
   
-
   
-
   
-
   
-
   
(50
)
  
(50
)
                             
Provision (credit) for loan losses
  
128
   
99
   
540
   
508
   
(48
)
  
48
   
1,275
 
                             
Balance, end of period
 
$
1,367
  
$
433
  
$
3,877
  
$
4,543
  
$
532
  
$
112
  
$
10,864
 
 
14

Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
The following table presents, by portfolio segment, the balance in allowance for loan losses and the gross loans based upon portfolio segment and impairment method as of March 31, 2022 and December 31, 2021 (dollars in thousands):
 
  
Construction &
Development
  
1 - 4 Family
Real Estate
  
Commercial
Real Estate -
Other
  
Commercial
& Industrial
  
Agricultural
  
Consumer
  
Total
 
                      
March 31, 2022
                     
Allowance Balance
                     
Ending balance Individually evaluated for impairment
 
$
-
  
$
-
  
$
-
  
$
249
  
$
-
  
$
-
  
$
249
 
Collectively evaluated for impairment
  
1,717
   
579
   
3,334
   
3,899
   
627
   
194
   
10,350
 
                             
Total
 
$
1,717
  
$
579
  
$
3,334
  
$
4,148
  
$
627
  
$
194
  
$
10,599
 
                             
Gross Loans
                            
Ending balance Individually evaluated for impairment
 
$
-
  
$
-
  
$
14,043
  
$
14,102
  
$
-
  
$
24
  
$
28,169
 
Collectively evaluated for impairment
  
172,381
   
58,184
   
320,792
   
402,574
   
62,984
   
19,415
   
1,036,330
 
                             
Total
 
$
172,381
  
$
58,184
  
$
334,835
  
$
416,676
  
$
62,984
  
$
19,439
  
$
1,064,499
 
                             
December 31, 2021
                            
Allowance Balance
                            
Ending balance Individually evaluated for impairment
 
$
-
  
$
-
  
$
-
  
$
253
  
$
-
  
$
-
  
$
253
 
Collectively evaluated for impairment
  
1,695
   
630
   
3,399
   
3,368
   
730
   
241
   
10,063
 
                             
Total
 
$
1,695
  
$
630
  
$
3,399
  
$
3,621
  
$
730
  
$
241
  
$
10,316
 
                             
Gross Loans
                            
Ending balance Individually evaluated for impairment
 
$
-
  
$
-
  
$
14,481
  
$
9,354
  
$
-
  
$
19
  
$
23,854
 
Collectively evaluated for impairment
  
169,322
   
62,971
   
325,174
   
352,620
   
73,010
   
24,027
   
1,007,124
 
                             
Total
 
$
169,322
  
$
62,971
  
$
339,655
  
$
361,974
  
$
73,010
  
$
24,046
  
$
1,030,978
 
 
Internal Risk Categories
 
Each loan segment is made up of loan categories possessing similar risk characteristics.
 
Risk characteristics applicable to each segment of the loan portfolio are described as follows:

Real Estate – The real estate loan portfolio consists of loans made to finance both residential and commercial properties.  Credit risk in these loans can be impacted by economic conditions within the Company’s market areas that might impact either property values or a borrower’s ability to repay.   Commercial real estate loans typically involve larger principal amounts and are repaid primarily from the cash flow of a borrower’s principal business operation, the sale of the real estate, and in some cases from income that is independent from the real estate asset itself.

Commercial & Industrial – The commercial portfolio includes loans to commercial customers for use in financing working capital needs, equipment purchases and expansions.  The loans in this category are repaid primarily from the cash flow of a borrower’s principal business operation.  Credit risk in these loans is driven by creditworthiness of a borrower and the economic conditions that impact the cash flow stability from business operations.

15

Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
Agricultural – Loans secured by agricultural assets are generally made for the purpose of acquiring land devoted to crop production, and various animals that are eventually harvested and sold, and typically housed on the underlying secured property.  Credit risk in these loans may be impacted by crop and commodity prices, the creditworthiness of a borrower, and changes in economic conditions which might affect underlying property values and the local economies in the Company’s market areas.

Consumer – The consumer loan portfolio consists of various term and line of credit loans such as automobile loans and loans for other personal purposes. Residential loans in this category are generally secured by owner occupied 1–4 family residences. Repayment for these types of loans will come from a borrower’s income sources that are typically independent of the loan purpose.  Credit risk is driven by consumer economic factors, such as unemployment and general economic conditions in the Company’s market area and the creditworthiness of a borrower.
 
Loan grades are numbered 1 through 4.  Grade 1 is considered satisfactory. The grades of 2 and 3, or Watch and Special Mention, respectively, represent loans of lower quality and are considered criticized.  Grade of 4, or Substandard, refers to loans that are classified.
 
 •
Grade 1 (Pass) – These loans generally conform to Bank policies, and are characterized by policy conforming advance rates on collateral, and have well-defined repayment sources. In addition, these credits are extended to borrowers and/or guarantors with a strong balance sheet and either substantial liquidity or a reliable income history.
 

•
Grade 2 (Watch) – These loans are still considered “Pass” credits; however, various factors such as industry stress, material changes in cash flow or financial conditions, or deficiencies in loan documentation, or other risk issues determined by the Lending Officer, Commercial Loan Committee (CLC), or Credit Quality Committee (CQC) warrant a heightened sense and frequency of monitoring.
 

 		•
Grade 3 (Special Mention) – These loans must have observable weaknesses or evidence of imprudent handling or structural issues. The weaknesses require close attention and the remediation of those weaknesses is necessary. No risk of probable loss exists. Credits in this category are expected to quickly migrate to a “2” or a “4” as this is viewed as a transitory loan grade.
 

 		•
Grade 4 (Substandard) – These loans are not adequately protected by the sound worth and debt service capacity of the borrower, but may be well secured. They have defined weaknesses relative to cash flow, collateral, financial condition, or other factors that might jeopardize repayment of all of the principal and interest on a timely basis. There is the possibility that a future loss will occur if weaknesses are not remediated.
 
The Company evaluates the definitions of loan grades and the allowance for loan losses methodology on an ongoing basis.  No changes were made to either during the period ended March 31, 2022.
 
16

Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
The following table presents the credit risk profile of the Company’s loan portfolio based on internal rating category as of March 31, 2022 and December 31, 2021 (dollars in thousands):
 
  
 
Construction &
Development
  
 
1 - 4 Family
Real Estate
  
Commercial
Real Estate -
Other
  
 
Commercial
& Industrial
  
 
 
Agricultural
  
 
 
Consumer
  
 
 
Total
 
                      
March 31, 2022
                     
Grade
                     
1 (Pass)
 
$
172,381
  
$
58,184
  
$
288,783
  
$
402,072
  
$
62,513
  
$
19,397
  
$
1,003,330
 
2 (Watch)
  
-
   
-
   
15,000
   
116
   
327
   
18
   
15,461
 
3 (Special Mention)
  
-
   
-
   
17,009
   
386
   
144
   
-
   
17,539
 
4 (Substandard)
  
-
   
-
   
14,043
   
14,102
   
-
   
24
   
28,169
 
Total
 
$
172,381
  
$
58,184
  
$
334,835
  
$
416,676
  
$
62,984
  
$
19,439
  
$
1,064,499
 
  
 
Construction &
Development
  
 
1 - 4 Family
Real Estate
  
Commercial
Real Estate -
Other
  
 
Commercial
& Industrial
  
 
 
Agricultural
  
 
 
Consumer
  
 
 
Total
 
                      
December 31, 2021
                     
Grade
                     
1 (Pass)
 
$
169,322
  
$
62,971
  
$
282,268
  
$
341,661
  
$
72,295
  
$
24,000
  
$
952,517
 
2 (Watch)
  
-
   
-
   
14,976
   
4,658
   
255
   
-
   
19,889
 
3 (Special Mention)
  
-
   
-
   
27,112
   
6,300
   
460
   
-
   
33,872
 
4 (Substandard)
  
-
   
-
   
15,299
   
9,355
   
-
   
46
   
24,700
 
Total
 
$
169,322
  
$
62,971
  
$
339,655
  
$
361,974
  
$
73,010
  
$
24,046
  
$
1,030,978
 
The following table presents the Company’s loan portfolio aging analysis of the recorded investment in loans as of March 31, 2022 and December 31, 2021 (dollars in thousands):
 

 		 
Past Due
          
  
30–59
Days
  
60–89
Days
  
Greater than
90 Days
  
 
Total
  
 
Current
  
Total
Loans
  
Total Loans
> 90 Days &
Accruing
 
                      
March 31,2022
                     
Construction & development
 
$
-
  
$
-
  
$
-
  
$
-
  
$
172,381
  
$
172,381
  
$
-
 
1 - 4 family real estate
  
26
   
-
   
-
   
26
   
58,158
   
58,184
   
-
 
Commercial real estate - other
  
-
   
167
   
-
   
167
   
334,668
   
334,835
   
-
 
Commercial & industrial
  
27
   
3
   
119
   
149
   
416,527
   
416,676
   
19
 
Agricultural
  
443
   
-
   
59
   
502
   
62,482
   
62,984
   
59
 
Consumer
  
426
   
1
   
13
   
440
   
18,999
   
19,439
   
13
 
Total
 
$
922
  
$
171
  
$
191
  
$
1,284
  
$
1,063,215
  
$
1,064,499
  
$
91
 
                             
December 31, 2021
                            
Construction & development
 
$
-
  
$
-
  
$
-
  
$
-
  
$
169,322
  
$
169,322
  
$
-
 
1 - 4 family real estate
  
-
   
-
   
-
   
-
   
62,971
   
62,971
   
-
 
Commercial real estate - other
  
-
   
174
   
-
   
174
   
339,481
   
339,655
   
-
 
Commercial & industrial
  
-
   
19
   
501
   
520
   
361,454
   
361,974
   
401
 
Agricultural
  
-
   
-
   
77
   
77
   
72,933
   
73,010
   
77
 
Consumer
  
48
   
15
   
18
   
81
   
23,965
   
24,046
   
18
 
Total
 
$
48
  
$
208
  
$
596
  
$
852
  
$
1,030,126
  
$
1,030,978
  
$
496
 
 
17

Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
The following table presents impaired loans as of March 31, 2022 and December 31, 2021 (dollars in thousands):
 
