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 September 30, 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 Share	BSVN	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 November 14, 2022, the registrant had 9,115,739 shares 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	4
	Unaudited Condensed Consolidated Statements of Comprehensive Income	5
	Unaudited Condensed Consolidated Statements of Shareholders’ Equity	6
	Unaudited Condensed Consolidated Statements of Cash Flows	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	51
Item 4.	Controls and Procedures	51
PART II.	OTHER INFORMATION	52
Item 1.	Legal Proceedings	52
Item 1A.	Risk Factors	52
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52
Item 3.	Defaults Upon Senior Securities	52
Item 4.	Mine Safety Disclosures	52
Item 5.	Other Information	52
Item 6.	Exhibits	53
	Signatures	53

2

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.

3

Bank7 Corp.

Unaudited Condensed Consolidated Balance Sheets

(Dollar amounts in thousands, except share data)

Assets	September 30, 2022 (unaudited)			December 31, 2021
Cash and due from banks	$	147,241		$	195,359
Federal funds sold		-			9,493
Cash and cash equivalents		147,241			204,852
Interest-bearing time deposits in other banks		1,494			3,237
Available-for-sale debt securities		174,534			84,808
Loans, net of allowance for loan losses of $13,153 and $10,316 at September 30, 2022 and December 31, 2021, respectively		1,219,998			1,018,085
Loans held for sale		204			464
Premises and equipment, net		13,352			17,257
Nonmarketable equity securities		1,193			1,202
Core deposit intangibles		1,412			1,643
Goodwill		8,068			8,479
Interest receivable and other assets		13,456			10,522
Total assets	$	1,580,952		$	1,350,549
Liabilities and Shareholders’ Equity
Deposits
Noninterest-bearing	$	497,768		$	366,705
Interest-bearing		939,568			850,766
Total deposits		1,437,336			1,217,471
Income taxes payable		446			-
Interest payable and other liabilities		7,351			5,670
Total liabilities		1,445,133			1,223,141
Shareholders’ equity
Common stock, $0.01 par value; 50,000,000 shares authorized; shares issued and outstanding: 9,115,739 and 9,071,417 at September 30, 2022 and December 31, 2021 respectively		91			91
Additional paid-in capital		95,054			94,024
Retained earnings		51,123			33,149
Accumulated other comprehensive income (loss)		(10,449	)		144
Total shareholders’ equity		135,819			127,408
Total liabilities and shareholders’ equity	$	1,580,952		$	1,350,549

See accompanying notes to Unaudited Condensed Consolidated Financial Statements

4

Bank7 Corp.

Unaudited Condensed Consolidated Statements of Comprehensive Income

(Dollar amounts in thousands, except share data)

	Three months ended September 30,					Nine months ended September 30,
	2022			2021		2022			2021
Interest Income
Loans, including fees	$	20,466		$	13,927	$	50,597		$	41,377
Interest-bearing time deposits in other banks		10			35		39			141
Debt securities, taxable		690			-		1,625			-
Debt securities, tax-exempt		90			-		273			-
Other interest and dividend income		435			46		754			114
Total interest income		21,691			14,008		53,288			41,632
Interest Expense
Deposits		2,646			729		4,241			2,376
Total interest expense		2,646			729		4,241			2,376
Net Interest Income		19,045			13,279		49,047			39,256
Provision for Loan Losses		2,348			750		2,843			3,325
Net Interest Income After Provision for Loan Losses		16,697			12,529		46,204			35,931
Noninterest Income
Mortgage lending income		134			161		395			253
Loss on sales, prepayments and calls of available-for-sale debt securities		(10	)		-		(127	)		-
Service charges on deposit accounts		210			141		678			380
Other		506			275		1,261			860
Total noninterest income		840			577		2,207			1,493
Noninterest Expense
Salaries and employee benefits		3,996			2,946		12,148			8,685
Furniture and equipment		390			218		1,134			651
Occupancy		614			461		1,736			1,391
Data and item processing		522			292		1,468			857
Accounting, marketing and legal fees		340			150		782			447
Regulatory assessments		551			162		973			464
Advertising and public relations		83			76		314			181
Travel, lodging and entertainment		94			102		216			309
Other		543			372		1,745			1,213
Total noninterest expense		7,133			4,779		20,516			14,198
Income Before Taxes		10,404			8,327		27,895			23,226
Income tax expense		2,363			2,063		6,646			5,753
Net Income	$	8,041		$	6,264	$	21,249		$	17,473
Earnings per common share - basic	$	0.88		$	0.69	$	2.34		$	1.93
Earnings per common share - diluted		0.87			0.69		2.31			1.92
Weighted average common shares outstanding - basic		9,100,789			9,052,718		9,095,724			9,051,112
Weighted average common shares outstanding - diluted		9,209,754			9,105,255		9,194,928			9,078,671
Other Comprehensive Income
Unrealized losses on securities, net of tax benefit of $1.7 million and $0 for the three months ended September 30, 2022 and 2021, respectively; $3.2 million and $0 for the nine months ended September 30, 2022 and 2021, respectively	$	(2,674	)	$	-	$	(10,691	)	$	-
Reclassification adjustment for realized (gain)loss included in net income, net of tax of $2 and $0 for the three months ended September 30, 2022 and 2021, respectively; $29 and $0 for the nine months ended September 30, 2022 and 2021, respectively		8			-		98			-
Other comprehensive loss	$	(2,666	)	$	-	$	(10,593	)	$	-
Comprehensive Income	$	5,375		$	6,264	$	10,656		$	17,473

See accompanying notes to Unaudited Condensed Consolidated Financial Statements

5

Bank7 Corp.

Unaudited Condensed Consolidated Statements of Shareholders’ Equity

(Dollar amounts in thousands, except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Common Stock  (Shares)
Balance at beginning of period		9,098,655			9,050,606			9,071,417			9,044,765
Exercise of employee stock options		1,250			-			16,062			-
Shares issued for restricted stock units		15,834			19,432			28,260			25,273
Balance at end of period		9,115,739			9,070,038			9,115,739			9,070,038
Common Stock (Amount)
Balance at beginning of period	$	91		$	90		$	91		$	90
Shares issued for restricted stock units		-			1			-			1
Balance at end of period	$	91		$	91		$	91		$	91
Additional Paid-in Capital
Balance at beginning of period	$	95,016		$	93,635		$	94,024		$	93,162
Shares purchased and retired		(303	)		(148	)		(29	)		(181	)
Stock-based compensation expense		341			279			1,059			785
Balance at end of period	$	95,054		$	93,766		$	95,054		$	93,766
Retained Earnings
Balance at beginning of period	$	44,174		$	23,286		$	33,149		$	14,067
Net income		8,041			6,264			21,249			17,473
Cash dividends declared ($0.12 and $0.11 per share for the three months ended September 30, 2022 and 2021, respectively; $0.36 and $0.33 per share for the nine months ended September 30, 2022 and 2021, respectively)		(1,092	)		(998	)		(3,275	)		(2,988	)
Balance at end of period	$	51,123		$	28,552		$	51,123		$	28,552
Accumulated Other Comprehensive Income (Loss)
Balance at beginning of period	$	(7,783	)	$	-		$	144		$	-
Comprehensive loss		(2,666	)		-			(10,593	)		-
Balance at end of period	$	(10,449	)	$	-		$	(10,449	)	$	-
Total Shareholders’ equity	$	135,819		$	122,409		$	135,819		$	122,409

See accompanying notes to Unaudited Condensed Consolidated Financial Statements

6

Bank7 Corp.

