UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2024

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
20-0764349
( State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)



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
The NASDAQ Global Select Market System
Securities registered pursuant to Section 12(g) of the Act: None

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 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, a smaller reporting company, or an “emerging growth company”. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

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 Act).    YES ☐  NO  ☒

As of November 5, 2024, the registrant had 9,343,185 shares of common stock, par value $0.01, outstanding.

TABLE OF CONTENTS

   
Page
PART I.
FINANCIAL INFORMATION
  
     
Item 1.
Financial Statements
  
 
    3
 
    4
 
    5
  6
 
7
Item 2.
  34
Item 3.
  52
Item 4.
  53
     
PART II.
  54
     
Item 1.
  54
Item 1A.
  54
Item 2.
  54
Item 3.
  54
Item 4.
  54
Item 5.
  54
Item 6.
  55
 
  55

Table of Contents
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.

2
Table of contents
Bank7 Corp.
Unaudited Condensed Consolidated Balance Sheets
(Dollar amounts in thousands, except par value)
 
Assets
  
September 30,
2024
(unaudited)
    
December 31,
2023
  
             
Cash and due from banks
  
$
186,720
    
$
181,042
  
Interest-bearing time deposits in other banks
    
8,715
      
17,679
  
Available-for-sale debt securities
     65,160       169,487  
Loans, net of allowance for credit losses of $17,873 and $19,691 at September 30, 2024 and December 31, 2023, respectively
    
1,419,671
      
1,341,148
  
Loans held for sale
     -       718  
Premises and equipment, net
     17,126       14,942  
Nonmarketable equity securities
    
1,278
      
1,283
  
Core deposit intangibles
     907       1,031  
Goodwill
    
8,458
      
8,458
  
Interest receivable and other assets
    
32,407
      
35,878
  
                 
Total assets
  
$
1,740,442
    
$
1,771,666
  
                 
Liabilities and Shareholders’ Equity
                
                 
Deposits
                
Noninterest-bearing
  
$
322,480
    
$
482,349
  
Interest-bearing
    
1,201,736
      
1,109,042
  
                 
Total deposits
    
1,524,216
      
1,591,391
  
                 
Income taxes payable
   
427
      
302
  
Interest payable and other liabilities
    
11,637
      
9,647
  
                 
Total liabilities
    
1,536,280
      
1,601,340
  
                 
Shareholders’ equity
                
Common stock, $0.01 par value; 50,000,000 shares authorized; shares issued and outstanding: 9,341,267 and 9,197,696 at September 30, 2024 and December 31, 2023, respectively
    
93
      
92
  
Additional paid-in capital
    
100,760
      
97,417
  
Retained earnings
    
107,426
      
78,962
  
Accumulated other comprehensive loss
     (4,117 )     (6,145 )
 
                
Total shareholders’ equity
    
204,162
      
170,326
  
 
                
Total liabilities and shareholders’ equity
  
$
1,740,442
    
$
1,771,666
  

See accompanying notes to Consolidated Financial Statements

3
Bank7 Corp.
Unaudited Condensed Consolidated Statements of Comprehensive Income
(Dollar amounts in thousands, except per share data)
 
  
Three months ended
September 30,
    
Nine months ended
September 30,
  
 
  
2024
    
2023
    
2024
    
2023
  
Interest Income
                        
Loans, including fees
  
$
30,791
    
$
28,880
    
$
89,834
    
$
81,117
  
Interest-bearing time deposits in other banks
    
177
      
159
      
675
      
270
  
Debt securities, taxable
     303       699       2,266       2,106  
Debt securities, tax-exempt
     69       81       214       253  
Other interest and dividend income
    
2,148
      
1,903
      
6,221
      
5,398
  
                                 
Total interest income
    
33,488
      
31,722
      
99,210
      
89,144
  
                                 
Interest Expense
                                
Deposits
    
12,271
      
10,976
      
34,752
      
27,894
  
                                 
Total interest expense
    
12,271
      
10,976
      
34,752
      
27,894
  
                                 
Net Interest Income
    
21,217
      
20,746
      
64,458
      
61,250
  
                                 
Provision for Credit Losses
    
-
      
4,159
      
-
      
5,645
  
                                 
Net Interest Income After Provision for Credit Losses
    
21,217
      
16,587
      
64,458
      
55,605
  
                                 
Noninterest Income
                                
Mortgage lending income
    
103
      
6
      
233
      
172
  
Loss on sales, prepayments, and calls of available-for-sale debt securities
     (4 )     (7 )     (4 )     (15 )
Service charges on deposit accounts
    
233
      
213
      
742
      
647
  
Other
    
3,345
      
795
      
7,881
      
1,668
  
                                 
Total noninterest income
    
3,677
      
1,007
      
8,852
      
2,472
  
                                 
Noninterest Expense
                                
Salaries and employee benefits
    
5,333
      
4,910
      
15,740
      
14,299
  
Furniture and equipment
    
258
      
254
      
813
      
755
  
Occupancy
    
711
      
662
      
1,985
      
1,980
  
Data and item processing
    
498
      
424
      
1,437
      
1,280
  
Accounting, marketing and legal fees
    
218
      
14
      
582
      
491
  
Regulatory assessments
    
261
      
279
      
984
      
1,013
  
Advertising and public relations
    
129
      
74
      
358
      
273
  
Travel, lodging and entertainment
    
87
      
85
      
270
      
255
  
Other
    
1,903
      
688
      
5,507
      
2,068
  
                                 
Total noninterest expense
    
9,398
      
7,390
      
27,676
      
22,414
  
                                 
Income Before Taxes
    
15,496
      
10,204
      
45,634
      
35,663
  
Income tax expense
    
3,719
      
2,351
      
11,045
      
8,457
  
Net Income
  
$
11,777
    
$
7,853
    
$
34,589
    
$
27,206
  
                                 
Earnings per common share - basic
  
$
1.26
    
$
0.86
    
$
3.73
    
$
2.97
  
Earnings per common share - diluted
    
1.24
      
0.85
      
3.68
      
2.94
  
Weighted average common shares outstanding - basic
    
9,323,622
      
9,158,027
      
9,264,616
      
9,152,788
  
Weighted average common shares outstanding - diluted
    
9,498,318
      
9,273,595
      
9,402,214
      
9,262,003
  
                                 
Other comprehensive income (loss)
                                
Unrealized gains (losses) on securities, net of tax expense of $515 and tax benefit of $485 for the three months ended September 30, 2024 and 2023, respectively; net of tax expense of $638 and $70 for the nine months ended September 30, 2024 and 2023, respectively
   $ 1,628     $ (372 )   $ 2,025     $ 214  
Reclassification adjustment for realized losses included in net income net of tax of $1 and $2 for the three months ended September 30, 2024 and 2023, respectively; $1 and $4 for the nine months ended September 30, 2024 and 2023, respectively
     3       5       3       11  
Other comprehensive income (loss)
   $ 1,631     $ (367 )   $ 2,028     $ 225  
Comprehensive Income
   $ 13,408     $ 7,486     $ 36,617     $ 27,431  

See accompanying notes to Consolidated Financial Statements
4
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,
  
 
  
2024
    
2023
    
2024
    
2023
  
Common Stock  (Shares)
                        
Balance at beginning of period
    
9,253,038
      
9,154,934
      
9,197,696
      
9,131,973
  
Exercise of employee stock options
     87,819       13,124       106,820       26,986  
Shares issued for restricted stock units
    
625
      
26,625
      
52,261
      
40,734
  
Shares acquired and canceled
     (215 )     (9,708 )     (15,510 )     (14,718 )
Balance at end of period
    
9,341,267
      
9,184,975
      
9,341,267
      
9,184,975
  
                                 
Common Stock (Amount)
                                
Balance at beginning of period
  
$
93
    
$
92
    
$
92
    
$
91
  
Shares issued for restricted stock units
    -
       -
       1
      
1
  
Balance at end of period
  
$
93
    
$
92
    
$
93
    
$
92
  
                                 
Additional Paid-in Capital
                                
Balance at beginning of period
  
$
98,570
    
$
96,498
    
$
97,417
    
$
95,263
  
Shares purchased and retired for restricted stock units
     (7 )     (231 )     (425 )     (367 )
Exercise of stock options
     1,576       236       1,906       480  
Stock-based compensation expense
    
621
      
565
      
1,862
      
1,692
  
Balance at end of period
  
$
100,760
    
$
97,068
    
$
100,760
    
$
97,068
  
                                 
Retained Earnings
                                
Balance at beginning of period
  
$
97,891
    
$
73,901
    
$
78,962
    
$
58,049
  
Net income
    
11,777
      
7,853
      
34,589
      
27,206
  
Cumulative effect of change in accounting principle, net of tax of $178
     -       -       -       (572 )
Cash dividends declared ($0.24 and $0.21 per share for three months ended September 30, 2024 and 2023, respectively; $0.66 and $0.53 per share for the nine months ended September 30, 2024 and 2023, respectively)
    
(2,242
)
    
(1,929
)
    
(6,125
)
    
(4,858
)
Balance at end of period
  
$
107,426
    
$
79,825
    
$
107,426
    
$
79,825
  
                                 
Accumulated Other Comprehensive Loss
                                
Balance at beginning of period
   $ (5,748 )   $ (8,711 )   $ (6,145 )   $ (9,303 )
Comprehensive income (loss)
     1,631     (367 )     2,028       225  
Balance at end of period
   $ (4,117 )   $ (9,078 )   $ (4,117 )   $ (9,078 )
                                 
Total Shareholders’ equity
  
$
204,162
    
$
167,907
    
$
204,162
    
$
167,907
  

See accompanying notes to Consolidated Financial Statements
5
Bank7 Corp.
Unaudited Condensed Consolidated Statements of Cash Flows
(Dollar Amounts in thousands)

   
Nine Months Ended
September 30,
  
   
2024
    
2023
  
             
Operating Activities
            
Net income
  
$
34,589
    
$
27,206
  
Adjustments to reconcile net income to net cash provided by operating activities
                
Depreciation and amortization
    
811
      
973
  
Provision for credit losses
    
-
      
5,645
  
(Accretion)Amortization of premiums and discounts on securities
     (866 )     278  
Gain on sales of loans
    
(233
)
    
(172
)
Net loss on sale of available-for-sale debt securities
     4       15  
Stock-based compensation expense
    
1,862
      
1,692
  
Gain on sale of premises and equipment
     (123 )     (77 )
Cash receipts from the sale of loans originated for sale
    
13,994
      
5,985
  
Cash disbursements for loans originated for sale
    
(13,043
)
    
(6,956
)
Deferred income tax expense(benefit)
    
111
      
(1,633
)
Changes in
                
Interest receivable and other assets
    
3,043
      
(1,392
)
Interest payable and other liabilities
    
1,805
      
1,403
  
                 
Net cash provided by operating activities
    
41,954
      
32,967
  
                 
Investing Activities
                
Maturities of interest-bearing time deposits in other banks
    
15,223
      
5,228
  
Purchases of interest-bearing time deposits in other banks
     (6,259 )     (16,936 )
Maturities, prepayments and calls of available-for-sale debt securities
     191,732       6,029  
Purchases of available-for-sale debt securities
     (83,877 )     -  
Net change in loans
    
(78,844
)
    
(122,242
)
Purchases of premises and equipment
    
(2,891
)
    
(2,602
)
Proceeds from sale of premises and equipment
     143       78  
Change in nonmarketable equity securities
    
5
      
(42
)
                 
Net cash provided by (used in) investing activities
    
35,232
      
(130,487
)
                 
Financing Activities
                
Net change in deposits
    
(67,175
)
    
162,172
  
Cash distributions
    
(5,815
)
    
(4,391
)
Shares purchased and retired for restricted stock units
     (425 )     (367 )
Net settlement of stock options
     1,906       480  
Common stock issued for restricted stock units
     1       1  
                 
Net cash provided by (used in) financing activities
    
(71,508
)
    
157,895
  
                 
Net Increase in Cash and Due from Banks
    
5,678
      
60,375
  
                 
Cash and Due from Banks, Beginning of Period
    
181,042
      
109,115
  
                 
Cash and Due from Banks, End of Period
  
$
186,720
    
$
169,490
  
                 
Supplemental Disclosure of Cash Flows Information
                
Interest paid
  
$
34,701
    
$
26,899
  
Income taxes paid
   $ 10,872     $ 10,612  
Dividends declared and not paid
  
$
2,242
    
$
1,929
  
Measurement period goodwill adjustment
   $ -     $ (146 )

See accompanying notes to Consolidated Financial Statements

6
Table of Contents
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 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 condensed 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, 2023, the date of the most recent annual report. The condensed consolidated balance sheet of the Company as of December 31, 2023 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, 2023, 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 two subsidiaries, 1039 NW 63rd, LLC, which holds real estate utilized by the Bank, and Giddings Production, LLC, which is engaged in the production of oil, natural gas and natural liquid (“NGL”) reserves in Texas.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 credit losses, valuation of other real estate owned, income taxes, goodwill and intangibles and fair values of financial instruments.
 
7
Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
Recent Accounting Pronouncements


Standards Not Yet Adopted:

 

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), primarily focused on income tax disclosures regarding effective tax rates and cash income taxes paid. ASU 2023-09 requires public business entities, on an annual basis, to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income by the applicable statutory income tax rate). ASU 2023-09 is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2024, with early adoption permitted. The adoption of ASU 2023-09 is not expected to have a material impact on the Company’s operations, financial position or disclosures.



In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which expands reportable segment disclosure requirements through enhanced disclosures about significant segment expenses. The amendments in this update introduce a new requirement to disclose significant segment expenses regularly provided to the chief operating decision maker, extend certain annual disclosures to interim periods, clarify that single reportable segment entities must apply Topic 280 in its entirety, permit more than one measure of segment profit or loss to be reported under certain conditions and require disclosure of the title and position of the chief operating decision maker. ASU 2023-07 is effective for public business entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The adoption of ASU 2023-07 is not expected to have a material impact on the Company’s operations, financial position or disclosures.