  
Unpaid
Principal
Balance
  
Recorded
Investment
with No
Allowance
  
Recorded
Investment
with an
Allowance
  
Total
Recorded
Investment
  
Related
Allowance
  
Average
Recorded
Investment
  
Interest
Income
Recognized
 
                   
March 31,2022
                     
Construction & development
 
$
-
  
$
-
  
$
-
  
$
-
  
$
-
  
$
-
  
$
-
 
1 - 4 family real estate
  
-
   
-
   
-
   
-
   
-
   
-
   
-
 
Commercial real estate - other
  
14,702
   
14,043
   
-
   
14,043
   
-
   
14,831
   
203
 
Commercial & industrial
  
14,705
   
13,853
   
249
   
14,102
   
249
   
11,529
   
149
 
Agricultural
  
-
   
-
   
-
   
-
   
-
   
4
   
-
 
Consumer
  
25
   
24
   
-
   
24
   
-
   
33
   
1
 
  $29,432  $27,920  $249  $28,169  $249  $26,397  $353 

                  
December 31, 2021                     
Construction & development
 
$
-
  
$
-
  
$
-
  
$
-
  
$
-
  
$
-
  
$
-
 
1 - 4 family real estate
  
-
   
-
   
-
   
-
   
-
   
-
   
-
 
Commercial real estate - other
  
15,412
   
14,481
   
-
   
14,481
   
-
   
11,879
   
902
 
Commercial & industrial
  
9,476
   
9,101
   
253
   
9,354
   
253
   
12,584
   
275
 
Agricultural
  
-
   
-
   
-
   
-
   
-
   
161
   
-
 
Consumer
  
18
   
19
   
-
   
19
   
-
   
33
   
1
 
Total
 
$
24,906
  
$
23,601
  
$
253
  
$
23,854
  
$
253
  
$
24,657
  
$
1,178
 
Impaired loans include nonperforming loans and also include loans modified in troubled-debt restructurings where concessions have been granted to borrowers experiencing financial difficulties.  These concessions could include a reduction in interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.
Included in certain loan categories in the impaired loans are troubled debt restructurings that were classified as impaired.  At March 31, 2022, the Company had $1.4 million of commercial real estate loans, compared to $1.4 million of commercial real estate loans that were classified as troubled-debt restructurings and impaired as of December 31, 2021.  There were no newly modified troubled-debt restructurings during the three months ended March 31, 2022.
There were no troubled-debt restructurings modified in the past three months that subsequently defaulted for the period ended March 31, 2022.
 
18

Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
The following table represents information regarding nonperforming assets at March 31, 2022 and December 31, 2021 (dollars in thousands):
 
  
 
Construction &
Development
  
 
1 - 4 Family
Real Estate
  
Commercial
Real Estate -
Other
  
 
Commercial
& Industrial
  
 
 
Agricultural
  
 
 
Consumer
  
 
 
Total
 
                      
March 31,2022
                     
Nonaccrual loans
 
$
-
  
$
-
  
$
1,518
  
$
8,021
  
$
-
  
$
-
  
$
9,539
 
Troubled-debt restructurings (1)
  
-
   
-
   
-
   
-
   
-
   
-
   
-
 
Accruing loans 90 or more days past due
  
-
   
-
   
-
   
19
   
59
   
13
   
91
 
                             
Total nonperforming loans
 
$
-
  
$
-
  
$
1,518
  
$
8,040
  
$
59
  
$
13
  
$
9,630
 
  
 
Construction &
Development
  
 
1 - 4 Family
Real Estate
  
Commercial
Real Estate -
Other
  
 
Commercial
& Industrial
  
 
 
Agricultural
  
 
 
Consumer
  
 
 
Total
 
                      
December 31, 2021
                     
Nonaccrual loans
 
$
-
  
$
-
  
$
2,708
  
$
7,163
  
$
-
  
$
14
  
$
9,885
 
Troubled-debt restructurings (1)
  
-
   
-
   
-
   
-
   
-
   
-
   
-
 
Accruing loans 90 or more days past due
  
-
   
-
   
-
   
401
   
77
   
18
   
496
 
                             
Total nonperforming loans
 
$
-
  
$
-
  
$
2,708
  
$
7,564
  
$
77
  
$
32
  
$
10,381
 
 
(1)
$1.4 million of TDRs as of March 31, 2022 and December 31, 2021, are included in the nonaccrual loans balance.

Note 7:
Shareholders’ Equity
 
On September 5, 2019, the Company adopted a Repurchase Plan (the “RP”). The RP initially authorized the repurchase of up to 500,000 shares of the Company’s common stock. On March 13, 2020, the Company’s Board of Directors approved a 500,000 share expansion, and on November 2, 2020, approved a 750,000 share expansion to the RP, for a total of 1,750,000shares authorized under the RP. All shares repurchased under the RP have been retired and not held as treasury stock. The RP expired on September 5, 2021. On October 28, 2021, the Company adopted a new Repurchase Plan (the “New RP”) that authorizes the repurchase of up to 750,000 shares of the Company’s stock. Stock repurchases under the New RP will take place pursuant to a Rule 10b5-1 Plan with pricing and purchasing parameters established by management.
 
A summary of the activity under the RP is as follows:
 
  
Three Months Ended
March 31,
 
  
2022
  
2021
 
Number of shares repurchased
  
-
   
-
 
Average price of shares repurchased
 
$
-
  
$
-
 
Shares remaining to be repurchased
  
750,000
   
717,822
 
19

Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
The Company and Bank are subject to risk-based capital guidelines issued by the federal banking agencies.  Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance-sheet items as calculated under GAAP, regulatory reporting requirements and regulatory capital standards.  The Company’s and Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.  Furthermore, the Company’s and the Bank’s regulators could require adjustments to regulatory capital not reflected in these financial statements.
 
Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios (set forth in the following table) of total, Tier I, and Common Equity capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier I capital (as defined) to average assets (as defined).  Management believes, as of March 31, 2022, that the Company and Bank meet all capital adequacy requirements to which it is subject and maintains capital conservation buffers that allow the Company and Bank to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to certain executive officers.
 
As of March 31, 2022, the most recent notification from the Federal Deposit Insurance Corporation (FDIC) categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.  To be categorized as well capitalized, the Bank must maintain capital ratios as set forth in the table below.  There are no conditions or events since that notification that management believes have changed the Bank’s category.
 
20

Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
The Company’s and Bank’s actual capital amounts and ratios are presented in the following table (dollars in thousands):
 
  
Actual
  
Minimum
Capital Requirements
  
With Capital
Conservation Buffer
  
Minimum
To Be Well Capitalized
Under Prompt
Corrective Action
 
  
Amount
  
Ratio
  
Amount
  
Ratio
  
Amount
  
Ratio
  
Amount
  
Ratio
 
                         
As of March 31, 2022
                        
Total capital to risk-weighted assets                         
Company
 
$
133,374
   
12.54
%
 
$
85,111
   
8.00
%
 
$
111,708
   
10.50
%
  
N/A
   
N/A
 
Bank
  
133,488
   
12.56
%
  
85,030
   
8.00
%
  
111,602
   
10.50
%
 
$
106,288
   
10.00
%
Tier I capital to risk-weighted assets
                                
Company
  
122,776
   
11.54
%
  
63,833
   
6.00
%
  
90,431
   
8.50
%
  
N/A
   
N/A
 
Bank
  
122,889
   
11.56
%
  
63,773
   
6.00
%
  
90,345
   
8.50
%
  
85,030
   
8.00
%
CET I capital to risk-weighted assets
                                
Company
  
122,776
   
11.54
%
  
47,875
   
4.50
%
  
74,472
   
7.00
%
  
N/A
   
N/A
 
Bank
  
122,889
   
11.56
%
  
47,830
   
4.50
%
  
74,401
   
7.00
%
  
69,087
   
6.50
%
Tier I capital to average assets
                                
Company
  
122,776
   
9.27
%
  
52,967
   
4.00
%
  
N/A
   
N/A
   
N/A
   
N/A
 
Bank
  
122,889
   
9.28
%
  
52,941
   
4.00
%
  
N/A
   
N/A
   
66,176
   
5.00
%
                                 
As of December 31, 2021
                                
Total capital to risk-weighted assets
                                
Company
 
$
127,946
   
12.54
%
 
$
81,620
   
8.00
%
 
$
107,126
   
10.50
%
  
N/A
   
N/A
 
Bank
  
127,844
   
12.54
%
  
81,539
   
8.00
%
  
107,020
   
10.50
%
 
$
101,924
   
10.00
%
Tier I capital to risk-weighted assets
                                
Company
  
117,631
   
11.53
%
  
61,215
   
6.00
%
  
86,721
   
8.50
%
  
N/A
   
N/A
 
Bank
  
117,528
   
11.53
%
  
61,154
   
6.00
%
  
86,635
   
8.50
%
  
81,539
   
8.00
%
CET I capital to risk-weighted assets
                                
Company
  
117,631
   
11.53
%
  
45,911
   
4.50
%
  
71,417
   
7.00
%
  
N/A
   
N/A
 
Bank
  
117,528
   
11.53
%
  
45,866
   
4.50
%
  
71,347
   
7.00
%
  
66,250
   
6.50
%
Tier I capital to average assets
                                
Company
  
117,631
   
10.56
%
  
44,571
   
4.00
%
  
N/A
   
N/A
   
N/A
   
N/A
 
Bank
  
117,528
   
10.55
%
  
44,571
   
4.00
%
  
N/A
   
N/A
   
55,714
   
5.00
%
 
The federal banking agencies require that banking organizations meet several risk-based capital adequacy requirements. The current risk-based capital standards applicable to the Company and the Bank are based on the Basel III Capital Rules established by the Basel Committee on Banking Supervision (the “Basel Committee”). The Basel Committee is a committee of central banks and bank supervisors/regulators from the major industrialized countries that develops broad policy guidelines for use by each country’s supervisors in determining the supervisory policies they apply. The requirements are intended to ensure that banking organizations have adequate capital given the risk levels of assets and off-balance sheet financial instruments.
 
The Basel III Capital Rules require the Bank and the Company to comply with four minimum capital standards: a Tier 1 leverage ratio of at least 4.0%; a CET1 to risk-weighted assets of 4.5%; a Tier 1 capital to risk-weighted assets of at least 6.0%; and a total capital to risk-weighted assets of at least 8.0%. The calculation of all types of regulatory capital is subject to definitions, deductions and adjustments specified in the regulations.
 
The Basel III Capital Rules also require a “capital conservation buffer” of 2.5% above the regulatory minimum risk-based capital requirements. The capital conservation buffer is designed to absorb losses during periods of economic stress and effectively increases the minimum required risk-weighted capital ratios.  Banking institutions with a ratio of CET1 to risk-weighted assets below the effective minimum (4.5% plus the capital conservation buffer) are subject to limitations on certain activities, including payment of dividends, share repurchases and discretionary bonuses to executive officers based on the amount of the shortfall.
 
21

Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
As of March 31, 2022, the Company’s and the Bank’s capital ratios exceeded the minimum capital adequacy guideline percentage requirements under the Basel III Capital Rules on a fully phased-in basis.
 
The Bank is subject to certain restrictions on the amount of dividends that it may declare without prior regulatory approval.  At March 31, 2022, approximately $41.4million of retained earnings was available for dividend declaration from the Bank without prior regulatory approval.
Note 8:
Related-Party Transactions
 
At March 31, 2022 and December 31, 2021, the Company had no loans outstanding to executive officers, directors, significant shareholders and their affiliates (related parties).
 
