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What changed in Bank7 Corp.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Bank7 Corp.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+457 added−353 removedSource: 10-K (2024-03-25) vs 10-K (2023-03-24)

Top changes in Bank7 Corp.'s 2023 10-K

457 paragraphs added · 353 removed · 280 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

40 edited+12 added−3 removed117 unchanged
Biggest changeWe offer all of our employees a comprehensive benefits package that includes medical, dental and vision insurance, a flexible spending plan, group life insurance, short-term and long-term disability insurance, a traditional 401(k) Plan, competitive paid time off/paid holidays, and competitive incentives. 2 Table of Contents We are committed and focused on the health and safety of our employees, customers, and communities and are committed to providing a safe and secure work environment in accordance with applicable labor, safety, health, anti-discrimination and other workplace laws.
Biggest changeAttracting, retaining and developing qualified, engaged employees who embody these values are crucial our success. We offer all of our employees a comprehensive benefits package that includes medical, dental and vision insurance, a flexible spending plan, group life insurance, short-term and long-term disability insurance, a traditional 401(k) Plan, competitive paid time off/paid holidays, and competitive incentives.
The assessment base is based on the institution’s risk classification which is assigned based on the institution’s capital levels and the level of supervisory concern the institution poses to the regulators. The assessment rate is calculated as the institution’s average consolidated total assets minus average tangible equity.
The assessment rate is based on the institution’s risk classification which is assigned based on the institution’s capital levels and the level of supervisory concern the institution poses to the regulators. The assessment base is calculated as the institution’s average consolidated total assets minus average tangible equity.
As a result, our growth and earnings performance may be affected not only by management decisions and general economic conditions, but also by federal and state statutes and by the regulations and policies of various bank regulatory agencies, including the Oklahoma Banking Department (“OBD”), the Federal Reserve, the Federal Deposit Insurance Corporation (“FDIC”) and the Consumer Financial Protection Bureau (“CFPB”).
As a result, our growth and earnings may be affected not only by management decisions and general economic conditions, but also by federal and state statutes and by the regulations and policies of various bank regulatory agencies, including the Oklahoma Banking Department (“OBD”), the Federal Reserve, the Federal Deposit Insurance Corporation (“FDIC”) and the Consumer Financial Protection Bureau (“CFPB”).
Failure of a financial institution to maintain and implement adequate AML and OFAC programs, or to comply with all of the relevant laws or regulations, could have serious legal and reputational consequences for the institution, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required. 9 Table of Contents Consumer Financial Services We are subject to a number of federal and state consumer protection laws that extensively govern our relationship with our customers.
Failure of a financial institution to maintain and implement adequate AML and OFAC programs, or to comply with all of the relevant laws or regulations, could have serious legal and reputational consequences for the institution, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required. 7 Table of Contents Consumer Financial Services We are subject to a number of federal and state consumer protection laws that extensively govern our relationship with our customers.
Although it is a very small segment of the Bank, we also provide consumer lending services to individuals for personal and household purposes, including secured and unsecured term loans and home improvement loans.
Although it is a small segment of the Bank, we also provide consumer lending services to individuals for personal and household purposes, including secured and unsecured term loans and home improvement loans.
Federal law also prohibits any person or company from acquiring “control” of an FDIC-insured depository institution or its holding company without prior notice to the appropriate federal bank regulator. Permitted Activities .
Federal law also generally prohibits any person or company from acquiring “control” of an FDIC-insured depository institution or its holding company without prior notice to the appropriate federal bank regulator. Permitted Activities .
Federal and state laws, and the related regulations of the bank regulatory agencies, affect, among other things, the scope of business, the kinds and amounts of investments banks may make, reserve requirements, capital levels relative to operations, the nature and amount of collateral for loans, the establishment of branches, the ability to merge, consolidate and acquire, dealings with insiders and affiliates and the payment of dividends.
Federal and state laws, and the related regulations of the bank regulatory agencies, affect, among other things, the scope of business, the kinds and amounts of investments banks may make, reserve requirements, capital levels relative to operations, the nature and amount of collateral for loans, the establishment of branches, the ability to merge, consolidate and acquire, dealings with insiders and affiliates. the payment of dividends and redemption of securities.
Human Capital Our corporate culture is defined by core values which include integrity, accountability, professionalism, community-focus and efficiency. As of December 31, 2022, we had 123 full time employees. We value our employees by investing in competitive compensation and benefit packages and fostering a team environment centered on professional service and open communication.
Human Capital Our corporate culture is defined by core values which include integrity, accountability, professionalism, community-focus and efficiency. As of December 31, 2023, we had 123 full time employees. We value our employees by investing in competitive compensation and benefit packages and fostering a team environment centered on professional service and open communication.
Furthermore, tax laws administered by the Internal Revenue Service (“IRS”) and state taxing authorities, accounting rules developed by the Financial Accounting Standards Board (“FASB”), securities laws administered by the Securities and Exchange Commission (“SEC”) and state securities authorities and Anti-Money Laundering (“AML”) laws enforced by the U.S. Department of the Treasury, or Treasury, also impact our business.
Furthermore, tax laws administered by the Internal Revenue Service (“IRS”) and state taxing authorities, accounting rules developed by the Financial Accounting Standards Board (“FASB”), securities laws administered by the Securities and Exchange Commission (“SEC”) and state securities authorities and Anti-Money Laundering (“AML”) laws enforced by the U.S. Department of the Treasury (“Treasury”) also impact our business.
The BHCA provides that in the event of a bank holding company’s bankruptcy any commitment by a bank holding company to a federal bank regulatory agency to maintain the capital of its subsidiary bank will be assumed by the bankruptcy trustee and entitled to priority of payment. 5 Table of Contents Safe and Sound Banking Practices .
The BHCA provides that in the event of a bank holding company’s bankruptcy any commitment by a bank holding company to a federal bank regulatory agency to maintain the capital of its subsidiary bank will be assumed by the bankruptcy trustee and entitled to priority of payment. 4 Table of Contents Safe and Sound Banking Practices .
Under certain circumstances the Federal Reserve may require a bank holding company to file written notice and obtain its approval prior to purchasing or redeeming its equity securities, unless certain conditions are met. Dividend Payments, Stock Redemptions and Repurchases .
Under certain circumstances the Federal Reserve may require a bank holding company to file written notice and obtain approval prior to purchasing or redeeming the bank holding company’s equity securities, unless certain conditions are met. Dividend Payments, Stock Redemptions and Repurchases .
On November 18, 2021, the federal banking agencies issued a new rule effective in 2022 that requires banks to notify their regulators within 36 hours of a “computer-security incident” that rises to the level of a “notification incident.” Impact of Monetary Policy The monetary policy of the Federal Reserve has a significant effect on the operating results of financial or bank holding companies and their subsidiaries.
On November 18, 2021, the federal banking agencies issued a new rule effective in 2022 that requires banks to notify their regulators within 36 hours of a “computer-security incident” that rises to the level of a “notification incident.” 9 Table of Contents Impact of Monetary Policy The monetary policy of the Federal Reserve has a significant effect on the operating results of financial or bank holding companies and their subsidiaries.
If an insured depository institution fails, insured and uninsured depositors, along with the FDIC, will have priority in payment ahead of unsecured, non-deposit creditors including the parent bank holding company with respect to any extensions of credit they have made to that insured depository institution. 6 Table of Contents Deposit Insurance .
If an insured depository institution fails, insured and uninsured depositors, along with the FDIC, will have priority in payment ahead of unsecured, non-deposit creditors including the parent bank holding company with respect to any extensions of credit they have made to that insured depository institution. Deposit Insurance .
As of December 31, 2022, the Company’s and the Bank’s capital ratios exceeded the minimum capital adequacy guideline percentage requirements under the Basel III Capital Rules on a fully phased-in basis. Prompt Corrective Action The Federal Deposit Insurance Act requires federal banking agencies to take “prompt corrective action” with respect to depository institutions that do not meet minimum capital requirements.
As of December 31, 2023, 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. 3 Table of Contents Prompt Corrective Action The Federal Deposit Insurance Act requires federal banking agencies to take “prompt corrective action” with respect to depository institutions that do not meet minimum capital requirements.
At least semi-annually, the FDIC updates its loss and income projections for the DIF and, if needed, may increase or decrease the assessment rates, following notice and comment on proposed rulemaking. As a result, the Bank’s FDIC deposit insurance premiums could increase. Examination Assessments .
At least semi-annually, the FDIC updates its loss and income projections for the DIF and, if needed, may increase or decrease the assessment rates, following notice and comment on proposed rulemaking. As a result, the Bank’s FDIC deposit insurance premiums could increase. 5 Table of Contents Examination Assessments .
These examinations consider not only compliance with applicable laws and regulations, but also capital levels, asset quality and risk, management’s ability and performance, earnings, liquidity and various other factors.
These examinations consider not only compliance with applicable laws and regulations, but also capital levels, asset quality and risk, management’s ability and performance, earnings, liquidity sensitivity to market risk and various other factors.
During the year ended December 31, 2022, the Bank paid examination assessments to the OBD totaling $184,000. Capital Requirements . Banks are generally required to maintain minimum capital ratios. For a discussion of the capital requirements applicable to the Bank, see “—Regulatory Capital Requirements” above. Bank Reserves .
During the year ended December 31, 2023, the Bank paid examination assessments to the OBD totaling $197,000. Capital Requirements . Banks are generally required to maintain minimum capital ratios. For a discussion of the capital requirements applicable to the Bank, see “—Regulatory Capital Requirements” above. Bank Reserves .
Noncompliance with the standards established by the safety and soundness guidelines may also constitute grounds for other enforcement action by the federal bank regulatory agencies, including cease and desist orders and civil money penalty assessments. 8 Table of Contents Branching Authority .
Noncompliance with the standards established by the safety and soundness guidelines may also constitute grounds for other enforcement action by the federal bank regulatory agencies, including cease and desist orders and civil money penalty assessments. Branching Authority .
The Federal Reserve is the Bank’s primary federal regulatory agency, and periodically examines the Bank’s operations and financial condition and compliance with federal law. In addition, the Bank’s deposit accounts are insured by the DIF to the maximum extent provided under federal law and FDIC regulations, and the FDIC has certain enforcement powers over the Bank. Depositor Preference .
The Federal Reserve is the Bank’s primary federal regulatory agency, and periodically examines the Bank’s operations and financial condition and compliance with federal law. In addition, the Bank’s deposit accounts are insured by the DIF, and the FDIC has certain enforcement powers over the Bank. Depositor Preference .
The Company is required to file with the Federal Reserve periodic reports of its operations and such additional information as the Federal Reserve may require. Acquisitions, Activities and Change in Control .
Under the BHCA, the Company is subject to periodic examination by the Federal Reserve. The Company is required to file with the Federal Reserve periodic reports of its operations and such additional information as the Federal Reserve may require. Acquisitions, Activities and Change in Control .
These regulatory agencies have broad discretion to impose restrictions and limitations on the operations of a regulated entity and exercise enforcement powers over a regulated entity (including terminating deposit insurance, imposing orders, fines and other civil and criminal penalties, removing officers and directors and appointing supervisors and conservators) where the agencies determine, among other things, that such operations are unsafe or unsound, fail to comply with applicable law or are otherwise inconsistent with laws and regulations or with the supervisory policies of these agencies. 3 Table of Contents Regulatory Capital Requirements The federal banking agencies require that banking organizations meet several risk-based capital adequacy requirements.
These regulatory agencies have broad discretion to impose restrictions and limitations on the operations of a regulated entity and exercise enforcement powers over a regulated entity (including terminating deposit insurance, imposing orders, fines and other civil and criminal penalties, removing officers and directors and appointing supervisors and conservators) where the agencies determine, among other things, that such operations are unsafe or unsound, fail to comply with applicable law or are otherwise inconsistent with laws and regulations or with the supervisory policies of these agencies.
As described above, the Bank exceeded its minimum capital requirements under applicable regulatory guidelines as of December 31, 2022. 7 Table of Contents Transactions with Affiliates . The Bank is subject to sections 23A and 23B of the Federal Reserve Act, or the Affiliates Act, and the Federal Reserve’s implementing Regulation W.
As described above, the Bank exceeded its minimum capital requirements under applicable regulatory guidelines as of December 31, 2023. Transactions with Affiliates . The Bank is subject to sections 23A and 23B of the Federal Reserve Act (the “Affiliates Act”), and the Federal Reserve’s implementing Regulation W.
Additionally, we continually position ourselves for future growth both organically and through strategic acquisitions. 1 Table of Contents Cost Discipline and Efficiency We constantly monitor expenditures, and, when appropriate, we use automation, technology and repeatable processes to drive profitability. The Bank operates as few branches as practical, and the branches we do operate are smaller and very cost efficient.