Note 2:
Recent Events, Including Mergers and Acquisitions

Acquisition

On October 31, 2023, the Company entered into an asset purchase and sale agreement, effective September 1, 2023, to acquire proven oil and natural gas properties from HB2 Origination, LLC, which consisted of nine wells in formations in four counties in Texas for $15.4 million in cash. On November 17, 2023, the transaction closed for a total purchase price of $15.1 million, after closing adjustments. As a part of the purchase, the Company assumed asset retirement obligations of $0.4 million that were included in “interest payable and other liabilities” on the consolidated balance sheets as of December 31, 2023. The acquisition was considered an asset acquisition and did not meet the definition of a business under ASC 805, Business Combinations. Additionally, transaction costs of $1.4 million were capitalized into oil and gas properties related to this acquisition. The purchase price and related asset retirement obligations were allocated based on the relative fair values of the assets acquired and $1.7 million was allocated to proved leasehold costs while the remaining $15.4 million was allocated to “interest receivable and other assets” on the consolidated balance sheets.

As of September 30, 2024, the Company had oil and gas assets and related receivables of $13.6 million included in “interest receivable and other assets” on the consolidated balance sheets and assets retirement obligations and oil and gas related liabilities of $804,000 included in “interest payable and other liabilities” on the consolidated balance sheets.
 
As of December 31, 2023, the Company had oil and gas assets and related receivables of $16.8 million included in “interest receivable and other assets” on the consolidated balance sheets and assets retirement obligations and oil and gas related liabilities of $1.3 million included in “interest payable and other liabilities” on the consolidated balance sheets.
 
For the three months ended September 30, 2024, the Company had oil and gas related revenues of $2.9 million included in “Other” noninterest income on the consolidated statements of comprehensive income, and oil and gas related expenses of $1.2 million included in “Other” noninterest expense on the consolidated statements of comprehensive income.
 
For the nine months ended September 30, 2024, the Company had oil and gas related revenues of $6.7 million included in “Other” noninterest income on the consolidated statements of comprehensive income, and oil and gas related expenses of $3.5 million included in “Other” noninterest expense on the consolidated statements of comprehensive income.

8
Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 3:
Restriction on Cash and Due from Banks
 
On March 26, 2020, the Federal Reserve Board reduced reserve requirement ratios to zero percent, effectively eliminating reserve requirements for all depository institutions. There was no reserve requirement as of September 30, 2024.

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,
  
   
2024
    
2023
     2024
     2023
  
(Dollars in thousands, except per share amounts)
                        
Numerator
                        
Net income
   $ 11,777     $ 7,853     $ 34,589     $ 27,206  
                                 
Denominator
                                
Weighted-average shares outstanding for basic earnings per share
     9,323,622
       9,158,027
       9,264,616       9,152,788  
Dilutive effect of stock compensation (1)
     174,696
       115,568
       137,598       109,215  
Denominator for diluted earnings per share
     9,498,318
       9,273,595
       9,402,214       9,262,003  
                                 
Earnings per common share
                                
Basic
   $ 1.26     $ 0.86     $ 3.73     $ 2.97  
Diluted
   $ 1.24     $ 0.85     $ 3.68     $ 2.94  

(1)
The following have not been included in diluted earnings per share because to do so would have been antidilutive for the periods presented: Nonqualified stock options outstanding of 0 and 5,000 for the three month periods ended September 30, 2024 and 2023, respectively, and 0 and 5,000 for the nine month periods ended September 30, 2024 and 2023, respectively; Restricted stock units of 0 and 113,000 for the three month periods ended September 30, 2024 and 2023, respectively, and 0 and 156,186 for the nine month periods ended September 30, 2024 and 2023, respectively.

9
Table of Contents
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, 2024 and December 31, 2023 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, 2024
                        
U.S. Federal agencies
  
$
73
    
$
-
    
$
(1
)
  
$
72
  
Mortgage-backed securities(1)(2)
    
35,559
      
-
      
(2,723
)
    
32,836
  
State and political subdivisions
    
23,352
      
-
      
(1,197
)
    
22,155
  
U.S. Treasuries
    
6,023
      
-
      
(549
)
    
5,474
  
Corporate debt securities
    
5,500
      
-
      
(877
)
    
4,623
  
Total available-for-sale
    
70,507
      
-
      
(5,347
)
    
65,160
  
Total debt securities
    
70,507
      
-
      
(5,347
)
    
65,160
  

 
(in thousands)
  
Amortized Cost
    
Gross Unrealized
Gains
    
Gross Unrealized
Losses
    
Fair Value
  
Available-for-sale as of December 31, 2023
                        
U.S. Federal agencies
  
$
138
    
$
-
    
$
(3
)
  
$
135
  
Mortgage-backed securities(1)(2)
    
38,465
      
-
      
(3,963
)
    
34,502
  
State and political subdivisions
    
27,368
      
-
      
(1,512
)
    
25,856
  
U.S. Treasuries
    
106,030
      
-
      
(1,373
)
    
104,657
  
Corporate debt securities
    
5,500
      
-
      
(1,163
)
    
4,337
  
Total available-for-sale
    
177,501
      
-
      
(8,014
)
    
169,487
  
Total debt securities
    
177,501
      
-
      
(8,014
)
    
169,487
  

(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 amortized cost of mortgage-backed securities is $22.67 million and $24.80 million of residential mortgage-backed securities and $12.89 million and $13.67 million of commercial mortgage-backed securities as of September 30, 2024 and December 31, 2023, respectively.

10
Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
The amortized cost and estimated fair value of investment securities at September 30, 2024 and December 31, 2023, 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, 2024
            
Due in one year or less
  
$
3,977
    
$
3,929
  
Due after one year through five years
    
15,617
      
14,863
  
Due after five years through ten years
    
15,354
      
13,532
  
Due after ten years
    
-
      
-
  
Mortgage-backed securities
    
35,559
      
32,836
  
Total available-for-sale
  
70,507
    
65,160
  

(in thousands)
  
Amortized Cost
    
Fair Value
  
Available-for-sale as of December 31, 2023
            
Due in one year or less
  
$
105,944
    
$
105,186
  
Due after one year through five years
    
15,654
      
14,675
  
Due after five years through ten years
    
17,276
      
14,980
  
Due after ten years
    
162
      
144
  
Mortgage-backed securities
    
38,465
      
34,502
  
Total available-for-sale
  
177,501
    
169,487
  

There were no holdings of securities of issuers in an amount greater than 10% of stockholders’ equity at September 30, 2024.

The following table presents a summary of realized gains and losses from the sale, prepayment and call of debt securities:

 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
  
    2024   2023
  2024
  2023
 
(in thousands)
                  
Proceeds from sales, maturities, prepayments and calls
  
$
3,196
    
$
1,831
     $ 191,732     $ 6,029  
                                 
Gross realized losses on sales, prepayments and calls
  
$
(4
)
  
$
(7
)
   $ (4 )   $ (15 )

The following table details book value of pledged securities as of September 30, 2024 and December 31, 2023:

(in thousands)
  
September 30,
2024
    
December 31,
2023
  
Book value of pledged securities
  
$
19,267
    
$
121,283
  

11
Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
The following table details gross unrealized losses and fair values of investment securities aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position at September 30, 2024 and December 31, 2023. As of September 30, 2024, 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, 2024
                                    
U.S. Federal agencies
  
$
-
    
$
-
    
$
72
    
$
(1
)
  
$
72
    
$
(1
)
Mortgage-backed securities
    
-
      
-
      
32,836
      
(2,723
)
    
32,836
      
(2,723
)
State and political subdivisions(1)
    
170
      
(4
)
    
21,484
      
(1,193
)
    
21,654
      
(1,197
)
U.S. Treasuries
    
-
      
-
      
5,474
      
(549
)
    
5,474
      
(549
)
Corporate debt securities(2)
    
-
      
-
      
4,623
      
(877
)
    
4,623
      
(877
)
Total available-for-sale
  
$
170
    
$
(4
)
  
$
64,489
    
$
(5,343
)
  
$
64,659
    
$
(5,347
)

   
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, 2023
                                    
U.S. Federal agencies
  
$
-
    
$
-
    
$
135
    
$
(3
)
  
$
135
    
$
(3
)
Mortgage-backed securities
    
-
      
-
      
34,502
     $
(3,963
)
    
34,502
      
(3,963
)
State and political subdivisions(1)
    
1,160
      
(5
)
    
24,696
     $
(1,507
)
    
25,856
      
(1,512
)
U.S. Treasuries
    
-
      
-
      
104,657
     $
(1,373
)
    
104,657
      
(1,373
)
Corporate debt securities(2)
    
-
      
(195
)
    
4,337
     $
(968
)
    
4,337
      
(1,163
)
Total available-for-sale
  
$
1,160
    
$
(200
)
  
$
168,327
    
$
(7,814
)
  
$
169,487
    
$
(8,014
)

(1)
Of our state and political subdivision securities with a fair value of $19.98 million and $22.84 million are rated BBB+ or better and $2.17 million and $3.02 million are not rated as of September 30, 2024 and December 31, 2023, respectively.
(2)
 Our corporate debt securities are not rated.



12
Table of Contents
Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 6:
Loans and Allowance for Credit Losses
 
A summary of loans at September 30, 2024 and December 31, 2023, are as follows (dollars in thousands):
 
   
September 30,
2024
    
December 31,
2023
  
             
Construction & development
  
$
157,374
    
$
137,206
  
1 - 4 family real estate
    
115,497
      
100,576
  
Commercial real estate - other
    
536,070
      
518,622
  
Total commercial real estate
   $
808,941
     $
756,404
  
                 
Commercial & industrial
    
547,430
      
526,185
  
Agricultural
    
69,171
      
66,495
  
Consumer
    
14,308
      
14,517
  
                 
Gross loans
    
1,439,850
      
1,363,601
  
                 
Less allowance for credit losses
    
(17,873
)
    
(19,691
)
Less deferred loan fees
    
(2,306
)
    
(2,762
)
                 
Net loans
  
$
1,419,671
    
$
1,341,148
  

Included in the commercial & industrial loan balances are $0 and $2.0 million of loans that were originated under the SBA PPP program as of  September 30, 2024 and December 31, 2023, respectively.
 
13
Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
Allowance for Credit Losses Methodology
On January 1, 2023, the Company adopted ASU 2016-13, which replaces the incurred loss methodology for determining its provision for credit losses and allowance for credit losses with an expected loss methodology that is referred to as the CECL model. Upon adoption, the allowance for credit losses was increased by $250,000 and $500,000 for loans and unfunded commitments, respectively, with no impact to the consolidated statement of income.
The following table presents, by portfolio segment, the activity in the allowance for credit losses for the three months ended September 30, 2024 and 2023 (dollars in thousands):
 
   
Construction &
Development
    
1 - 4 Family
Real Estate
    
Commercial
Real Estate -
Other
    
Commercial
& Industrial
    
Agricultural
    
Consumer
    
Total
  
                                           
September 30, 2024
                                          
Loans
                                          
Balance, beginning of period
  
$
1,810
    
$
1,491
    
$
6,912
    
$
6,601
    
$
698
    
$
260
    
$
17,772
  
Charge-offs
    
-
      
-
      
-
      
-
      
-
      
-
      
-
  
Recoveries
    
-
      
-
      
-
      
98
      
3
      
-
      
101
  
Net (charge-offs) recoveries
    
-
      
-
      
-
      
98
      
3
      
-
      
101
  
 
                                                        
Provision (credit) for credit losses
    
(158
)
    
(113
)
    
(64
)
    
385
      
(22
)
    
(28
)
    
-
  
Balance, end of period
  
$
1,652
    
$
1,378
    
$
6,848
    
$
7,084
    
$
679
    
$
232
    
$
17,873
  
 
                                                        
Unfunded Commitments
                                                        
Balance, beginning of period
   $ 154     $ 6     $ 10     $ 278     $ 13     $ 3     $ 464  
Provision (credit) for credit losses
     23       (2 )     (4 )     (19 )     2       -       -  
Balance, end of period
   $ 177     $ 4     $ 6     $ 259     $ 15     $ 3     $ 464  
 
                                                        
Total allowance for credit losses and reserve for unfunded commitments
   $ 1,829     $ 1,382     $ 6,854     $ 7,343     $ 694     $ 235     $ 18,337  
Total Provision for Credit Losses
   $ (135 )   $ (115 )   $ (68 )   $ 366     $ (20 )   $ (28 )   $ -  

   
Construction &
Development
    
1 - 4 Family
Real Estate
    
Commercial
Real Estate -
Other
    
Commercial
& Industrial
    
Agricultural
    
Consumer
    
Total
  
                                           
September 30, 2023
                                          
Loans
                                          
Balance, beginning of period
  
$
1,592
    
$
1,116
    
$
6,089
    
$
6,712
    
$
601
    
$
267
    
$
16,377
  
Charge-offs
    
-
      
-
      
-
      
-
      
-
      
-
      
-
  
Recoveries
    
-
      
-
      
-
      
-
      
-
      
1
      
1
  
Net (charge-offs) recoveries
    
-
      
-
      
-
      
-
      
-
      
1
      
1
  
 
                                                        
Provision (credit) for credit losses
    
(111
)
    
30
      
640
      
3,718
      
8
      
(14
)
    
4,271
  
Balance, end of period
  
$
1,481
    
$
1,146
    
$
6,729
    
$
10,430
    
$
609
    
$
254
    
$
20,649
  
 
                                                        
Unfunded Commitments
                                                        
Balance, beginning of period
   $ 227     $ 4     $ 14     $ 305     $ 24     $ 2     $ 576  
Provision (credit) for credit losses
     (69 )     -       (6 )     (25 )     (13 )     1       (112 )
Balance, end of period
   $ 158     $ 4     $ 8     $ 280     $ 11     $ 3     $ 464  
 