Unaudited Condensed Consolidated Statements of Cash Flows

(Dollar Amounts in thousands)

	Nine Months Ended September 30,
	2022			2021
Operating Activities
Net income	$	21,249		$	17,473
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		1,063			775
Provision for loan losses		2,843			3,325
Amortization of premiums and discounts on securities		657			-
Gain on sales of loans		(395	)		(253	)
Net loss on sale of available for sale debt securities		127			-
Stock-based compensation expense		1,059			785
Gain on sale of premises and equipment		(24	)		(11	)
Cash receipts from the sale of loans originated for sale		25,542			13,274
Cash disbursements for loans originated for sale		(24,887	)		(13,699	)
Deferred income tax benefit		(236	)		(65	)
Changes in
Interest receivable and other assets		810			(214	)
Interest payable and other liabilities		2,127			1,611
Net cash provided by operating activities		29,935			23,001
Investing Activities
Maturities of interest-bearing time deposits in other banks		2,490			11,183
Purchases of interest-bearing time deposits in other banks		(747	)		-
Proceeds from sale of available-for-sale debt securities		11,820			-
Maturities, prepayments and calls of available-for-sale debt securities		17,032			-
Purchases of available-for-sale debt securities		(133,052	)		-
Net change in loans		(204,756	)		(91,744	)
Purchases of premises and equipment		(273	)		(253	)
Proceeds from sale of premises and equipment		3,370			3
Change in nonmarketable equity securities		9			(21	)
Net cash used in investing activities		(304,107	)		(80,832	)
Financing Activities
Net change in deposits		219,865			112,860
Cash distributions		(3,275	)		(2,988	)
Net cash settlement of equity compensation		(29	)		(181	)
Common stock issued for restricted stock units		-			1
Net cash provided by financing activities		216,561			109,692
(Decrease) Increase in Cash and Cash Equivalents		(57,611	)		51,861
Cash and Cash Equivalents, Beginning of Period		204,852			153,901
Cash and Cash Equivalents, End of Period	$	147,241		$	205,762
Supplemental Disclosure of Cash Flows Information
Interest paid	$	4,220		$	2,480
Income taxes paid	$	6,843		$	6,087
Dividends declared and not paid	$	1,092		$	998
Measurement period goodwill adjustment	$	(411	)	$	-

See accompanying notes to Unaudited Condensed Consolidated Financial Statements

7

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”) 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, Texas, and to a lesser degree Kansas. 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.

8

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 and has inventoried existing leases and reviewed all material lease agreements; 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 parallel runs 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.

Revisions

Certain immaterial revisions have been made to the consolidated financial statements to properly present stock based compensation for the periods ending September 30, 2022 and September 30, 2021.  These revisions did not have a significant impact on the financial statement line items impacted or total assets, equity, or net income.

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.

9

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		8,669
Core deposit intangible		1,254
Prepaid expenses and other assets		4,512
Total assets acquiried	$	267,624
Liabilities Assumed
Deposits	$	243,487
Accounts payable and accrued expenses		1,696
Total liabilities assumed	$	245,183
Net assets acquired	$	22,441
Consideration transferred		29,498
Goodwill	$	7,057

Goodwill decreased $649,000 and decreased $411,000 for the three months and nine months ended September 30, 2022, respectively, related to the resolution of contractual obligations, assessment of the fair value of premises and equipment, and tax provision adjustments.

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 September 30, 2022, the net loan balance of the ASC Topic 310-20 purchased loans is $68.8 million ($69.7 million gross loans less $818,000 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.

10

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 September 30, 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 September 30,				As of and for the nine months ended September 30,
	2022		2021		2022		2021
(Dollars in thousands, except per share amounts)
Numerator
Net income	$	8,041	$	6,264	$	21,249	$	17,473
Denominator
Weighted-average shares outstanding for basic earnings per share		9,100,789		9,052,718		9,095,724		9,051,112
Dilutive effect of stock compensation (1)		108,965		52,537		99,204		27,559
Denominator for diluted earnings per share		9,209,754		9,105,255		9,194,928		9,078,671
Earnings per common share
Basic	$	0.88	$	0.69	$	2.34	$	1.93
Diluted	$	0.87	$	0.69	$	2.31	$	1.92

(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 3,000 and 27,000 for the three month periods ended September 30, 2022 and 2021, respectively, and 3,000 and 264,000 for the nine month periods ended September 30, 2022 and 2021, respectively; Restricted stock units of 0 and 193,850 for the three month periods ended September 30, 2022 and 2021, respectively, and 0 and 108,000 for the nine month periods ended September 30, 2022 and 2021, respectively.

11

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 September 30, 2022 and December 31, 2021 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 September 30, 2022
U.S. Federal agencies	$	202	$	-	$	(8	)	$	194
Mortgage-backed securities(1)(2)		45,556		-		(5,410	)		40,146
State and political subdivisions		30,871		-		(2,804	)		28,067
U.S. Treasuries		106,041		-		(4,915	)		101,126
Corporate debt securities		5,500		-		(499	)		5,001
Total available-for-sale		188,170		-		(13,636	)		174,534
Total debt securities		188,170		-		(13,636	)		174,534

(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.

⁽²⁾ Included in mortgage-backed securities is $29.09 million of residential mortgage-backed securities and $16.47 million of commerical mortgage-backed securities.

12

Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

The amortized cost and estimated fair value of investment securities at September 30, 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 September 30, 2022
Due in one year or less	$	2,082	$	2,057
Due after one year through five years		116,636		111,572
Due after five years through ten years		23,268		20,258
Due after ten years		628		501
Mortgage-backed securities		45,556		40,146
Total available-for-sale		188,170		174,534

(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		33,085		33,154
Total available-for-sale		84,693		84,808

There was one holding of securities of issuers in an amount greater than 10% of stockholders equity at September 30, 2022, a U.S. Treasury note with a fair value of $96.01 million.

The following table presents a summary of realized gains and losses from the sale, prepayment and call of debt securities for the nine months ended September 30, 2022 and the three months ended September 30, 2022. Note, the Company did not have available-for-sale debt securities at September 30, 2021.