Additionally, we continually position ourselves for future growth both organically and through strategic acquisitions. Cost Discipline and Efficiency We constantly monitor expenditures, and, when appropriate, we use automation, technology and repeatable processes to drive profitability. The Bank operates as few branches as practical, and the branches we do operate are smaller and more cost efficient than a traditional branch.
The Bank’s legal lending limit to any one borrower was $47.4 million as of December 31, 2022. Safety and Soundness Standards/Risk Management . The federal banking agencies have adopted guidelines establishing operational and managerial standards to promote the safety and soundness of federally insured depository institutions.
The Bank’s legal lending limit to any one borrower was $55.5 million as of December 31, 2023. 6 Table of Contents Safety and Soundness Standards/Risk Management . The federal banking agencies have adopted guidelines establishing operational and managerial standards to promote the safety and soundness of federally insured depository institutions.
We are focused on serving business owners and entrepreneurs by delivering fast, consistent and well-designed banking solutions. As of December 31, 2022, we had total assets of $1.58 billion, total loans of $1.26 billion, total deposits of $1.43 billion and total shareholders’ equity of $144.1 million. Our website is: www.bank7.com.
We are focused on serving business owners and entrepreneurs by delivering fast, consistent and well-designed banking solutions. As of December 31, 2023, we had total assets of $1.77 billion, total loans of $1.36 billion, total deposits of $1.59 billion and total shareholders’ equity of $170.3 million. Our website is: www.bank7.com.
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”).
Regulatory Capital Requirements 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”).
These statutes and regulations are subject to change, and additional statutes, regulations, and corresponding guidance may be adopted. We are unable to predict future changes or the effects, if any, that these changes could have on our business or our revenues. General We are extensively regulated under U.S. federal and state law.
We are unable to predict future changes or the effects, if any, that these changes could have on our business or our revenues. 2 Table of Contents General We are extensively regulated under U.S. federal and state law.
In addition, the various banking regulatory agencies often adopt new rules and regulations to implement and enforce existing legislation. It cannot be predicted whether, or in what form, any such legislation or regulations may be enacted or the extent to which the business of the Company or the Bank would be affected thereby.
It cannot be predicted whether, or in what form, any such legislation or regulations may be enacted or the extent to which the business of the Company or the Bank would be affected thereby.
The appropriate agency is also permitted to require an adequately capitalized or undercapitalized institution to comply with the supervisory provisions as if the institution were in the next lower category (but not treat a significantly undercapitalized institution as critically undercapitalized) based on supervisory information other than the capital levels of the institution. 4 Table of Contents The capital classification of a bank affects the frequency of regulatory examinations, the bank’s ability to engage in certain activities and the deposit insurance premium paid by the bank.
The appropriate agency is also permitted to require an adequately capitalized or undercapitalized institution to comply with the supervisory provisions as if the institution were in the next lower category (but not treat a significantly undercapitalized institution as critically undercapitalized) based on supervisory information other than the capital levels of the institution.
Banks and savings institutions with $10 billion or less in assets, like the Bank, will continue to be examined by their applicable bank regulators. 10 Table of Contents Federal Banking Agency Incentive Compensation Guidance The federal bank regulatory agencies have issued comprehensive guidance intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of those organizations by encouraging excessive risk-taking.
Federal Banking Agency Incentive Compensation Guidance The federal bank regulatory agencies have issued comprehensive guidance intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of those organizations by encouraging excessive risk-taking.
As we continue to grow, we expect our utilization of automation, technology, and repeatable processes will continue to drive efficiencies throughout the Bank. Combining talented people with process automation will enable us to scale even further, and will also enable us to deliver consistently superior customer service.
As we continue to grow, we expect our utilization of automation, technology, and repeatable processes will continue to drive efficiencies throughout the Bank.
We strive for all of our employees to feel safe at work. To that end, we maintain a whistleblower hotline that allows associates and others to anonymously voice concerns. We prohibit retaliation against an individual who reported a concern or assisted with an inquiry or investigation.
To that end, we maintain a whistleblower hotline that allows associates and others to anonymously voice concerns. We prohibit retaliation against an individual who reported a concern or assisted with an inquiry or investigation. Supervision and Regulation The following is a general summary of the material aspects of certain statutes and regulations that are applicable to us.
The principal exception allows bank holding companies to engage in, and to own shares of companies engaged in, certain businesses found by the Federal Reserve prior to November 11, 1999 to be “so closely related to banking as to be a proper incident thereto.” This authority would permit the Company to engage in a variety of banking-related businesses, including the ownership and operation of a savings association, or any entity engaged in consumer finance, equipment leasing, the operation of a computer service bureau (including software development) and mortgage banking and brokerage.
The principal exception allows bank holding companies to engage in, and to own shares of companies engaged in, certain businesses found by the Federal Reserve prior to November 11, 1999 to be “so closely related to banking as to be a proper incident thereto.” This authority would permit the Company to engage in a variety of banking-related businesses, including operating a mortgage, finance, credit card or factoring company; performing certain data processing operations; providing investment and financial advice; acting as an insurance agent for certain types of credit-related insurance; leasing personal property on a full-payout, non-operating basis; and providing certain stock brokerage and investment advisory services.
These tools are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use may affect interest rates charged on loans or paid on deposits. 11 Table of Contents Changes in Laws, Regulations or Policies Other legislative and regulatory initiatives which could affect the Company, the Bank and the banking industry in general may be pending, proposed or introduced before the U.S.
These tools are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use may affect interest rates charged on loans or paid on deposits.
Congress, the Oklahoma Legislature and other governmental bodies from time to time. Such proposals, if enacted, may further alter the structure, regulation and competitive relationship among financial institutions, and may subject the Company or the Bank to increased regulation, disclosure and reporting requirements.
Such proposals, if enacted, may further alter the structure, regulation and competitive relationship among financial institutions, and may subject the Company or the Bank to increased regulation, disclosure and reporting requirements. In addition, the various banking regulatory agencies often adopt new rules and regulations to implement and enforce existing legislation.
Supervision and Regulation The following is a general summary of the material aspects of certain statutes and regulations that are applicable to us. These summary descriptions are not complete. Please refer to the full text of the statutes, regulations, and corresponding guidance for more information.
These summary descriptions are not complete and are subject to many exceptions. Please refer to the full text of the statutes, regulations, and corresponding guidance for more information. These statutes and regulations are subject to change, and additional statutes, regulations, and corresponding guidance may be adopted.
Organic Growth Much of our historic asset growth has been driven organically and within our current markets. In particular the Dallas/Fort Worth metropolitan area, Oklahoma City, and Tulsa.
Combining talented people with process automation will enable us to scale even further, and will also enable us to deliver consistently superior customer service. 1 Table of Contents Organic Growth Much of our historic asset growth has been driven organically and within our current markets, particularly the Dallas/Fort Worth metropolitan area, Oklahoma City, and Tulsa.
Furthermore, the Bank must periodically report all loans made to directors and other insiders to the bank regulators. As of December 31, 2022, the Bank had no lines of credit for loans to insiders and one loan outstanding to insiders of $132,000. Limits on Loans to One Borrower .
As of December 31, 2023, the Bank had one line of credit for loans to an insider with a maximum credit of $500,000 and an outstanding balance of $203,000; as of December 31, 2023, the Bank had no other loans outstanding to insiders. Limits on Loans to One Borrower .
As a bank holding company, the Company is subject to regulation and supervision by the Federal Reserve under the Bank Holding Company Act of 1956, as amended, or the BHCA. Under the BHCA, the Company is subject to periodic examination by the Federal Reserve.
As of December 31, 2023, the Bank met the requirements for being deemed “well-capitalized” for purposes of the prompt corrective action regulations. The Company General . As a bank holding company, the Company is subject to regulation and supervision by the Federal Reserve under the Bank Holding Company Act of 1956, as amended (the “BHCA”).
A bank’s capital category is determined solely for the purpose of applying prompt correct action regulations and the capital category may not accurately reflect the bank’s overall financial condition or prospects. As of December 31, 2022, the Bank met the requirements for being deemed “well-capitalized” for purposes of the prompt corrective action regulations. The Company General .
The capital classification of a bank affects the frequency of regulatory examinations, the bank’s ability to engage in certain activities and the deposit insurance premium paid by the bank. A bank’s capital category is determined solely for the purpose of applying prompt correct action regulations and the capital category may not accurately reflect the bank’s overall financial condition or prospects.
Removed
Attracting, retaining and developing qualified, engaged employees who embody these values are crucial our success.
Added
We are committed and focused on the health and safety of our employees, customers, and communities and are committed to providing a safe and secure work environment in accordance with applicable labor, safety, health, anti-discrimination and other workplace laws. We strive for all of our employees to feel safe at work.
Removed
Generally, an Oklahoma corporation may not make distributions to its shareholders if (i) after giving effect to the dividend, the corporation would be insolvent, or (ii) the amount of the dividend exceeds the surplus of the corporation. Dividends may be declared and paid in a corporation’s own treasury shares that have been reacquired by the corporation out of surplus.
Added
Generally, an Oklahoma corporation may pay dividends out of surplus or, if there is no surplus, out of the corporation’s net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year.
Removed
Dividends may be declared and paid in a corporation’s own authorized but unissued shares out of the surplus of the corporation upon the satisfaction of certain conditions.
Added
However, if the capital of the corporation has been diminished to an amount less than the aggregate amount of capital represented by preferred stock, if any, dividends may not be declared and paid out of any such net profits until the deficiency in the amount of capital represented by the preferred stock has been restored.
Added
Furthermore, the Bank must periodically report all loans made to directors and other insiders to the bank regulators.
Added
Banks and savings institutions with $10 billion or less in assets, like the Bank, will continue to be examined by their applicable bank regulators. 8 Table of Contents The consumer protection provisions of the Dodd-Frank Act and the examination, supervision and enforcement of those laws and implementing regulations by the CFPB have created a more intense and complex environment for consumer finance regulation.
Added
The CFPB has significant authority to implement and enforce federal consumer protection laws and new requirements for financial services products provided for in the Dodd-Frank Act, as well as the authority to identify and prohibit UDAAP.
Added
The review of products and practices to prevent such acts and practices is a continuing focus of the CFPB, and of banking regulators more broadly. The ultimate impact of this heightened scrutiny is uncertain but could result in changes to pricing, practices, products and procedures.
Added
It could also result in increased costs related to regulatory oversight, supervision and examination, additional remediation efforts and possible penalties.
Added
In addition, the Dodd-Frank Act provides the CFPB with broad supervisory, examination and enforcement authority over various consumer financial products and services, including the ability to require reimbursements and other payments to customers for alleged legal violations and to impose significant penalties, as well as injunctive relief that prohibits lenders from engaging in allegedly unlawful practices.
Added
The CFPB also has the authority to obtain cease and desist orders providing for affirmative relief or monetary penalties. The Dodd-Frank Act does not prevent states from adopting stricter consumer protection standards. State regulation of financial products and potential enforcement actions could also adversely affect our business, financial condition or results of operations.
Added
The CFPB has examination and enforcement authority over providers with more than $10 billion in assets. Banks and savings institutions with $10 billion or less in assets, like the Bank, will continue to be examined by their applicable bank regulators.
Added
Changes in Laws, Regulations or Policies Other legislative and regulatory initiatives which could affect the Company, the Bank and the banking industry in general may be pending, proposed or introduced before the U.S. Congress, the Oklahoma Legislature and other governmental bodies from time to time.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

45 edited+7 added−2 removed102 unchanged
Biggest changeApproximately $183.5 million of the remaining balance of deposits consists of certificates of deposit, of which approximately $157.1 million, or 85.6% of remaining deposits, was due to mature within one year. Based on our experience, we believe that our savings, money market and non-interest-bearing accounts are relatively stable sources of funds.
Biggest changeAs of December 31, 2023, approximately $1.33 billion, or 83.9%, of our deposits consisted of demand, savings, money market and negotiable order of withdrawal, or NOW, accounts. Approximately $256.8 million of the remaining balance of deposits consists of certificates of deposit, of which approximately $224.8 million, or 87.6% of remaining deposits, was due to mature within one year.
Accordingly, this could impact our business by reducing our tolerance for extending credit, and our customer’s desire to obtain credit, or causing us to incur additional provisions for loan losses resulting from a possible increased default rate. Inflation may lead to lower loan re-financings.
Accordingly, this could impact our business by reducing our tolerance for extending credit, and our customer’s desire to obtain credit, or causing us to incur additional provisions for credit losses resulting from a possible increased default rate. Inflation may lead to lower loan re-financings.