                                                        
Total allowance for credit losses and reserve for unfunded commitments
   $ 1,639     $ 1,150     $ 6,737     $ 10,710     $ 620     $ 257     $ 21,113  
Total Provision for Credit Losses
   $ (180 )   $ 30     $ 634     $ 3,693     $ (5 )   $ (13 )   $ 4,159  

14
Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
The following table presents, by portfolio segment, the activity in the allowance for credit losses for the nine months ended September 30, 2024 and 2023 (dollars in thousands):

   
Construction &
Development
    
1 - 4 Family
Real Estate
    
Commercial
Real Estate -
Other
    
Commercial
& Industrial
     Agricultural     Consumer     Total  
 
                                          
September 30, 2024
                                          
Loans
                                          
Balance, beginning of period
  
$
1,417
    
$
1,271
    
$
6,889
    
$
9,237
    
$
628
    
$
249
    
$
19,691
  
Charge-offs
    
-
      
-
      
-
      
(2,000
)
    
-
      
-
      
(2,000
)
Recoveries
    
-
      
-
      
-
      
176
      
6
      
-
      
182
  
Net (charge-offs) recoveries
    
-
      
-
      
-
      
(1,824
)
    
6
      
-
      
(1,818
)
 
                                                        
Provision (credit) for credit losses
    
235
      
107
      
(41
)
    
(329
)
    
45
      
(17
)
    
-
  
Balance, end of period
  
$
1,652
    
$
1,378
    
$
6,848
    
$
7,084
    
$
679
    
$
232
    
$
17,873
  
 
                                                        
Unfunded Commitments
                                                        
Balance, beginning of period
  
$
158
    
$
4
    
$
8
    
$
280
    
$
11
    
$
3
    
$
464
  
Provision (credit) for credit losses
    
19
      
-
      
(2
)
    
(21
)
    
4
      
-
      
-
  
Balance, end of period
  
$
177
    
$
4
    
$
6
    
$
259
    
$
15
    
$
3
    
$
464
  
 
                                                        
Total Allowance for Credit Losses
  
$
1,829
    
$
1,382
    
$
6,854
    
$
7,343
    
$
694
    
$
235
    
$
18,337
  
Total Provision for Credit Losses
  
$
254
    
$
107
    
$
(43
)
  
$
(350
)
  
$
49
    
$
(17
)
  
$
-
  


   
Construction &
Development
    
1 - 4 Family
Real Estate
    
Commercial
Real Estate -
Other
    
Commercial
& Industrial
     Agricultural     Consumer     Total  
 
                                          
September 30, 2023
                                          
Loans
                                          
Balance, beginning of period
  
$
1,889
    
$
890
    
$
5,080
    
$
5,937
    
$
765
    
$
173
    
$
14,734
  
Impact of CECL adoption
    
44
      
(138
)
    
(168
)
    
716
      
(149
)
    
(55
)
    
250
  
 
                                                        
Charge-offs
    
-
      
-
      
-
      
-
      
(7
)
    
(16
)
    
(23
)
Recoveries
    
-
      
-
      
-
      
-
      
2
      
5
      
7
  
Net (charge-offs) recoveries
    
-
      
-
      
-
      
-
      
(5
)
    
(11
)
    
(16
)
 
                                                        
Provision (credit) for credit losses
    
(452
)
    
394
      
1,817
      
3,777
      
(2
)
    
147
      
5,681
  
Balance, end of period
  
$
1,481
    
$
1,146
    
$
6,729
    
$
10,430
    
$
609
    
$
254
    
$
20,649
  
 
                                                        
Unfunded Commitments
                                                        
Balance, beginning of period
  
$
-
    
$
-
    
$
-
    
$
-
    
$
-
    
$
-
    
$
-
  
Impact of CECL adoption
    
171
      
4
      
24
      
274
      
25
      
2
      
500
  
Provision (credit) for credit losses
    
(13
)
    
-
      
(16
)
    
6
      
(14
)
    
1
      
(36
)
Balance, end of period
  
$
158
    
$
4
    
$
8
    
$
280
    
$
11
    
$
3
    
$
464
  
 
                                                        
Total Allowance for Credit Losses
  
$
1,639
    
$
1,150
    
$
6,737
    
$
10,710
    
$
620
    
$
257
    
$
21,113
  
Total Provision for Credit Losses
  
$
(465
)
  
$
394
    
$
1,801
    
$
3,783
    
$
(16
)
  
$
148
    
$
5,645
  

15
Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
 
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 portfolio consists of residential and commercial properties loans. Residential loans are generally secured by owner occupied 1–4 family residences.  Repayment of these loans is primarily dependent on the personal income and credit rating of the borrowers.  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 personal income.  Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers. Commercial real estate loans in this category 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 or income independent of the loan purpose.  Credit risk in these loans is driven by the creditworthiness of a borrower, property values, the local economy and other economic conditions impacting a borrower’s business or personal income.

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.

Agricultural – Loans secured by agricultural assets are generally made for the purpose of acquiring land devoted to crop production, cattle or poultry or the operation of a similar type of business on the secured property. Sources of repayment for these loans generally include income generated from operations of a business on the property, rental income or sales of the 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.
 
16
Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
Loan grades are numbered 1 through 4. Grade of 1, or Pass, 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, or Credit Quality Committee 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 credit losses methodology on an ongoing basis. No changes were made to either during the period ended September 30, 2024.

17
Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
The following tables presents the amortized cost of the Company’s loan portfolio with the gross charge-offs for the nine months ended by year of origination based on internal rating category as of September 30, 2024, and for the twelve months ended by year of origination based on internal rating category as of December 31, 2023 (dollars in thousands).

As of September 30, 2024
  
2024
    
2023
    
2022
    
2021
    
2020
    
Prior
    
Revolving Loans Amortized Cost Basis
    
Total
  
                                                 
Construction & development
                                                
Grade
                                                
1 (Pass)
  
$
37,691
    
$
7,703
    
$
2,101
    
$
659
    
$
115
    
$
113
    
$
107,170
    
$
155,552
  
2 (Watch)
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
3 (Special Mention)
    
1,822
      
-
      
-
      
-
      
-
      
-
      
-
      
1,822
  
4 (Substandard)
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
Total construction & development
    
39,513
      
7,703
      
2,101
      
659
      
115
      
113
      
107,170
      
157,374
  
Current-period gross charge-offs
     -       -       -       -       -       -       -       -  
1 - 4 family real estate
                                                                
Grade
                                                                
1 (Pass)
    
42,077
      
33,254
      
15,666
      
10,795
      
3,783
      
1,967
      
7,955
      
115,497
  
2 (Watch)
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
3 (Special Mention)
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
4 (Substandard)
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
Total 1 - 4 family real estate
    
42,077
      
33,254
      
15,666
      
10,795
      
3,783
      
1,967
      
7,955
      
115,497
  
Current-period gross charge-offs
     -       -       -       -       -       -       -       -  
Commercial real estate - other
                                                                
Grade
                                                                
1 (Pass)
    
120,484
      
156,295
      
140,661
      
19,695
      
20,028
      
5,475
      
61,030
      
523,668
  
2 (Watch)
    
7,505
      
-
      
-
      
-
      
-
      
1,037
      
-
      
8,542
  
3 (Special Mention)
    
-
      
721
      
-
      
-
      
-
      
-
      
-
      
721
  
4 (Substandard)
    
3,029
      
-
      
-
      
-
      
-
      
110
      
-
      
3,139
  
Total Commercial real estate - other
    
131,018
      
157,016
      
140,661
      
19,695
      
20,028
      
6,622
      
61,030
      
536,070
  
Current-period gross charge-offs
     -       -       -       -       -       -       -       -  
Commercial and industrial
                                                                
Grade
                                                                
1 (Pass)
    
118,291
      
94,102
      
45,343
      
3,882
      
1,309
      
4,024
      
269,973
      
536,924
  
2 (Watch)
    
-
      
-
      
-
      
-
      
-
      
-
      
3,234
      
3,234
  
3 (Special Mention)
    
558
      
-
      
-
      
-
      
-
      
-
      
955
      
1,513
  
4 (Substandard)
    
5,670
      
89
      
-
      
-
      
-
      
-
      
-
      
5,759
  
Total Commercial and industrial
    
124,519
      
94,191
      
45,343
      
3,882
      
1,309
      
4,024
      
274,162
      
547,430
  
Current-period gross charge-offs
     -       2,000       -       -       -       -       -       2,000  
Agriculural
                                                                
Grade
                                                                
1 (Pass)
    
26,602
      
6,922
       4,845      
6,664
      
3,773
      
1,174
      
19,191
      
69,171
  
2 (Watch)
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
3 (Special Mention)
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
4 (Substandard)
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
Total agriculural
    
26,602
      
6,922
      
4,845
      
6,664
      
3,773
      
1,174
      
19,191
      
69,171
  
Current-period gross charge-offs
     -       -       -       -       -       -       -       -  
Consumer
                                                                
Grade
                                                                
1 (Pass)
    
3,933
      
2,261
      
915
      
1,490
      
1,864
      
2,132
      
1,631
      
14,226
  
2 (Watch)
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
3 (Special Mention)
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
4 (Substandard)
    
58
      
-
      
-
      
-
      
-
      
24
      
-
      
82
  
Total consumer
    
3,991
      
2,261
      
915
      
1,490
      
1,864
      
2,156
      
1,631
      
14,308
  
Current-period gross charge-offs
     -       -       -       -       -       -       -       -  
Total loans held for investment
  
$
367,720
    
$
301,347
    
$
209,531
    
$
43,185
    
$
30,872
    
$
16,056
    
$
471,139
    
$
1,439,850
  
Total current-period gross charge-offs
   $ -     $ 2,000     $ -     $ -     $ -     $ -     $ -     $ 2,000  

18
Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
 
As of December 31, 2023
  
2023
    
2022
    
2021
    
2020
    
2019
    
Prior
    
Revolving Loans Amortized Cost Basis
    
Total
  
                                                 
Construction & development
                                                
Grade
                                                
1 (Pass)
  
$
26,915
    
$
2,266
    
$
3,182
    
$
201
    
$
98
    
$
44
    
$
103,711
    
$
136,417
  
2 (Watch)
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
3 (Special Mention)
    
563
      
-
      
-
      
-
      
-
      
-
      
226
      
789
  
4 (Substandard)
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
Total construction & development
    
27,478
      
2,266
      
3,182
      
201
      
98
      
44
      
103,937
      
137,206
  
Current-period gross charge-offs
    -       -       -       -       -       -       -       -  
1 - 4 family real estate
                                                                
Grade
                                                                
1 (Pass)
    
48,275
      
22,573
      
13,305
      
3,928
      
1,808
      
1,069
      
9,618
      
100,576
  
2 (Watch)
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
3 (Special Mention)
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
4 (Substandard)
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
Total 1 - 4 family real estate
    
48,275
      
22,573
      
13,305
      
3,928
      
1,808
      
1,069
      
9,618
      
100,576
  
Current-period gross charge-offs
     -       -       -       -       -       -       -       -  
Commercial real estate - other
                                                                
Grade
                                                                
1 (Pass)
    
187,086
      
153,764
      
32,641
      
36,278
      
2,613
      
4,043
      
86,370
      
502,795
  
2 (Watch)
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
3 (Special Mention)
    
14,612
      
-
      
-
      
-
      
-
      
1,089
      
-
      
15,701
  
4 (Substandard)
    
-
      
-
      
-
      
-
      
-
      
126
      
-
      
126
  
Total Commercial real estate - other
    
201,698
      
153,764
      
32,641
      
36,278
      
2,613
      
5,258
      
86,370
      
518,622
  
Current-period gross charge-offs
     -       -       -       -       -       -       -       -  
Commercial and industrial
                                                                
Grade
                                                                
1 (Pass)
    
162,156
      
59,265
      
38,093
      
2,777
      
1,706
      
4,059
      
217,377
      
485,433
  
2 (Watch)
    
-
      
-
      
-
      
-
      
-
      
-
      
4,094
      
4,094
  
3 (Special Mention)
    
4,151
      
-
      
-
      
-
      
-
      
-
      
1,616
      
5,767
  
4 (Substandard)
    
20,660
      
7,937
      
98
      
8
      
-
      
-
      
2,188
      
30,891
  
Total Commercial and industrial
    
186,967
      
67,202
      
38,191
      
2,785
      
1,706
      
4,059
      
225,275
      
526,185
  
Current-period gross charge-offs
    16,500       -       -       -       -       -       -       16,500  
Agriculural
                                                                
Grade
                                                                
1 (Pass)
    
9,283
      
5,789
       23,205      
4,283
      
927
      
1,104
      
21,904
      
66,495
  
2 (Watch)
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
3 (Special Mention)
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
4 (Substandard)
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
Total agriculural
    
9,283
      
5,789
      
23,205
      
4,283
      
927
      
1,104
      
21,904
      
66,495
  
Current-period gross charge-offs
     -       7       -       -       -       -       -       7  
Consumer
                                                                
Grade
                                                                
1 (Pass)
    
4,415
      
1,545
      
2,171
      
2,554
      
663
      
1,819
      
1,270
      
14,437
  
2 (Watch)
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
3 (Special Mention)
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
4 (Substandard)
    
-
      
-
      
-
      
-
      
-
      
80
      
-
      
80
  
Total consumer
    
4,415
      
1,545
      
2,171
      
2,554
      
663
      
1,899
      
1,270
      
14,517
  
Current-period gross charge-offs
     17       -       -       -       -       -       -       17  
 
    

                                                       
Total loans held for investment
  
$
478,116
    
$
253,139
    
$
112,695
    
$
50,029
    
$
7,815
    
$
13,433
    
$
448,374
    
$
1,363,601
  
Total current-period gross charge-offs
  $ 16,517     $ 7     $ -     $ -     $ -     $ -     $ -     $ 16,524  

19
Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
 
Aged Analysis of Past Due Loans Receivable

The following table presents the Company’s loan portfolio aging analysis of the recorded investment in loans as of September 30, 2024 and December 31, 2023 (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, 2024
                                          
Construction & development
  
$
-
    
$
-
    
$
-
    
$
-
    
$
157,374
    
$
157,374
    
$
-
  
1 - 4 family real estate
    
-
      
-
      
-
      
-
      
115,497
      
115,497
      
-
  
Commercial real estate - other
    
1,938
      
4,476
      
721
      
7,135
      
528,935
      
536,070
      
721
  
Commercial & industrial
    
9
      
-
      
28
      
37
      
547,393
      
547,430
      
-
  
Agricultural
    
-
      
-
      
-
      
-
      
69,171
      
69,171
      
-
  
Consumer
    
46
      
-
      
58
      
104
      
14,204
      
14,308
      
58
  
Total
  
$
1,993
    
$
4,476
    
$
807
    
$
7,276
    
$
1,432,574
    
$
1,439,850
    
$
779
  
                                                         
December 31, 2023
                                                        
Construction & development
  
$
-
    
$
-
    
$
-
    
$
-
    
$
137,206
    
$
137,206
    
$
-
  
1 - 4 family real estate
    
-
      
-
      
-
      
-
      
100,576
      
100,576
      
-
  
Commercial real estate - other
    
-
      
-
      
-
      
-
      
518,622
      
518,622
      
-
  
Commercial & industrial(1)
    
472
      
10,969
      
9,946
      
21,387
      
504,798
      
526,185
      
9,946
  
Agricultural
    
-
      
-
      
-
      
-
      
66,495
      
66,495
      
-
  
Consumer(2)
    
-
      
27
      
80
      
107
      
14,410
      
14,517
      
80
  
Total
  
$
472
    
$
10,996
    
$
10,026
    
$
21,494
    
$
1,342,107
    
$
1,363,601
    
$
10,026
  

(1)
The $9.95 million that is greater than 90 days past due as of December 31, 2023, primarily consists of a single borrower that is well collateralized and for which collection is being diligently pursued.
(2)
The $80,000 that is greater than 90 days past due as of December 31, 2023, consists of a single borrower that is well secured and for which collection is being diligently pursued.