The Bank leases office and retail banking space in Woodward, Oklahoma from Haines Realty Investments Company, LLC, a related party of the Company.  Lease expense totaled $39,000 and $46,000 for the three months ended March 31, 2022 and 2021, respectively.  In addition, payroll and office sharing arrangements were in place between the Company and certain of its affiliates.
22

Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 9:
Employee Benefits
 
401(k) Savings Plan
 
The Company has a retirement savings 401(k) plan covering substantially all employees. Employees may contribute up to the maximum legal limit with the Company matching up to 5% of the employee’s salary. Employer contributions charged to expense for the three months ended March 31, 2022 and 2021 totaled $94,000 and $65,000 respectively.
 
Stock-Based Compensation
 
The Company adopted a nonqualified incentive stock option plan (the “Incentive Plan”) in September 2018. The Incentive Plan will terminate in September 2028, if not extended. Compensation expense related to the Plan for the three months ended March 31, 2022 and 2021 totaled $286,000 and $302,000, respectively. There were 706,587 shares available for future grants as of March 31, 2022.
 
The Company grants to employees and directors restricted stock units (RSUs) which vest ratably over one, three or five years and stock options which vest ratably over four years.  All RSUs and stock options are granted at the fair value of the common stock at the time of the award. The RSUs are considered fixed awards as the number of shares and fair value are known at the date of grant and the fair value at the grant date is amortized over the vesting and/or service period.
 
The Company uses newly issued shares for granting RSUs and stock options.
 
The following table is a summary of the stock option activity under the Incentive Plan (dollar amounts in thousands, except per share data):
  
Options
  
Wgtd. Avg. Exercise
Price
  
Wgtd. Avg.
Remaining
Contractual Term
  
Aggregate
Intrinsic
Value
 
Three Months Ended March 31, 2022
            
Outstanding at December 31, 2021
  
264,000
  
$
17.41
       
Options Granted
  
-
   
-
       
Options Exercised
  
10,625
   
18.11
       
Options Forfeited
  
-
  
-
       
Outstanding at March 31, 2022
  
253,375
   
17.38
   
7.33
  
$
1,580,001
 
Exercisable at March 31, 2022
  
141,060
  $
18.18
   
6.91
  
$
767,645
 
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model and is based on certain assumptions including risk-free rate of return, dividend yield, stock price volatility and the expected term. The fair value of each option is expensed over its vesting period.
23

Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements

The following table shows the assumptions used for computing stock-based compensation expense under the fair value method on options granted during the period presented. There were no grants for the three months ended March 31, 2022.
 
  
For the Three Months Ended
 
  
March 31, 2021
 
Risk-free interest rate
  
0.52
%
Dividend yield
  
2.89
%
Stock price volatility
  
66.67
%
Expected term
  
6.41
 
 
The following table summarizes share information about RSUs for the three months ended March 31, 2022 and 2021:
 

 
Number of
Shares
  
Wgtd. Avg. Grant
Date Fair Value
 
Three Months Ended March 31, 2022
        
Outstanding at December 31, 2021
  
172,993
  
$
17.58
 
Shares granted
  
-
   
-
 
Shares vested
  
(15,584
)
  
15.98
 
Shares forfeited
  
-
   
-
 
End of the period balance
  
157,409
  
$
19.32
 

  
Number of Shares
  
Wgtd. Avg. Grant
Date Fair Value
 
Three Months Ended March 31, 2021
      
Outstanding at December 31, 2020
  
118,000
  
$
18.09
 
Shares granted
  
25,200
   
14.31
 
Shares vested
  
(6,398
)
  
18.49
 
Shares forfeited
  
-
   
-
 
End of the period balance
  
136,802
  
$
17.37
 
 
As of March 31, 2022, there was approximately $2.6 million of unrecognized compensation expense related to 157,409 unvested RSUs and $514,000 of unrecognized compensation expense related to 253,375 unvested and/or unexercised stock options. The stock option expense is expected to be recognized over a weighted average period of 2.32 years, and the RSU expense is expected to be recognized over a weighted average period of 2.84 years.

As of March 31, 2021, there was approximately $2.1 million of unrecognized compensation expense related to 136,802unvested RSUs and $834,000 of unrecognized compensation expense related to 265,750 unvested and/or unexercised stock options.  The stock option expense is expected to be recognized over a weighted average period of 3.09 years, and the RSU expense is expected to be recognized over a weighted average period of 3.00 years.
Note 10:
Disclosures About Fair Value of Assets and Liabilities
 
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs.  There is a hierarchy of three levels of inputs that may be used to measure fair value:
 

 		Level 1
Quoted prices in active markets for identical assets or liabilities
 

 		Level 2
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities
 

 		Level 3
Unobservable inputs supported by little or no market activity and significant to the fair value of the assets or liabilities
 
Recurring Measurements
 

Assets and liabilities measured at fair value on a recurring basis include the following:

 
Available-for-sale debt securities: Debt securities classified as available-for-sale, as discussed in Note 5, are reported at fair value utilizing Level 2 inputs. For those debt securities classified as Level 2, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U. S. Treasury yield curve, live trading levels, trade execution data for similar securities, market consensus prepayments speeds, credit information and the security’s terms and conditions, among other things.

24

Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
Nonrecurring Measurements
 
The following table presents the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2022 and December 31, 2021 (dollars in thousands):
 
  
Fair Value
  
(Level 1)
  
(Level 2)
  
(Level 3)
 
             
March 31, 2022
            
Impaired loans (collateral- dependent)
 
$
6,844
  
$
-
  
$
-
  
$
6,844
 
                 
December 31, 2021
                
Impaired loans (collateral- dependent)
 
$
6,910
  
$
-
  
$
-
  
$
6,910
 
Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy.  For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.
 
Collateral-Dependent Impaired Loans, Net of Allowance for Loan Losses
 
The estimated fair value of collateral-dependent impaired loans is based on fair value, less estimated cost to sell. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy.
 
The Company considers evaluation analysis as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. Values of the collateral underlying collateral-dependent loans are obtained when the loan is determined to be collateral-dependent and subsequently as deemed necessary by executive management and loan administration. Values are reviewed for accuracy and consistency by executive management and loan administration. The ultimate collateral values are reduced by discounts to consider lack of marketability and estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral.

25

Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
Unobservable (Level 3) Inputs
 
The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements.
 
  
Fair Value
 
Valuation
Technique
 Unobservable
Inputs
 
Weighted-
Average
 
March 31, 2022
        
Collateral-dependent impaired loans
 
$
6,844
 
Appraisals from comparable properties
Estimated cost to sell
  20
%
           
December 31, 2021
          
Collateral-dependent impaired loans
 
$
6,910
 
Appraisals from comparable properties
Estimated cost to sell
  20%
The following table presents estimated fair values of the Company’s financial instruments not recorded at fair value at March 31, 2022 and December 31, 2021 (dollars in thousands):

 Carrying   
Fair Value Measurements
 

 
Amount
  
Level 1
  
Level 2
  
Level 3
  
Total
 
March 31, 2022
               
                
Financial Assets
               
Cash and due from banks
 
$
126,275
  
$
126,275
  
$
-
  
$
-
  
$
126,275
 
Federal funds sold
  8,088   8,088   -   -   8,088 
Interest-bearing time deposits in other banks
  
2,241
   
-
   
2,241
   
-
   
2,241
 
Loans, net of allowance
  
1,051,222
   
-
   
1,043,933
   
6,844
   
1,050,777
 
Loans held for sale
  597   -   597   -   597 
Nonmarketable equity securities
  
1,195
   
-
   
1,195
   
-
   
1,195
 
Interest receivable
  
4,256
   
-
   
4,256
   
-
   
4,256
 
                     
Financial Liabilities
                    
Deposits
 
$
1,283,279
  
$
-
  
$
1,281,971
  
$
-
  
$
1,281,971
 
Interest payable
  
103
   
-
   
103
   
-
   
103
 
                     
December 31, 2021
                    
                     
Financial Assets
                    
Cash and due from banks
 
$
195,359
  
$
195,359
  
$
-
  
$
-
  
$
195,359
 
Federal funds sold
  9,493   9,493   -   -  
9,493 
Interest-bearing time deposits in other banks
  
3,237
   
-
   
3,237
   
-
   
3,237
 
Loans, net of allowance
  
1,018,085
   
-
   
1,011,048
   
6,910
   
1,017,958
 
Loans held for sale
  
464
   
-
   
464
   
-
   
464
 
Nonmarketable equity securities
  
1,202
   
-
   
1,202
   
-
   
1,202
 
Interest receivable
  
4,259
   
-
   
4,259
   
-
   
4,259
 
                     
Financial Liabilities
                    
Deposits
 
$
1,217,471
  
$
-
  
$
1,217,094
  
$
-
  
$
1,217,094
 
Interest payable
  
117
   
-
   
117
   
-
   
117
 
26

Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements

The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying consolidated balance sheets at amounts other than fair value:
 
Cash and Due from Banks, Interest-Bearing Time Deposits in Other Banks, Nonmarketable Equity Securities, Interest Receivable and Interest Payable
 
The carrying amount approximates fair value.
Loans and Mortgage Loans Held for Sale
 
The Company determines fair value of loans by using exit market assumptions including factors such as liquidity, credit quality and risk of nonperformance. The fair value is estimated by discounting the future cash flows using the market rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics were aggregated for purposes of the calculations.
 
Deposits
 
Deposits include demand deposits, savings accounts, NOW accounts and certain money market deposits. The carrying amount approximates fair value. The fair value of fixed-maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities.
 
Commitments to Extend Credit, Lines of Credit and Standby Letters of Credit
 
The fair values of unfunded commitments are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. The fair values of standby letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date. The estimated fair values of the Company’s commitments to extend credit, lines of credit and standby letters of credit were not material at March 31, 2022 and December 31, 2021.

27

Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements

Note 11:
Financial Instruments with Off-Balance Sheet Risk
 
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the accompanying consolidated balance sheets. The following summarizes those financial instruments with contract amounts representing credit risk as of March 31, 2022 and December 31, 2021 (dollars in thousands):
 
  
March 31,
  
December 31,
 
   2022   2021 
  
 
Commitments to extend credit
 
$
215,268
  
$
200,393
 
Financial and performance standby letters of credit
  
4,243
   
5,809
 
         
  
$
219,511
  
$
206,202
 
 
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Each instrument generally has fixed expiration dates or other termination clauses. Since many of the instruments are expected to expire without being drawn upon, total commitments to extend credit amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary, by the Company upon extension of credit is based on management’s credit evaluation of the customer. Standby letters of credit are irrevocable conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.
Note 12:
Significant Estimates and Concentrations
 
GAAP requires disclosure of certain significant estimates and current vulnerabilities due to certain concentrations.  Estimates related to the allowance for loan losses are reflected in Note 6 regarding loans.  Current vulnerabilities due to off-balance sheet credit risk are discussed in Note 11.
 