Federal banking regulators, as an integral part of their supervisory function, periodically review our allowance for loan losses. These regulatory agencies may require us to increase our provision for loan losses or to recognize further loan charge-offs based upon their judgments, which may be different from ours.
Federal banking regulators, as an integral part of their supervisory function, periodically review our allowance for credit losses. These regulatory agencies may require us to increase our provision for credit losses or to recognize further loan charge-offs based upon their judgments, which may be different from ours.
Any increase in the allowance for loan losses could have a negative effect on our financial condition and results of operations. Commercial and commercial real estate loans comprise a significant portion of our total loan portfolio. These types of loans typically are larger than residential real estate loans and other consumer loans.
Any increase in the allowance for credit losses could have a negative effect on our financial condition and results of operations. Commercial and commercial real estate loans comprise a significant portion of our total loan portfolio. These types of loans typically are larger than residential real estate loans and other consumer loans.
An increase in nonperforming loans could result in a loss of earnings from these loans, an increase in the allowance for loan losses, or an increase in loan charge-offs, which could have an adverse impact on our results of operations and financial condition.
An increase in nonperforming loans could result in a loss of earnings from these loans, an increase in the allowance for credit losses, or an increase in loan charge-offs, which could have an adverse impact on our results of operations and financial condition.
Our failure to comply with privacy, data protection and information security laws could result in potentially significant regulatory or governmental investigations or actions, litigation, fines, sanctions and damage to our reputation, which could have a material adverse effect on our business, financial condition or results of operations. 20 Table of Contents Risks Related to Our Common Stock Shares of certain shareholders may be sold into the public market.
Our failure to comply with privacy, data protection and information security laws could result in potentially significant regulatory or governmental investigations or actions, litigation, fines, sanctions and damage to our reputation, which could have a material adverse effect on our business, financial condition or results of operations. 17 Table of Contents Risks Related to Our Common Stock Shares of certain shareholders may be sold into the public market.
If real estate values decline, it is also more likely that we would be required to increase our allowance, which could adversely affect our business, financial condition and results of operations. 13 Table of Contents Many of our loans are to commercial borrowers, which have a higher degree of risk than other types of loans.
If real estate values decline, it is also more likely that we would be required to increase our allowance, which could adversely affect our business, financial condition and results of operations. 11 Table of Contents Many of our loans are to commercial borrowers, which have a higher degree of risk than other types of loans.
These bank regulators possess broad authority to prevent or remedy unsafe or unsound practices or violations of law. Following examinations, we may be required, among other things, to change our asset valuations or the amounts of required loan loss allowances or to restrict our operations, as well as increase our capital levels, which could adversely affect our results of operations.
These bank regulators possess broad authority to prevent or remedy unsafe or unsound practices or violations of law. Following examinations, we may be required, among other things, to change our asset valuations or the amounts of required credit loss allowances or to restrict our operations, as well as increase our capital levels, which could adversely affect our results of operations.
Inflationary pressures are currently expected to remain elevated throughout 2023. Small to medium-sized businesses may be impacted more during periods of high inflation as they are not able to leverage economics of scale to mitigate cost pressures compared to larger businesses.
Inflationary pressures are currently expected to remain elevated throughout 2024. Small to medium -sized businesses may be impacted more during periods of high inflation as they are not able to leverage economics of scale to mitigate cost pressures compared to larger businesses.
As of December 31, 2022, the substantial majority of the loans in our loan portfolio were made to borrowers who live and/or conduct business in our markets and the substantial majority of our secured loans were secured by collateral located in our markets.
As of December 31, 2023, the substantial majority of the loans in our loan portfolio were made to borrowers who live and/or conduct business in our markets and the substantial majority of our secured loans were secured by collateral located in our markets.
The allowance for loan losses may not be adequate to cover losses associated with any of these relationships, and any loss or increase in the allowance would negatively affect our earnings and capital.
The allowance for credit losses may not be adequate to cover losses associated with any of these relationships, and any loss or increase in the allowance would negatively affect our earnings and capital.
The U.S. Bureau of Labor Statistics reported that the 12-month percent change in the Consumer Price Index for All Urban Consumers (not seasonally adjusted) for all items was 6.5% for December 2021 to December 2022, 7.0% for December 2020 to December 2021, 1.4% for December 2019 to December 2020, and 2.3% for December 2018 to December 2019.
Bureau of Labor Statistics reported that the 12-month percent change in the Consumer Price Index for All Urban Consumers (not seasonally adjusted) for all items was 3.4% for December 2022 to December 2023, 6.5% for December 2021 to December 2022, 7.0% for December 2020 to December 2021, 1.4% for December 2019 to December 2020, and 2.3% for December 2018 to December 2019.
The effects of such policies upon our business, financial condition and results of operations cannot be predicted. 19 Table of Contents Regulations relating to privacy, information security and data protection could increase our costs, affect or limit how we collect and use personal information and adversely affect our business opportunities.
The effects of such policies upon our business, financial condition and results of operations cannot be predicted. Regulations relating to privacy, information security and data protection could increase our costs, affect or limit how we collect and use personal information and adversely affect our business opportunities.
The sale of these shares could impair our ability to raise capital through the sale of additional equity securities. We are controlled by trusts established for the benefit of members of the Haines family, whose interests may not coincide with our other shareholders. As of December 31, 2022, the Haines Family Trusts control approximately 50.8% of our common stock.
The sale of these shares could impair our ability to raise capital through the sale of additional equity securities. We are controlled by trusts established for the benefit of members of the Haines family, whose interests may not coincide with our other shareholders. As of December 31, 2023, the Haines Family Trusts control approximately 50.5% of our common stock.
If we increase interest rates paid to retain deposits, our earnings may be adversely affected. 16 Table of Contents Liquidity risk could impair our ability to fund operations and meet our obligations as they become due and could jeopardize our financial condition. Liquidity is essential to our business.
If we increase interest rates paid to retain deposits, our earnings may be adversely affected. Liquidity risk could impair our ability to fund operations and meet our obligations as they become due and could jeopardize our financial condition. Liquidity is essential to our business.
Our net interest income will be adversely affected if market interest rates change so that the interest we pay on deposits and borrowings increases faster than the interest we earn on loans and investments. 15 Table of Contents Changes in interest rates could affect our ability to originate loans and deposits.
Our net interest income will be adversely affected if market interest rates change so that the interest we pay on deposits and borrowings increases faster than the interest we earn on loans and investments. Changes in interest rates could affect our ability to originate loans and deposits.
Our largest deposit relationships currently make up a material percentage of our deposits and the withdrawal of deposits by our largest depositors could force us to fund our business through more expensive and less stable sources. At December 31, 2022, our 20 largest deposit relationships accounted for 29.8% of our total deposits.
Our largest deposit relationships currently make up a material percentage of our deposits and the withdrawal of deposits by our largest depositors could force us to fund our business through more expensive and less stable sources. At December 31, 2023, our 20 largest deposit relationships accounted for 24.0% of our total deposits.
As of December 31, 2022, we had approximately $1.26 billion of commercial purpose loans, which include general commercial, energy, agricultural, and CRE loans, representing approximately 98.8% of our gross loan portfolio. Commercial purpose loans are often larger and involve greater risks than other types of lending.
As of December 31, 2023, we had approximately $1.35 billion of commercial purpose loans, which include general commercial, energy, agricultural, and CRE loans, representing approximately 98.9% of our gross loan portfolio. Commercial purpose loans are often larger and involve greater risks than other types of lending.
As of December 31, 2022, approximately 37.6% of our gross loans were maturing within one year, compared to approximately 38.4% of our gross loans that were maturing within one year as of December 31, 2021. As a result, we will either need to renew or replace these loans during the course of the year.
As of December 31, 2023, approximately 40.0% of our gross loans were maturing within one year, compared to approximately 37.6% of our gross loans that were maturing within one year as of December 31, 2022. As a result, we will either need to renew or replace these loans during the course of the year.
As of December 31, 2022, our energy loans, which include loans to exploration and production companies, midstream companies, purchasers of mineral and royalty interests and service providers totaled $182.8 million, or 14.4% of total loans, as compared to $98.5 million, or 9.6% of total loans as of December 31, 2021.
As of December 31, 2023, our energy loans, which include loans to exploration and production companies, midstream companies, purchasers of mineral and royalty interests and service providers totaled $190.6 million, or 14.0% of total loans, as compared to $182.8 million, or 14.4% of total loans as of December 31, 2022.
A deterioration in economic conditions in the United States and our markets could result in an increase in loan delinquencies and non-performing assets, decreases in loan collateral values and a decrease in demand for our products and services, all of which, in turn, would adversely affect our business, financial condition and results of operations. 18 Table of Contents A natural disaster affecting our market areas could adversely affect the Company’s financial condition and results of operations.
A deterioration in economic conditions in the United States and our markets could result in an increase in loan delinquencies and non-performing assets, decreases in loan collateral values and a decrease in demand for our products and services, all of which, in turn, would adversely affect our business, financial condition and results of operations.
As of December 31, 2022, we had $43.8 million in unfunded commitments to borrowers in the oil and gas industry. 12 Table of Contents We have credit exposure to the hospitality industry. The Company has loan exposure to the hospitality industry, primarily through loans made to construct or finance the operation of hotels.
As of December 31, 2023, we had $55.1 million in unfunded commitments to borrowers in the oil and gas industry. 10 Table of Contents We have credit exposure to the hospitality industry. The Company has loan exposure to the hospitality industry, primarily through loans made to construct or finance the operation of hotels.
In addition, as of December 31, 2022 approximately 57.3% of our outstanding common stock is beneficially owned by our principal shareholders, executive officers and directors.
In addition, as of December 31, 2023 approximately 56.7% of our outstanding common stock is beneficially owned by our principal shareholders, executive officers and directors.
At December 31, 2022, this exposure was approximately $244.3 million, or 19.2%, of the total loan portfolio, along with an additional $15.5 million in unfunded debt, as compared to $198.4 million, or 19.2%, of the total loan portfolio, along with an additional $41.5 million in unfunded debt as of December 31, 2021.
At December 31, 2023, this exposure was approximately $298.5 million, or 21.9%, of the total loan portfolio, along with an additional $5.7 million in unfunded debt, as compared to $244.3 million, or 19.2%, of the total loan portfolio, along with an additional $15.5 million in unfunded debt as of December 31, 2022.
Our largest loan relationships make up a material percentage of our total loan portfolio . As of December 31, 2022, our 20 largest borrowing relationships ranged from approximately $15.4 million to $35.8 million (including unfunded commitments) and totaled approximately $451.1 million in total commitments (representing, in the aggregate, 35.4% of our total outstanding commitments as of December 31, 2022).
Our largest loan relationships make up a material percentage of our total loan portfolio . As of December 31, 2023, our 20 largest borrowing relationships ranged from approximately $16.7 million to $38.7 million (including unfunded commitments) and totaled approximately $533.1 million in total commitments (representing, in the aggregate, 32.8% of our total outstanding commitments as of December 31, 2023).
However, we may avail ourselves of certain of these other exemptions for as long as we remain a “controlled company.” Accordingly, our shareholders may not have the same protections afforded to shareholders of companies that are subject to all of NASDAQ’s corporate governance requirements, which could make our stock less attractive to investors or otherwise harm our stock price. 21 Table of Contents We are a bank holding company and our only source of cash, other than further issuances of securities, is distributions from the Bank.
However, we may avail ourselves of certain of these other exemptions for as long as we remain a “controlled company.” Accordingly, our shareholders may not have the same protections afforded to shareholders of companies that are subject to all of NASDAQ’s corporate governance requirements, which could make our stock less attractive to investors or otherwise harm our stock price.
Although we have not experienced a cyber-incident which has been successful in compromising our data or systems, we can never be certain that all of our systems are entirely free from vulnerability to breaches of security or other technological difficulties or failures.
Although we have not experienced a cyber-incident which has been successful in compromising our data or systems, we can never be certain that all of our systems are entirely free from vulnerability to breaches of security or other technological difficulties or failures. We monitor and modify, as necessary, our protective measures in response to the perpetual evolution of known cyber-threats.
Our business is concentrated in Oklahoma, the Dallas/Ft. Worth and to a lesser extent Kansas. Almost all of our credit exposure is in that area. This geographic region has been subject to tornadoes and severe hail storms with occasional flooding.
A natural disaster affecting our market areas could adversely affect the Company’s financial condition and results of operations. Our business is concentrated in Oklahoma, the Dallas/Ft. Worth and to a lesser extent Kansas. Almost all of our credit exposure is in that area. This geographic region has been subject to tornadoes and severe hail storms with occasional flooding.