	Nine Months Ended September 30, 2022			Three Months Ended September 30, 2022
(in thousands)
Proceeds from sales, prepayments and calls	$	28,852		$	9,024
Gross realized gains on sales, prepayments and calls		10			-
Gross realized losses on sales, prepayments and calls		(137	)		(10	)
Total realized (losses), net	$	(127	)	$	(10	)

The following table details book value of pledged securities as of September 30, 2022:

(in thousands)	September 30, 2022		December 31, 2021
Book value of pledged securities	$	29,260	$	37,477

13

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 September 30, 2022 and December 31, 2021. As of September 30, 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, no impairment 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 as of September 30, 2022
U.S. Federal agencies	$	194	$	(8	)	$	-	$	-	$	194	$	(8	)
Mortgage-backed securities		40,146		(5,410	)		-		-		40,146		(5,410	)
State and political subdivisions(1)		28,067		(2,804	)		-		-		28,067		(2,804	)
U.S. Treasuries		101,126		(4,915	)		-		-		101,126		(4,915	)
Corporate debt securities		5,001		(499	)		-		-		5,001		(499	)
Total available-for-sale	$	174,534	$	(13,636	)	$	-	$	-	$	174,534	$	(13,636	)

	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 as of December 31, 2021
U.S. Federal agencies	$	-	$	-		$	-	$	-	$	-	$	-
Mortgage-backed securities		-		-			-		-		-		-
State and political subdivisions(1)		-		-			-		-		-		-
U.S. Treasuries		6,047		(5	)		-		-		6,047		(5	)
Corporate debt securities		-		-			-		-		-		-
Total available-for-sale	$	6,047	$	(5	)	$	-	$	-	$	6,047	$	(5	)

⁽¹⁾ All of our state and political subdivisions securities are rate BBB+ or better.

14

Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 6: Loans and Allowance for Loan Losses

A summary of loans at September 30, 2022 and December 31, 2021, are as follows (dollars in thousands):

	September 30, 2022			December 31, 2021
Construction & development	$	212,307		$	169,322
1 - 4 family real estate		75,130			62,971
Commercial real estate - other		372,431			339,655
Total commercial real estate		659,868			571,948
Commercial & industrial		496,217			361,974
Agricultural		65,333			73,010
Consumer		15,160			24,046
Gross loans		1,236,578			1,030,978
Less allowance for loan losses		(13,153	)		(10,316	)
Less deferred loan fees		(3,427	)		(2,577	)
Net loans	$	1,219,998		$	1,018,085

Included in the commercial & industrial loan balances are $2.6 million and $18.7 million of loans that were originated under the SBA PPP program as of  September 30, 2022 and December 31, 2021, respectively.

15

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 September 30, 2022 and 2021 (dollars in thousands):

	Construction & Development		1 - 4 Family Real Estate		Commercial Real Estate - Other		Commercial & Industrial		Agricultural		Consumer			Total
September 30, 2022
Balance, beginning of period	$	1,792	$	649	$	3,216	$	4,449	$	558	$	155		$	10,819
Charge-offs		-		-		-		-		-		(19	)		(19	)
Recoveries		-		-		-		-		-		5			5
Net (charge-offs) recoveries		-		-		-		-		-		(14	)		(14	)
Provision (credit) for loan losses		466		150		746		829		137		20			2,348
Balance, end of period	$	2,258	$	799	$	3,962	$	5,278	$	695	$	161		$	13,153

	Construction & Development			1 - 4 Family Real Estate			Commercial Real Estate - Other			Commercial & Industrial			Agricultural			Consumer			Total
September 30, 2021
Balance, beginning of period	$	1,631		$	448		$	4,109		$	5,189		$	825		$	104		$	12,306
Charge-offs		-			-			-			(3,750	)		-			(2	)		(3,752	)
Recoveries		-			-			-			1			-			1			2
Net (charge-offs) recoveries		-			-			-			(3,749	)		-			(1	)		(3,750	)
Provision (credit) for loan losses		(290	)		(61	)		(1,185	)		2,541			(230	)		(25	)		750
Balance, end of period	$	1,341		$	387		$	2,924		$	3,981		$	595		$	78		$	9,306

The following table presents, by portfolio segment, the activity in the allowance for loan losses for the nine months ended September 30, 2022 and 2021 (dollars in thousands):

	Construction & Development		1 - 4 Family Real Estate		Commercial Real Estate - Other		Commercial & Industrial		Agricultural			Consumer			Total
September 30, 2022
Balance, beginning of period	$	1,695	$	630	$	3,399	$	3,621	$	730		$	241		$	10,316
Charge-offs		-		-		-		-		-			(20	)		(20	)
Recoveries		-		-		-		-		-			14			14
Net (charge-offs) recoveries		-		-		-		-		-			(6	)		(6	)
Provision (credit) for loan losses		563		169		563		1,657		(35	)		(74	)		2,843
Balance, end of period	$	2,258	$	799	$	3,962	$	5,278	$	695		$	161		$	13,153

	Construction & Development		1 - 4 Family Real Estate		Commercial Real Estate - Other			Commercial & Industrial			Agricultural			Consumer			Total
September 30, 2021
Balance, beginning of period	$	1,239	$	334	$	3,337		$	4,035		$	580		$	114		$	9,639
Charge-offs		-		-		-			(3,750	)		-			(63	)		(3,813	)
Recoveries		-		-		-			15			138			2			155
Net (charge-offs) recoveries		-		-		-			(3,735	)		138			(61	)		(3,658	)
Provision (credit) for loan losses		102		53		(413	)		3,681			(123	)		25			3,325
Balance, end of period	$	1,341	$	387	$	2,924		$	3,981		$	595		$	78		$	9,306

16

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 September 30, 2022 and December 31, 2021 (dollars in thousands):

	Construction & Development		1 - 4 Family Real Estate		Commercial Real Estate - Other		Commercial & Industrial		Agricultural		Consumer		Total
September 30, 2022
Allowance Balance
Ending balance Individually evaluated for impairment	$	-	$	-	$	-	$	139	$	-	$	-	$	139
Collectively evaluated for impairment		2,258		799		3,962		5,139		695		161		13,014
Total	$	2,258	$	799	$	3,962	$	5,278	$	695	$	161	$	13,153
Gross Loans
Ending balance Individually evaluated for impairment	$	-	$	-	$	10,127	$	16,707	$	144	$	23	$	27,001
Collectively evaluated for impairment		212,307		75,130		362,304		479,510		65,189		15,137		1,209,577
Total	$	212,307	$	75,130	$	372,431	$	496,217	$	65,333	$	15,160	$	1,236,578
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.

17

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 September 30, 2022.