20
Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
Nonaccrual Loans


The following table presents information regarding nonaccrual loans as of September 30, 2024 and December 31, 2023 (dollars in thousands):
 
   
With an
Allowance
    
No Allowance
    
Total Non-
Accrual
Loans
    
 Related
Allowance
  
September 30, 2024
                        
Construction & development
  
$
-
    
$
-
    
$
-
    
$
-
  
1 - 4 Family Real Estate
    
-
      
-
      
-
      
-
  
Commercial Real Estate - other
    
-
      
3,138
      
3,138
      
-
  
Commercial & industrial
    
117
      
3,697
      
3,814
      
117
  
Agricultural
    
-
      
-
      
-
      
-
  
Consumer
    
-
      
-
      
-
      
-
  
Total
  
$
117
    
$
6,835
    
$
6,952
    
$
117
  
 
   
With an
Allowance
    
No Allowance
    
Total Non-
Accrual
Loans
    
 Related
Allowance
  
December 31, 2023
                        
Construction & development
  
$
-
    
$
-
    
$
-
    
$
-
  
1 - 4 Family Real Estate
    
-
      
-
      
-
      
-
  
Commercial Real Estate - other
    
-
      
126
      
126
      
-
  
Commercial & industrial
    
10,255
      
8,560
      
18,815
      
2,147
  
Agricultural
    
-
      
-
      
-
      
-
  
Consumer
    
-
      
-
      
-
      
-
  
Total
  
$
10,255
    
$
8,686
    
$
18,941
    
$
2,147
  

21
Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
Collateral Dependent Loans

A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. During the three months ended September 30, 2024 and 2023, no material amount of interest income was recognized on collateral-dependent loans subsequent to their classification as collateral-dependent. At a minimum, the estimated value of the collateral for loan equals the current book value.

The following table summarizes collateral-dependent gross loans held for investment by collateral type and the related specific allocation as follows (dollars in thousands):

 
  
Collateral Type
          
 
      
Business
   Other      
Specific
  
 
  
Real Estate
  
Assets
  
Assets
  
Total
  
Allocation
  
September 30, 2024
                      
Construction & development
  
$
-
    
$
-
    
$
-
    
$
-
    
$
-
  
1 - 4 Family Real Estate
    
-
      
-
      
-
      
-
      
-
  
Commercial Real Estate - other
    
3,029
      
110
      
-
      
3,139
      
-
  
Commercial & industrial
    
-
      
5,669
      
-
      
5,669
      
28
  
Agricultural
    
-
      
-
      
-
      
-
      
-
  
Consumer
    
-
      
82
      
-
      
82
      
-
  
Total
  
$
3,029
    
$
5,861
    
$
-
    
$
8,890
    
$
28
  

   
Collateral Type
              
   

   
Business
    
Other
    

   
Specific
 
Real Estate     Assets     Assets     Total     Allocation  
                               
December 31, 2023
                              
Construction & development
  
$
-
    
$
-
    
$
-
    
$
-
    
$
-
  
1 - 4 Family Real Estate
    
-
      
-
      
-
      
-
      
-
  
Commercial Real Estate - other
    
126
      
-
      
-
      
126
      
-
  
Commercial & industrial
    
-
      
20,848
      
9,932
      
30,780
      
2,038
  
Agricultural
    
-
      
-
      
-
      
-
      
-
  
Consumer
    
27
      
-
      
80
      
107
      
-
  
Total
  
$
153
    
$
20,848
    
$
10,012
    
$
31,013
    
$
2,038
  

22
Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
 
Loan Modifications to Troubled Borrowers

As part of the Company’s ongoing risk management practices, the Company attempts to work with borrowers when necessary to extend or modify loan terms to better align with their current ability to repay. Modifications could include extension of the maturity date, reductions of the interest rate, reduction or forgiveness of accrued interest, or principal forgiveness. Combinations of these modifications may also be made for individual loans. Extensions and modifications to loans are made in accordance with internal policies and guidelines which conform to regulatory guidance. Principal reductions may be made in limited circumstances, typically for specific commercial loan workouts, and in the event of borrower bankruptcy. Each occurrence is unique to the borrower and is evaluated separately.

Troubled loans are considered those in which the borrower is experiencing financial difficulty. The assessment of whether a borrower is experiencing financial difficulty can be subjective in nature and management’s judgment may be required in making this determination. The Company may determine that a borrower is experiencing financial difficulty if the borrower is currently in default on any of its debt, or if it is probable that a borrower may default in the foreseeable future absent a modification. Many aspects of a borrower’s financial situation are assessed when determining whether they are experiencing financial difficulty.

Modifications to Borrowers Experiencing Financial Difficulty

During the three and nine months ended September 30, 2024, the Company modified no loans to borrowers experiencing financial difficulty.

During the three and nine months ended September 30, 2023, the Company modified a single commercial loan to a borrower who was experiencing financial difficulty, which included a term extension and payment of principal and interest deferral until the sale of collateral. The loan had a period-end amortized cost basis of $26.6 million and represented 4.64% of the commercial and industrial class of loans at September 30, 2023.

The Company closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The Company had one modified loan over the past 12 months to borrowers experiencing financial difficulty. The pre-modification balance of the loan was $33.4 million. The loan subsequently defaulted resulting in a charge-off of $18.5 million. As of September 30, 2024, this loan has been fully resolved.
23
Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
 
Note 7:
Shareholders’ Equity
 
On October 28, 2021, the Company adopted a Repurchase Plan (the “RP”) that authorizes the repurchase of up to 750,000 shares of the Company’s stock. Stock repurchases under the RP take place pursuant to a Rule 10b5-1 Plan with pricing and purchasing parameters established by management. The RP expired on October 28, 2023. There were no share repurchases under this plan. On October 30, 2023, 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. There were no repurchases under this plan as of September 30, 2024.

A summary of the activity under the RP is as follows:


   
Nine Months Ended
September 30,
  
   
2024
    
2023
  
Number of shares repurchased     -       -  
Average price of shares repurchased
  
$
-
    
$
-
  
Shares remaining to be repurchased     750,000       750,000  

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, 2024, 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, 2024, 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.
 
24
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 as of September 30, 2024 and December 31, 2023 (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, 2024
                                                
Total capital to risk-weighted assets
                                                
Company
  
$
217,253
      
14.11
%
  
$
123,143
      
8.00
%
  
$
161,626
      
10.50
%
    
N/A
      
N/A
  
Bank
    
217,213
      
14.12
%
    
123,063
      
8.00
%
    
161,520
      
10.50
%
  
$
153,828
      
10.00
%
Tier I capital to risk-weighted assets
                                                                
Company
    
198,916
      
12.92
%
    
92,358
      
6.00
%
    
130,840
      
8.50
%
    
N/A
      
N/A
  
Bank
    
198,876
      
12.93
%
    
92,297
      
6.00
%
    
130,754
      
8.50
%
    
123,063
      
8.00
%
CET I capital to risk-weighted assets
                                                                
Company
    
198,916
      
12.92
%
    
69,268
      
4.50
%
    
107,751
      
7.00
%
    
N/A
      
N/A
  
Bank
    
198,876
      
12.93
%
    
69,223
      
4.50
%
    
107,680
      
7.00
%
    
99,988
      
6.50
%
Tier I capital to average assets
                                                                
Company
    
198,916
      
11.64
%
    
68,362
      
4.00
%
    
N/A
      
N/A
      
N/A
      
N/A
  
Bank
    
198,876
      
11.64
%
    
68,362
      
4.00
%
    
N/A
      
N/A
      
85,452
      
5.00
%
                                                                 
As of December 31, 2023
                                                                
Total capital to risk-weighted assets
                                                                
Company
  
$
185,171
      
12.74
%
  
$
116,251
      
8.00
%
  
$
152,579
      
10.50
%
    
N/A
      
N/A
  
Bank
    
185,118
      
12.75
%
    
116,169
      
8.00
%
    
152,472
      
10.50
%
  
$
145,211
      
10.00
%
Tier I capital to risk-weighted assets
                                                                
Company
    
166,982
      
11.49
%
    
87,188
      
6.00
%
    
123,516
      
8.50
%
    
N/A
      
N/A
  
Bank
    
166,942
      
11.50
%
    
87,127
      
6.00
%
    
123,429
      
8.50
%
    
116,169
      
8.00
%
CET I capital to risk-weighted assets
                                                                
Company
    
166,982
      
11.49
%
    
65,391
      
4.50
%
    
101,719
      
7.00
%
    
N/A
      
N/A
  
Bank
    
166,942
      
11.50
%
    
65,345
      
4.50
%
    
101,648
      
7.00
%
    
94,387
      
6.50
%
Tier I capital to average assets
                                                                
Company
    
166,982
      
9.50
%
    
70,318
      
4.00
%
    
N/A
      
N/A
      
N/A
      
N/A
  
Bank
    
166,942
      
9.50
%
    
70,318
      
4.00
%
    
N/A
      
N/A
      
87,897
      
5.00
%

25
Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
The federal banking agencies require that banking organizations meet several risk-based capital adequacy requirements. The current risk-based capital standards applicable to the Company and the Bank are based on the Basel III Capital Rules established by the Basel Committee on Banking Supervision (the “Basel Committee”). The Basel Committee is a committee of central banks and bank supervisors/regulators from the major industrialized countries that develops broad policy guidelines for use by each country’s supervisors in determining the supervisory policies they apply. The requirements are intended to ensure that banking organizations have adequate capital given the risk levels of assets and off-balance sheet financial instruments.
 
The Basel III Capital Rules require the Bank and the Company to comply with four minimum capital standards: a Tier 1 leverage ratio of at least 4.0%; a CET1 to risk-weighted assets of 4.5%; a Tier 1 capital to risk-weighted assets of at least 6.0%; and a total capital to risk-weighted assets of at least 8.0%. The calculation of all types of regulatory capital is subject to definitions, deductions and adjustments specified in the regulations.
 
The Basel III Capital Rules also require a “capital conservation buffer” of 2.5% above the regulatory minimum risk-based capital requirements. The capital conservation buffer is designed to absorb losses during periods of economic stress and effectively increases the minimum required risk-weighted capital ratios.  Banking institutions with a ratio of CET1 to risk-weighted assets below the effective minimum (4.5% plus the capital conservation buffer) are subject to limitations on certain activities, including payment of dividends, share repurchases and discretionary bonuses to executive officers based on the amount of the shortfall.
 
As of September 30, 2024, 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, 2024, approximately $74.9 million of retained earnings was available for dividend declaration from the Bank without prior regulatory approval.

Note 8:
Related-Party Transactions
 
At September 30, 2024 and December 31, 2023, the Company had loans outstanding to executive officers, directors, significant shareholders and their affiliates (related parties) approximating $191,000 and $203,000, respectively.
 
The Bank leases office and retail banking space in Oklahoma City and Woodward, Oklahoma from Central Park on Lincoln, LLC and Haines Realty Investments Company, LLC, respectively, both related parties of the Company.  Lease payments totaled $75,000 and $65,000 for the three months ended September 30, 2024 and 2023, respectively and $205,000 and $186,000 for the nine months ended September 30, 2024 and 2023, respectively.  In addition, payroll and office sharing arrangements were in place between the Company and certain of its affiliates.

26
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, 2024 and 2023 totaled $98,000 and $93,000, respectively. Employer contributions charged to expense for the nine months ended September 30, 2024 and 2023 totaled $331,000 and $302,000, 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, 2024 and 2023 totaled $621,000 and $565,000, respectively. Compensation expense related to the Incentive Plan for the nine months ended September 30, 2024 and 2023 totaled $1.9 million and $1.7 million, respectively. There were 633,117 shares available for future grants as of September 30, 2024.
 
The Company grants to employees and directors restricted stock units (RSUs) which vest ratably over one, three, four, five, or eight years and stock options which vest ratably over four years.  All RSUs and stock options are granted at the fair value of the common stock at the time of the award. The RSUs are considered fixed awards as the number of shares and fair value are known at the date of grant and the fair value at the grant date is amortized over the vesting and/or service period.
 