We are a bank holding company with no material activities other than activities incidental to holding the common stock of the Bank. Our principal source of funds to pay distributions on our common stock and service any of our obligations, other than further issuances of securities, would be dividends received from the Bank.
Our principal source of funds to pay distributions on our common stock and service any of our obligations, other than further issuances of securities, would be dividends received from the Bank.
Historically, a majority of non-brokered certificates of deposit are renewed upon maturity as long as we pay competitive interest rates. Many of these customers are, however, interest-rate conscious and may be willing to move funds into higher-yielding investment alternatives.
Based on our experience, we believe that our savings, money market and non-interest-bearing accounts are relatively stable sources of funds. Historically, a majority of non-brokered certificates of deposit are renewed upon maturity as long as we pay competitive interest rates. Many of these customers are, however, interest-rate conscious and may be willing to move funds into higher-yielding investment alternatives.
While we believe we are in compliance with all applicable privacy and data security laws, an incident could put our customer confidential information at risk.
These events may obstruct our ability to provide services and process transactions. While we believe we are in compliance with all applicable privacy and data security laws, an incident could put our customer confidential information at risk.
As of December 31, 2022, our Regulatory CRE represented 304.72% of our total Bank capital and our construction, land development and other land loans represented 101.20% of our total Bank capital, as compared to 302.47% and 129.02% as of December 31, 2021, respectively. During the prior 36-month period, our Regulatory CRE has decreased 39.1%.
As of December 31, 2023, our Regulatory CRE represented 290.69% of our total Bank capital and our construction, land development and other land loans represented 73.97% of our total Bank capital, as compared to 304.72% and 101.20% as of December 31, 2022, respectively. During the prior 36-month period, our Regulatory CRE has decreased 53.10%.
The composition of our rate-sensitive assets or liabilities is subject to change and could result in a more unbalanced position that would cause market rate changes to have a greater impact on our earnings. Fluctuations in market rates and other market disruptions are neither predictable nor controllable and may adversely affect our financial condition and earnings.
The composition of our rate-sensitive assets or liabilities is subject to change and could result in a more unbalanced position that would cause market rate changes to have a greater impact on our earnings.
Furthermore, government policy and regulation, particularly as implemented through the Federal Reserve, significantly affect credit conditions. Negative developments in the financial industry and the impact of new legislation and regulation in response to those developments could negatively impact our business operations and adversely impact our financial performance. Monetary policy and other economic factors could affect our profitability adversely.
Negative developments in the financial industry and the impact of new legislation and regulation in response to those developments could negatively impact our business operations and adversely impact our financial performance. 16 Table of Contents Monetary policy and other economic factors could affect our profitability adversely.
This could result in a significant decline in the size of our loan portfolio. Our allowance for loan losses may not be adequate to cover our actual loan losses, which could adversely affect our earnings. We maintain an allowance for loan losses in an amount that we believe is appropriate to provide for losses inherent in the portfolio.
This could result in a significant decline in the size of our loan portfolio. 12 Table of Contents Our allowance for Credit losses may not be adequate to cover our actual credit losses, which could adversely affect our earnings.
In addition, a security breach could also subject us to additional regulatory scrutiny and expose us to civil litigation and possible financial liability. Our operations could be interrupted if our third-party service providers experience difficulty, terminate their services or fail to comply with banking regulations. We depend to a significant extent on a number of relationships with third-party service providers.
Our operations could be interrupted if our third-party service providers experience difficulty, terminate their services or fail to comply with banking regulations. We depend to a significant extent on a number of relationships with third-party service providers.
On November 18, 2021, the federal banking agencies issued a new rule effective in 2022 that requires banks to notify their regulators within 36 hours of a “computer-security incident” that rises to the level of a “notification incident.” This could also increase our costs of compliance and business operations and could reduce income from certain business initiatives.
Bank are required to notify their regulators within 36 hours of a “computer-security incident” that rises to the level of a “notification incident.” This could increase our costs of compliance and business operations and could reduce income from certain business initiatives.
Our operations are vulnerable to disruptions from human error, natural disasters, power loss, computer viruses, spam attacks, denial of service attacks, unauthorized access and other unforeseen events. Undiscovered data corruption could render our customer information inaccurate. These events may obstruct our ability to provide services and process transactions.
Third-party or internal systems and networks may fail to operate properly or become disabled due to deliberate attacks or unintentional events. Our operations are vulnerable to disruptions from human error, natural disasters, power loss, computer viruses, spam attacks, denial of service attacks, unauthorized access and other unforeseen events. Undiscovered data corruption could render our customer information inaccurate.
As is the case with all financial institutions, the profitability of the Bank is subject to the fluctuating cost and availability of money, changes in interest rates and in economic conditions in general. In addition, various federal and state statutes limit the amount of dividends that the Bank may pay to the Company without regulatory approval.
As is the case with all financial institutions, the profitability of the Bank is subject to the fluctuating cost and availability of money, changes in interest rates and in economic conditions in general.
If we ever become subject to significant environmental liabilities, our business, financial condition, liquidity and results of operations could be materially and adversely affected. Inflationary pressures and rising prices may affect our results of operations and financial condition. Inflation reached a near 40-year high in late 2021, and high levels of inflation persisted during 2022 and may continue in 2023.
If we ever become subject to significant environmental liabilities, our business, financial condition, liquidity and results of operations could be materially and adversely affected. 15 Table of Contents Inflationary pressures and rising prices may affect our results of operations and financial condition.
Any substantial, unexpected or prolonged change in the level or cost of liquidity could have a material adverse effect on our financial condition and results of operations, and could impair our ability to fund operations and meet our obligations as they become due and could jeopardize our financial condition.
Any substantial, unexpected or prolonged change in the level or cost of liquidity could have a material adverse effect on our financial condition and results of operations, and could impair our ability to fund operations and meet our obligations as they become due and could jeopardize our financial condition. 14 Table of Contents We are exposed to cybersecurity risks associated with our internet-based systems and online commerce security, including “hacking” and “identify theft.” We conduct a portion of our business over the internet.
Under applicable regulations, if the Bank were no longer “well capitalized,” the Bank would not be able to accept brokered deposits without the approval of the FDIC. 14 Table of Contents A substantial portion of our loan portfolio consists of loans maturing within one year, and there is no guarantee that these loans will be replaced upon maturity or renewed on the same terms or at all.
A substantial portion of our loan portfolio consists of loans maturing within one year, and there is no guarantee that these loans will be replaced upon maturity or renewed on the same terms or at all.
We monitor and modify, as necessary, our protective measures in response to the perpetual evolution of known cyber-threats. 17 Table of Contents A breach in the security of any of our information systems, or other cyber-incident, could have an adverse impact on, among other things, our revenue, ability to attract and maintain customers and our reputation.
A breach in the security of any of our information systems, or other cyber-incident, could have an adverse impact on, among other things, our revenue, ability to attract and maintain customers and our reputation. In addition, as a result of any breach, we could incur higher costs to conduct our business, to increase protection, or related to remediation.
In addition, as a result of any breach, we could incur higher costs to conduct our business, to increase protection, or related to remediation. Furthermore, our customers could incorrectly blame us and terminate their account with us for a cyber-incident which occurred on their own system or with that of an unrelated third party.
Furthermore, our customers could incorrectly blame us and terminate their account with us for a cyber-incident which occurred on their own system or with that of an unrelated third party. In addition, a security breach could also subject us to additional regulatory scrutiny and expose us to civil litigation and possible financial liability.
As a bank, we are more likely to be targeted by cyber-attacks in an effort to unlawfully access customer funds or customer personally identifiable information. Third-party or internal systems and networks may fail to operate properly or become disabled due to deliberate attacks or unintentional events.
We rely heavily upon data processing, including loan servicing and deposit processing, software, communications and information systems from a number of third parties to conduct our business. As a bank, we are more likely to be targeted by cyber-attacks in an effort to unlawfully access customer funds or customer personally identifiable information.
Removed
We rely on short-term funding, which can be adversely affected by local and general economic conditions. As of December 31, 2022, approximately $1.25 billion, or 87.2%, of our deposits consisted of demand, savings, money market and negotiable order of withdrawal, or NOW, accounts.
Added
Under applicable regulations, if the Bank were no longer “well capitalized,” the Bank would not be able to accept brokered deposits without the approval of the FDIC.
Removed
We are exposed to cybersecurity risks associated with our internet-based systems and online commerce security, including “hacking” and “identify theft.” We conduct a portion of our business over the internet. We rely heavily upon data processing, including loan servicing and deposit processing, software, communications and information systems from a number of third parties to conduct our business.
Added
We maintain an allowance for credit losses in an amount that we believe is appropriate to provide for losses inherent in the portfolio.
Added
Fluctuations in market rates and other market disruptions are neither predictable nor controllable and may adversely affect our financial condition and earnings. 13 Table of Contents We rely on short-term funding, which can be adversely affected by local and general economic conditions.
Added
Inflation reached a near 40-year high in late 2021, and high levels of inflation persisted during 2022 and 2023, and may continue in 2024. The U.S.
Added
Furthermore, government policy and regulation, particularly as implemented through the Federal Reserve, significantly affect credit conditions.
Added
We are a bank holding company and our only source of cash, other than further issuances of securities, is distributions from the Bank. We are a bank holding company with no material activities other than activities incidental to holding the common stock of the Bank.
Added
In addition, various federal and state statutes limit the amount of dividends that the Bank may pay to the Company without regulatory approval. 18 Table of Contents Item 1B. Unresolved Staff Comments Not applicable.

Item 2. Properties

Properties — owned and leased real estate

2 edited+1 added−0 removed0 unchanged
Biggest changeThe Bank operates from our corporate office, eight full-service branch offices located in Oklahoma, two full-service branch offices located in southwest Kansas and two full-service branch offices located in the Dallas/Fort Worth metropolitan area. Of these twelve locations, four are leased and eight are owned by the Bank. 22 Table of Contents
Biggest changeWe lease additional corporate office space located at 525 Central Park Drive, Oklahoma City, Oklahoma. The Bank operates from our corporate offices, eight full-service branch offices located in Oklahoma, two full-service branch offices located in southwest Kansas and two full-service branch offices located in the Dallas/Fort Worth metropolitan area.
Item 2. Properties The Company’s corporate offices are located at 1039 N.W. 63 rd Street, Oklahoma City, Oklahoma 73116. The Company’s corporate office space is owned by the Bank’s wholly-owned subsidiary, 1039 NW 63 rd , LLC, and consists of approximately 6,600 square feet, an annex of approximately 4,400 square feet, and a 10,000 square foot operations building.
Item 2. Properties The Company’s corporate offices are located at 1039 N.W. 63 rd Street, Oklahoma City, Oklahoma 73116. The Company’s principal corporate office space is owned by the Bank’s wholly-owned subsidiary, 1039 NW 63 rd , LLC, and consists of approximately 6,600 square feet, an annex of approximately 4,400 square feet, and a 10,000 square foot operations building.
Added
Of these twelve locations, four are leased and eight are owned by the Bank. 19 Table of Contents

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed0 unchanged
Biggest changeItem 3. Legal Proceedings From time to time, the Company or the Bank is a party to claims and legal proceedings arising in the ordinary course of business. Management does not believe any present litigation or the resolution thereof will have a material adverse effect on the business, consolidated financial condition or results of operations of the Company.
Biggest changeItem 3. Legal Proceedings From time to time, the Company or the Bank is a party to claims and legal proceedings arising in the ordinary course of business. Management does not believe any present litigation or the resolution thereof will have a material adverse effect on the business, consolidated financial condition or results of operations of the Company. Item 4.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changePlan Number of securities to be issued upon exercise of outstanding options and rights Weighted average exercise price Number of securities remaining available for issuance under plan Equity compensation plans approved by shareholders 364,141 $ 17.52 700,087 23 Table of Contents COMPANY PERFORMANCE Presented below is a line graph which compares the percentage in the cumulative total return on the Company’s Common Stock to the cumulative total return of the NASDAQ Stock Market (U.S.
Biggest changePlan Number of securities to be issued upon exercise of outstanding options and rights Weighted average exercise price Number of securities remaining available for issuance under plan Equity compensation plans approved by shareholders 432,400 $ 17.52 637,371 Equity compensation plans not approved by shareholders - - -
Any future determination to pay dividends and the amount of such dividends on the Company’s common stock will be made by its Board of Directors and will depend on a number of factors, including • historical and projected financial condition, liquidity and results of operations; • the Company’s capital levels and requirements; • statutory and regulatory prohibitions and other limitations; • any contractual restriction on the Company’s ability to pay cash dividends, including pursuant to the terms of any of its credit agreements or other borrowing arrangements; • business strategy; • tax considerations; • any acquisitions or potential acquisitions; • general economic conditions; and ​ • other factors deemed relevant by the Board of Directors.