18

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 September 30, 2022 and December 31, 2021 (dollars in thousands):

	Construction & Development		1 - 4 Family Real Estate		Commercial Real Estate - Other		Commercial & Industrial		Agricultural		Consumer		Total
September 30, 2022
Grade
1 (Pass)	$	212,307	$	75,130	$	327,484	$	476,640	$	64,977	$	15,137	$	1,171,675
2 (Watch)		-		-		15,000		65		212		-		15,277
3 (Special Mention)		-		-		19,820		2,805		-		-		22,625
4 (Substandard)		-		-		10,127		16,707		144		23		27,001
Total	$	212,307	$	75,130	$	372,431	$	496,217	$	65,333	$	15,160	$	1,236,578

	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 September 30, 2022 and December 31, 2021 (dollars in thousands):

	Past Due												Total Loans
	30–59 Days		60–89 Days		Greater than 90 Days		Total		Current		Total Loans		> 90 Days & Accruing
September 30, 2022
Construction & development	$	-	$	-	$	-	$	-	$	212,307	$	212,307	$	-
1 - 4 family real estate		-		-		-		-		75,130		75,130		-
Commercial real estate - other		-		23		-		23		372,408		372,431		-
Commercial & industrial		-		-		9,923		9,923		486,294		496,217		9,923
Agricultural		144		-		-		144		65,189		65,333		-
Consumer		44		-		23		67		15,093		15,160		23
Total	$	188	$	23	$	9,946	$	10,157	$	1,226,421	$	1,236,578	$	9,946
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

19

Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

The following table presents impaired loans as of September 30, 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		Average Recorded Investment		Interest Income Recognized
											Three Months Ended September 30, 2022				Nine Months Ended September 30, 2022
September 30, 2022
Construction & development	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	28	$	-
1 - 4 Family Real Estate		-		-		-		-		-		-		-		-		-
Commercial Real Estate - other		10,505		10,127		-		10,127		-		12,547		263		14,097		508
Commercial & industrial		16,970		16,568		139		16,707		139		10,199		568		9,596		691
Agricultural		144		144		-		144		-		48		5		17		5
Consumer		23		23		-		23		-		30		2		29		3
Total	$	27,642	$	26,862	$	139	$	27,001	$	139	$	22,824	$	838	$	23,767	$	1,207

December 31, 2021											Three Months Ended September 30, 2021				Nine Months Ended September 30, 2021
Construction & development	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
1 - 4 Family Real Estate		-		-		-		-		-		-		-		-		-
Commercial Real Estate - other		15,412		14,481		-		14,481		-		14,700		228		10,989		682
Commercial & industrial		9,476		9,101		253		9,354		253		12,331		64		13,658		433
Agricultural		-		-		-		-		-		-		-		215		-
Consumer		18		19		-		19		-		-		-		42		-
Total	$	24,906	$	23,601	$	253	$	23,854	$	253	$	27,031	$	292	$	24,904	$	1,115

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 September 30, 2022, the Company had $1.3 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 nine months ended September 30, 2022.

There were no troubled-debt restructurings modified in the past nine months that subsequently defaulted for the period ended September 30, 2022.

20

Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

The following table represents information regarding nonperforming assets at September 30, 2022 and December 31, 2021 (dollars in thousands):

	Construction & Development		1 - 4 Family Real Estate		Commercial Real Estate - Other		Commercial & Industrial		Agricultural		Consumer		Total
September 30, 2022
Nonaccrual loans	$	-	$	-	$	1,405	$	6,813	$	-	$	-	$	8,218
Troubled-debt restructurings (1)		-		-		-		-		-		-		-
Accruing loans 90 or more days past due		-		-		-		9,923		-		23		9,946
Total nonperforming loans	$	-	$	-	$	1,405	$	16,736	$	-	$	23	$	18,164

	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) $1.3 million of TDRs as of September 30, 2022 and $1.4 million as of 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 1,750,000 shares 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:

	Nine Months Ended September 30,				Three Months Ended September 30,
	2022		2021		2022		2021
Number of shares repurchased		-		-		-		-
Average price of shares repurchased	$	-	$	-	$	-	$	-
Shares remaining to be repurchased		750,000		-		750,000		-

21

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 September 30, 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 September 30, 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.

22

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 September 30, 2022
Total capital to risk-weighted assets
Company	$	149,939		12.09	%	$	99,195		8.00	%	$	130,193		10.50	%		N/A		N/A
Bank		149,899		12.10	%		99,114		8.00	%		130,087		10.50	%		123,892		10.00	%
Tier I capital to risk-weighted assets
Company		136,786		11.03	%		74,396		6.00	%		105,394		8.50	%		N/A		N/A
Bank		136,746		11.04	%		74,335		6.00	%		105,308		8.50	%		99,114		8.00	%
CET I capital to risk-weighted assets
Company		136,786		11.03	%		55,797		4.50	%		86,795		7.00	%		N/A		N/A
Bank		136,746		11.04	%		55,751		4.50	%		86,724		7.00	%		80,530		6.50	%
Tier I capital to average assets
Company		136,786		9.01	%		60,721		4.00	%		N/A		N/A			N/A		N/A
Bank		136,746		9.01	%		60,695		4.00	%		N/A		N/A			75,868		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.

23

Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

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.

As of September 30, 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 September 30, 2022, approximately $54.3 million of retained earnings was available for dividend declaration from the Bank without prior regulatory approval.

Note 8: Related-Party Transactions

At September 30, 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 $45,000 for the three months ended September 30, 2022 and 2021, respectively and $116,000 and $137,000 for the nine months ended September 30, 2022 and 2021, respectively. In addition, payroll and office sharing arrangements were in place between the Company and certain of its affiliates.

24

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 September 30, 2022 and 2021 totaled $74,000 and $63,000, respectively. Employer contributions charged to expense for the nine months ended September 30, 2022 and 2021 totaled $281,000 and $204,000, respectively.

Stock-Based Compensation

The Company adopted an equity incentive plan (the “Incentive Plan”) in September 2018. The Incentive Plan permits the grant of restricted stock units and nonqualified incentive stock options. The Incentive Plan will terminate in September 2028, if not extended. Compensation expense related to the Incentive Plan for the three months ended September 30, 2022 and 2021 totaled $341,000 and $279,000, respectively. Compensation expense related to the Incentive Plan for the nine months ended September 30, 2022 and 2021 totaled $1,059,000 and $785,000, respectively. There were 701,337 shares available for future grants as of September 30, 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		Aggregate Intrinsic Value
Nine Months Ended September 30, 2022
Outstanding at December 31, 2021		264,000	$	17.41
Options Granted		3,000		-
Options Exercised		16,062		17.62
Options Forfeited		-		-
Outstanding at September 30, 2022		250,938		17.47		6.86	$	1,185,052
Exercisable at September 30, 2022		171,873		18.39		6.30	$	650,556

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.

25

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 nine months ended September 30, 2022.

	For the Nine Months Ended
	September 30, 2022			September 30, 2021
Risk-free interest rate		3.39	%		0.52	%
Dividend yield		1.96	%		2.89	%
Stock price volatility		34.92	%		66.67	%
Expected term		7.01			6.41

The following table summarizes share information about RSUs for the nine months ended September 30, 2022 and 2021:

	Number of Shares			Wgtd. Avg. Grant Date Fair Value
Nine Months Ended September 30, 2022
Outstanding at December 31, 2021		172,993		$	19.02
Shares granted		3,000			4.03
Shares vested		(41,584	)		17.93
Shares forfeited		(750	)		22.13
End of the period balance		133,659		$	19.01

	Number of Shares			Wgtd. Avg. Grant Date Fair Value
Nine Months Ended September 30, 2021
Outstanding at December 31, 2020		118,000		$	18.09
Shares granted		25,200			14.31
Shares vested		(33,582	)		18.85
Shares forfeited		-			-
End of the period balance		109,618		$	16.99

As of September 30, 2022, there was approximately $2.1 million of unrecognized compensation expense related to 133,659 unvested RSUs and $385,000 of unrecognized compensation expense related to 250,938 unvested and/or unexercised stock options. The stock option expense is expected to be recognized over a weighted average period of 2.17 years, and the RSU expense is expected to be recognized over a weighted average period of 2.48 years.