The Company uses newly issued shares for granting RSUs and stock options.
 
The following table is a summary of the stock option activity under the Incentive Plan (dollar amounts in thousands, except per share data):

   
Options
    
Wgtd. Avg.
Exercise Price
    
Wgtd. Avg.
Remaining
Contractual Term
   
Aggregate
Intrinsic
Value
  
Nine Months Ended September 30, 2024
                        
Outstanding at December 31, 2023
    
220,939
    
$
17.52
              
Options Granted
    
-
      
-
              
Options Exercised
    
(106,820
)
    
17.85
              
Options Forfeited
    
-
      
-
              
Outstanding at September 30, 2024
    
114,119
      
17.21
      
5.06
    
$
2,312,535
  
Exercisable at September 30, 2024
    
92,305
      
17.57
      
4.72
    
$
1,836,558
  

27
Bank7 Corp.
Notes to Unaudited Condensed Consolidated Financial Statements
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.

There were no new grants for the nine months ended September 30, 2024 and 2023.

The following table summarizes share information about RSUs for the nine months ended September 30, 2024 and 2023:
 

 
Number of Shares
    
Wgtd. Avg.
Grant Date
Fair Value
  
Nine Months Ended September 30, 2024
            
Outstanding at December 31, 2023
    
211,461
    
$
26.98
  
Shares granted
    
100,606
      
27.34
  
Shares vested
    
(52,261
)
    
27.00
  
Shares forfeited
    
(4,375
)
    
28.39
  
End of the period balance
    
255,431
    
$
27.10
  

   
Number of Shares
    
Wgtd. Avg.
Grant Date
Fair Value
  
Nine Months Ended September 30, 2023
            
Outstanding at December 31, 2022
    
112,591
    
$
19.15
  
Shares granted
    
163,311
      
29.76
  
Shares vested
    
(40,734
)
    
19.04
  
Shares forfeited
    
(7,087
)
    
27.34
  
End of the period balance
    
228,081
    
$
26.51
  
 
As of September 30, 2024, there was approximately $52,000 of unrecognized compensation expense related to 114,119 unvested and/or unexercised stock options and $5.4 million of unrecognized compensation expense related to 255,431 unvested RSUs.  The stock option expense is expected to be recognized over a weighted average period of 0.85 years, and the RSU expense is expected to be recognized over a weighted average period of 3.28 years.

As of September 30, 2023, there was approximately $201,000 of unrecognized compensation expense related to 222,376 unvested and/or unexercised stock options and $4.9 million of unrecognized compensation expense related to 228,081 unvested RSUs.  The stock option expense is expected to be recognized over a weighted average period of 1.45 years, and the RSU expense is expected to be recognized over a weighted average period of 4.00 years.

28
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.

29
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, 2024 and December 31, 2023 (dollars in thousands):
 
   
Fair Value
    
(Level 1)
    
(Level 2)
    
(Level 3)
  
September 30, 2024
                        
Asset retirement obligations
  $
 286     $
 -     $
 -     $
 286  
                                 
December 31, 2023
                                
Collateral-dependent loans
  
$
16,370
    
$
-
    
$
-
    
$
16,370
  
Asset retirement obligations 
    361       -       -       361  

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 Loans, Net of Allowance for Credit Losses
 
The estimated fair value of collateral-dependent loans is based on fair value, less estimated cost to sell. Collateral-dependent loans are classified within Level 3 of the fair value hierarchy.
 
The Company considers engineering reports or appraisals 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.

Asset retirement obligations

Asset retirement obligations related to the plugging and abandonment of oil and natural gas properties and are classified within the Level 3 of the fair value hierarchy.
 
The fair value of the asset retirement obligations is measured using expected future cash outflows discounted at the Company’s credit-adjusted risk-free interest rate. Fair value, to the extent possible, includes a market risk premium for unforeseeable circumstances. Inherent in the fair value calculation of the asset retirement obligations are numerous assumptions and judgments including the ultimate settlement amounts, inflation factors, credit adjusted discount rates, timing of settlement, and changes in the legal, regulatory, environmental, and political environments. To the extent future revisions to these assumptions impact the fair value of the existing asset retirement obligations liability, a corresponding adjustment is made to the oil and gas property balance.

30
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(dollars in thousands):
 
         Valuation     Unobservable  
 
Fair Value
  
Technique
  
Inputs
  
September 30, 2024
              
Asset retirement obligations   $
 286   Expected present value   Plugging and abandonment expense  
                 
December 31, 2023
                
Collateral-dependent loans
  
$
16,370
  
Estimated cash to be received pending
resolution of bankruptcy proceedings
  
Estimated cost to sell
  
Asset retirement obligations      361   Expected present value   Plugging and abandonment expense  

The following table presents estimated fair values of the Company’s financial instruments not recorded at fair value at September 30, 2024 and December 31, 2023 (dollars in thousands):

  Carrying    
Fair Value Measurements
  
 
Amount
    
Level 1
    
Level 2
    
Level 3
    
Total
  
September 30, 2024
                              
                               
Financial Assets
                              
Cash and due from banks
  
$
186,720
    
$
186,720
    
$
-
    
$
-
    
$
186,720
  
Interest-bearing time
deposits in other banks
    
8,715
      
-
      
8,715
      
-
      
8,715
  
Loans, net of allowance
     1,419,671       -       1,417,887       -       1,417,887  
Nonmarketable equity securities
    
1,278
      
-
      
1,278
      
-
      
1,278
  
Interest receivable and other assets
     32,407       -       18,793       13,614       32,407  
 
                                        
Financial Liabilities
                                        
Deposits
  
$
1,524,216
    
$
-
    
$
1,524,008
    
$
-
    
$
1,524,008
  
Interest payable and other liabilities
    
11,637
      
-
      
10,833
      
804
      
11,637
  
                                         
December 31, 2023
                                        
                                         
Financial Assets
                                        
Cash and due from banks
  
$
181,042
    
$
181,042
    
$
-
    
$
-
    
$
181,042
  
Interest-bearing time
deposits in other banks
    
17,679
      
-
      
17,679
      
-
      
17,679
  
Loans, net of allowance
    
1,341,148
      
-
      
1,321,413
      
16,370
      
1,337,783
  
Loans held for sale 
    718       -       718       -       718  
Nonmarketable equity securities
    
1,283
      
-
      
1,283
      
-
      
1,283
  
Interest receivable and other assets
   
35,878
      
-
      
19,211
      
16,667
      
35,878
  
 
                                        
Financial Liabilities
                                        
Deposits
  
$
1,591,391
    
$
-
    
$
1,590,295
    
$
-
    
$
1,590,295
  
Interest payable and other liabilities
   
9,647
      
-
      
8,335
      
1,312
      
9,647
  

31
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, 2024 and December 31, 2023.

Interest Receivable and Other Assets

Interest receivable and other assets include prepaid expenses, right-of-use lease assets, interest receivable on loans, deferred tax assets, and oil and gas related assets. For prepaid expense, right-of-use lease assets, deferred tax assets, and interest receivable on loans the carrying amount approximates fair value. For the determination of fair value of oil and gas assets, see discussion in the December 31, 2023 Form 10-K, Note 1, Summary of Significant Accounting Policies--Specific to Production of Oil and Natural Gas Reserves Operations.

Interest Payable and Other Liabilities

Interest payable and other liabilities include unfunded commitment liabilities, lease liabilities, interest payable on deposits, dividends payable, other accrued liabilities, and oil and gas related liabilities. For unfunded commitment liabilities, lease liabilities, interest payable on deposits, dividends payable, and other accrued liabilities carrying amount approximates fair value. For the determination of fair value of oil and gas liabilities, see discussion in the December 31, 2023 Form 10-K, Note 1, Summary of Significant Accounting Policies--Specific to Production of Oil and Natural Gas Reserves Operations.

32
Table of Contents
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, 2024 and December 31, 2023 (dollars in thousands):
 
   
September 30,
2024
    
December 31,
2023
  
Commitments to extend credit
  
$
308,931
    
$
256,888
  
Financial and performance standby letters of credit
    
11,315
      
4,247
  
   
$
320,246
    
$
261,135
  
 
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.

On January 1, 2023, the Company adopted ASU 2016-13, see Note (6).  Upon adoption, the Company estimated an allowance for credit losses on off-balance sheet credit exposures, which resulted in recording a reserve for unfunded loan commitments of $500,000.  The reserve for unfunded loan commitments totaled $464,000 at September 30, 2024 and December 31, 2023.

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 credit 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, 2024, hospitality loans were 20% of gross total loans with outstanding balances of $293.7 million and unfunded commitments of $3.5 million; energy loans were 12% of gross total loans with outstanding balances of $172.2 million and unfunded commitments of $45.9 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, 2024, goodwill of $8.5 million was recorded on the consolidated balance sheet.

33
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, 2023.
 
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.
 
Q3 2024 Overview

We reported total loans of $1.44 billion as of September 30, 2024, an increase of $44.8 million, or 3.2%, from September 30, 2023. Total deposits were $1.52 billion as of September 30, 2024, a decrease of $69.4 million, or 4.4%, as compared to September 30, 2023.

Pre-tax net income was $15.5 million, an increase of $5.3 million, or 51.9%, for the three months ended September 30, 2024 as compared to pre-tax net income of $10.2 million for the same period in 2023. Pre-tax net income was $45.6 million, an increase of $10.0 million, or 28.0%, for the nine months ended September 30, 2024 as compared to pre-tax net income of $35.7 million for the same period in 2023.

Return on average assets and return on average equity was 2.73% and 23.67%, respectively for the three months ended September 30, 2024, as compared to 1.82% and 18.89%, respectively, for the same period in 2023. Return on average assets and return on average equity was 2.68% and 24.79%, respectively for the nine months ended September 30, 2024, as compared to 2.19% and 23.29%, respectively, for the same period in 2023. Our efficiency ratio for the three months ended September 30, 2024 was 37.87% as compared to 33.61% for the same period in 2023. Our efficiency ratio for the nine months ended September 30, 2024 was 37.58% as compared to 35.05% for the same period in 2023.

The provision for credit losses for the three months ended September 30, 2024 decreased $4.2 million, or 100.0%, as compared to the same period in 2023. The provision for credit losses for the nine months ended September 30, 2024 decreased $5.6 million or 100.0%, as compared to the same period in 2023.  The provision expense for the nine months ended September 30, 2023 was related to loan growth in the first quarter of 2023, the impact of updated economic assumptions, and we had a single loan customer that filed for bankruptcy, and as a result, we recorded an additional allowance for credit losses of $3.0 million.

34
Results of Operations
 
Three Months Ended September 30, 2024 and September 30, 2023
 
Net Interest Income and Net Interest Margin. The following table presents, for the periods indicated, information about: (i) weighted average balances, the total dollar amount of interest income from interest-earning assets, and the resultant average yields; (ii) average balances, the total dollar amount of interest expense on interest-bearing liabilities, and the resultant average rates; (iii) net interest income; and (iv) the net interest margin.
 
   
Net Interest Margin
  
   
For the Three Months Ended September 30,
  
   
2024
     2023  
   
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
  
$
191,583
    
$
2,325
      
4.81
%
  
$
176,589
    
$
2,062
      
4.63
%
Debt securities, taxable
    
51,172
      
303
      
2.35
      
151,174
      
699
      
1.83
  
Debt securities, tax exempt(1)
    
16,889
      
69
      
1.62
      
19,430
      
81
      
1.65
  
Loans held for sale
    
250
      
-
      
-
      
232
      
-
      
-
  
Total loans(2)
    
1,418,512
      
30,791
      
8.61
      
1,344,038
      
28,880
      
8.52
  
Total interest-earning assets
    
1,678,406
      
33,488
      
7.92
      
1,691,463
      
31,722
      
7.44
  
Noninterest-earning assets
    
40,002
                      
23,407
                  
Total assets
  
$
1,718,408
                    
$
1,714,870
                  
                                                 
Funding sources:
                                                
Interest-bearing liabilities:
                                                
Deposits:
                                                
Transaction accounts
  
$
922,117
      
9,237
      
3.97
%
  
$
823,331
      
7,733
      
3.73
%
Time deposits
    
253,640
      
3,034
      
4.75
      
292,235
      
3,243
      
4.40
  
Total interest-bearing deposits
    
1,175,757
      
12,271
      
4.14
      
1,115,566
      
10,976
      
3.90
  
Total interest-bearing liabilities
  
$
1,175,757
      
12,271
      
4.14
    
$
1,115,566
      
10,976
      
3.90
  
                                                 
Noninterest-bearing liabilities:
                                                
Noninterest-bearing deposits
  
$
332,487
                    
$
422,691
                  
Other noninterest-bearing liabilities
    
12,221
                      
11,649
                  
Total noninterest-bearing liabilities
    
344,708
                      
434,340
                  
Shareholders’ equity
    
197,943
                      
164,964
                  
Total liabilities and shareholders’ equity
  
$
1,718,408
                    
$
1,714,870
                  
                                                 
Net interest income
          
$
21,217
                    
$
20,746
          
Net interest spread
                    
3.78
%
                    
3.54
%
Net interest margin
                    
5.02
%
                    
4.87
%

(1)
Taxable-equivalent yield of 2.13% as of September 30, 2024, applying a 24.0% effective tax rate
(2)
Average loan balances include monthly average nonaccrual loans of $7.4 million and $41.2 million as of September 30, 2024 and September 30, 2023, respectively, are included in loans.
 
For the third quarter of 2024 compared to the third quarter of 2023:

 -
Interest income on total loans totaled $30.8 million, an increase of $1.9 million or 6.6%, due to an increase in average loans of $74.5 million, or 5.5%, and increased loan yields as discussed below;

-
Yields on our interest-earning assets totaled 7.92%, an increase of 48 basis points which was attributable to higher loan yields of 9 basis points, an increase in yield on short term investments of 18 basis points, and an increase in yield on taxable debt securities of 52 basis points; and

-
Net interest margin for the third quarter of 2024 was 5.02% compared to 4.87% for the third quarter of 2023.