Any future determination to pay dividends and the amount of such dividends will be made by its Board of Directors and will depend on a number of factors, including • historical and projected financial condition, liquidity and results of operations; • our capital levels and requirements; • statutory and regulatory prohibitions and other limitations; • any contractual restriction on our ability to pay cash dividends, including pursuant to the terms of any of our credit agreements or other borrowing arrangements; ​ • business strategy; • tax considerations; • any acquisitions or potential acquisitions; • general economic conditions; and • other factors deemed relevant by the Board of Directors.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The Company’s shares of common stock are traded on The NASDAQ Global Select Market under the symbol “BSVN”. The approximate number of holders of record of the Company’s common stock as of March 24, 2023 was 4.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock is traded on The NASDAQ Global Select Market under the symbol “BSVN”. The approximate number of holders of record of the Company’s common stock as of March 25, 2024 was 4.
Set forth below is information as of December 31, 2022 regarding equity compensation plans. The plan that has been approved by the shareholders is the 2018 Equity Incentive Plan.
Set forth below is information as of December 31, 2023 regarding securities authorized for issuance under the equity compensation plans. The plan that has been approved by the shareholders is the Bank7 Corp. 2018 Equity Incentive Plan.
The Company paid quarterly dividends of $0.12 per share with respect to each of the first three quarters of 2022, increasing to $0.16 per share in the fourth quarter. The Company currently expects to continue quarterly dividends of $0.16 per share in the future.
We paid quarterly dividends of $0.16 per share with respect to each of the first two quarters of 2023, increasing to $0.21 per share for the third and fourth quarters. We currently expect to continue quarterly dividends of $0.21 per share in the future.
Removed
Companies) Index and the NASDAQ Bank Stock Index. The period presented is from September 24, 2018 through December 31, 2022. The graph assumes an investment on September 24, 2018 of $100 in the Company’s Common Stock and in each index, and that any dividends were reinvested.
Removed
The values presented for each year during the period represent the cumulative market values of the respective investment. The performance graph represents past performance and should not be considered to be an indication of future performance.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

5 edited+0 added−0 removed4 unchanged
Biggest changeThere are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, the following: • our ability to effectively execute our expansion strategy and manage our growth, including identifying and consummating suitable acquisitions; • business and economic conditions, particularly those affecting our market areas of Oklahoma, the Dallas/Fort Worth metropolitan area and Kansas, including a decrease in or the volatility of oil and gas prices or agricultural commodity prices within the region; • the geographic concentration of our markets in Oklahoma, the Dallas/Fort Worth metropolitan area and Kansas; • successful integration of Watonga Bancshares, Inc. • high concentrations of loans secured by real estate and energy located in our market areas; • risks associated with our commercial loan portfolio, including the risk for deterioration in value of the general business assets that secure such loans; • risks related to the significant amount of credit that we have extended to a limited number of borrowers; • our ability to maintain our reputation; • our ability to successfully manage our credit risk and the sufficiency of our allowance; • reinvestment risks associated with a significant portion of our loan portfolio maturing in one year or less; • our ability to attract, hire and retain qualified management personnel; • our dependence on our management team, including our ability to retain executive officers and key employees and their customer and community relationships; • interest rate fluctuations, which could have an adverse effect on our profitability; • competition from banks, credit unions and other financial services providers; • system failures, service denials, cyber-attacks and security breaches; • our ability to maintain effective internal control over financial reporting; • employee error, fraudulent activity by employees or customers and inaccurate or incomplete information about our customers and counterparties; • increased capital requirements imposed by banking regulators, which may require us to raise capital at a time when capital is not available on favorable terms or at all; • costs and effects of litigation, investigations or similar matters to which we may be subject, including any effect on our reputation; • severe weather, acts of god, acts of war, pandemics or terrorism; • compliance with governmental and regulatory requirements, including the Dodd-Frank and Wall Street Consumer Protection Act, or Dodd-Frank Act, and other regulations relating to banking, consumer protection, securities and tax matters; • changes in the laws, rules, regulations, interpretations or policies relating to financial institutions, accounting, tax, trade, monetary and fiscal matters, including the policies of the Federal Reserve and as a result of initiatives of the Trump administration; and • other factors that are discussed in the section entitled “Risk Factors,” beginning on page 12. 25 Table of Contents The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this report.
Biggest changeThere are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, the following: • our ability to effectively execute our expansion strategy and manage our growth, including identifying and consummating suitable acquisitions; • business and economic conditions, particularly those affecting our market areas of Oklahoma, the Dallas/Fort Worth metropolitan area and Kansas, including a decrease in or the volatility of oil and gas prices or agricultural commodity prices within the region; • the geographic concentration of our markets in Oklahoma, the Dallas/Fort Worth metropolitan area and Kansas; • high concentrations of loans secured by real estate and energy located in our market areas; • risks associated with our commercial loan portfolio, including the risk for deterioration in value of the general business assets that secure such loans; • risks related to the significant amount of credit that we have extended to a limited number of borrowers; • our ability to maintain our reputation; • our ability to successfully manage our credit risk and the sufficiency of our allowance; • reinvestment risks associated with a significant portion of our loan portfolio maturing in one year or less; • our ability to attract, hire and retain qualified management personnel; • our dependence on our management team, including our ability to retain executive officers and key employees and their customer and community relationships; • interest rate fluctuations, which could have an adverse effect on our profitability; • competition from banks, credit unions and other financial services providers; • system failures, service denials, cyber-attacks and security breaches; • our ability to maintain effective internal control over financial reporting; • employee error, fraudulent activity by employees or customers and inaccurate or incomplete information about our customers and counterparties; • increased capital requirements imposed by banking regulators, which may require us to raise capital at a time when capital is not available on favorable terms or at all; 21 Table of Contents • costs and effects of litigation, investigations or similar matters to which we may be subject, including any effect on our reputation; • severe weather, acts of god, acts of war, pandemics or terrorism; • compliance with governmental and regulatory requirements; • changes in the laws, rules, regulations, interpretations or policies relating to financial institutions, accounting, tax, trade, monetary and fiscal matters, including the policies of the Federal Reserve and as a result of initiatives of the current and future administrations; and • other factors that are discussed in the section entitled “Risk Factors,” beginning on page 10.
Item 6. [Reserved] 24 Table of Contents CAUTIONARY NOTE ABOUT FORWARD LOOKING STATEMENTS This Annual Report on Form 10-K contains forward-looking statements. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance.
Item 6. [Reserved] 20 Table of Contents CAUTIONARY NOTE ABOUT FORWARD LOOKING STATEMENTS This Annual Report on Form 10-K 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 forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.
Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law. 22 Table of Contents
Accordingly, no forward-looking statements should be relied upon, which represent our beliefs, assumptions and estimates only as of the dates on which such forward-looking statements were made.
In addition, our past results of operations are not necessarily indicative of our future results. Accordingly, no forward-looking statements should be relied upon, which represent our beliefs, assumptions and estimates only as of the dates on which such forward-looking statements were made.
Because of these risks and other uncertainties, our actual future results, performance or achievements, or industry results, may be materially different from the results indicated by the forward-looking statements in this report. In addition, our past results of operations are not necessarily indicative of our future results.
The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this report. Because of these risks and other uncertainties, our actual future results, performance or achievements, or industry results, may be materially different from the results indicated by the forward-looking statements in this report.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeFinancial and performance covenants are used in commercial lending to allow us to react to a borrower’s deteriorating financial condition, should that occur. 32 Table of Contents The following tables show the contractual maturities of our gross loans as of the periods below: As of December 31, 2022 Due in One Year or Less Due after One Year Through Five Years Due after Five Years Through Fifteen Years Due after Fifteen Years Fixed Rate Adjustable Rate Fixed Rate Adjustable Rate Fixed Rate Adjustable Rate Fixed Rate Adjustable Rate Total (Dollars in thousands) Construction & development $ 11,749 $ 81,002 $ 7,556 $ 57,439 $ - $ 1,160 $ - $ 4,297 $ 163,203 1-4 family real estate 10,550 12,664 24,741 15,782 314 6,606 - 6,271 76,928 Commercial real estate - other 2,680 59,870 131,105 207,819 6,635 17,146 - 13,746 439,001 Total commercial real estate 24,979 153,536 163,402 281,040 6,949 24,912 - 24,314 679,132 Commercial & industrial 43,823 234,573 60,275 159,571 3,745 10,390 - 634 513,011 Agricultural 1,798 17,514 8,767 33,270 469 980 140 3,207 66,145 Consumer 1,683 22 6,310 156 587 2,860 82 3,249 14,949 Gross loans $ 72,283 $ 405,645 $ 238,754 $ 474,037 $ 11,750 $ 39,142 $ 222 $ 31,404 $ 1,273,237 As of December 31, 2021 Due in One Year or Less Due after One Year Through Five Years Due after Five Years Through Fifteen Years Due after Fifteen Years Fixed Rate Adjustable Rate Fixed Rate Adjustable Rate Fixed Rate Adjustable Rate Fixed Rate Adjustable Rate Total (Dollars in thousands) Construction & development $ 7,283 $ 71,551 $ 10,148 $ 74,052 $ - $ 2,243 $ - $ 4,045 $ 169,322 1-4 family real estate 3,259 21,322 11,979 11,674 926 7,375 - 6,436 62,971 Commercial real estate - other 5,156 97,309 59,227 143,906 413 19,230 - 14,414 339,655 Total commerical real estate 15,698 190,182 81,354 229,632 1,339 28,848 - 24,895 571,948 Commercial & industrial 24,249 142,553 16,346 145,654 20,474 12,047 - 651 361,974 Agricultural 2,529 17,441 5,156 39,305 623 1,587 - 6,369 73,010 Consumer 4,870 29 10,825 172 1,554 2,458 84 4,054 24,046 Gross loans $ 47,346 $ 350,205 $ 113,681 $ 414,763 $ 23,990 $ 44,940 $ 84 $ 35,969 $ 1,030,978 As of December 31, 2020 Due in One Year or Less Due after One Year Through Five Years Due after Five Years Through Fifteen Years Due after Fifteen Years Fixed Rate Adjustable Rate Fixed Rate Adjustable Rate Fixed Rate Adjustable Rate Fixed Rate Adjustable Rate Total (Dollars in thousands) Construction & development $ 14 $ 47,649 $ 885 $ 58,387 $ - $ 920 $ - $ - $ 107,855 1-4 family real estate 273 13,394 4,712 9,959 39 702 - - 29,079 Commercial real estate - other 2,377 55,307 45,880 180,721 294 4,288 - 1,622 290,489 Total real estate 2,664 116,350 51,477 249,067 333 5,910 - 1,622 427,423 Commercial & industrial 16,914 194,520 39,593 93,707 11 6,503 - - 351,248 Agricultural 5,141 27,215 2,534 14,420 60 541 - 608 50,519 Consumer 1,544 150 6,570 65 1,057 425 87 - 9,898 Gross loans $ 26,263 $ 338,235 $ 100,174 $ 357,259 $ 1,461 $ 13,379 $ 87 $ 2,230 $ 839,088 33 Table of Contents Allowance for Loan and Lease Losses The allowance is based on management’s estimate of probable losses inherent in the loan portfolio.