As of September 30, 2021, there was approximately $1.7 million of unrecognized compensation expense related to 109,618 unvested RSUs and $668,106 of unrecognized compensation expense related to 264,000 unvested and/or unexercised stock options.  The stock option expense is expected to be recognized over a weighted average period of 2.67 years, and the RSU expense is expected to be recognized over a weighted average period of 2.53 years.

26

Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

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.

27

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 September 30, 2022 and December 31, 2021 (dollars in thousands):

	Fair Value		(Level 1)		(Level 2)		(Level 3)
September 30, 2022
Impaired loans (collateral- dependent)	$	6,673	$	-	$	-	$	6,673
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.

28

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
September 30, 2022
Collateral-dependent impaired loans	$	6,673	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 September 30, 2022 and December 31, 2021 (dollars in thousands):

	Carrying		Fair Value Measurements
	Amount		Level 1		Level 2		Level 3		Total
September 30, 2022
Financial Assets
Cash and due from banks	$	147,241	$	147,241	$	-	$	-	$	147,241
Federal funds sold		-		-		-		-		-
Interest-bearing time deposits in other banks		1,494		-		1,494		-		1,494
Loans, net of allowance		1,219,998		-		1,210,991		6,673		1,217,664
Loans held for sale		204		-		204		-		204
Nonmarketable equity securities		1,193		-		1,193		-		1,193
Interest receivable		6,354		-		6,354		-		6,354
Financial Liabilities
Deposits	$	1,437,336	$	-	$	1,435,002	$	-	$	1,435,002
Interest payable		138		-		138		-		138
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

29

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 September 30, 2022 and December 31, 2021.

30

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 September 30, 2022 and December 31, 2021 (dollars in thousands):

	September 30, 2022		December 31, 2021
	(Dollars in thousands)
Commitments to extend credit	$	228,006	$	200,393
Financial and performance standby letters of credit		2,666		5,809
	$	230,672	$	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.

As of September 30, 2022, hospitality loans were 19% of gross total loans with outstanding balances of $233.2 million and unfunded commitments of $20.9 million; energy loans were 14% of gross total loans with outstanding balances of $171.1 million and unfunded commitments of $55.1 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 September 30, 2022, goodwill of $8.1 million was recorded on the consolidated balance sheet.

31

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 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 September 30, 2022, we had total assets of $1.6 billion, gross loans of $1.2 billion, total deposits of $1.4 billion and total shareholders’ equity of $135.8 million.

Results of Operations

Performance Summary. For the third quarter of 2022, we reported a pre-tax income of $10.4 million, compared to pre-tax income of $8.3 million for the third quarter of 2021. For the first nine months of 2022, we reported a pre-tax income of $27.9 million, compared to pre-tax income of $23.2 million for the same period in 2021. For the third quarter of 2022, interest income increased by $7.7 million, or 54.9%, compared to the third quarter of 2021. For the first nine months of 2022, interest income increased by $11.7 million, or 28.0%, compared to the same period in 2021. For the third quarter of 2022, average total loans were $1.2 billion with loan yields of 6.69% as compared to average total loans of $924.4 million with loan yields of 5.98% for the third quarter of 2021. For the first nine months of 2022, average total loans were $1.1 billion with loan yields of 6.13% as compared to average total loans of $887.4 million with loan yields of 6.23% for the same period in 2021.

Our provision for loan losses for the third quarter of 2022 was $2.4 million, compared to $750,000 for the same period of 2021. Our provision for loan losses for the first nine months of 2022 was $2.8 million, compared to $3.3 million for the same period in 2021.

Return on average equity was 23.72% for the third quarter of 2022, as compared to 21.09% for the third quarter of 2021. Return on average equity was 21.54% for first nine months of 2022, as compared to 20.53% for the same period in 2021.

32

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 Including Loan Fee Income
	For the Three Months Ended September 30,
	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	$	99,751	$	445		1.77	%	$	120,078	$	79		0.26	%
Debt securities, taxable		163,699		690		1.67			1,187		2		0.67
Debt securities, tax exempt(1)		21,811		90		1.64			-		-		-
Loans held for sale		1,281		-		-			610		-		-
Total loans(2)		1,213,080		20,466		6.69			924,391		13,927		5.98
Total interest-earning assets		1,499,622		21,691		5.74			1,046,266		14,008		5.31
Noninterest-earning assets		23,197							5,607
Total assets	$	1,522,819						$	1,051,873
Funding sources:
Interest-bearing liabilities:
Deposits:
Transaction accounts	$	761,927		2,338		1.22	%	$	401,843		332		0.33	%
Time deposits		152,910		308		0.80			220,189		397		0.72
Total interest-bearing deposits		914,837		2,646		1.15			622,032		729		0.46
Total interest-bearing liabilities	$	914,837		2,646		1.15		$	622,032		729		0.46
Noninterest-bearing liabilities:
Noninterest-bearing deposits	$	463,882						$	304,063
Other noninterest-bearing liabilities		8,132							6,633
Total noninterest-bearing liabilities		472,014							310,696
Shareholders' equity		135,968							119,145
Total liabilities and shareholders' equity	$	1,522,819						$	1,051,873
Net interest income including loan fee income			$	19,045						$	13,279
Net interest spread including loan fee income(4)						4.60	%						4.85	%
Net interest margin including loan fee income						5.04	%						5.04	%

(1) Taxable-equivalent yield of 2.12% as of September 30, 2022, applying a 22.7% effective tax rate

(2) Non-accrual loans of $8.2 million and $9.8 million as of September 30, 2022 and September 30, 2021, respectively, are included in loans.

For the third quarter of 2022 compared to the third quarter of 2021:

- Interest income on debt securities totaled $780,000, an increase of $778,000, as a result of debt securities acquired in December 2021 and purchased during the first quarter of 2022;

- Interest income on total loans totaled $20.5 million, an increase of $6.5 million or 47.0%, due to an increase in average loans of $288.7 million, or 31.2%;

- Loan fees totaled $1.7 million, an increase of approximately $40,000 or 2.4%, and

- Net interest margin for the third quarter of 2022 was 5.04% compared to 5.04% for the third quarter of 2021.