28

Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
As of March 31, 2022, hospitality loans were 17% of gross total loans with outstanding balances of $179.2 million and unfunded commitments of $35.7 million; energy loans were11% of gross total loans with outstanding balances of $115.6 million and unfunded commitments of $25.5 million.
 
The Company evaluates goodwill for potential goodwill impairment on an annual basis or more often based on consideration if any impairment indicators have occurred. A prolonged strain on the U.S. economy impacting the Company could result in goodwill being partially or fully impaired. At March 31, 2022, goodwill of $8.8 million was recorded on the consolidated balance sheet.
 
29
ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Quarterly Report and in our Annual Report on Form 10-K for the year ended December 31, 2021.
 
Unless the context indicates otherwise, references in this management’s discussion and analysis to “we”, “our”, and “us,” refer to Bank7 Corp. and its consolidated subsidiaries.  All references to “the Bank” refer to Bank7, our wholly owned subsidiary.

General

We are Bank7 Corp., a bank holding company headquartered in Oklahoma City, Oklahoma. Through our wholly-owned subsidiary, Bank7, we operate twelve locations in Oklahoma, the Dallas/Fort Worth, Texas metropolitan area and Kansas. We are focused on serving business owners and entrepreneurs by delivering fast, consistent and well-designed loan and deposit products to meet their financing needs. We intend to grow organically by selectively opening additional branches in our target markets and pursuing strategic acquisitions.
 
As a bank holding company, we generate most of our revenue from interest income on loans and from short-term investments. The primary source of funding for our loans and short-term investments are deposits held by our subsidiary, Bank7. We measure our performance by our return on average assets, return on average equity, earnings per share, capital ratios, efficiency ratio (calculated by dividing noninterest expense by the sum of net interest income on a tax equivalent basis) and noninterest income.
 
As of March 31, 2022, we had total assets of $1.4 billion, total loans of $1.1 billion, total deposits of $1.3 billion and total shareholders’ equity of $128.6 million.
 
Results of Operations

Performance Summary.For the first quarter of 2022, we reported a pre-tax income of $8.2 million, compared to pre-tax income of $6.8 million for the first quarter of 2021. For the first quarter of 2022, interest income increased by $1.7 million, or 13.2%, compared to the first quarter of 2021. For the first quarter of 2022, average total loans were $1.0 billion with loan yields of 5.82% as compared to average total loans of $847.5 million with loan yields of 6.27% for the first quarter of 2021.

Our provision for loan losses for the first quarter of 2022 was $276,000, compared to $1.28 million for the first quarter of 2021.

Return on average equity was 19.26% for the first quarter of 2022, as compared to 19.02% for the same period in 2021.

30
Net Interest Income and Net Interest Margin. The following table presents, for the periods indicated, information about: (i) weighted average balances, the total dollar amount of interest income from interest-earning assets, and the resultant average yields; (ii) average balances, the total dollar amount of interest expense on interest-bearing liabilities, and the resultant average rates; (iii) net interest income; and (iv) the net interest margin.

  
Net Interest Margin
 
  
For the Three Months Ended March 31,
 
  
2022
  
2021
 
  
Average
Balance
  
Interest
Income/
Expense
  
Average
Yield/
Rate
  
Average
Balance
  
Interest
Income/
Expense
  
Average
Yield/
Rate
 
  
(Dollars in thousands)
 
Interest-Earning Assets:
                  
Short-term investments
 
$
187,672
  
$
86
   
0.19
%
 
$
125,739
  
$
92
   
0.30
%
Debt securities, taxable-equivalent
  
87,886
   
364
   
1.68
   
1,172
   
2
   
0.69
 
Debt securities, tax exempt(1)
  
23,969
   
98
   
1.66
   
-
   
-
   
-
 
Loans held for sale
  
487
   
-
   
-
   
378
   
-
   
-
 
Total loans(2)
  
1,003,890
   
14,377
   
5.81
   
847,498
   
13,094
   
6.27
 
Total interest-earning assets
  
1,303,904
   
14,925
   
4.64
   
974,787
   
13,188
   
5.49
 
Noninterest-earning assets
  
24,342
           
7,103
         
Total assets
 
$
1,328,246
          
$
981,890
         
                         
Funding sources:
                        
Interest-bearing liabilities:
                        
Deposits:
                        
Transaction accounts
 
$
636,446
   
458
   
0.29
%
 
$
419,991
   
362
   
0.35
%
Time deposits
  
169,602
   
259
   
0.62
   
205,557
   
513
   
1.01
 
Total interest-bearing deposits
  
806,048
   
717
   
0.36
   
625,548
   
875
   
0.57
 
Total interest-bearing liabilities
 
$
806,048
   
717
   
0.36
  
$
625,548
   
875
   
0.57
 
                         
Noninterest-bearing liabilities:
                        
Noninterest-bearing deposits
 
$
385,664
          
$
243,290
         
Other noninterest-bearing liabilities
  
6,301
           
4,193
         
Total noninterest-bearing liabilities
  
391,965
           
247,483
         
Shareholders' equity
  
130,233
           
108,859
         
Total liabilities and shareholders' equity
 
$
1,328,246
          
$
981,890
         
                         
Net interest income
     
$
14,208
          
$
12,313
     
Net interest spread
          
4.40
%
          
4.92
%
Net interest margin
          
4.42
%
          
5.12
%

(1)
Taxable-equivalent yield of 2.10% as of March 31, 2022, applying a 21% effective tax rate
(2)
Non-accrual loans of $9.5 million and $12.7 million as of March 31, 2022 and March 31, 2021, respectively, are included in loans.

31
For the first quarter of 2022 compared to the first quarter of 2021:

-
Interest income on debt securities of $462,000, a result of debt securities acquired in December 2021 and purchased during the first quarter of 2022;

-
Interest income on total loans totaled $14.4 million, an increase of $1.3 million or 9.8%, due to an increase in average loans of $156.4 million, or 18.5%, and in spite of a 46 basis points or 7.4% decrease in loan yields;

-
Loan fees totaled $1.6 million, a decrease of $355,000 or 17.8%, related to nonrecurring PPP loan fee income decreasing and

-
Net interest margin for the first quarter of 2022 was 4.42% compared to 5.12% for the first quarter of 2021.

Increases and decreases in interest income and interest expense result from changes in average balances, or volume, of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following tables set forth the effects of changing rates and volumes on our net interest income during the period shown. Information is provided with respect to (i) effects on interest income attributable to changes in volume (change in volume multiplied by prior rate) and (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume).

  
Analysis of Changes in Interest Income
and Expenses
 
  
For the Three Months Ended
March 31, 2022 vs 2021
 
  
Change due to:
    
  
Volume(1)
  
Rate(1)
  
Interest
Variance
 
(in thousands)
 
(Dollars in thousands)
 
Increase (decrease) in interest income:
         
Short-term investments
 
$
186
  
$
(192
)
 
$
(6
)
Investment securities
  
772
   
(312
)
  
460
 
Total loans
  
9,806
   
(8,523
)
  
1,283
 
Total increase (decrease) in interest income
  
10,764
   
(9,027
)
  
1,737
 
             
Increase (decrease) in interest expense:
            
Deposits:
            
Transaction accounts
  
758
   
(662
)
  
96
 
Time deposits
  
(363
)
  
109
   
(254
)
Total interest-bearing deposits
  
395
   
(553
)
  
(158
)
Total increase (decrease) in interest expense
  
395
   
(553
)
  
(158
)
             
Increase (Decrease) in net interest income
 
$
10,369
  
$
(8,474
)
 
$
1,895
 

(1)
Variances attributable to both volume and rate are allocated on a consistent basis between rate and volume based on the absolute value of the variances in each category.

32
Weighted Average Yield of Debt Securities

 The following table summarizes the maturity distribution schedule with corresponding weighted average taxable equivalent yields of the debt securities portfolio at March 31, 2022. The following table presents securities at their expected maturities, which may differ from contractual maturities. The Company manages its debt securities portfolio for liquidity, as a tool to execute its asset/liability management strategy, and for pledging requirements for public funds:

  
As of March 31, 2022
 
        
After One Year But
  
After Five Years But
             
 
Within One Year
  
Within Five Years
  
Within Ten Years
  
After Ten Years
  
Total
 
                               
 
Amount
  
Yield *
  
Amount
  
Yield *
  
Amount
  
Yield *
  
Amount
  
Yield *
  
Amount
  
Yield *
 
Available-for-sale
 
(Dollars in thousands)
 
U.S. Federal agencies
 
$
41
   
3.15
%
 
$
210
   
3.51
%
 
$
-
   
0
%
 
$
-
   
0
%
 
$
251
   
3.45
%
Mortgage-backed securities
  
1,832
   
2.88
   
10,999
   
2.03
   
10,779
   
2.49
   
32,066
   
2.57
   
55,676
   
2.46
 
State and political subdivisions
  
3,680
   
2.18
   
15,368
   
1.98
   
12,535
   
2.39
   
1,380
   
2.39
   
32,963
   
2.18
 
U.S. Treasuries
  
-
   
-
   
99,390
   
1.73
   
4,665
   
1.76
   
-
   
-
   
104,055
   
1.73
 
Corporate debt securities
  
-
   
-
   
-
   
-
   
3,911
   
4.85
   
1,500
   
6.96
   
5,411
   
5.44
 
Total
 
$
5,553
   
2.42
%
 
$
125,967
   
1.79
%
 
$
31,890
   
2.63
%
 
$
34,946
   
2.75
%
 
$
198,356
   
2.11
%
Percentage of total
  
2.80
%
      
63.50
%
      
16.08
%
      
17.62
%
      
100.00
%
    

*Yield is on a taxable-equivalent basis using 21% tax rate

Provision for Loan Losses

Credit risk is inherent in the business of making loans. We establish an Allowance for loan losses (“Allowance”) through charges to earnings, which are shown in the statements of income as the provision for loan losses. Specifically identifiable and quantifiable known losses are charged off against the Allowance. The provision for loan losses is determined by conducting a quarterly evaluation of the adequacy of our Allowance and applying the shortfall or excess, if any, to the current quarter’s expense. Any shortfall between the liquidation value of the underlying collateral and the recorded investment value of the loan is considered the required specific reserve amount. See the discussion under “—Critical Accounting Policies and Estimates—Allowance for Loan and Lease Losses.” This has the effect of creating variability in the amount and frequency of charges to our earnings. The provision for loan losses and level of Allowance for each period are dependent upon many factors, including loan growth, net charge-offs, changes in the composition of the loan portfolio, delinquencies, management’s assessment of the quality of the loan portfolio, the valuation of problem loans and the general economic conditions in our market areas.

The Allowance as a percentage of loans was 1.00% at March 31, 2022 and December 31, 2021.