Biggest changeFinancial and performance covenants are used in commercial lending to allow us to react to a borrower’s deteriorating financial condition, should that occur. 28 Table of Contents The following tables show the contractual maturities of our gross loans as of the periods below: As of December 31, 2023 Due in One Year or Less Due after One Year Through Five Years Due after Five Years Through Fifteen Years Due after Fifteen Years Fixed Rate Adjustable Rate Fixed Rate Adjustable Rate Fixed Rate Adjustable Rate Fixed Rate Adjustable Rate Total (Dollars in thousands) Construction & development $ 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 commercial 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 As of December 31, 2022 Due in One Year or Less Due after One Year Through Five Years Due after Five Years Through Fifteen Years Due after Fifteen Years Fixed Rate Adjustable Rate Fixed Rate Adjustable Rate Fixed Rate Adjustable Rate Fixed Rate Adjustable Rate Total (Dollars in thousands) Construction & development $ 11,749 $ 81,002 $ 7,556 $ 57,439 $ - $ 1,160 $ - $ 4,297 $ 163,203 1-4 family real estate 10,550 12,664 24,741 15,782 314 6,606 - 6,271 76,928 Commercial real estate - other 2,680 59,870 131,105 207,819 6,635 17,146 - 13,746 439,001 Total commerical real estate 24,979 153,536 163,402 281,040 6,949 24,912 - 24,314 679,132 Commercial & industrial 43,823 234,573 60,275 159,571 3,745 10,390 - 634 513,011 Agricultural 1,798 17,514 8,767 33,270 469 980 140 3,207 66,145 Consumer 1,683 22 6,310 156 587 2,860 82 3,249 14,949 Gross loans $ 72,283 $ 405,645 $ 238,754 $ 474,037 $ 11,750 $ 39,142 $ 222 $ 31,404 $ 1,273,237 As of December 31, 2021 Due in One Year or Less Due after One Year Through Five Years Due after Five Years Through Fifteen Years Due after Fifteen Years Fixed Rate Adjustable Rate Fixed Rate Adjustable Rate Fixed Rate Adjustable Rate Fixed Rate Adjustable Rate Total (Dollars in thousands) Construction & development $ 7,283 $ 71,551 $ 10,148 $ 74,052 $ - $ 2,243 $ - $ 4,045 $ 169,322 1-4 family real estate 3,259 21,322 11,979 11,674 926 7,375 - 6,436 62,971 Commercial real estate - other 5,156 97,309 59,227 143,906 413 19,230 - 14,414 339,655 Total real estate 15,698 190,182 81,354 229,632 1,339 28,848 - 24,895 571,948 Commercial & industrial 24,249 142,553 16,346 145,654 20,474 12,047 - 651 361,974 Agricultural 2,529 17,441 5,156 39,305 623 1,587 - 6,369 73,010 Consumer 4,870 29 10,825 172 1,554 2,458 84 4,054 24,046 Gross loans $ 47,346 $ 350,205 $ 113,681 $ 414,763 $ 23,990 $ 44,940 $ 84 $ 35,969 $ 1,030,978 29 Table of Contents Allowance for Credit Losses The allowance is based on management’s estimate of probable losses inherent in the loan portfolio.
We measure our performance by our return on average assets, return on average equity, earnings per share, capital ratios, and our efficiency ratio, which is calculated by dividing noninterest expense by the sum of net interest income on a tax equivalent basis and noninterest income.
We measure our performance by our return on average assets, return on average equity, earnings per share, capital ratios, and efficiency ratio, which is calculated by dividing noninterest expense by the sum of net interest income on a tax equivalent basis and noninterest income.
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.
Other considerations include volumes and trends of delinquencies, nonaccrual loans, levels of bankruptcies, criticized and classified loan trends, expected losses on real estate secured loans, new credit products and policies, economic conditions, concentrations of credit risk and the experience and abilities of our lending personnel.
In addition to the segment evaluations, impaired loans with a balance of $250,000 or more are individually evaluated based on facts and circumstances of the loan to determine if a specific allowance amount may be necessary.
In addition to the segment evaluations, impaired loans with a balance of $250,000 or more are individually evaluated based on facts and circumstances of the loan to determine if a specific allowance amount may be necessary.
Specific allowances may also be established for loans whose outstanding balances are below the $250,000 threshold when it is determined that the risk associated with the loan differs significantly from the risk factor amounts established for its loan segment.
Specific allowances may also be established for loans whose outstanding balances are below the $250,000 threshold when it is determined that the risk associated with the loan differs significantly from the risk factor amounts established for its loan segment.
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 December 31, 2022 Within One Year After One Year But Within Five Years After Five Years But Within Ten Years After Ten Years Total Amount Yield * Amount Yield * Amount Yield * Amount Yield * Amount Yield * Available-for-sale (Dollars in thousands) U.S.
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 December 31, 2023 Within One Year After One Year But Within Five Years After Five Years But Within Ten Years After Ten Years Total Amount Yield * Amount Yield * Amount Yield * Amount Yield * Amount Yield * Available-for-sale (Dollars in thousands) U.S.
Credits in this category are expected to quickly migrate to “Watch” or “Substandard” as this is viewed as a transitory loan grade. 37 Table of Contents Substandard : These loans are not adequately protected by the sound worth and debt service capacity of the borrower, but may be well-secured.
Credits in this category are expected to quickly migrate to “Watch” or “Substandard” as this is viewed as a transitory loan grade. 33 Table of Contents Substandard : These loans are not adequately protected by the sound worth and debt service capacity of the borrower, but may be well-secured.
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. 45 Table of Contents Income Taxes The Company files a consolidated income tax return.
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. 40 Table of Contents Income Taxes The Company files a consolidated income tax return.
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 CQC warrant a heightened sense and frequency of monitoring.
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.
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. 46 Table of Contents
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. 41 Table of Contents
There have been no conditions or events since December 31, 2022 that management believes would change this classification. 42 Table of Contents The table below also summarizes the capital requirements applicable to the Bank in order to be considered “well-capitalized” from a regulatory perspective, as well as the Bank’s capital ratios as of December 31, 2022, 2021, and 2020.
There have been no conditions or events since December 31, 2023 that management believes would change this classification. 37 Table of Contents The table below also summarizes the capital requirements applicable to the Bank in order to be considered “well-capitalized” from a regulatory perspective, as well as the Bank’s capital ratios as of December 31, 2023, 2022, and 2021.
As of December 31, 2022, we had no unsecured fed funds lines with correspondent depository institutions with no amounts advanced.
As of December 31, 2023, we had no unsecured fed funds lines with correspondent depository institutions with no amounts advanced.
Goodwill and Intangibles Intangible assets totaled $1.3 million and goodwill, net of accumulated amortization totaled $8.6 million for the year ended December 31, 2022, compared to intangible assets of $1.6 million and goodwill, net of accumulated amortization of $8.5 million for the year ended December 31, 2021.
Goodwill and Intangibles Intangible assets totaled $1.0 million and goodwill, net of accumulated amortization totaled $8.5 million for the year ended December 31, 2023, compared to intangible assets of $1.3 million and goodwill, net of accumulated amortization of $8.6 million for the year ended December 31, 2022.
As of December 31, 2022, the FDIC categorized the Bank as “well-capitalized” under the prompt corrective action framework.
As of December 31, 2023, the FDIC categorized the Bank as “well-capitalized” under the prompt corrective action framework.
The quality and diversification of the loan portfolio is an important consideration when reviewing our financial condition. As of December 31, 2022, 2021 and 2020, our gross loans were $1.27 billion, $1.03 billion and $839.1 million, respectively.
The quality and diversification of the loan portfolio is an important consideration when reviewing our financial condition. As of December 31, 2023, 2022 and 2021, our gross loans were $1.36 billion, $1.27 billion and $1.03 billion, respectively.
In addition, based on the values of loans pledged as collateral, we had borrowing availability with the FHLB of $129.2 million as of December 31, 2022 and $78.1 million as of December 31, 2021. 41 Table of Contents Capital Requirements The Bank is subject to various regulatory capital requirements administered by the federal and state banking regulators.
In addition, based on the values of loans pledged as collateral, we had borrowing availability with the FHLB of $159.2 million as of December 31, 2023 and $129.2 million as of December 31, 2022. 36 Table of Contents Capital Requirements The Bank is subject to various regulatory capital requirements administered by the federal and state banking regulators.
The increase was attributable to overall increases in compensation to remain competitive, and partially due to our acquisition of Cornerstone Bank in late 2021, which increased employee headcount. Financial Condition The following discussion of our financial condition compares December 31, 2022, 2021, and 2020.
The increase was attributable to overall increases in compensation to remain competitive, and due to our acquisition of Cornerstone Bank in late 2021, which increased employee headcount. 27 Table of Contents Financial Condition The following discussion of our financial condition compares December 31, 2023, 2022, and 2021.
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.
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.
We continued to experience strong asset growth for the year ended December 31, 2022 compared to the year ended December 31, 2021: - Total interest income on loans increased $18.6 million, or 33.4%, to $74.4 million, which was attributable to a $237.6 million increase in the average balance of loans to $1.14 billion during the year ended 2022 as compared with the average balance of $905.8 million for the year ended 2021; - Yields on our interest-earning assets totaled 5.46%, an increase of 4 basis points which was attributable to higher loan rates of 35 basis points, an increase in yield on short term investments of 104 basis points, and a decrease in yield on taxable debt securities of 225 basis points; and - Net interest margin for the years ended 2022 and 2021 was 4.82% and 5.12%, respectively.
We continued to experience strong asset growth for the year ended December 31, 2023 compared to the year ended December 31, 2022: - Total interest income on loans increased $35.4 million, or 47.6%, to $109.8 million, which was attributable to a $172.2 million increase in the average balance of loans to $1.32 billion during the year ended 2023 as compared with the average balance of loans of $1.14 billion for the year ended 2022, and increased loan yields as discussed below; - Yields on our interest-earning assets totaled 7.31%, an increase of 185 basis points which was attributable to higher loan rates of 184 basis points, an increase in yield on short term investments of 362 basis points, and an increase in yield on taxable debt securities of 25 basis points; and - Net interest margin for the years ended 2023 and 2022 was 4.97% and 4.82%, respectively. 24 Table of Contents We experienced strong asset growth for the year ended December 31, 2022 compared to the year ended December 31, 2021: - Total interest income on loans increased $18.6 million, or 33.4%, to $74.4 million, which was attributable to a $237.6 million increase in the average balance of loans to $1.14 billion during the year ended 2022 as compared with the average balance of $905.8 million for the year ended 2021; - Yields on our interest-earning assets totaled 5.46%, an increase of 4 basis points which was attributable to higher loan rates of 35 basis points, an increase in yield on short term investments of 104 basis points, and a decrease in yield on taxable debt securities of 225 basis points; and - Net interest margin for the years ended 2022 and 2021 was 4.82% and 5.12%, respectively.
Substandard loans totaled $21.0 million as of December 31, 2022, a decrease of $3.7 million compared to December 31, 2021. Substandard loans totaled $24.7 million as of December 31, 2021, an increase of $1.6 million compared to December 31, 2020.
Substandard loans totaled $31.1 million as of December 31, 2023, an increase of $10.1 million compared to December 31, 2022. Substandard loans totaled $21.0 million as of December 31, 2022, a decrease of $3.7 million compared to December 31, 2021.
The following table provides an analysis of the activity in our allowance for the periods indicated: For the Year Ended December 31, 2022 2021 2020 (Dollars in thousands) Balance at beginning of the period $ 10,316 $ 9,639 $ 7,846 Provision for loan losses 4,468 4,175 5,350 Charge-offs: Construction & development - - - 1-4 family real estate - - - Commercial real estate - other - - - Commercial & industrial (2 ) (3,750 ) (3,289 ) Agricultural (50 ) - (300 ) Consumer (22 ) (68 ) (1 ) Total charge-offs (74 ) (3,818 ) (3,590 ) Recoveries: Construction & development - - - 1-4 family real estate - - 2 Commercial real estate - other - - - Commercial & industrial 10 16 18 Agricultural 4 300 10 Consumer 10 4 3 Total recoveries 24 320 33 Net recoveries (charge-offs) (50 ) (3,498 ) (3,557 ) Balance at end of the period $ 14,734 $ 10,316 $ 9,639 Net recoveries (charge-offs) to average loans 0.00 % 0.39 % 0.43 % 34 Table of Contents 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 December 31, 2022 2021 2020 Amount Percent Amount Percent Amount Percent (Dollars in thousands) Construction & development $ 1,889 12.8 % $ 1,695 16.4 % $ 1,239 12.8 % 1-4 family real estate 890 6.0 % 630 6.1 % 334 3.5 % Commercial real estate - Other 5,080 34.5 % 3,399 32.9 % 3,337 34.6 % Commercial & industrial 5,937 40.3 % 3,621 35.2 % 4,035 41.9 % Agricultural 765 5.2 % 730 7.1 % 580 6.0 % Consumer 173 1.2 % 241 2.3 % 114 1.2 % Total $ 14,734 100.0 % $ 10,316 100.0 % $ 9,639 100.0 % Nonperforming Assets Loans are considered delinquent when principal or interest payments are past due 30 days or more.