33

	Net Interest Margin Including Loan Fee Income
	For the Nine Months Ended September 30,
	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	$	139,133	$	793		0.76	%	$	124,801	$	236		0.25	%
Debt securities, taxable-equivalent		142,913		1,625		1.52			1,182		19		2.15
Debt securities, tax exempt(1)		22,087		273		1.65			-		-		-
Loans held for sale		686		-		-			501		-		-
Total loans(2)		1,103,114		50,597		6.13			887,353		41,377		6.23
Total interest-earning assets		1,407,933		53,288		5.06			1,013,837		41,632		5.49
Noninterest-earning assets		24,069							5,927
Total assets	$	1,432,002						$	1,019,764
Funding sources:
Interest-bearing liabilities:
Deposits:
Transaction accounts	$	699,670		3,351		0.64	%	$	410,299		1,024		0.33	%
Time deposits		168,608		890		0.71			212,706		1,352		0.85
Total interest-bearing deposits		868,278		4,241		0.65			623,005		2,376		0.51
Total interest-bearing liabilities		868,278		4,241		0.65			623,005		2,376		0.51
Noninterest-bearing liabilities:
Noninterest-bearing deposits		424,720							277,308
Other noninterest-bearing liabilities		7,128							5,634
Total noninterest-bearing liabilities		431,848							282,942
Shareholders' equity		131,876							113,817
Total liabilities and shareholders' equity	$	1,432,002						$	1,019,764
Net interest income including loan fee income			$	49,047						$	39,256
Net interest spread including loan fee income(4)						4.41	%						4.98	%
Net interest margin including loan fee income						4.66	%						5.18	%

(1) Taxable-equivalent yield of 2.18% as of September 30, 2022, applying a 23.8% effective tax rate

(2) Non-accrual loans of $8.2 million and $9.8 million as of September 30, 2022 and September 30, 2021, respectively, are included in loans.

For the first nine months of 2022 compared to the same period in 2021:

- Interest income on debt securities totaled $1.9 million, an increase of $1.9 million, a result of debt securities acquired in December 2021 and purchased during the first nine months of 2022;

- Interest income on total loans totaled $50.6 million, an increase of $9.2 million or 22.3%, due to an increase in average loans of $216 million, or 24.3%;

- Average loan yields for the first nine month of 2022 were 6.13% compared to 6.23% for the same period in 2021, the higher yields in 2021 were due to loan fee income related to PPP loans.

- Net interest margin for the first nine months of 2022 was 4.66% compared to 5.18% for the same period in 2021.

34

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 September 30, 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	$	(53	)	$	419		$	366
Debt securities		1,235			(457	)		778
Total loans		17,264			(10,725	)		6,539
Total increase (decrease) in interest income		18,446			(10,763	)		7,683
Increase (decrease) in interest expense:
Deposits:
Transaction accounts		1,188			818			2,006
Time deposits		(484	)		395			(89	)
Total interest-bearing deposits		704			1,213			1,917
Total increase (decrease) in interest expense		704			1,213			1,917
Increase (Decrease) in net interest income	$	17,742		$	(11,976	)	$	5,766

	Analysis of Changes in Interest Income and Expenses
	For the Nine Months Ended September 30, 2022 vs 2021
	Change due to:
	Volume(1)			Rate(1)			Interest Variance
	(Dollars in thousands)
Increase (decrease) in interest income:
Short-term investments	$	27		$	530		$	557
Debt securities		2,634			(755	)		1,879
Total loans		10,054			(834	)		9,220
Total increase (decrease) in interest income		12,716			(1,060	)		11,656
Increase (decrease) in interest expense:
Deposits:
Transaction accounts		714			1,613			2,327
Time deposits		(280	)		(182	)		(462	)
Total interest-bearing deposits		434			1,431			1,865
Total increase (decrease) in interest expense		434			1,431			1,865
Increase (Decrease) in net interest income	$	12,281		$	(2,490	)	$	9,791

(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.

35

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 September 30, 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 September 30, 2022
	Within One Year						After One Year But Within Five Years						After Five Years But 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	$	11			2.58	%	$	183			2.67	%	$	-			0	%	$	-			0	%	$	194			2.66	%
Mortgage-backed securities		996			1.99			9,665			1.34			4,124			1.45			25,361			1.67			40,146			1.58
State and political subdivisions		2,046			1.58			14,477			1.23			11,043			1.43			501			1.48			28,067			1.34
U.S. Treasuries		-			-			96,912			1.18			4,214			1.10			-			-			101,126			1.18
Corporate debt securities		-			-			-			-			5,001			3.36			-			-			5,001			3.36
Total	$	3,053			1.72	%	$	121,237			1.20	%	$	24,382			1.75	%	$	25,862			1.67	%	$	174,534			1.37	%
Percentage of total		1.75	%					69.46	%					13.97	%					14.82	%					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 1.07% at September 30, 2022 and 1.00% at December 31, 2021.

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Noninterest Income

Noninterest income for the three months ended September 30, 2022 was $840,000 compared to $577,000 for the same period in 2021, an increase of $263,000, or 45.6%. The following table sets forth the major components of our noninterest income for the three months ended September 30, 2022 and 2021:

	For the Three Months Ended
	September 30,
	2022			2021		$ Increase (Decrease)			% Increase (Decrease)
	(Dollars in thousands)
Noninterest income:
Mortgage lending income	$	134		$	161	$	(27	)		-16.77	%
Gain (Loss) on sales of available-for-sale debt securities		(10	)		-		(10	)		-100.00	%
Service charges on deposit accounts		210			141		69			48.94	%
Other income and fees		506			275		231			84.00	%
Total noninterest income	$	840		$	577	$	263			45.58	%

Mortgage lending income totaled $134,000 for the third quarter of 2022, compared to $161,000 for the same period in 2021, a decrease of $27,000, or 16.77%. Service charges on deposit accounts totaled $210,000 for the third quarter of 2022, an increase of $69,000 or 48.9% compared to the third quarter of 2021. The increase is due to an overall increase in deposit activity due to the acquisition of Watonga in December 2021.

Noninterest income for the nine months ended September 30, 2022 was $2.2 million compared to $1.5 million for the same period in 2021, an increase of $714,000, or 47.8%. The following table sets forth the major components of our noninterest income for the nine months ended September 30, 2022 and 2021:

	For the Nine Months Ended
	September 30,
	2022			2021		$ Increase (Decrease)			% Increase (Decrease)
	(Dollars in thousands)
Noninterest income:
Mortgage lending income	$	395		$	253	$	142			56.13	%
Gain (Loss) on sales of available-for-sale debt securities		(127	)		-		(127	)		-100.00
Service charges on deposit accounts		678			380		298			78.42	%
Other income and fees		1,261			860		401			46.63	%
Total noninterest income	$	2,207		$	1,493	$	714			47.82	%

Mortgage lending income totaled $395,000 for the first nine months of 2022, compared to $253,000 for the same period in 2021, an increase of $142,000, or 56.1%. Service charges on deposit accounts totaled $678,000 for the first nine months of 2022, an increase of $298,000 or 78.4% compared to the same period in 2021. The increase is due to an overall increase in deposit activity due to the acquisition of Watonga in December 2021. Other income and fees totaled $1.3 million for the first nine months of 2022, an increase of $401,000 or 46.6% compared to the same period in 2021. The increase is due to an overall increase in other income due to the acquisition of Watonga in December 2021.