33
Noninterest Income

Noninterest income for the three months ended March 31, 2022 was $675,000 compared to $337,000 for the same period in 2021, an increase of $338,000, or 100.3%. The following table sets forth the major components of our noninterest income for the three months ended March 31, 2022 and 2021:


 
For the Three Months Ended
 
  
March 31,
 
  
2022
  
2021
  
$ Increase
(Decrease)
  
% Increase
(Decrease)
  
   
  
(Dollars in thousands)
 
Noninterest income:
            
Secondary market income
 
$
166
  
$
14
  
$
152
   
1085.71
%
Loss on sales of available-for-sale debt securities
  
(127
)
  
-
   
(127
)
  
-100.00
%
Service charges on deposit accounts
  
249
   
120
   
129
   
107.50
%
Other income and fees
  
387
   
203
   
184
   
90.64
%
Total noninterest income
 
$
675
  
$
337
  
$
338
   
100.30
%

Secondary market income totaled $166,000 for the first quarter of 2022, compared to $14,000 for the same period in 2021, an increase of $152,000, or 1085.7%. The increase was attributable to an increase in mortgage lending activity. Other income and fees totaled $387,000 for the first quarter of 2022, an increase of $184,000 or 90.64% compared to the first quarter of 2021. The increase is due to an overall increase in other income due to the acquisition of Watonga in December 2021.

Noninterest Expense

Noninterest expense for the three months ended March 31, 2022 was $6.4 million compared to $4.5 million for the same period in 2021, an increase of $1.9 million, or 41.3%. The following table sets forth the major components of our noninterest expense for the three months ended March 31, 2022 and 2021:

  
For the Three Months Ended
 
  
March 31,
 
  
2022
  
2021
  
$ Increase
(Decrease)
  
% Increase
(Decrease)
 
  
(Dollars in thousands)
 
Noninterest expense:
            
Salaries and employee benefits
 
$
4,026
  
$
2,790
  
$
1,236
   
44.30
%
Furniture and equipment
  
358
   
202
   
156
   
77.23
%
Occupancy
  
551
   
472
   
79
   
16.74
%
Data and item processing
  
387
   
279
   
108
   
38.71
%
Accounting, marketing, and legal fees
  
233
   
148
   
85
   
57.43
%
Regulatory assessments
  
196
   
141
   
55
   
39.01
%
Advertising and public relations
  
110
   
34
   
76
   
223.53
%
Travel, lodging and entertainment
  
48
   
89
   
(41
)
  
-46.07
%
Other expense
  
511
   
390
   
121
   
31.03
%
Total noninterest expense
 
$
6,420
  
$
4,545
  
$
1,875
   
41.25
%

Salaries and employee benefits totaled $4.0 million for the first quarter of 2022 compared to $2.8 million for the same period in 2021, an increase of $1.2 million or 44.3%.  This increase was attributable to an increase in employee base due to bank-wide organic growth and the acquisition of Watonga in December 2021.

Furniture and equipment expense totaled $358,000 for the first quarter of 2022 compared to $202,000 for the same period in 2021, an increase of $156,000 or 77.2%. The increase is largely due to depreciation expense on assets acquired from Watonga.

34
Financial Condition

The following discussion of our financial condition compares March 31, 2022 and December 31, 2021.

Total Assets

Total assets increased $70.7 million, or 5.2%, to $1.4 billion as of March 31, 2022, compared to $1.4 billion as of December 31, 2021. The increasing trend in total assets is primarily attributable to strong organic loan and deposit growth within the Oklahoma City and Dallas/Fort Worth metropolitan areas and our acquisition of Watonga in December 2021.

Loan Portfolio

The following table presents the balance and associated percentage of each major category in our loan portfolio as of March 31, 2022 and December 31, 2021:

  
As of March 31,
  
As of December 31,
 
  
2022
  
2021
 
  
Amount
  
% of Total
  
Amount
  
% of Total
 
  
(Dollars in thousands)
 
Construction & development
 
$
172,381
   
16.2
%
 
$
169,322
   
16.4
%
1-4 family real estate
  
58,184
   
5.5
%
  
62,971
   
6.1
%
Commercial real estate - other
  
334,835
   
31.5
%
  
339,655
   
33.0
%
Total commercial real estate
  
565,400
   
53.2
%
  
571,948
   
55.5
%
                 
Commercial & industrial
  
416,676
   
39.1
%
  
361,974
   
35.1
%
Agricultural
  
62,984
   
5.9
%
  
73,010
   
7.1
%
Consumer
  
19,439
   
1.8
%
  
24,046
   
2.3
%
Gross loans
  
1,064,499
   
100.0
%
  
1,030,978
   
100.0
%
Less: unearned income, net
  
(2,678
)
      
(2,577
)
    
Total Loans, net of unearned income
  
1,061,821
       
1,028,401
     
Less: Allowance for loan losses
  
(10,599
)
      
(10,316
)
    
Net loans
 
$
1,051,222
      
$
1,018,085
     

Our loans represent the largest portion of our earning assets. The quality and diversification of the loan portfolio is an important consideration when reviewing our financial condition. As of March 31, 2022 and December 31, 2021, our gross loans were $1.1 billion and $1.0 billion, respectively.  Included in the commercial & industrial loan balances at March 31, 2022 and December 31, 2021, respectively, are $14.2 million and $18.7 million of loans that were originated under the SBA PPP program.

We have established internal concentration limits in the loan portfolio for Commercial Real Estate (CRE) loans, hospitality loans, energy loans, and construction loans, among others. All loan types are within our established limits. We use underwriting guidelines to assess each borrower’s historical cash flow to determine debt service capabilities, and we further stress test the customer’s debt service capability under higher interest rate scenarios as well as other underlying macro-economic factors. Financial and performance covenants are used in commercial lending to allow us to react to a borrower’s deteriorating financial condition, should that occur.

35
The following tables show the contractual maturities of our gross loans as of the periods below:

  
As of March 31, 2022
 
      
Due in One Year or Less
  
Due after One Year
Through Five Years
  
Due after Five Years
Through Fifteen Years
      
Due after Fifteen Years
    
        
  
Fixed
Rate
  
Adjustable
Rate
  
Fixed
Rate
  
Adjustable
Rate
  
Fixed
Rate
  
Adjustable
Rate
  
Fixed
Rate
  
Adjustable
Rate
  
Total
 
                
  
(Dollars in thousands)
 
Construction & development
 
$
8,579
  
$
71,187
  
$
10,117
  
$
75,659
  
$
111
  
$
2,313
  
$
-
  
$
4,415
  
$
172,381
 
1-4 family real estate
  
3,367
   
8,995
   
15,182
   
16,393
   
1,150
   
6,548
   
-
   
6,549
   
58,184
 
Commercial real estate - other
  
3,333
   
62,376
   
68,431
   
161,348
   
7,433
   
18,079
   
-
   
13,835
   
334,835
 
Total commercial real estate
  
15,279
   
142,558
   
93,730
   
253,400
   
8,694
   
26,940
   
-
   
24,799
   
565,400
 
                                     
Commercial & industrial
  
25,108
   
154,302
   
16,466
   
187,623
   
19,781
   
12,749
   
-
   
647
   
416,676
 
Agricultural
  
354
   
14,063
   
5,376
   
34,978
   
543
   
1,353
   
-
   
6,317
   
62,984
 
Consumer
  
1,713
   
34
   
10,326
   
148
   
931
   
2,299
   
84
   
3,904
   
19,439
 
Gross loans
 
$
42,454
  
$
310,957
  
$
125,898
  
$
476,149
  
$
29,949
  
$
43,341
  
$
84
  
$
35,667
  
$
1,064,499
 

  
As of December 31, 2021
 
      
Due in One Year or Less
  
Due after One Year
Through Five Years
  
Due after Five Years
Through Fifteen Years
      
Due after Fifteen Years
    
        
  
Fixed
Rate
  
Adjustable
Rate
  
Fixed
Rate
  
Adjustable
Rate
  
Fixed
Rate
  
Adjustable
Rate
  
Fixed
Rate
  
Adjustable
Rate
  
Total
 
                
  
(Dollars in thousands)
 
Construction & development
 
$
7,283
  
$
71,551
  
$
10,148
  
$
74,052
  
$
-
  
$
2,243
  
$
-
  
$
4,045
  
$
169,322
 
1-4 family real estate
  
3,259
   
21,322
   
11,979
   
11,674
   
926
   
7,375
   
-
   
6,436
   
62,971
 
Commercial real estate - other
  
5,156
   
97,309
   
59,227
   
143,906
   
413
   
19,230
   
-
   
14,414
   
339,655
 
Total real estate
  
15,698
   
190,182
   
81,354
   
229,632
   
1,339
   
28,848
   
-
   
24,895
   
571,948
 
                                     
Commercial & industrial
  
24,249
   
142,553
   
16,346
   
145,654
   
20,474
   
12,047
   
-
   
651
   
361,974
 
Agricultural
  
2,529
   
17,441
   
5,156
   
39,305
   
623
   
1,587
   
-
   
6,369
   
73,010
 
Consumer
  
4,870
   
29
   
10,825
   
172
   
1,554
   
2,458
   
84
   
4,054
   
24,046
 
Gross loans
 
$
47,346
  
$
350,205
  
$
113,681
  
$
414,763
  
$
23,990
  
$
44,940
  
$
84
  
$
35,969
  
$
1,030,978
 

Allowance for Loan and Lease Losses

The allowance is based on management’s estimate of potential losses inherent in the loan portfolio. In the opinion of management, the allowance is adequate to absorb estimated losses in the portfolio as of each balance sheet date. While management uses available information to analyze losses on loans, future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance. In analyzing the adequacy of the allowance, a comprehensive loan grading system to determine risk potential in loans is utilized together with the results of internal credit reviews.

To determine the adequacy of the allowance, the loan portfolio is broken into segments based on loan type. Historical loss experience factors by segment, adjusted for changes in trends and conditions, are used to determine an indicated allowance for each portfolio segment. These factors are evaluated and updated based on the composition of the specific loan segment. Other considerations include volumes and trends of delinquencies, nonaccrual loans, levels of bankruptcies, criticized and classified loan trends, expected losses on real estate secured loans, new credit products and policies, economic conditions, concentrations of credit risk and the experience and abilities of our lending personnel.

The allowance was $10.6 million at March 31, 2022, compared to $10.3 million at December 31, 2021.