The following table provides an analysis of the activity in our allowance for the periods indicated: For the Year Ended December 31, 2023 2022 2021 (Dollars in thousands) Balance at beginning of the period $ 14,734 $ 10,316 $ 9,639 Impact of CECL adoption 250 - - Provision for credit losses for loans 21,181 4,468 4,175 Charge-offs: Construction & development - - - 1-4 family real estate - - - Commercial real estate - other - - - Commercial & industrial (16,500 ) (2 ) (3,750 ) Agricultural (7 ) (50 ) - Consumer (17 ) (22 ) (68 ) Total charge-offs (16,524 ) (74 ) (3,818 ) Recoveries: Construction & development - - - 1-4 family real estate - - - Commercial real estate - other - - - Commercial & industrial 40 10 16 Agricultural 2 4 300 Consumer 8 10 4 Total recoveries 50 24 320 Net recoveries (charge-offs) (16,474 ) (50 ) (3,498 ) Balance at end of the period $ 19,691 $ 14,734 $ 10,316 Net recoveries (charge-offs) to average loans 1.25 % 0.00 % 0.39 % 30 Table of Contents 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 December 31, 2023 2022 2021 Amount Percent Amount Percent Amount Percent (Dollars in thousands) Construction & development $ 1,417 7.2 % $ 1,889 12.8 % $ 1,695 16.4 % 1-4 family real estate 1,271 6.5 % 890 6.0 % 630 6.1 % Commercial real estate - Other 6,889 35.0 % 5,080 34.5 % 3,399 32.9 % Commercial & industrial 9,237 46.8 % 5,937 40.3 % 3,621 35.2 % Agricultural 628 3.2 % 765 5.2 % 730 7.1 % Consumer 249 1.3 % 173 1.2 % 241 2.3 % Total $ 19,691 100.0 % $ 14,734 100.0 % $ 10,316 100.0 % 31 Table of Contents Nonperforming Assets Loans are considered delinquent when principal or interest payments are past due 30 days or more.
Pre-tax return on average assets and return on average equity was 2.68% and 29.32%, respectively for the year ended December 31, 2022, as compared to 2.96% and 26.41%, respectively, for the same period in 2021.
Pre-tax return on average assets and return on average equity was 2.21% and 23.47%, respectively for the year ended December 31, 2023, as compared to 2.68% and 29.32%, respectively, for the same period in 2022.
Noninterest expense for the year ended December 31, 2021 was $20.4 million compared to $17.6 million for the year ended December 31, 2020, an increase of $2.8 million or 15.9%.
Noninterest expense for the year ended December 31, 2022 was $28.6 million compared to $20.4 million for the year ended December 31, 2021, an increase of $8.2 million or 40.4%.
As of December 31, 2022 2021 2020 (Dollars in thousands) Commitments to extend credit $ 198,027 $ 200,393 $ 206,520 Standby letters of credit 1,043 5,809 2,366 Total $ 199,070 $ 206,202 $ 208,886 44 Table of Contents 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.
As of December 31, 2023 2022 2021 (Dollars in thousands) Commitments to extend credit $ 256,888 $ 198,027 $ 200,393 Standby letters of credit 4,247 1,043 5,809 Total $ 261,135 $ 199,070 $ 206,202 39 Table of Contents 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.
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.
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. Nonperforming loans include nonaccrual loans and loans past due 90 days or more and still accruing interest.
Tax-adjusted return on average assets and return on average equity was 2.02% and 23.92%, respectively for the year ended December 31, 2022, as compared to 2.21% and 20.13%, respectively, for the same period in 2021. Our efficiency ratio for the year ended December 31, 2022 was 39.29% as compared to 36.76% for the year ended December 31, 2021.
Tax-adjusted return on average assets and return on average equity was 1.68% and 17.83%, respectively for the year ended December 31, 2023, as compared to 2.02% and 23.92%, respectively, for the same period in 2022. Our efficiency ratio for the year ended December 31, 2023 was 36.07% as compared to 39.29% for the same period in 2022.
For the year ended December 31, 2021 compared to the year ended December 31, 2020: - The provision for loan losses decreased from $5.4 million to $4.2 million; and - The allowance as a percentage of loans decreased by 15 basis points to 1.00%.
For the year ended December 31, 2022 compared to the year ended December 31, 2021: - The provision for credit losses increased from $4.2 million to $4.5 million; and - The allowance as a percentage of loans increased by 16 basis points to 1.16%.
We use underwriting guidelines to assess each borrower’s historical cash flow to determine debt service, and we further stress test the debt service under higher interest rate scenarios.
All loan types are within our established limits. We use underwriting guidelines to assess each borrower’s historical cash flow to determine debt service, and we further stress test the debt service under higher interest rate scenarios.
As of December 31, 2022, we had total assets of $1.58 billion, total loans of $1.26 billion, total deposits of $1.43 billion and total shareholders’ equity of $144.1 million. 26 Table of Contents The U.S. economy experienced widespread volatility throughout 2020 and 2021 as a result of the COVID-19 pandemic and government responses to the pandemic.
As of December 31, 2023, we had total assets of $1.77 billion, total loans of $1.36 billion, total deposits of $1.59 billion and total shareholders’ equity of $170.3 million. The U.S. economy experienced widespread volatility throughout 2020 and 2021 as a result of the COVID-19 pandemic and government responses to the pandemic.
The total net decrease in 2022 as compared to 2021, is comprised of a net increase in commercial and industrial substandard loans primarily related to an increase in two relationships comprised of four notes totaling $16.4 million with a $133,306 specific reserve and a decrease in one relationship comprised of one note totaling $2.1 million with no specific reserve, and a net decrease in commercial real estate substandard loans primarily related to two relationships comprised of one note each totaling $13.8 million with no specific reserves.
The total net increase in 2023 as compared to 2022, is comprised of a net increase in commercial and industrial substandard loans primarily related to an increase in one relationship comprised of three notes totaling $18.4 million with a $2.0 million specific reserve and a decrease in one relationship comprised of one note totaling $6.6 million with no specific reserve, and a net decrease in commercial real estate substandard loans primarily related to one relationship comprised of one note totaling $1.2 million with no specific reserves.
The increase was related to the cost of interest-bearing deposits increasing to 1.05% for the year ended December 31, 2022 from 0.48% for the year ended December 31, 2021. Interest expense on interest-bearing deposits totaled $3.1 million for the year ended December 31, 2021, compared to $6.2 million for 2020, a decrease of $3.1 million, or 50.4%.
The increase was related to the cost of interest-bearing deposits increasing to 3.60% for the year ended December 31, 2023 from 1.05% for the year ended December 31, 2022. Interest expense on interest-bearing deposits totaled $9.3 million for the year ended December 31, 2022, compared to $3.1 million for 2021, an increase of $6.2 million, or 205.3%.
As of December 31, 2022 Loans 30-59 days past due Loans 60-89 days past due Loans 90+ days past due Loans 90+ days past due and accruing Total Past Due Loans Current Total loans (Dollars in thousands) Construction & development $ - $ - $ - $ - $ - $ 163,203 $ 163,203 1-4 family real estate - - - - - 76,928 76,928 Commercial real estate - other - 617 - - 617 438,384 439,001 Commercial & industrial 21 - 9,923 9,923 9,944 503,067 513,011 Agricultural 4 - - - 4 66,141 66,145 Consumer 291 82 22 18 395 14,554 14,949 Total $ 316 $ 699 $ 9,945 $ 9,941 $ 10,960 $ 1,262,277 $ 1,273,237 As of December 31, 2021 Loans 30-59 days past due Loans 60-89 days past due Loans 90+ days past due Loans 90+ days past due and accruing Total Past Due Loans Current Total loans (Dollars in thousands) Construction & development $ - $ - $ - $ - $ - $ 169,322 $ 169,322 1-4 family real estate - - - - - 62,971 62,971 Commercial real estate - other - 174 - - 174 339,481 339,655 Commercial & industrial - 19 501 401 520 361,454 361,974 Agricultural - - 77 77 77 72,933 73,010 Consumer 48 15 18 18 81 23,965 24,046 Total $ 48 $ 208 $ 596 $ 496 $ 852 $ 1,030,126 $ 1,030,978 As of December 31, 2020 Loans 30-59 days past due Loans 60-89 days past due Loans 90+ days past due Loans 90+ days past due and accruing Total Past Due Loans Current Total loans (Dollars in thousands) Construction & development $ 714 $ - $ - $ - $ 714 $ 107,141 $ 107,855 1-4 family commerical - - - - - 29,079 29,079 Commercial real estate - Other 1,444 - 1,960 1,960 3,404 287,085 290,489 Commercial & industrial - - - - - 351,248 351,248 Agricultural - - - - - 50,519 50,519 Consumer 193 - - - 193 9,705 9,898 Total $ 2,351 $ - $ 1,960 $ 1,960 $ 4,311 $ 834,777 $ 839,088 In addition to the past due and nonaccrual criteria, the Company also evaluates loans according to its internal risk grading system.
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 Total loans (Dollars in thousands) Construction & development $ - $ - $ - $ - $ - $ 137,206 $ 137,206 1-4 family real estate - - - - - 100,576 100,576 Commercial real estate - - - - - 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 As of December 31, 2022 Loans 30-59 days past due Loans 60-89 days past due Loans 90+ days past due Loans 90+ days past due and accruing Total Past Due Loans Current Total loans (Dollars in thousands) Construction & development $ - $ - $ - $ - $ - $ 163,203 $ 163,203 1-4 family real estate - - - - - 76,928 76,928 Commercial real estate - 617 - - 617 438,384 439,001 Commercial & industrial 21 - 9,923 9,923 9,944 503,067 513,011 Agricultural 4 - - - 4 66,141 66,145 Consumer 291 82 22 18 395 14,554 14,949 Total $ 316 $ 699 $ 9,945 $ 9,941 $ 10,960 $ 1,262,277 $ 1,273,237 As of December 31, 2021 Loans 30-59 days past due Loans 60-89 days past due Loans 90+ days past due Loans 90+ days past due and accruing Total Past Due Loans Current Total loans (Dollars in thousands) Construction & development $ - $ - $ - $ - $ - $ 169,322 $ 169,322 1-4 family commerical - - - - - 62,971 62,971 Commercial real estate - Other - 174 - - 174 339,481 339,655 Commercial & industrial - 19 501 401 520 361,454 361,974 Agricultural - - 77 77 77 72,933 73,010 Consumer 48 15 18 18 81 23,965 24,046 Total $ 48 $ 208 $ 596 $ 496 $ 852 $ 1,030,126 $ 1,030,978 In addition to the past due and nonaccrual criteria, the Company also evaluates loans according to its internal risk grading system.
Interest income on short-term investments increased $1.5 million, or 839.9%, to $1.7 million for year ended December 31, 2022 compared to 2021, due to an increase in the average balances of $3.5 million, or 2.8% and a yield increase of 104 basis points.
Interest income on short-term investments increased $6.9 million, or 412.9%, to $8.6 million for year ended December 31, 2023 compared to 2022, due to an increase in the average balances of $45.0 million, or 34.7% and a yield increase of 362 basis points.
The increase was primarily due to acquired deposits and organic deposit growth. 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.
Total deposits as of December 31, 2023, 2022, and 2021 were $1.59 billion, $1.43 billion and $1.22 billion, respectively. The increase was primarily due to acquired deposits and organic deposit growth. 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.
For the year ended December 31, 2021 compared to the year ended December 31, 2020: - Salaries and employee benefits expense was $12.0 million compared to $10.1 million, an increase of $1.9 million, or 18.3%.
For the year ended December 31, 2022 compared to the year ended December 31, 2021: - Salaries and employee benefits expense was $17.0 million compared to $12.0 million, an increase of $5.1 million, or 42.2%.
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, 2022 Total capital (to risk-weighted assets) Company $ 158,158 12.41 % $ 133,862 10.50 % N/A N/A Bank 158,158 12.42 % 133,756 10.50 % $ 127,387 10.00 % Tier 1 capital (to risk-weighted assets) Company 143,424 11.25 % 108,365 8.50 % N/A N/A Bank 143,424 11.26 % 108,279 8.50 % 101,909 8.00 % CET 1 capital (to risk-weighted assets) Company 143,424 11.25 % 89,241 7.00 % N/A N/A Bank 143,424 11.26 % 89,171 7.00 % 82,801 6.50 % Tier 1 capital (to average assets) Company 143,424 9.19 % N/A N/A N/A N/A Bank 143,424 9.18 % N/A N/A 78,111 5.00 % Actual With Capital Conservation Buffer Minimum to be “Well- Capitalized” Under Prompt Corrective Action Amount Ratio Amount Ratio Amount Ratio (Dollars in thousands) As of December 31, 2021 Total capital (to risk-weighted assets) Company $ 127,946 12.54 % $ 107,126 10.50 % N/A N/A Bank 127,844 12.54 % 107,020 10.50 % $ 101,924 10.00 % Tier 1 capital (to risk-weighted assets) Company 117,631 11.53 % 86,721 8.50 % N/A N/A Bank 117,528 11.53 % 86,635 8.50 % 81,539 8.00 % CET 1 capital (to risk-weighted assets) Company 117,631 11.53 % 71,417 7.00 % N/A N/A Bank 117,528 11.53 % 71,347 7.00 % 66,250 6.50 % Tier 1 capital (to average assets) Company 117,631 10.56 % N/A N/A N/A N/A Bank 117,528 10.55 % N/A N/A 55,714 5.00 % 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, 2020: Total capital (to risk-weighted assets) Bank7 Corp. $ 115,375 14.73 % $ 82,216 10.50 % N/A N/A Bank 115,335 14.75 % 82,114 10.50 % $ 78,204 10.00 % Tier 1 capital (to risk-weighted assets) Bank7 Corp. 105,736 13.50 % 66,556 8.50 % N/A N/A Bank 105,696 13.51 % 66,473 8.50 % 62,563 8.00 % CET 1 capital (to risk-weighted assets) Bank7 Corp. 105,736 13.50 % 54,811 7.00 % N/A N/A Bank 105,696 13.51 % 54,743 7.00 % 50,832 6.50 % Tier 1 capital (to average assets) Bank7 Corp. 105,736 10.78 % N/A N/A N/A N/A Bank 105,696 10.78 % N/A N/A 49,041 5.00 % 43 Table of Contents Shareholders’ equity provides a source of permanent funding, allows for future growth and provides a cushion to withstand unforeseen adverse developments.