37

Noninterest Expense

Noninterest expense for the three months ended September 30, 2022 was $7.1 million compared to $4.8 million for the same period in 2021, an increase of $2.4 million, or 49.3%. The following table sets forth the major components of our noninterest expense for the three months ended September 30, 2022 and 2021:

	For the Three Months Ended
	September 30,
	2022		2021		$ Increase (Decrease)			% Increase (Decrease)
	(Dollars in thousands)
Noninterest expense:
Salaries and employee benefits	$	3,996	$	2,946	$	1,050			35.64	%
Furniture and equipment		390		218		172			78.90	%
Occupancy		614		461		153			33.19	%
Data and item processing		522		292		230			78.77	%
Accounting, marketing, and legal fees		340		150		190			126.67	%
Regulatory assessments		551		162		389			240.12	%
Advertising and public relations		83		76		7			9.21	%
Travel, lodging and entertainment		94		102		(8	)		-7.84	%
Other expense		543		372		171			45.97	%
Total noninterest expense	$	7,133	$	4,779	$	2,354			49.26	%

Salaries and employee benefits totaled $4.0 million for the third quarter of 2022 compared to $2.9 million for the same period in 2021, an increase of $1.1 million or 35.6%.  This increase was attributable to an increase in employee base due to bank-wide organic growth and the acquisition of Watonga in December 2021.

Noninterest expense for the nine months ended September 30, 2022 was $20.5 million compared to $14.2 million for the same period in 2021, an increase of $6.3 million, or 44.5%. The following table sets forth the major components of our noninterest expense for the nine months ended September 30, 2022 and 2021:

	For the Nine Months Ended
	September 30,
	2022		2021		$ Increase (Decrease)			% Increase (Decrease)
	(Dollars in thousands)
Noninterest expense:
Salaries and employee benefits	$	12,148	$	8,685	$	3,463			39.87	%
Furniture and equipment		1,134		651		483			74.19	%
Occupancy		1,736		1,391		345			24.80	%
Data and item processing		1,468		857		611			71.30	%
Accounting, marketing, and legal fees		782		447		335			74.94	%
Regulatory assessments		973		464		509			109.70	%
Advertising and public relations		314		181		133			73.48	%
Travel, lodging and entertainment		216		309		(93	)		-30.10	%
Other expense		1,745		1,213		532			43.86	%
Total noninterest expense	$	20,516	$	14,198	$	6,318			44.50	%

Salaries and employee benefits totaled $12.1 million for the first nine months of 2022 compared to $8.7 million for the same period in 2021, an increase of $3.5 million or 39.9%.  This increase was attributable to an increase in employee base due to bank-wide organic growth and the acquisition of Watonga in December 2021.

38

Financial Condition

The following discussion of our financial condition compares September 30, 2022 and December 31, 2021.

Total Assets

Total assets increased $230.4 million, or 17.1%, to $1.6 billion as of September 30, 2022, compared to $1.4 billion as of December 31, 2021. The increase in total assets is primarily attributable to strong organic growth within our major metropolitan markets in Oklahoma City, Tulsa, and Texas.

Loan Portfolio

The following table presents the balance and associated percentage of each major category in our loan portfolio as of September 30, 2022 and December 31, 2021:

	As of September 30,						As of December 31,
	2022						2021
	Amount			% of Total			Amount			% of Total
	(Dollars in thousands)
Construction & development	$	212,307			17.2	%	$	169,322			16.4	%
1-4 family real estate		75,130			6.1	%		62,971			6.1	%
Commercial real estate - other		372,431			30.1	%		339,655			33.0	%
Total commercial real estate		659,868			53.4	%		571,948			55.5	%
Commercial & industrial		496,217			40.1	%		361,974			35.1	%
Agricultural		65,333			5.3	%		73,010			7.1	%
Consumer		15,160			1.2	%		24,046			2.3	%
Gross loans		1,236,578			100.0	%		1,030,978			100.0	%
Less: unearned income, net		(3,427	)					(2,577	)
Total Loans, net of unearned income		1,233,151						1,028,401
Less: Allowance for loan losses		(13,153	)					(10,316	)
Net loans	$	1,219,998					$	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 September 30, 2022 and December 31, 2021, our gross loans were $1.2 billion and $1.0 billion, respectively.  Included in the commercial & industrial loan balances at September 30, 2022 and December 31, 2021, respectively, are $2.6 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.

39

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

	As of September 30, 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	$	20,763	$	64,030	$	9,974	$	109,626	$	-	$	1,323	$	-	$	6,591	$	212,307
1-4 family real estate		11,097		13,237		22,514		15,320		321		6,317		-		6,324		75,130
Commercial real estate - other		2,706		52,929		107,450		179,281		330		18,436		-		11,299		372,431
Total commercial real estate		34,566		130,196		139,938		304,227		651		26,076		-		24,214		659,868
Commercial & industrial		46,027		188,115		65,280		181,299		3,995		10,862		-		639		496,217
Agricultural		776		15,198		5,833		37,945		470		1,726		121		3,264		65,333
Consumer		1,226		16		6,851		178		577		2,774		82		3,456		15,160
Gross loans	$	82,595	$	333,525	$	217,902	$	523,649	$	5,693	$	41,438	$	203	$	31,573	$	1,236,578

	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 commerical 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 $13.2 million at September 30, 2022, compared to $10.3 million at December 31, 2021.

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

	For the Nine Months Ended September 30,
	2022			2021
	(Dollars in thousands)
Balance at beginning of the period	$	10,316		$	9,639
Provision for loan losses		2,843			3,325
Charge-offs:
Construction & development		-			-
1-4 family real estate		-			-
Commercial real estate - other		-			-
Commercial & industrial		-			(3,750	)
Agricultural		-			-
Consumer		(20	)		(63	)
Total charge-offs		(20	)		(3,813	)
Recoveries:
Construction & development		-			-
1-4 family real estate		-			-
Commercial real estate - other		-			-
Commercial & industrial		-			15
Agricultural		-			138
Consumer		14			2
Total recoveries		14			155
Net recoveries (charge-offs)		(6	)		(3,658	)
Balance at end of the period	$	13,153		$	9,306
Net recoveries (charge-offs) to average loans		0.00	%		0.41	%

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 September 30,					As of December 31,
	2022					2021
	Amount		Percent			Amount		Percent
	(Dollars in thousands)
Construction & development	$	2,258		17.2	%	$	1,695		16.4	%
1-4 family real estate		799		6.1	%		630		6.1	%
Commercial real estate - Other		3,962		30.1	%		3,399		33.0	%
Commercial & industrial		5,278		40.1	%		3,621		35.1	%
Agricultural		695		5.3	%		730		7.1	%
Consumer		161		1.2	%		241		2.3	%
Total	$	13,153		100.0	%	$	10,316		100.0	%

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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 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.