36
The following table provides an analysis of the activity in our allowance for the periods indicated:

  
For the Three Months Ended March 31,
 
  
2022
  
2021
 
  
(Dollars in thousands)
 
Balance at beginning of the period
 
$
10,316
  
$
9,639
 
Provision for loan losses
  
276
   
1,275
 
Charge-offs:
        
Construction & development
  
-
   
-
 
1-4 family real estate
  
-
   
-
 
Commercial real estate - other
  
-
   
-
 
Commercial & industrial
  
-
   
-
 
Agricultural
  
-
   
-
 
Consumer
  
(2
)
  
(50
)
Total charge-offs
  
(2
)
  
(50
)
Recoveries:
        
Construction & development
  
-
   
-
 
1-4 family real estate
  
-
   
-
 
Commercial real estate - other
  
-
   
-
 
Commercial & industrial
  
-
   
-
 
Agricultural
  
-
   
-
 
Consumer
  
9
   
-
 
Total recoveries
  
9
   
-
 
Net recoveries (charge-offs)
  
7
   
(50
)
Balance at end of the period
 
$
10,599
  
$
10,864
 
Net recoveries (charge-offs) to average loans
  
0.00
%
  
0.01
%

While the entire allowance is available to absorb losses from any and all loans, the following table represents management’s allocation of the allowance by loan category, and the percentage of allowance in each category, for the periods indicated:

  
As of March 31,
  
As of December 31,
 
  
2022
  
2021
 
  
Amount
  
Percent
  
Amount
  
Percent
 
  
(Dollars in thousands)
 
Construction & development
 
$
1,717
   
16.2
%
 
$
1,695
   
16.4
%
1-4 family real estate
  
579
   
5.5
%
  
630
   
6.1
%
Commercial real estate - Other
  
3,334
   
31.5
%
  
3,399
   
33.0
%
Commercial & industrial
  
4,148
   
39.1
%
  
3,621
   
35.1
%
Agricultural
  
627
   
5.9
%
  
730
   
7.1
%
Consumer
  
194
   
1.8
%
  
241
   
2.3
%
Total
 
$
10,599
   
100.0
%
 
$
10,316
   
100.0
%

37
Nonperforming Assets

Loans are considered delinquent when principal or interest payments are past due 30 days or more. Delinquent loans may remain on accrual status between 30 days and 90 days past due. Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. Typically, the accrual of interest on loans is discontinued when principal or interest payments are past due 90 days or when, in the opinion of management, there is a reasonable doubt as to collectability of the obligation. When loans are placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income. Income on a nonaccrual loan is subsequently recognized only to the extent that cash is received and the loan’s principal balance is deemed collectible. Loans are restored to accrual status when loans become well-secured and management believes full collectability of principal and interest is probable.

A loan is considered impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans include loans on nonaccrual status and loans modified in a troubled debt restructuring (TDR). Income from a loan on nonaccrual status is recognized to the extent cash is received and when the loan’s principal balance is deemed collectible. Depending on a particular loan’s circumstances, we measure impairment of a loan based upon either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral less estimated costs to sell if the loan is collateral dependent. A loan is considered collateral dependent when repayment of the loan is based solely on the liquidation of the collateral. Fair value, where possible, is determined by independent appraisals, typically on an annual basis. Between appraisal periods, the fair value may be adjusted based on specific events, such as if deterioration of quality of the collateral comes to our attention as part of our problem loan monitoring process, or if discussions with the borrower lead us to believe the last appraised value no longer reflects the actual market for the collateral. The impairment amount on a collateral dependent loan is charged off to the allowance if deemed not collectible and the impairment amount on a loan that is not collateral dependent is set up as a specific reserve.

In cases where a borrower experiences financial difficulties and we make certain concessionary modifications to contractual terms, the loan is classified as a TDR. Included in certain loan categories of impaired loans are TDRs on which we have granted concessions to the borrower as a result of the borrower experiencing financial difficulties. The concessions granted by us may include, but are not limited to: (1) a modification in which the maturity date, timing of payments or frequency of payments is modified, (2) an interest rate lower than the current market rate for new loans with similar risk, or (3) a combination of the first two concessions.

If a borrower on a restructured TDR has demonstrated performance under the previous terms, is not experiencing financial difficulty and shows the capacity to continue to perform under the restructured terms, the loan will remain on accrual status. Otherwise, the loan will be placed on nonaccrual status until the borrower demonstrates a sustained period of performance, which generally requires six consecutive months of payments. Loans identified as TDRs are evaluated for impairment using the present value of the expected cash flows or the estimated fair value of the collateral, if the loan is collateral dependent. The fair value is determined, when possible, by an appraisal of the property less estimated costs related to liquidation of the collateral. The appraisal amount may also be adjusted for current market conditions. Adjustments to reflect the present value of the expected cash flows or the estimated fair value of collateral dependent loans are a component in determining an appropriate allowance, and as such, may result in increases or decreases to the provision for loan losses in current and future earnings.

Real estate we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as other real estate owned, or OREO, until sold, and is initially recorded at fair value less costs to sell when acquired, establishing a new cost basis.

38
The following table presents information regarding nonperforming assets as of the dates indicated.

  
As of
March 31,
   
As of
December 31,
 
   
  
2022
  
2021
 
  
(Dollars in thousands)
 
Nonaccrual loans
 
$
9,539
  
$
9,885
 
Troubled-debt restructurings (1)
  
-
   
-
 
Accruing loans 90 or more days past due
  
91
   
496
 
Total nonperforming loans
  
9,630
   
10,381
 
Other real estate owned
  
-
   
-
 
Total nonperforming assets
 
$
9,630
  
$
10,381
 
Ratio of nonperforming loans to total loans
  
0.91
%
  
1.01
%
Ratio of nonaccrual loans to total loans
  
0.90
%
  
0.96
%
Ratio of allowance for loan losses to total loans
  
1.00
%
  
1.00
%
Ratio of allowance for loan losses to nonaccrual loans
  
111.12
%
  
104.36
%
Ratio of nonperforming assets to total assets
  
0.68
%
  
0.77
%

(1) $1.4 million of TDRs as of March 31, 2022 and December 31, 2021 are included in the nonaccrual loans balance in the line above

39
The following tables present an aging analysis of loans as of the dates indicated.

      
As of March 31, 2022
 
 
Loans 30-
59 days past
due
  
Loans 60-
89 days past
due
  
Loans 90+
days past
due
  
Loans 90+
days past
due and
accruing
  
Total past
due loans
  
Current
  
Total loans
 
  
(Dollars in thousands)
 
Construction & development
 
$
-
  
$
-
  
$
-
  
$
-
  
$
-
  
$
172,381
  
$
172,381
 
1-4 family real estate
  
26
   
-
   
-
   
-
   
26
   
58,158
   
58,184
 
Commercial real estate - other
  
-
   
167
   
-
   
-
   
167
   
334,668
   
334,835
 
Commercial & industrial
  
27
   
3
   
119
   
19
   
149
   
416,527
   
416,676
 
Agricultural
  
443
   
-
   
59
   
59
   
502
   
62,482
   
62,984
 
Consumer
  
426
   
1
   
13
   
13
   
440
   
18,999
   
19,439
 
Total
 
$
922
  
$
171
  
$
191
  
$
91
  
$
1,284
  
$
1,063,215
  
$
1,064,499
 

      
As of December 31, 2021
 
 
Loans 30-
59 days past
due
  
Loans 60-
89 days past
due
  
Loans 90+
days past
due
  
Loans 90+
days past
due and
accruing
  
Total Past
Due Loans
  
Current
  
Total loans
 
  
(Dollars in thousands)
 
Construction & development
 
$
-
  
$
-
  
$
-
  
$
-
  
$
-
  
$
169,322
  
$
169,322
 
1-4 family real estate
  
-
   
-
   
-
   
-
   
-
   
62,971
   
62,971
 
Commercial real estate - other
  
-
   
174
   
-
   
-
   
174
   
339,481
   
339,655
 
Commercial & industrial
  
-
   
19
   
501
   
401
   
520
   
361,454
   
361,974
 
Agricultural
  
-
   
-
   
77
   
77
   
77
   
72,933
   
73,010
 
Consumer
  
48
   
15
   
18
   
18
   
81
   
23,965
   
24,046
 
Total
 
$
48
  
$
208
  
$
596
  
$
496
  
$
852
  
$
1,030,126
  
$
1,030,978
 

In addition to the past due and nonaccrual criteria, we also evaluate loans according to our internal risk grading system. Loans are segregated between pass, watch, special mention, and substandard categories. The definitions of those categories are as follows:

Pass: These loans generally conform to Bank policies, are characterized by policy-conforming advance rates on collateral, and have well-defined repayment sources. In addition, these credits are extended to borrowers and guarantors with a strong balance sheet and either substantial liquidity or a reliable income history.

Watch: These loans are still considered “Pass” credits; however, various factors such as industry stress, material changes in cash flow or financial conditions, or deficiencies in loan documentation, or other risk issues determined by the lending officer, Commercial Loan Committee or Credit Quality Committee warrant a heightened sense and frequency of monitoring.

Special mention: These loans have observable weaknesses or evidence of imprudent handling or structural issues. The weaknesses require close attention, and the remediation of those weaknesses is necessary. No risk of probable loss exists. Credits in this category are expected to quickly migrate to “Watch” or “Substandard” as this is viewed as a transitory loan grade.

Substandard: These loans are not adequately protected by the sound worth and debt service capacity of the borrower, but may be well-secured. The loans have defined weaknesses relative to cash flow, collateral, financial condition or other factors that might jeopardize repayment of all of the principal and interest on a timely basis. There is the possibility that a future loss will occur if weaknesses are not remediated.

40
Outstanding loan balances categorized by internal risk grades as of the periods indicated are summarized as follows:

  
As of March 31, 2022
 
  
Pass
  
Watch
  
Special mention
  
Substandard
  
Total
 
  
(Dollars in thousands)
 
Construction & development
 
$
172,381
  
$
-
  
$
-
  
$
-
  
$
172,381
 
1-4 family real estate
  
58,184
   
-
   
-
   
-
   
58,184
 
Commercial real estate - Other
  
288,783
   
15,000
   
17,009
   
14,043
   
334,835
 
Commercial & industrial
  
402,072
   
116
   
386
   
14,102
   
416,676
 
Agricultural
  
62,513
   
327
   
144
   
-
   
62,984
 
Consumer
  
19,397
   
18
   
-
   
24
   
19,439
 
Total
 
$
1,003,330
  
$
15,461
  
$
17,539
  
$
28,169
  
$
1,064,499
 





  
As of December 31, 2021
 
  
Pass
  
Watch
  
Special mention
  
Substandard
  
Total
 
  
(Dollars in thousands)
 
Construction & development
 
$
169,322
  
$
-
  
$
-
  
$
-
  
$
169,322
 
1-4 family real estate
  
62,971
   
-
   
-
   
-
   
62,971
 
Commercial real estate - Other
  
282,268
   
14,976
   
27,112
   
15,299
   
339,655
 
Commercial & industrial
  
341,661
   
4,658
   
6,300
   
9,355
   
361,974
 
Agricultural
  
72,295
   
255
   
460
   
-
   
73,010
 
Consumer
  
24,000
   
-
   
-
   
46
   
24,046
 
Total
 
$
952,517
  
$
19,889
  
$
33,872
  
$
24,700
  
$
1,030,978
 

41
Troubled Debt Restructurings

TDRs are defined as those loans in which a bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due from the borrower in accordance with original contractual terms of the loan. Loans with insignificant delays or insignificant short-falls in the amount of payments expected to be collected are not considered to be impaired. Loans defined as individually impaired, based on applicable accounting guidance, include larger balance nonperforming loans and TDRs.