35
   
Net Interest Margin
  
   
For the Nine Months Ended September 30,
  
   
2024
    
2023
  
   
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
  
$
180,426
    
$
6,896
      
5.09
%
  
$
162,432
    
$
5,668
      
4.67
%
Debt securities, taxable
    
103,507
      
2,266
      
2.92
      
152,702
      
2,106
      
1.84
  
Debt securities, tax exempt(1)
    
17,468
      
214
      
1.63
      
19,828
      
253
      
1.71
  
Loans held for sale
    
281
      
-
      
-
      
115
      
-
      
-
  
Total loans(2)
    
1,381,200
      
89,834
      
8.66
      
1,299,754
      
81,117
      
8.34
  
Total interest-earning assets
    
1,682,882
      
99,210
      
7.85
      
1,634,831
      
89,144
      
7.29
  
Noninterest-earning assets
    
39,499
                      
22,560
                  
Total assets
  
$
1,722,381
                    
$
1,657,391
                  
                                                 
Funding sources:
                                                
Interest-bearing liabilities:
                                                
Deposits:
                                                
Transaction accounts
  
$
872,635
      
25,726
      
3.93
%
  
$
812,962
      
20,346
      
3.35
%
Time deposits
    
255,348
      
9,026
      
4.71
      
257,418
      
7,548
      
3.92
  
Total interest-bearing deposits
    
1,127,983
      
34,752
      
4.10
      
1,070,380
      
27,894
      
3.48
  
Total interest-bearing liabilities
    
1,127,983
      
34,752
      
4.10
      
1,070,380
      
27,894
      
3.48
  
                                                 
Noninterest-bearing liabilities:
                                                
Noninterest-bearing deposits
    
395,822
                      
420,356
                  
Other noninterest-bearing liabilities
    
12,219
                      
10,496
                  
Total noninterest-bearing liabilities
    
408,041
                      
430,852
                  
Shareholders’ equity
    
186,357
                      
156,159
                  
Total liabilities and shareholders’ equity
  
$
1,722,381
                    
$
1,657,391
                  
                                                 
Net interest income
          
$
64,458
                    
$
61,250
          
Net interest spread
                    
3.75
%
                    
3.81
%
Net interest margin
                    
5.10
%
                    
5.01
%

 
(1)
Taxable-equivalent yield of 2.15% as of September 30, 2024, applying a 24.2% effective tax rate

(2)
Average loan balances include monthly average nonaccrual loans of $13.9 million and $41.2 million as of September 30, 2024 and   September 30, 2023, respectively, are included in loans.
 
For the first nine months of 2024 compared to the same period in 2023:

 -
Interest income on total loans totaled $89.8 million, an increase of $8.7 million or 10.7%, due to an increase in average loans of $81.4 million, or 6.3%, and increased loan yields as discussed below;

-
Yields on our interest-earning assets totaled 7.85%, an increase of 56 basis points which was attributable to higher loan yields of 32 basis points, an increase in yield on short term investments of 42 basis points, and an increase in yield on taxable debt securities of 108 basis points; and

-
Net interest margin for the first nine months of 2024 was 5.10% compared to 5.01% for the same period in 2023.

-
Cost of total interest-bearing deposits totaled 4.10%, an increase of 62 basis points which was attributable to higher interest rates on transaction accounts of 58 basis points and higher interest rates on time deposits accounts of 79 basis points.

36
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, 2024 vs 2023
  
   
Change due to:
        
   
Volume(1)
    
Rate(1)
    
Interest
  
   
Variance
  
   
(Dollars in thousands)
  
Increase (decrease) in interest income:
                  
Short-term investments
  
$
175
    
$
88
    
$
263
  
Debt securities
    
(471
)
    
63
      
(408
)
Total loans
    
1,595
      
316
      
1,911
  
Total increase (decrease) in interest income
    
1,299
      
467
      
1,766
  
                         
Increase (decrease) in interest expense:
                        
Deposits:
                        
Transaction accounts
    
926
      
578
      
1,504
  
Time deposits
    
(427
)
    
218
      
(209
)
Total interest-bearing deposits
    
499
      
796
      
1,295
  
Total increase (decrease) in interest expense
    
499
      
796
      
1,295
  
                         
Increase (Decrease) in net interest income
  
$
800
    
$
(329
)
  
$
471
  
                         

   
Analysis of Changes in Interest Income and Expenses
  
   
For the Nine Months Ended
  
   
September 30, 2024 vs 2023
  
   
Change due to:
        
   
Volume(1)
    
Rate(1)
    
Interest
  
   
Variance
  
   
(Dollars in thousands)
  
Increase (decrease) in interest income:
                  
Short-term investments
  
$
629
    
$
599
    
$
1,228
  
Debt securities
    
(708
)
    
829
      
121
  
Total loans
    
5,085
      
3,632
      
8,717
  
Total increase (decrease) in interest income
    
5,006
      
5,060
      
10,066
  
                         
Increase (decrease) in interest expense:
                        
Deposits:
                        
Transaction accounts
    
1,497
      
3,883
      
5,380
  
Time deposits
    
(61
)
    
1,539
      
1,478
  
Total interest-bearing deposits
    
1,436
      
5,422
      
6,858
  
Total increase (decrease) in interest expense
    
1,436
      
5,422
      
6,858
  
                         
Increase (Decrease) in net interest income
  
$
3,570
    
$
(362
)
  
$
3,208
  

(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.

37
Securities
Our investment portfolio consists entirely of securities classified as available-for-sale. As a result, the carrying values of our investment securities are adjusted for unrealized gain or loss, and any gain or loss is reported on an after-tax basis as a component of other comprehensive income in shareholders’ equity.

We evaluate our available-for-sale securities portfolio on a quarterly basis for potential credit-related losses. We assess potential credit losses by comparing the fair value of a debt security to its amortized cost basis. If the fair value of a debt security is greater than the amortized cost basis, no allowance for credit losses is recognized.  If the fair value is less than the amortized cost basis, we review the factors to determine if the impairment is credit-related or noncredit-related.  For debt securities we intend to sell or are more likely than not required to sell, before the recovery of their amortized cost basis, the difference between fair value and amortized cost is impaired and is recognized through earnings. For debt securities we do not intend to sell or are more likely than not required to sell, prior to expected recovery of amortized cost basis, the credit portion of the impairment is recognized through earnings, with a corresponding entry to an allowance for credit losses, and the noncredit portion is recognized through accumulated other comprehensive income.

 The following table summarizes the maturity distribution schedule with corresponding weighted average taxable equivalent yields of the debt securities portfolio at September 30, 2024. 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, 2024
  
               
After One Year But
    
After Five Years But
                          
 
Within One Year
    
Within Five Years
    
Within Ten Years
    
After Ten Years
    
Total
  
                                                             
 
Amount
    
Yield *
    
Amount
    
Yield *
    
Amount
    
Yield *
    
Amount
    
Yield *
    
Amount
    
Yield *
  
Available-for-sale
  
(Dollars in thousands)
  
U.S. Federal agencies
  
$
-
      
0.00
%
  
$
72
      
2.93
%
  
$
-
      
0.00
%
  
$
-
      
0.00
%
  
$
72
      
2.93
%
Mortgage-backed securities
    
2,608
      
1.30
      
8,203
      
1.37
      
1,473
      
1.40
      
20,552
      
1.68
      
32,836
      
1.57
  
State and political subdivisions
    
3,929
      
0.94
      
11,940
      
1.53
      
6,286
      
1.66
      
-
      
-
      
22,155
      
1.47
  
U.S. Treasuries
    
-
      
-
      
2,851
      
1.04
      
2,623
      
1.12
      
-
      
-
      
5,474
      
1.08
  
Corporate debt securities
    
-
      
-
      
-
      
-
      
4,623
      
3.36
      
-
      
-
      
4,623
      
3.36
  
Total
  
$
6,537
      
1.08
%
  
$
23,066
      
1.41
%
  
$
15,005
      
2.09
%
  
$
20,552
      
1.68
%
  
$
65,160
      
1.63
%
Percentage of total
    
10.03
%
            
35.40
%
            
23.03
%
            
31.54
%
            
100.00
%
        

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

Provision for Credit Losses

Credit risk is inherent in the business of making loans. We establish an Allowance for credit losses (“Allowance”) through charges to earnings, which are shown in the statements of comprehensive income as the provision for credit losses.  The provision for credit 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, and the valuation of problems and the general economic conditions in our market areas.
 
For the three months ended September 30, 2024 compared to the three months ended September 30, 2023:
 

 -
The provision for credit losses decreased from $4.2 million to $0; and

-
The allowance as a percentage of gross loans decreased by 24 basis points to 1.24%.
 
For the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023:
 

 -
The provision for credit losses decreased from $5.6 million to $0; and

-
The allowance as a percentage of gross loans decreased by 24 basis points to 1.24%.

38
Noninterest Income

The following table sets forth the major components of our noninterest income for the three months ended September 30, 2024 and 2023:

   
For the Three Months Ended
  
   
September 30,
  
   
2024
    
2023
    
$ Increase
    
% Increase
  
   
(Decrease)
    
(Decrease)
  
   
(Dollars in thousands)
  
Noninterest income:
                        
Mortgage lending income
  
$
103
    
$
6
    
$
97
      
1616.67
%
Loss on sales of available-for-sale debt securities
    
(4
)
    
(7
)
    
3
      
-42.86
%
Service charges on deposit accounts
    
233
      
213
      
20
      
9.39
%
Other income and fees
    
3,345
      
795
      
2,550
      
320.75
%
Total noninterest income
  
$
3,677
    
$
1,007
    
$
2,670
      
265.14
%

Noninterest income for the three months ended September 30, 2024 was $3.7 million compared to $1.0 million for the same period in 2023, an increase of $2.7 million, or 265.1%. The increase was primarily attributable to income related to the operation of oil and gas assets acquired during the fourth quarter of 2023, see Note 2 of the financial statements.

The following table sets forth the major components of our noninterest income for the nine months ended September 30, 2024 and 2023:

   
For the Nine Months Ended
  
   
September 30,
  
   
2024
    
2023
    
$ Increase
    
% Increase
  
   
(Decrease)
    
(Decrease)
  
   
(Dollars in thousands)
  
Noninterest income:
                        
Mortgage lending income
  
$
233
    
$
172
    
$
61
      
35.47
%
Loss on sales of available-for-sale debt securities
    
(4
)
    
(15
)
    
11
      
-73.33
%
Service charges on deposit accounts
    
742
      
647
      
95
      
14.68
%
Other income and fees
    
7,881
      
1,668
      
6,213
      
372.48
%
Total noninterest income
  
$
8,852
    
$
2,472
    
$
6,380
      
258.09
%

Noninterest income for the nine months ended September 30, 2024 was $8.9 million compared to $2.5 million for the same period in 2023, an increase of $6.4 million, or 258.1%. The increase was primarily attributable to income related to the operation of oil and gas assets acquired during the fourth quarter of 2023, see Note 2 of the financial statements.
 
39
Noninterest Expense
 
The following table sets forth the major components of our noninterest expense for the three months ended September 30, 2024 and 2023:

   
For the Three Months Ended
  
   
September 30,
  
   
2024
    
2023
    
$ Increase
    
% Increase
  
   
(Decrease)
    
(Decrease)
  
   
(Dollars in thousands)
  
Noninterest expense:
                        
Salaries and employee benefits
  
$
5,333
    
$
4,910
    
$
423
      
8.62
%
Furniture and equipment
    
258
      
254
      
4
      
1.57
  
Occupancy
    
711
      
662
      
49
      
7.40
Data and item processing
    
498
      
424
      
74
      
17.45
Accounting, marketing, and legal fees
    
218
      
14
      
204
      
1457.14
Regulatory assessments
    
261
      
279
      
(18
)
    
-6.45
Advertising and public relations
    
129
      
74
      
55
      
74.32
Travel, lodging and entertainment
    
87
      
85
      
2
      
2.35
Other expense
    
1,903
      
688
      
1,215
      
176.60
Total noninterest expense
  
$
9,398
    
$
7,390
    
$
2,008
      
27.17
%

Noninterest expense for the three months ended September 30, 2024 was $9.4 million compared to $7.4 million for the same period in 2023, an increase of $2.0 million, or 27.2%. The increase was primarily attributable to expense related to the operation of oil and gas assets acquired during the fourth quarter of 2023, see Note 2 of the financial statements.

The following table sets forth the major components of our noninterest expense for the nine months ended September 30, 2024 and 2023:

   
For the Nine Months Ended
  
   
September 30,
  
   
2024
    
2023
    
$ Increase
    
% Increase
  
   
(Decrease)
    
(Decrease)
  
   
(Dollars in thousands)
  
Noninterest expense:
                        
Salaries and employee benefits
  
$
15,740
    
$
14,299
    
$
1,441
      
10.08
%
Furniture and equipment
    
813
      
755
      
58
      
7.68
  
Occupancy
    
1,985
      
1,980
      
5
      
0.25
Data and item processing
    
1,437
      
1,280
      
157
      
12.27
Accounting, marketing, and legal fees
    
582
      
491
      
91
      
18.53
Regulatory assessments
    
984
      
1,013
      
(29
)
    
-2.86
Advertising and public relations
    
358
      
273
      
85
      
31.14
Travel, lodging and entertainment
    
270
      
255
      
15
      
5.88
Other expense
    
5,507
      
2,068
      
3,439
      
166.30
Total noninterest expense
  
$
27,676
    
$
22,414
    
$
5,262
      
23.48
 %

Noninterest expense for the nine months ended September 30, 2024 was $27.7 million compared to $22.4 million for the same period in 2023, an increase of $5.3 million, or 23.5%. The increase was primarily attributable to expense related to the operation of oil and gas assets acquired during the fourth quarter of 2023, see Note 2 of the financial statements.

40
Financial Condition

The following discussion of our financial condition compares September 30, 2024 and December 31, 2023.