42

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

	As of September 30,			As of December 31,
	2022			2021
	(Dollars in thousands)
Nonaccrual loans	$	8,218		$	9,885
Troubled-debt restructurings (1)		-			-
Accruing loans 90 or more days past due		9,946			496
Total nonperforming loans		18,164			10,381
Other real estate owned		-			-
Total nonperforming assets	$	18,164		$	10,381
Ratio of nonperforming loans to total loans		1.47	%		1.01	%
Ratio of nonaccrual loans to total loans		0.67	%		0.96	%
Ratio of allowance for loan losses to total loans		1.07	%		1.00	%
Ratio of allowance for loan losses to nonaccrual loans		160.05	%		104.36	%
Ratio of nonperforming assets to total assets		1.15	%		0.77	%

(1) $1.3 million of TDRs as of September 30, 2022 and $1.4 million as of December 31, 2021 are included in the nonaccrual loans balance in the line above

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

	As of September 30, 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	$	-	$	-	$	-	$	-	$	-	$	212,307	$	212,307
1-4 family real estate		-		-		-		-		-		75,130		75,130
Commercial real estate - other		-		23		-		-		23		372,408		372,431
Commercial & industrial		-		-		9,923		9,923		9,923		486,294		496,217
Agricultural		144		-		-		-		144		65,189		65,333
Consumer		44		-		23		23		67		15,093		15,160
Total	$	188	$	23	$	9,946	$	9,946	$	10,157	$	1,226,421	$	1,236,578

	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

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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.

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

	As of September 30, 2022
	Pass		Watch		Special mention		Substandard		Total
	(Dollars in thousands)
Construction & development	$	212,307	$	-	$	-	$	-	$	212,307
1-4 family real estate		75,130		-		-		-		75,130
Commercial real estate - Other		327,484		15,000		19,820		10,127		372,431
Commercial & industrial		476,640		65		2,805		16,707		496,217
Agricultural		64,977		212		-		144		65,333
Consumer		15,137		-		-		23		15,160
Total	$	1,171,675	$	15,277	$	22,625	$	27,001	$	1,236,578

	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

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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 impaired, based on applicable accounting guidance.

The following table presents loans restructured as TDRs as of September 30, 2022 and December 31, 2021:

	As of September 30, 2022
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Specific Reserves Allocated
	(Dollars in thousands)
Commercial real estate		1	$	1,249	$	1,249		-
Total		1	$	1,249	$	1,249	$	-

	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 September 30, 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 nine months ended September 30, 2022 and TDR’s restructured during the twelve months ended December 31, 2021 required no specific reserves. ;w

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

	As of September 30, 2022				As of December 31, 2021
	Number of contracts		Amount		Number of contracts		Amount
	(Dollars in thousands)
Accrual		-	$	-		-	$	-
Nonaccrual		1		1,249		1		1,402
Total		1	$	1,249		1	$	1,402

Deposits

We gather deposits primarily through our twelve 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.

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Total deposits as of September 30, 2022 and December 31, 2021 were $1.4 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.

	September 30,					December 31,
	2022					2021
	Amount		Percentage of Total			Amount		Percentage of Total
	(Dollars in thousands)
Noninterest-bearing demand	$	497,768		34.7	%	$	366,705		30.1	%
Interest-bearing transaction deposits		664,416		46.2	%		583,389		47.9	%
Savings deposits		128,750		9.0	%		89,778		7.4	%
Time deposits ($250,000 or less)		108,358		7.5	%		132,690		10.9	%
Time deposits (more than $250,000)		38,044		2.6	%		44,909		3.7	%
Total interest-bearing deposits		939,568		65.3	%		850,766		69.9	%
Total deposits	$	1,437,336		100.0	%	$	1,217,471		100.0	%

The following table summarizes our average deposit balances and weighted average rates for the nine month period ending September 30, 2022 and year ended December 31, 2021:

	For the Nine Months Ended September 30,					For the Year Ended December 31,
	2022					2021
	Average Balance		Weighted Average Rate			Average Balance		Weighted Average Rate
	(Dollars in thousands)
Non interest-bearing demand	$	424,720		0.00	%	$	288,446		0.00	%
Interest-bearing transaction deposits		608,320		0.72	%		375,048		0.34	%
Savings deposits		91,350		0.13	%		55,220		0.23	%
Time deposits		168,608		0.71	%		205,437		0.81	%
Total interest-bearing deposits		868,278		0.98	%		635,705		0.48	%
Total deposits	$	1,292,998		0.44	%	$	924,151		0.33	%

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

	As of September 30, 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)	$	30,419	$	26,560	$	34,455	$	16,924	$	108,358
Time deposits (more than $250,000)		11,559		12,876		8,272		5,337		38,044
Total time deposits	$	41,978	$	39,436	$	42,727	$	22,261	$	146,402

	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

46

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 September 30, 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 $95.8 million as of September 30, 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.”

As of September 30, 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 September 30, 2022 that management believes would change this classification. The table below presents our applicable capital requirements, as well as our capital ratios as of September 30, 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 September 30, 2022, the Company and the Bank met all capital adequacy requirements under the Basel III Capital Rules.

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	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 September 30, 2022
Total capital (to risk-weighted assets)
Company	$	149,939		12.09	%	$	130,193		10.50	%		N/A		N/A
Bank		149,899		12.10	%		130,087		10.50	%	$	123,892		10.00	%
Tier 1 capital (to risk-weighted assets)
Company		136,786		11.03	%		105,394		8.50	%		N/A		N/A
Bank		136,746		11.04	%		105,308		8.50	%		99,114		8.00	%
CET 1 capital (to risk-weighted assets)
Company		136,786		11.03	%		86,795		7.00	%		N/A		N/A
Bank		136,746		11.04	%		86,724		7.00	%		80,530		6.50	%
Tier 1 capital (to average assets)
Company		136,786		9.01	%		N/A		N/A			N/A		N/A
Bank		136,746		9.01	%		N/A		N/A			75,868		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 $8.4 million as of September 30, 2022 to $135.8 million, compared to $127.4 million as of December 31, 2021.

48

Contractual Obligations

The following tables contain supplemental information regarding our total contractual obligations as of September 30, 2022, and December 31, 2021:

	Payments Due as of September 30, 2022
	Within One Year		One to Three Years		Three to Five Years		After Five Years		Total
	(Dollars in thousands)
Deposits without a stated maturity	$	1,290,934	$	-	$	-	$	-	$	1,290,934
Time deposits		124,141		19,926		2,335		-		146,402
Operating lease commitments		576		513		102		-		1,191
Total contractual obligations	$	1,415,651	$	20,439	$	2,437	$	-	$	1,438,527

	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.

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.

49

The following table summarizes commitments as of the dates presented.

	As of September 30,		As of December 31,
	2022		2021
	(Dollars in thousands)
Commitments to extend credit	$	228,006	$	200,393
Standby letters of credit		2,666		5,809
Total	$	230,672	$	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 September 30, 2022.

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.

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Goodwill and Intangibles

Intangible assets totaled $1.4 million and goodwill, net of accumulated amortization, totaled $8.1 million for the nine months ended September 30, 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.

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 September 30, 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 nine months ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect, such controls.

51

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.

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 nine months ended September 30, 2022, there were no shares purchased under the Company’s repurchase plan.

ITEM 3.

Defaults Upon Senior Securities

None

ITEM 4.

Mine Safety Disclosures

None

ITEM 5.

Other Information

None

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ITEM 6.

Exhibits

31.1	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
31.2	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
32.1*	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:	November 14, 2022	By: /s/ Thomas L. Travis
		Thomas L. Travis
		President and Chief Executive Officer
DATED:	November 14, 2022	By: /s/ Kelly J. Harris
		Kelly J. Harris
		Executive Vice President and Chief Financial Officer

53