The following table presents loans restructured as TDRs as of March 31, 2022 and December 31, 2021:

  
As of March 31, 2022
 
  
Number of
Contracts
  
Pre-Modification Outstanding Recorded Investment
  
Post-
Modification Outstanding Recorded Investment
  
Specific Reserves Allocated
 
  
(Dollars in thousands)
 
Commercial real estate
  
1
  
$
1,351
  
$
1,351
   
-
 
Total
  
1
  
$
1,351
  
$
1,351
  
$
-
 

  
As of December 31, 2021
 
  
Number of
Contracts
  
Pre-Modification Outstanding Recorded Investment
  
Post-
Modification Outstanding Recorded Investment
  
Specific Reserves Allocated
 
  
(Dollars in thousands)
 
Commercial real estate
  
1
  
$
1,402
  
$
1,402
   
-
 
Total
  
1
  
$
1,402
  
$
1,402
  
$
-
 

There were no payment defaults with respect to loans modified as TDRs as of March 31, 2022 and December 31, 2021. Impairment analyses are prepared on TDRs in conjunction with the normal allowance process. There were no TDRs restructured during the three months ended March 31, 2022 and TDR’s restructured during the twelve months ended December 31, 2021 required no specific reserves.

The following table presents total TDRs, both in accrual and nonaccrual status as of the periods indicated:

  
As of March 31, 2022
 
As of December 31, 2021
  
Number of
contracts
 
Amount
 
Number of contracts
 
Amount
    
  
(Dollars in thousands)
Accrual
 
               -
 
 $              -
 
               -
 
 $              -
Nonaccrual
 
1
 
         1,351
 
1
 
         1,402
Total
 
1
 
 $      1,351
 
1
 
 $      1,402

42
Deposits

We gather deposits primarily through our nine branch locations and online through our website. We offer a variety of deposit products including demand deposit accounts and interest-bearing products, such as savings accounts and certificates of deposit. We put continued effort into gathering noninterest-bearing demand deposit accounts through loan production cross-selling, customer referrals, marketing efforts and various involvement with community networks. Some of our interest-bearing deposits are obtained through brokered transactions. We participate in the CDARS and ICS programs, where customer funds are placed into multiple deposit accounts, each in an amount under the standard FDIC insurance maximum of $250,000, and placed at a network of banks across the United States.

Total deposits as of March 31, 2022 and December 31, 2021 were $1.3 billion and $1.2 billion, respectively. The following table sets forth deposit balances by certain categories as of the dates indicated and the percentage of each deposit category to total deposits.

  
March 31,
  
December 31,
 
  
2022
  
2021
 
  
Amount
  
Percentage of
Total
  
Amount
  
Percentage of
Total
 
 
  
(Dollars in thousands)
 
Demand deposits
 
$
420,972
   
32.8
%
 
$
366,705
   
30.1
%
Interest-bearing transaction deposits
  
606,246
   
47.2
%
  
583,389
   
47.9
%
Savings deposits
  
97,520
   
7.6
%
  
89,778
   
7.4
%
Time deposits ($250,000 or less)
  
115,483
   
9.0
%
  
132,690
   
10.9
%
Time deposits (more than $250,000)
  
43,058
   
3.4
%
  
44,909
   
3.7
%
Total interest-bearing deposits
  
862,307
   
67.2
%
  
850,766
   
69.9
%
Total deposits
 
$
1,283,279
   
100.0
%
 
$
1,217,471
   
100.0
%

The following table summarizes our average deposit balances and weighted average rates for the three-month period ending March 31, 2022 and year ended December 31, 2021:

  
For the Three Months Ended
March 31,
  
For the Year Ended December
31,
 
  
2022
  
2021
 
  
Average
Balance
  
Weighted A
verage Rate
  
Average
Balance
  
Weighted Average Rate
 
 
  
(Dollars in thousands)
 
Demand deposits
 
$
385,664
   
0.00
%
 
$
288,446
   
0.00
%
Interest-bearing transaction deposits
  
543,611
   
0.30
%
  
375,048
   
0.34
%
Savings deposits
  
92,835
   
0.21
%
  
55,220
   
0.23
%
Time deposits
  
169,602
   
0.62
%
  
205,437
   
0.81
%
Total interest-bearing deposits
  
806,048
   
0.36
%
  
635,705
   
0.48
%
Total deposits
 
$
1,191,712
   
0.24
%
 
$
924,151
   
0.33
%

43
The following tables set forth the maturity of time deposits as of the dates indicated below:

  
As of March 31, 2022 Maturity Within:
 
  
Three Months
  
Three to Six
Months
  
Six to 12
Months
  
After 12
Months
  
Total
 
 
  
(Dollars in thousands)
 
Time deposits ($250,000 or less)
 
$
37,375
  
$
19,006
  
$
29,628
  
$
29,474
  
$
115,483
 
Time deposits (more than $250,000)
  
5,584
   
6,663
   
24,617
   
6,194
   
43,058
 
Total time deposits
 
$
42,959
  
$
25,669
  
$
54,245
  
$
35,668
  
$
158,541
 

  
As of December 31, 2021 Maturity Within:
 
  
Three Months
  
Three to Six
Months
  
Six to 12
Months
  
After 12
Months
  
Total
 
 
  
(Dollars in thousands)
 
Time deposits ($250,000 or less)
 
$
32,680
  
$
37,016
  
$
31,197
  
$
31,797
  
$
132,690
 
Time deposits (more than $250,000)
  
18,234
   
5,932
   
10,729
   
10,014
   
44,909
 
Total time deposits
 
$
50,914
  
$
42,948
  
$
41,926
  
$
41,811
  
$
177,599
 

Liquidity

Liquidity refers to our ability to meet the cash flow requirements of depositors and borrowers, while at the same time meeting our operating, capital and strategic cash flow needs, all at a reasonable cost. We continuously monitor our liquidity position to ensure that assets and liabilities are managed in a manner that will meet all short-term and long-term cash requirements. We manage our liquidity position to meet the daily cash flow needs of customers, while maintaining an appropriate balance between assets and liabilities to meet the return on investment objectives of our shareholders.

Our liquidity position is supported by the management of liquid assets and access to alternative sources of funds. Our liquid assets include cash, interest-bearing deposits in correspondent banks and fed funds sold. Other available sources of liquidity include wholesale deposits and borrowings from correspondent banks and FHLB advances.

Our short-term and long-term liquidity requirements are primarily met through cash flow from operations, redeployment of prepaying and maturing balances in our loan portfolios, and increases in customer deposits. Other alternative sources of funds will supplement these primary sources to the extent necessary to meet additional liquidity requirements on either a short-term or long-term basis.

As of March 31, 2022, we had no unsecured fed funds lines with correspondent depository institutions with no amounts advanced. In addition, based on the values of loans pledged as collateral, we had borrowing availability with the FHLB of $86.2 million as of March 31, 2022 and $78.1 million as of December 31, 2021.

Capital Requirements

The Bank is subject to various regulatory capital requirements administered by the federal and state banking regulators. Failure to meet regulatory capital requirements may result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for “prompt corrective action” (described below), We must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting policies. The capital amounts and classifications are subject to qualitative judgments by the federal banking regulators about components, risk weightings and other factors. Qualitative measures established by regulation to ensure capital adequacy require us to maintain minimum amounts and ratios of Common Equity Tier 1 (“CET1”) capital, Tier 1 capital, total capital to risk-weighted assets, and Tier 1 capital to average consolidated assets, referred to as the “leverage ratio.”

44
As of March 31, 2022, the Bank was in compliance with all applicable regulatory requirements and categorized as “well-capitalized” under the prompt corrective action frame work.  There have been no conditions or events since March 31, 2022 that management believes would change this classification. The table below presents our applicable capital requirements, as well as our capital ratios as of March 31, 2022 and December 31, 2021. The Company exceeded all regulatory capital requirements and the Bank was considered to be “well-capitalized” as of the dates reflected in the tables below.

Basel III Capital Rules

Under the Basel III Capital Rules, in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, a banking organization must hold a capital conservation buffer composed of CET1 capital above its minimum risk-based capital requirements. As of March 31, 2022, the Company and the Bank met all capital adequacy requirements under the Basel III Capital Rules.
 
  
Actual
  
With Capital
Conservation Buffer
  
Minimum to be "Well-
Capitalized" Under
Prompt Corrective Action
 
  
Amount
  
Ratio
  
Amount
  
Ratio
  
Amount
  
Ratio
 
  
(Dollars in thousands)
 
As of March 31, 2022
                  
Total capital (to risk-weighted assets)
                  
Company
 
$
133,374
   
12.54
%
 
$
111,708
   
10.50
%
  
N/A
   
N/A
 
Bank
  
133,488
   
12.56
%
  
111,602
   
10.50
%
 
$
106,288
   
10.00
%
Tier 1 capital (to risk-weighted assets)
                        
Company
  
122,776
   
11.54
%
  
90,431
   
8.50
%
  
N/A
   
N/A
 
Bank
  
122,889
   
11.56
%
  
90,345
   
8.50
%
  
85,030
   
8.00
%
CET 1 capital (to risk-weighted assets)
                        
Company
  
122,776
   
11.54
%
  
74,472
   
7.00
%
  
N/A
   
N/A
 
Bank
  
122,889
   
11.56
%
  
74,401
   
7.00
%
  
69,087
   
6.50
%
Tier 1 capital (to average assets)
                        
Company
  
122,776
   
9.27
%
  
N/A
   
N/A
   
N/A
   
N/A
 
Bank
  
122,889
   
9.28
%
  
N/A
   
N/A
   
66,176
   
5.00
%

  
Actual
  
With Capital
Conservation Buffer
  
Minimum to be "Well-
Capitalized" Under
Prompt Corrective Action
 
  
Amount
  
Ratio
  
Amount
  
Ratio
  
Amount
  
Ratio
 
  
(Dollars in thousands)
 
As of December 31, 2021
                  
Total capital (to risk-weighted assets)
                  
Company
 
$
127,946
   
12.54
%
 
$
107,126
   
10.50
%
  
N/A
   
N/A
 
Bank
  
127,844
   
12.54
%
  
107,020
   
10.50
%
 
$
101,924
   
10.00
%
Tier 1 capital (to risk-weighted assets)
                        
Company
  
117,631
   
11.53
%
  
86,721
   
8.50
%
  
N/A
   
N/A
 
Bank
  
117,528
   
11.53
%
  
86,635
   
8.50
%
  
81,539
   
8.00
%
CET 1 capital (to risk-weighted assets)
                        
Company
  
117,631
   
11.53
%
  
71,417
   
7.00
%
  
N/A
   
N/A
 
Bank
  
117,528
   
11.53
%
  
71,347
   
7.00
%
  
66,250
   
6.50
%
Tier 1 capital (to average assets)
                        
Company
  
117,631
   
10.56
%
  
N/A
   
N/A
   
N/A
   
N/A
 
Bank
  
117,528
   
10.55
%
  
N/A
   
N/A
   
55,714
   
5.00
%

Shareholders’ equity provides a source of permanent funding, allows for future growth and provides a cushion to withstand unforeseen adverse developments. Total shareholders’ equity increased to $128.6 million as of March 31, 2022, compared to $127.4 million as of December 31, 2021.