Total Assets

Total assets decreased $31.2 million, or 1.8%, to $1.74 billion as of September 30, 2024, compared to $1.77 billion as of December 31, 2023.

Loan Portfolio

The following table presents the balance and associated percentage of each major category in our loan portfolio as of September 30, 2024 and December 31, 2023:

   
As of September 30,
    
As of December 31,
  
   
2024
    
2023
  
   
Amount
    
% of Total
    
Amount
    
% of Total
  
   
(Dollars in thousands)
  
Construction & development
  
$
157,374
      
11.0
%
  
$
137,206
      
10.1
%
1-4 family real estate
    
115,497
      
8.0
%
    
100,576
      
7.4
%
Commercial real estate - other
    
536,070
      
37.2
%
    
518,622
      
38.0
%
Total commercial real estate
    
808,941
      
56.2
%
    
756,404
      
55.5
%
                                 
Commercial & industrial
    
547,430
      
38.0
%
    
526,185
      
38.5
%
Agricultural
    
69,171
      
4.8
%
    
66,495
      
4.9
%
Consumer
    
14,308
      
1.0
%
    
14,517
      
1.1
%
Gross loans
    
1,439,850
      
100.0
%
    
1,363,601
      
100.0
%
Less: unearned income, net
    
(2,306
)
            
(2,762
)
        
Total Loans, net of unearned income
    
1,437,544
              
1,360,839
          
Less: Allowance for credit losses
    
(17,873
)
            
(19,691
)
        
Net loans
  
$
1,419,671
            
$
1,341,148
          

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, 2024, and December 31, 2023, our gross loans were $1.44 billion and $1.36 billion, respectively.

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.

41
The following tables show the contractual maturities of our gross loans as of the periods below:

   
As of September 30, 2024
  
               
Due after One Year
    
Due after Five Years
                    
 
Due in One Year or Less
    
Through Five Years
    
Through Fifteen Years
    
Due after Fifteen Years
  
   
Fixed
    
Adjustable
    
Fixed
    
Adjustable
    
Fixed
    
Adjustable
    
Fixed
    
Adjustable
    
Total
  
 
Rate
    
Rate
    
Rate
    
Rate
    
Rate
    
Rate
    
Rate
    
Rate
  
   
(Dollars in thousands)
  
Construction & development
  
$
12,992
    
$
67,816
    
$
1,864
    
$
74,015
    
$
-
    
$
576
    
$
111
    
$
-
    
$
157,374
  
1-4 family real estate
    
19,439
      
17,637
      
37,587
      
30,194
      
990
      
4,989
      
4,661
      
-
      
115,497
  
Commercial real estate - other
    
42,301
      
78,457
      
115,304
      
270,925
      
157
      
19,640
      
9,286
      
-
      
536,070
  
Total commercial real estate
    
74,732
      
163,910
      
154,755
      
375,134
      
1,147
      
25,205
      
14,058
      
-
      
808,941
  
                                                                         
Commercial & industrial
    
36,462
      
294,857
      
20,048
      
177,463
      
8,559
      
9,437
      
604
      
-
      
547,430
  
Agricultural
    
20,900
      
4,028
      
14,954
      
26,404
      
-
      
1,026
      
1,859
      
-
      
69,171
  
Consumer
    
1,739
      
5
      
5,593
      
178
      
509
      
3,521
      
2,763
      
-
      
14,308
  
Gross loans
  
$
133,833
    
$
462,800
    
$
195,350
    
$
579,179
    
$
10,215
    
$
39,189
    
$
19,284
    
$
-
    
$
1,439,850
  

   
As of December 31, 2023
  
                   
Due after One Year
    
Due after Five Years
                          
 
Due in One Year or Less
    
Through Five Years
    
Through Fifteen Years
    
Due after Fifteen Years
  
   
Fixed
    
Adjustable
    
Fixed
    
Adjustable
    
Fixed
    
Adjustable
    
Fixed
    
Adjustable
    
Total
  
 
Rate
    
Rate
    
Rate
    
Rate
    
Rate
    
Rate
    
Rate
    
Rate
  
   
(Dollars in thousands)
  
Construction & development
  
$
11,431
    
$
70,040
    
$
8,970
    
$
44,935
    
$
-
    
$
1,438
    
$
392
    
$
-
    
$
137,206
  
1-4 family real estate
    
13,628
      
13,015
      
41,602
      
21,451
      
26
      
5,443
      
5,411
      
-
      
100,576
  
Commercial real estate - other
    
50,251
      
65,120
      
152,250
      
219,260
      
129
      
21,283
      
10,329
      
-
      
518,622
  
Total commerical real estate
    
75,310
      
148,175
      
202,822
      
285,646
      
155
      
28,164
      
16,132
      
-
      
756,404
  
                                                                         
Commercial & industrial
    
20,389
      
263,564
      
41,520
      
186,776
      
3,276
      
10,041
      
619
      
-
      
526,185
  
Agricultural
    
13,250
      
22,615
      
13,935
      
13,032
      
-
      
810
      
2,853
      
-
      
66,495
  
Consumer
    
2,170
      
14
      
5,490
      
121
      
595
      
3,604
      
2,523
      
-
      
14,517
  
Gross loans
  
$
111,119
    
$
434,368
    
$
263,767
    
$
485,575
    
$
4,026
    
$
42,619
    
$
22,127
    
$
-
    
$
1,363,601
  
                                                                         

Allowance for Credit 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 $17.9 million at September 30, 2024, compared to $19.7 million at December 31, 2023.

42
The following table provides an analysis of the activity in our allowance for the periods indicated:
 
   
For the Nine Months Ended
September 30,
  
   
2024
    
2023
  
   
(Dollars in thousands)
  
Balance at beginning of the period
  
$
19,691
    
$
14,734
  
Impact of CECL adoption
    
-
      
250
  
Provision for credit losses for loans
    
-
      
5,681
  
Charge-offs:
                
Construction & development
    
-
      
-
  
1-4 family real estate
    
-
      
-
  
Commercial real estate - other
    
-
      
-
  
Commercial & industrial
    
(2,000
)
    
-
  
Agricultural
    
-
      
(7
)
Consumer
    
-
      
(16
)
Total charge-offs
    
(2,000
)
    
(23
)
Recoveries:
                
Construction & development
    
-
      
-
  
1-4 family real estate
    
-
      
-
  
Commercial real estate - other
    
-
      
-
  
Commercial & industrial
    
176
      
-
  
Agricultural
    
6
      
2
  
Consumer
    
-
      
5
  
Total recoveries
    
182
      
7
  
Net recoveries (charge-offs)
    
(1,818
)
    
(16
)
Balance at end of the period
  
$
17,873
    
$
20,649
  
Net recoveries (charge-offs) to average loans
    
-0.18
%
    
0.00
%

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,
  
   
2024
    
2023
  
   
Amount
    
Percent
    
Amount
    
Percent
  
   
(Dollars in thousands)
  
Construction & development
  
$
1,652
      
9.2
%
  
$
1,417
      
7.2
%
1-4 family real estate
    
1,378
      
7.7
%
    
1,271
      
6.5
%
Commercial real estate - other
    
6,848
      
38.3
%
    
6,889
      
35.0
%
Commercial & industrial
    
7,084
      
39.7
%
    
9,237
      
46.8
%
Agricultural
    
679
      
3.8
%
    
628
      
3.2
%
Consumer
    
232
      
1.3
%
    
249
      
1.3
%
Total
  
$
17,873
      
100.0
%
  
$
19,691
      
100.0
%

43
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.

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.

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

   
As of
September 30, 2024
    
As of
December 31, 2023
  
   
(Dollars in thousands)
  
Nonaccrual loans(1)
  
$
6,952
    
$
18,941
  
Accruing loans 90 or more days past due
    
779
      
10,026
  
Total nonperforming assets
  
$
7,731
    
$
28,967
  
Ratio of nonperforming loans to total loans
    
0.54
%
    
2.13
%
Ratio of nonaccrual loans to total loans
    
0.48
%
    
1.39
%
Ratio of allowance for credit losses to total loans
    
1.24
%
    
1.45
%
Ratio of allowance for credit losses to nonaccrual loans
    
257.09
%
    
103.96
%
Ratio of nonperforming assets to total assets
    
0.44
%
    
1.64
%

(1)
Included in the nonaccrual loans balance are $0 and $10.12 million of loans modified to borrows experiencing financial difficulty as of September 30, 2024 and December 31, 2023, respectively. See Note 6 of the financial statements.

The following tables present an aging analysis of loans as of the dates indicated.
 
   
As of September 30, 2024
  
   
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
    
Gross loans
  
   
(Dollars in thousands)
  
Construction & development
  
$
-
    
$
-
    
$
-
    
$
-
    
$
-
    
$
157,374
    
$
157,374
  
1-4 family real estate
    
-
      
-
      
-
      
-
      
-
      
115,497
      
115,497
  
Commercial real estate - other
    
1,938
      
4,476
      
721
      
721
      
7,135
      
528,935
      
536,070
  
Commercial & industrial
    
9
      
-
      
28
      
-
      
37
      
547,393
      
547,430
  
Agricultural
    
-
      
-
      
-
      
-
      
-
      
69,171
      
69,171
  
Consumer
    
46
      
-
      
58
      
58
      
104
      
14,204
      
14,308
  
Total
  
$
1,993
    
$
4,476
    
$
807
    
$
779
    
$
7,276
    
$
1,432,574
    
$
1,439,850
  

   
As of December 31, 2023
  
   
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
    
Gross loans
  
   
(Dollars in thousands)
  
Construction & development
  
$
-
    
$
-
    
$
-
    
$
-
    
$
-
    
$
137,206
    
$
137,206
  
1-4 family real estate
    
-
      
-
      
-
      
-
      
-
      
100,576
      
100,576
  
Commercial real estate - other
    
-
      
-
      
-
      
-
      
-
      
518,622
      
518,622
  
Commercial & industrial
    
472
      
10,969
      
9,946
      
9,946
      
21,387
      
504,798
      
526,185
  
Agricultural
    
-
      
-
      
-
      
-
      
-
      
66,495
      
66,495
  
Consumer
    
-
      
27
      
80
      
80
      
107
      
14,410
      
14,517
  
Total
  
$
472
    
$
10,996
    
$
10,026
    
$
10,026
    
$
21,494
    
$
1,342,107
    
$
1,363,601
  

44
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, 2024
  
   
Pass
    
Watch
    
Special
mention
    
Substandard
    
Total
  
 
   
(Dollars in thousands)
  
Construction & development
  
$
155,552
    
$
-
    
$
1,822
    
$
-
    
$
157,374
  
1-4 family real estate
    
115,497
      
-
      
-
      
-
      
115,497
  
Commercial real estate - other
    
523,668
      
8,542
      
721
      
3,139
      
536,070
  
Commercial & industrial
    
536,924
      
3,234
      
1,513
      
5,759
      
547,430
  
Agricultural
    
69,171
      
-
      
-
      
-
      
69,171
  
Consumer
    
14,226
      
-
      
-
      
82
      
14,308
  
Total
  
$
1,415,038
    
$
11,776
    
$
4,056
    
$
8,980
    
$
1,439,850
  

   
As of December 31, 2023
  
   
Pass
    
Watch
    
Special
mention
    
Substandard
    
Total
  
 
   
(Dollars in thousands)
  
Construction & development
  
$
136,417
    
$
-
    
$
789
    
$
-
    
$
137,206
  
1-4 family real estate
    
100,576
      
-
      
-
      
-
      
100,576
  
Commercial real estate - other
    
502,795
      
-
      
15,701
      
126
      
518,622
  
Commercial & industrial
    
485,433
      
4,094
      
5,767
      
30,891
      
526,185
  
Agricultural
    
66,495
      
-
      
-
      
-
      
66,495
  
Consumer
    
14,437
      
-
      
-
      
80
      
14,517
  
Total
  
$
1,306,153
    
$
4,094
    
$
22,257
    
$
31,097
    
$
1,363,601
  

45
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.

Total deposits as of September 30, 2024 and December 31, 2023 were $1.52 billion and $1.59 billion, respectively.

Uninsured deposits are defined as the portion of deposit accounts in U.S. offices that exceed the FDIC insurance limit and amounts in any other uninsured investment or deposit account that are classified as deposits and are not subject to any federal or state deposit insurance regimes. Total uninsured deposits were $344.6 million and $448.7 million at September 30, 2024 and December 31, 2023, respectively, as calculated per regulatory guidance. This was approximately 22.6% and 28.2% of deposits at September 30, 2024 and December 31, 2023, 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.

   
As of September 30,
    
As of December 31,
  
   
2024
    
2023
  
   
Amount
    
Percentage of Total
    
Amount
    
Percentage of Total
  
 
   
(Dollars in thousands)
  
Noninterest-bearing demand
  
$
322,480
      
21.2
%
  
$
482,349
      
30.4
%
Interest-bearing transaction deposits
    
830,558
      
54.4
%
    
702,150
      
44.1
%
Savings deposits
    
108,258
      
7.1
%
    
150,116
      
9.4
%
Time deposits (less than $250,000)
    
168,676
      
11.1
%
    
168,690
      
10.6
%
Time deposits ($250,000 or more)
    
94,244
      
6.2
%
    
88,086
      
5.5
%
Total interest-bearing deposits
    
1,201,736
      
78.8
%
    
1,109,042
      
69.6
%
Total deposits
  
$
1,524,216
      
100.0
%
  
$
1,591,391
      
100.0
%

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

   
As of September 30, 2024 Maturity Within:
  
   
Three Months
    
Three to Six Months
    
Six to 12 Months
    
After 12 Months
    
Total
  
   
(Dollars in thousands)
  
Time deposits (less than $250,000)
  
$
67,015
    
$
62,665
    
$
33,501
    
$
5,495
    
$
168,676
  
Time deposits ($250,000 or more)
    
29,338
      
46,562
      
16,154
      
2,190
      
94,244
  
Total time deposits
  
$
96,353
    
$
109,227
    
$
49,655
    
$
7,685
    
$
262,920
  

   
As of December 31, 2023 Maturity Within:
  
   
Three Months
    
Three to Six Months
    
Six to 12 Months
    
After 12 Months
    
Total
  
   
(Dollars in thousands)
  
Time deposits (less than $250,000)
  
$
52,423
    
$
55,570
    
$
50,047
    
$
10,650
    
$
168,690
  
Time deposits ($250,000 or more)
    
30,807
      
18,472
      
17,492
      
21,315
      
88,086
  
Total time deposits
  
$
83,230
    
$
74,042
    
$
67,539
    
$
31,965
    
$
256,776
  

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, 2024, we had no unsecured fed funds lines with correspondent depository institutions, with no corresponding amounts advanced. In addition, based on the values of loans pledged as collateral, we had borrowing availability with the FHLB of $192.0 million as of September 30, 2024 and $159.2 million as of December 31, 2023, and we had access to approximately $367.7 million in liquidity with the Federal Reserve Bank as of September 30, 2024 and $0 as of December 31, 2023.