45
Contractual Obligations

The following tables contain supplemental information regarding our total contractual obligations as of March 31, 2022, and December 31, 2021:

  
Payments Due as of March 31, 2022
 
  
Within One
Year
  
One to Three
Years
  
Three to Five
Years
  
After Five
Years
  
Total
 
 
  
(Dollars in thousands)
 
Deposits without a stated maturity
 
$
1,124,738
  
$
-
  
$
-
  
$
-
  
$
1,124,738
 
Time deposits
  
122,872
   
33,723
   
1,946
   
-
   
158,541
 
Operating lease commitments
  
606
   
689
   
181
   
-
   
1,476
 
Total contractual obligations
 
$
1,248,216
  
$
34,412
  
$
2,127
  
$
-
  
$
1,284,755
 

  
Payments Due as of December 31, 2021
 
  
Within One
Year
  
One to Three
Years
  
Three to Five
Years
  
After Five
Years
  
Total
 
 
  
(Dollars in thousands)
 
Deposits without a stated maturity
 
$
1,039,872
  
$
-
  
$
-
  
$
-
  
$
1,039,872
 
Time deposits
  
135,788
   
39,904
   
1,907
   
-
   
177,599
 
Operating lease commitments
  
611
   
782
   
241
   
-
   
1,634
 
Total contractual obligations
 
$
1,176,271
  
$
40,686
  
$
2,148
  
$
-
  
$
1,219,105
 

We believe that we will be able to meet our contractual obligations as they come due through the maintenance of adequate cash levels. We expect to maintain adequate cash levels through profitability, loan repayment and maturity activity and continued deposit gathering activities. We have in place various borrowing mechanisms for both short-term and long-term liquidity needs.

46
Off-Balance Sheet Arrangements

We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheet. The contractual or notional amounts of those instruments reflect the extent of involvement we have in particular classes of financial instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. We evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if we deemed necessary upon extension of credit, is based on management’s credit evaluation of the counterparty. The Company also estimates a reserve for potential losses associated with off-balance sheet commitments and letters of credit. It is included in other liabilities in the Company’s consolidated statements of condition, with any related provisions to the reserve included in non-interest expense in the consolidated statement of income.

In determining the reserve for unfunded lending commitments, a process similar to the one used for the allowance is employed. Based on historical experience, loss factors, adjusted for expected funding, are applied to the Company’s off-balance sheet commitments and letters of credit to estimate the potential for losses.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of the customer to a third party. They are intended to be disbursed, subject to certain conditions, upon request of the borrower.

The following table summarizes commitments as of the dates presented.

  
March 31,
  
December 31,
 
  
2022
  
2021
 
  
(Dollars in thousands)
 
Commitments to extend credit
 
$
215,268
  
$
200,393
 
Standby letters of credit
  
4,243
   
5,809
 
Total
 
$
219,511
  
$
206,202
 

Critical Accounting Policies and Estimates

Our accounting and reporting policies conform to GAAP and conform to general practices within the industry in which we operate. To prepare financial statements in conformity with GAAP, management makes estimates, assumptions and judgments based on available information. These estimates, assumptions and judgments affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the financial statements and, as this information changes, actual results could differ from the estimates, assumptions and judgments reflected in the financial statement. In particular, management has identified several accounting policies that, due to the estimates, assumptions and judgments inherent in those policies, are critical in understanding our financial statements.

The JOBS Act permits us an extended transition period for complying with new or revised accounting standards affecting public companies. We have elected to take advantage of this extended transition period, which means that the financial statements included in this Form 10-Q, as well as any financial statements that we file in the future, will not be subject to all new or revised accounting standards generally applicable to public companies for the transition period for so long as we remain an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period under the JOBS Act.

The following is a discussion of the critical accounting policies and significant estimates that we believe require us to make the most complex or subjective decisions or assessments. Additional information about these policies can be found in Note 1 of our unaudited condensed consolidated financial statements as of March 31, 2022.
 
47
Allowance for Loan and Lease Losses
 
The allowance is based on management’s estimate of probable losses inherent in the loan portfolio. In the opinion of management, the allowance is adequate to absorb estimated losses in the portfolio as of each balance sheet date. While management uses available information to analyze losses on loans, future additions to the allowance may be necessary based on changes in economic conditions and changes in the composition of the loan portfolio. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance. In analyzing the adequacy of the allowance, a comprehensive loan grading system to determine risk potential in loans is utilized together with the results of internal credit reviews.
 
To determine the adequacy of the allowance, the loan portfolio is broken into segments based on loan type and risk characteristics. Historical loss experience factors by segment, adjusted for changes in trends and conditions, are used to determine an indicated allowance for each portfolio segment. These factors are evaluated and updated based on the composition of the specific loan segment. Other considerations include volumes and trends of delinquencies, nonaccrual loans, levels of bankruptcies, criticized and classified loan trends, expected losses on real estate secured loans, new credit products and policies, economic conditions, concentrations of credit risk and the experience and abilities of our lending personnel. In addition to the segment evaluations, impaired loans with a balance of $250,000 or more are individually evaluated based on facts and circumstances of the loan to determine if a specific allowance amount may be necessary. Specific allowances may also be established for loans whose outstanding balances are below the $250,000 threshold when it is determined that the risk associated with the loan differs significantly from the risk factor amounts established for its loan segment.
 
Goodwill and Intangibles
 
Intangible assets totaled $1.6 million and goodwill, net of accumulated amortization, totaled $8.8 million for the three months ended March 31, 2022, compared to intangible assets of $1.6 million and goodwill of $8.5 million for the year ended December 31, 2021.
 
Goodwill resulting from a business combination represents the excess of the fair value of the consideration transferred over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill is tested annually for impairment or more frequently if other impairment indicators are present.  If the implied fair value of goodwill is lower than its carrying amount, a goodwill impairment is indicated and goodwill is written down to its implied fair value.  Subsequent increases in goodwill value are not recognized in the accompanying consolidated financial statements.
 
Other intangible assets consist of core deposit intangible assets and are amortized on a straight-line basis based on an estimated useful life of 10 years.  Such assets are periodically evaluated as to the recoverability of their carrying values.
 
Income Taxes
 
We file a consolidated income tax return. Deferred taxes are recognized under the balance sheet method based upon the future tax consequences of temporary differences between the carrying amounts and tax basis of assets and liabilities, using the tax rates expected to apply to taxable income in the periods when the related temporary differences are expected to be realized.
 
The amount of accrued current and deferred income taxes is based on estimates of taxes due or receivable from taxing authorities either currently or in the future. Changes in these accruals are reported as tax expense, and involve estimates of the various components included in determining taxable income, tax credits, other taxes and temporary differences. Changes periodically occur in the estimates due to changes in tax rates, tax laws and regulations and implementation of new tax planning strategies. The process of determining the accruals for income taxes necessarily involves the exercise of considerable judgment and consideration of numerous subjective factors.
 
Management performs an analysis of our tax positions annually and believes it is more likely than not that all of its tax positions will be utilized in future years.

48
ITEM 3.

Quantitative and Qualitative Disclosures about Market Risk

There have been no significant changes in our disclosures regarding market risk since December 31, 2021, the date of our most recent annual report to shareholders.

ITEM 4.

Controls and Procedures
 
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness as of March 31, 2022 of our disclosure controls and procedures, as defined Rules 13a-15(e) and 15d-15(e) under the Exchange Act.  In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply judgment in evaluating its controls and procedures.  Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the fiscal quarter covered by this Form 10-Q.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended March 31, 2022 that has materially affected, or is reasonably likely to materially affect, such controls.

PART II

ITEM 1.

Legal Proceedings

From time to time, we are a party to legal actions that are routine and incidental to our business. Given the nature, scope and complexity of the extensive legal and regulatory landscape applicable to our business, including laws and regulations governing consumer protections, fair lending, fair labor, privacy, information security and anti-money laundering and anti-terrorism laws, we, like all banking organizations, are subject to heightened legal and regulatory compliance and litigation risk. However, based upon available information and in consultation with legal counsel, management is of the opinion that no proceedings exist, either individually or in the aggregate, which, if determined adversely, would have a material adverse effect on our financial statements.

ITEM 1A.

Risk Factors

There were no material changes from the risks disclosed in the Risk Factors section of our Annual Report on Form 10-K for the year ended December, 31, 2021.

49
ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

On September 5, 2019, the Company’s Board of Directors approved a stock repurchase plan authorizing the repurchase of up to 500,000 shares of the Company’s common stock. On March 13, 2020, the Company’s Board of Directors approved a 500,000 share expansion and on November 2, 2020, approved a 750,000 share expansion to the existing stock repurchase plan, for a total of 1,750,000 shares authorized under the plan. The September 2019 repurchase plan expired on September 5, 2021. On October 28, 2021, the Company’s Board of Directors approved a new repurchase plan that authorizes up to 750,000 shares of the Company’s common stock. Stock repurchases under the new repurchase plan will take place pursuant to a Rule 10b5-1 Plan with pricing and purchasing parameters established by management.  The Company may repurchase shares of common stock on the open market or through privately negotiated transactions at times and prices considered appropriate, at the discretion of the Company, and subject to its assessment of alternative uses of capital, stock trading price, general market conditions and regulatory factors. The stock repurchase plans do not obligate the Company to acquire any specific number of shares and will continue in effect until terminated by the Board of Directors of the Company. Shares of common stock repurchased under these plans will be retired subsequent to acquisition. During the three months ended March 31, 2022, there were no shares purchased under the Company’s repurchase plan.

50
ITEM 6.

Exhibits

Employment Agreement dated March 30, 2022 between the Company and Thomas L. Travis (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on April 5, 2022)
  
Employment Agreement dated March 30, 2022 between the Company and John T. Phillips (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed with the SEC on April 5, 2022)
 
Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  
101.INS
 XBRL Instance Document.
  
101.SCH
XBRL Taxonomy Extension Schema Document.
  
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document.
  
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.
  
101.LAB
XBRL Taxonomy Extension Label Linkbase Document.
  
101.PRE
 XBRL Taxonomy Extension Presentation Linkbase Document.

* This exhibit is furnished herewith and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
BANK7 CORP.
 
   
DATED:
May 13, 2022
By: /s/ Thomas L. Travis
 
  
Thomas L. Travis
 
  
President and Chief Executive Officer
 
    
 DATED:
 May 13, 2022
By: /s/ Kelly J. Harris
 
  
Kelly J. Harris
 
  
Executive Vice President and Chief Financial
Officer
 


51

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