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, 2024, 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, 2024 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, 2024 and December 31, 2023. 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, 2024, the Company and the Bank met all capital adequacy requirements under the Basel III Capital Rules.
 
47
   
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, 2024
                                    
Total capital (to risk-weighted assets)
                                    
Company
  
$
217,253
      
14.11
%
  
$
161,626
      
10.50
%
    
N/A
      
N/A
  
Bank
    
217,213
      
14.12
%
    
161,520
      
10.50
%
  
$
153,828
      
10.00
%
Tier 1 capital (to risk-weighted assets)
                                                
Company
    
198,916
      
12.92
%
    
130,840
      
8.50
%
    
N/A
      
N/A
  
Bank
    
198,876
      
12.93
%
    
130,754
      
8.50
%
    
123,063
      
8.00
%
CET 1 capital (to risk-weighted assets)
                                                
Company
    
198,916
      
12.92
%
    
107,751
      
7.00
%
    
N/A
      
N/A
  
Bank
    
198,876
      
12.93
%
    
107,680
      
7.00
%
    
99,988
      
6.50
%
Tier 1 capital (to average assets)
                                                
Company
    
198,916
      
11.64
%
    
N/A
      
N/A
      
N/A
      
N/A
  
Bank
    
198,876
      
11.64
%
    
N/A
      
N/A
      
85,452
      
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, 2023
                                    
Total capital (to risk-weighted assets)
                                    
Company
  
$
185,171
      
12.74
%
  
$
152,579
      
10.50
%
    
N/A
      
N/A
  
Bank
    
185,118
      
12.75
%
    
152,472
      
10.50
%
  
$
145,211
      
10.00
%
Tier 1 capital (to risk-weighted assets)
                                                
Company
    
166,982
      
11.49
%
    
123,516
      
8.50
%
    
N/A
      
N/A
  
Bank
    
166,942
      
11.50
%
    
123,429
      
8.50
%
    
116,169
      
8.00
%
CET 1 capital (to risk-weighted assets)
                                                
Company
    
166,982
      
11.49
%
    
101,719
      
7.00
%
    
N/A
      
N/A
  
Bank
    
166,942
      
11.50
%
    
101,648
      
7.00
%
    
94,387
      
6.50
%
Tier 1 capital (to average assets)
                                                
Company
    
166,982
      
9.50
%
    
N/A
      
N/A
      
N/A
      
N/A
  
Bank
    
166,942
      
9.50
%
    
N/A
      
N/A
      
87,897
      
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 $33.8 million as of September 30, 2024 to $204.2 million, compared to $170.3 million as of December 31, 2023.

48
Contractual Obligations

The following tables contain supplemental information regarding our total contractual obligations as of September 30, 2024, and December 31, 2023:

   
Payments Due as of September 30, 2024
  
   
Within One Year
    
One to Three Years
    
Three to Five Years
    
After Five Years
    
Total
  
 
   
(Dollars in thousands)
  
Deposits without a stated maturity
  
$
1,261,296
    
$
-
    
$
-
    
$
-
    
$
1,261,296
  
Time deposits
    
255,235
      
6,771
      
914
      
-
      
262,920
  
Operating lease commitments
    
658
      
627
      
308
      
435
      
2,028
  
Total contractual obligations
  
$
1,517,189
    
$
7,398
    
$
1,222
    
$
435
    
$
1,526,244
  

   
Payments Due as of December 31, 2023
  
   
Within One Year
    
One to Three Years
    
Three to Five Years
    
After Five Years
    
Total
  
 
   
(Dollars in thousands)
  
Deposits without a stated maturity
  
$
1,334,615
    
$
-
    
$
-
    
$
-
    
$
1,334,615
  
Time deposits
    
224,811
      
31,345
      
620
      
-
      
256,776
  
Operating lease commitments
    
553
      
627
      
308
      
850
      
2,338
  
Total contractual obligations
  
$
1,559,979
    
$
31,972
    
$
928
    
$
850
    
$
1,593,729
  

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.

The following table summarizes commitments as of the dates presented.

   
September 30,
    
December 31,
  
   
2024
    
2023
  
   
(Dollars in thousands)
  
Commitments to extend credit
  
$
308,931
    
$
256,888
  
Standby letters of credit
    
11,315
      
4,247
  
Total
  
$
320,246
    
$
261,135
  
                 

49
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 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.
 
Allowance for Credit 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 pools based on loan type and risk characteristics. Historical loss experience factors by pool, adjusted for changes in trends and conditions, are used to determine an indicated allowance for each portfolio pool. These factors are evaluated and updated based on the composition of the specific loan pool. 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 pool evaluations, classified 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 pool.
 
50
Goodwill and Intangibles
 
Intangible assets totaled $907,000 and goodwill, net of accumulated amortization, totaled $8.5 million as of September 30, 2024, compared to intangible assets of $1.0 million and goodwill of $8.5 million as of December 31, 2023.
 
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.

Fair Value of Financial Instruments

ASC Topic 820, Fair Value Measurement, defines fair value as the price that would be received to sell a financial asset or paid to transfer a financial liability in an orderly transaction between market participants at the measurement date. The degree of management judgment involved in determining the fair value of assets and liabilities is dependent upon the availability of quoted market prices or observable market parameters. For financial instruments that trade actively and have quoted market prices or observable market parameters, there is minimal subjectivity involved in measuring fair value. When observable market prices and parameters are not available, management judgment is necessary to estimate fair value. In addition, changes in market conditions may reduce the availability of quoted prices or the observable date. Debt securities that are being held for indefinite periods of time and are not intended to sell, are classified as available for sale and are stated at estimated fair value. Unrealized gains or losses on debt securities available for sale are reported as a component of stockholders’ equity and comprehensive income, net of income tax.

The Company reviews its portfolio of debt securities in an unrealized loss position at least quarterly. The Company first assesses whether it intends to sell, or it is more-likely-than-not that it will be required to sell, the securities before recovery of the amortized cost basis. If either of these criteria is met, the securities amortized cost basis is written down to fair value as a current period expense. If either of the above criteria is not met, the Company evaluates whether the decline in fair value is the result of credit losses or other factors. In making this assessment, the Company considers, among other things, the period of time the security has been in an unrealized loss position, and performance of any underlying collateral and adverse conditions specifically related to the security.

The estimates of fair values of debt securities and other financial instruments are based on a variety of factors. In some cases, fair values represent quoted market prices for identical or comparable instruments. In other cases, fair values have been estimated based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates reflecting varying degrees of risk. Accordingly, the fair values may not represent actual values of the financial instruments that could have been realized as of year-end or that will be realized in the future.

51
ITEM 3.
Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Sensitivity and Market Risk

As a financial institution, our primary component of market risk is interest rate volatility. Our financial management policy provides management with the guidelines for effective funds management, and we have established a measurement system for monitoring our net interest rate sensitivity position. We have historically managed our sensitivity position within our established guidelines.
Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most of our assets and liabilities, and the market value of all interest-earning assets and interest-bearing liabilities, other than those which have a short term to maturity. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income.

We manage our exposure to interest rates by structuring our balance sheet in the ordinary course of business. We do not enter into instruments such as leveraged derivatives, financial options or financial future contracts to mitigate interest rate risk from specific transactions. Based upon the nature of our operations, we are not subject to foreign exchange or commodity price risk. We do not own any trading assets.

Our exposure to interest rate risk is managed by the Asset/Liability Committee, or the ALCO Committee, in accordance with policies approved by our board of directors. The ALCO Committee formulates strategies based on appropriate levels of interest rate risk. In determining the appropriate level of interest rate risk, the ALCO Committee considers the impact on earnings and capital on the current outlook on interest rates, potential changes in interest rates, regional economies, liquidity, business strategies and other factors. The ALCO Committee meets regularly to review, among other things, the sensitivity of assets and liabilities to interest rate changes, the book and market values of assets and liabilities, commitments to originate loans and the maturities of investments and borrowings. Additionally, the ALCO Committee reviews liquidity, cash flow flexibility, maturities of deposits and consumer and commercial deposit activity. Management employs methodologies to manage interest rate risk, which include an analysis of relationships between interest-earning assets and interest-bearing liabilities and an interest rate shock simulation model.

We use interest rate risk simulation models and shock analyses to test the interest rate sensitivity of net interest income and fair value of equity, and the impact of changes in interest rates on other financial metrics. Contractual maturities and re-pricing opportunities of loans are incorporated in the model. The average lives of non-maturity deposit accounts are based on decay assumptions and are incorporated into the model. We utilize third-party experts to periodically evaluate the performance of our non-maturity deposit accounts to develop the decay assumptions. All of the assumptions used in our analyses are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model’s simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and the application and timing of various management strategies.

On a quarterly basis, we run various simulation models including a static balance sheet and dynamic growth balance sheet. These models test the impact on net interest income and fair value of equity from changes in market interest rates under various scenarios. Under the static model and dynamic growth models, rates are shocked instantaneously and ramped rates change over a 12-month and 24-month horizon based upon parallel and non-parallel yield curve shifts. Parallel shock scenarios assume instantaneous parallel movements in the yield curve compared to a flat yield curve scenario. Non-parallel simulation involves analysis of interest income and expense under various changes in the shape of the yield curve. Our internal policy regarding internal rate risk simulations currently specifies that for gradual parallel shifts of the yield curve, estimated net interest income at risk for the subsequent one-year period should not decline by more than 10% for a -100 basis point shift, 5% for a 100 basis point shift, 10% for a 200 basis point shift, 15% for a 300 basis point shift, and 20% for a 400 basis point shift.

52
The following table summarizes the simulated change in net interest income and fair value of equity over a 12-month horizon as of the dates indicated:
   
September 30,
  
December 31,
   
2024
  
2023
Change in Interest Rates (Basis Points)
  
Percent Change
in Net Interest
Income
  
Percent
Change in Fair
Value of Equity
  
Percent Change
in Net Interest
Income
  
Percent
Change in Fair
Value of Equity
+400
  
20.62%
  
20.41%
  
23.35%
  
17.72%
+300
  
16.75%
  
19.34%
  
19.04%
  
16.63%
+200
  
12.83%
  
18.16%
  
14.74%
  
15.45%
+100
  
8.76%
  
16.87%
  
10.42%
  
14.20%
Base
  
4.22%
  
15.24%
  
5.76%
  
12.72%
-100
  
-0.66%
  
13.82%
  
0.73%
  
11.22%

The results are primarily due to behavior of demand, money market and savings deposits during such rate fluctuations. We have found that, historically, interest rates on these deposits change more slowly than changes in the discount and fed funds rates. This assumption is incorporated into the simulation model and is generally not fully reflected in a gap analysis. The assumptions incorporated into the model are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model’s simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and the application and timing of various strategies.

Impact of Inflation

Our consolidated financial statements and related notes included elsewhere in this Form 10-Q have been prepared in accordance with GAAP. These require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative value of money over time due to inflation or recession.

Unlike many industrial companies, substantially all of our assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates may not necessarily move in the same direction or in the same magnitude as the prices of goods and services. However, other operating expenses do reflect general levels of inflation.

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, 2024 of our disclosure controls and procedures, as defined Rules 13a-15(e) and 15d-15(e) under the Exchange Act.  In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply judgment in evaluating its controls and procedures.  Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the fiscal quarter covered by this Form 10-Q.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended September 30, 2024 that has materially affected, or is reasonably likely to materially affect, such controls.

53
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

In addition to the other information set forth in this Report, we refer you to Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC. Other than the risk factors set forth below, there have been no material changes in the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.

ITEM 2.
Unregistered Sales of Equity Securities and Use of Proceeds

On October 28, 2021, the Company adopted a Repurchase Plan (the “RP”) that authorizes the repurchase of up to 750,000 shares of the Company’s stock. Stock repurchases under the RP take place pursuant to a Rule 10b5-1 Plan with pricing and purchasing parameters established by management. The RP expired on October 28, 2023. There were no share repurchases under this plan. On October 30, 2023, 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. 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, 2024, 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

During the nine months ended September 30, 2024, none of our officers or directors adopted or terminated a Rule 10b5-1 trading arrangement or a Non-Rule 10b5-1 trading arrangement, as each term is defined under Item 408(a) of Regulation S-K.

54
ITEM 6.
Exhibits

Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
   
101.INS
XBRL Instance Document.
   
101.SCH
XBRL Taxonomy Extension Schema Document.
   
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document.
   
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.
   
101.LAB
XBRL Taxonomy Extension Label Linkbase Document.
   
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document.
   
104
Cover Page Interactive Data File (Formatted as Inline XBRL and contained in Exhibit 101)

* 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 5, 2024
By:
   /s/ Thomas L. Travis  
   
Thomas L. Travis
  
   
Vice Chairman and Chief Executive Officer
  
       
 DATED:
 November 5, 2024
By:
   /s/ Kelly J. Harris  
   
Kelly J. Harris
  
   
Executive Vice President and Chief Financial Officer
  


55