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 % 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, 2022 Total capital (to risk-weighted assets) Company $ 158,158 12.41 % $ 133,862 10.50 % N/A N/A Bank 158,158 12.42 % 133,756 10.50 % $ 127,387 10.00 % Tier 1 capital (to risk-weighted assets) Company 143,424 11.25 % 108,365 8.50 % N/A N/A Bank 143,424 11.26 % 108,279 8.50 % 101,909 8.00 % CET 1 capital (to risk-weighted assets) Company 143,424 11.25 % 89,241 7.00 % N/A N/A Bank 143,424 11.26 % 89,171 7.00 % 82,801 6.50 % Tier 1 capital (to average assets) Company 143,424 9.19 % N/A N/A N/A N/A Bank 143,424 9.18 % N/A N/A 78,111 5.00 % Actual With Capital Conservation Buffer Minimum to be "Well- Capitalized" Under Prompt Corrective Action Amount Ratio Amount Ratio Amount Ratio (Dollars in thousands) As of December 31, 2021: Total capital (to risk-weighted assets) Bank7 Corp. $ 127,946 12.54 % $ 107,126 10.50 % N/A N/A Bank 127,844 12.54 % 107,020 10.50 % $ 101,924 10.00 % Tier 1 capital (to risk-weighted assets) Bank7 Corp. 117,631 11.53 % 86,721 8.50 % N/A N/A Bank 117,528 11.53 % 86,635 8.50 % 81,539 8.00 % CET 1 capital (to risk-weighted assets) Bank7 Corp. 117,631 11.53 % 71,417 7.00 % N/A N/A Bank 117,528 11.53 % 71,347 7.00 % 66,250 6.50 % Tier 1 capital (to average assets) Bank7 Corp. 117,631 10.56 % N/A N/A N/A N/A Bank 117,528 10.55 % N/A N/A 55,714 5.00 % Shareholders’ equity provides a source of permanent funding, allows for future growth and provides a cushion to withstand unforeseen adverse developments.
The allowance was $14.7 million at December 31, 2022, $10.3 million at December 31, 2021 and $9.6 million at December 31, 2020. The increasing trend was related to loan growth.
The allowance was $19.7 million at December 31, 2023, $14.7 million at December 31, 2022 and $10.3 million at December 31, 2021. The increasing trend was related to loan growth and the single loan customer discussed in the 2023 Overview.
Total Assets Total assets increased $233.6 million, or 17.3%, to $1.58 billion as of December 31, 2022, as compared to $1.35 billion as of December 31, 2021 and $1.02 billion as of December 31, 2020. 31 Table of Contents Loan Portfolio Our loans represent the largest portion of our earning assets.
Total Assets Total assets increased $187.5 million, or 11.8%, to $1.77 billion as of December 31, 2023, as compared to $1.58 billion as of December 31, 2022 and $1.35 billion as of December 31, 2021. Loan Portfolio Our loans represent the largest portion of our earning assets.
Our loan portfolio is significantly affected by changes in the prime interest rate. For the three year period between January 1, 2020 and December 31, 2022, the prime rate fluctuated between a high of 7.50%, and a low of 3.25%.
The FED influences the general market rates of interest, including the deposit and loan rates offered by many financial institutions. Our loan portfolio is significantly affected by changes in the prime interest rate. For the three-year period between January 1, 2021 and December 31, 2023, the prime rate fluctuated between a high of 8.50%, and a low of 3.25%.
Noninterest Income The following table sets forth the major components of our noninterest income for the years ended December 31, 2022, 2021 and 2020: For the Years Ended For the Years Ended December 31, December 31, 2022 2021 $ Increase (Decrease) % Increase (Decrease) 2021 2020 $ Increase (Decrease) % Increase (Decrease) (Dollars in thousands) (Dollars in thousands) Noninterest income: Mortgage lending income $ 486 $ 435 $ 51 11.72 % $ 435 $ 175 $ 260 148.57 % Gain (Loss) on sales of available-for-sale debt securities (127 ) - (127 ) -100.00 % - Service charges on deposit accounts 900 550 350 63.64 % 550 442 108 24.43 % Other income and fees 1,680 1,265 415 32.81 % 1,265 1,048 217 20.71 % Total noninterest income $ 2,939 $ 2,250 $ 689 30.62 % $ 2,250 $ 1,665 $ 585 35.14 % 30 Table of Contents Noninterest Expense Noninterest expense for the year ended December 31, 2022 was $28.6 million compared to $20.4 million for the year ended December 31, 2021, an increase of $8.2 million or 40.4%.
Noninterest Income The following table sets forth the major components of our noninterest income for the years ended December 31, 2023, 2022 and 2021: For the Years Ended For the Years Ended December 31, December 31, 2023 2022 $ Increase (Decrease) % Increase (Decrease) 2022 2021 $ Increase (Decrease) % Increase (Decrease) (Dollars in thousands) (Dollars in thousands) Noninterest income: Mortgage lending income $ 331 $ 486 $ (155 ) -31.89 % $ 486 $ 435 $ 51 11.72 % Gain (Loss) on sales, prepayments, and calls of available-for-sale debt securities (16 ) (127 ) 111 -87.40 % (127 ) - (127 ) -100.00 % Service charges on deposit accounts 869 900 (31 ) -3.44 % 900 550 350 63.64 % Other 8,058 1,680 6,378 379.64 % 1,680 1,265 415 32.81 % Total noninterest income $ 9,242 $ 2,939 $ 6,303 214.46 % $ 2,939 $ 2,250 $ 689 30.62 % For the year ended December 31, 2023 compared to the year ended December 31, 2022: - Other noninterest income was $8.1 million compared to $1.7 million, an increase of $6.4 million, or 380%.
As of December 31 2022 2021 2020 Amount Percentage of Total Amount Percentage of Total Amount Percentage of Total (Dollars in thousands) Noninterest-bearing demand $ 439,409 30.8 % $ 366,705 30.1 % $ 246,569 27.2 % Interest-bearing transaction deposits 669,852 46.7 % 583,389 47.9 % 392,784 43.4 % Savings deposits 136,537 9.6 % 89,778 7.4 % 54,008 6.0 % Time deposits ($250,000 or less) 140,929 9.9 % 132,690 10.9 % 135,811 15.0 % Time deposits (more than $250,000) 42,573 3.0 % 44,909 3.7 % 76,342 8.4 % Total interest-bearing deposits 989,891 69.2 % 850,766 69.9 % 658,945 72.8 % Total deposits $ 1,429,300 100.0 % $ 1,217,471 100.0 % $ 905,514 100.0 % 40 Table of Contents The following table summarizes our average deposit balances and weighted average rates for the years ended December 31, 2022, 2021, and 2020: For the Year Ended December 31, 2022 2021 2020 Average Balance Weighted Average Rate Average Balance Weighted Average Rate Average Balance Weighted Average Rate (Dollars in thousands) Non interest-bearing demand $ 432,901 0.00 % $ 288,446 0.00 % $ 256,431 0.00 % Interest-bearing transaction deposits 613,798 1.11 % 375,048 0.34 % 318,713 1.50 % Savings deposits 110,818 0.92 % 55,220 0.23 % 58,806 0.56 % Time deposits 165,735 0.89 % 205,437 0.81 % 207,442 1.65 % Total interest-bearing deposits 890,351 1.05 % 635,705 0.48 % 584,961 1.05 % Total deposits $ 1,323,252 0.70 % $ 924,151 0.33 % $ 841,392 0.73 % The following tables set forth the maturity of time deposits as of the dates indicated below: As of December 31, 2022 Maturity Within: Three Months Three to Six Months Six to 12 Months After 12 Months Total (Dollars in thousands) Time deposits ($250,000 or less) $ 58,184 $ 25,333 $ 38,844 $ 18,568 $ 140,929 Time deposits (more than $250,000) 12,292 5,579 17,001 7,701 42,573 Total time deposits $ 70,476 $ 30,912 $ 55,845 $ 26,269 $ 183,502 As of December 31, 2021 Maturity Within: Three Months Three to Six Months Six to 12 Months After 12 Months Total (Dollars in thousands) Time deposits ($250,000 or less) $ 32,680 $ 37,016 $ 31,197 $ 31,797 $ 132,690 Time deposits (more than $250,000) 18,234 5,932 10,729 10,014 44,909 Total time deposits $ 50,914 $ 42,948 $ 41,926 $ 41,811 $ 177,599 Liquidity Liquidity refers to the measure of 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.
For the Year Ended December 31, 2023 2022 2021 Amount Percentage of Total Amount Percentage of Total Amount Percentage of Total (Dollars in thousands) Noninterest-bearing demand $ 482,349 30.4 % $ 441,509 30.9 % $ 366,705 30.1 % Interest-bearing transaction deposits 702,150 44.1 % 669,852 46.8 % 583,389 47.9 % Savings deposits 150,116 9.4 % 136,537 9.5 % 89,778 7.4 % Time deposits (less than $250,000) 168,690 10.6 % 140,929 9.8 % 132,690 10.9 % Time deposits ($250,000 or more) 88,086 5.5 % 42,573 3.0 % 44,909 3.7 % Total interest-bearing deposits 1,109,042 69.6 % 989,891 69.1 % 850,766 69.9 % Total deposits $ 1,591,391 100.0 % $ 1,431,400 100.0 % $ 1,217,471 100.0 % The following table summarizes our average deposit balances and weighted average rates for the years ended December 31, 2023, 2022, and 2021: For the Year Ended December 31, 2023 2022 2021 Average Balance Weighted Average Rate Average Balance Weighted Average Rate Average Balance Weighted Average Rate (Dollars in thousands) Non interest-bearing demand $ 433,603 0.00 % $ 432,901 0.00 % $ 288,446 0.00 % Interest-bearing transaction deposits 705,891 3.42 % 613,799 1.11 % 375,048 0.34 % Savings deposits 119,278 3.74 % 110,818 0.92 % 55,220 0.23 % Time deposits 256,672 4.06 % 165,735 0.89 % 205,437 0.81 % Total interest-bearing deposits 1,081,841 3.60 % 890,352 1.05 % 635,705 0.48 % Total deposits $ 1,515,444 2.57 % $ 1,323,253 0.70 % $ 924,151 0.33 % 35 Table of Contents The following tables set forth the maturity of time deposits as of the dates indicated below: 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 As of December 31, 2022 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) $ 58,184 $ 25,333 $ 38,844 $ 18,568 $ 140,929 Time deposits ($250,000 or more) 12,292 5,579 17,001 7,701 42,573 Total time deposits $ 70,476 $ 30,912 $ 55,845 $ 26,269 $ 183,502 Liquidity Liquidity refers to the measure of 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.
The following table sets forth the major components of our noninterest expense for the years ended December 31, 2022, 2021 and 2020: For the Years Ended For the Years Ended December 31, December 31, 2022 2021 $ Increase (Decrease) % Increase (Decrease) 2021 2020 $ Increase (Decrease) % Increase (Decrease) (Dollars in thousands) (Dollars in thousands) Noninterest expense: Salaries and employee benefits $ 17,040 $ 11,983 $ 5,057 42.20 % $ 11,983 $ 10,130 $ 1,853 18.29 % Furniture and equipment 1,468 883 585 66.25 % 883 868 15 1.73 % Occupancy 2,329 1,899 430 22.64 % 1,899 1,957 (58 ) -2.96 % Data and item processing 2,068 1,237 831 67.18 % 1,237 1,091 146 13.38 % Accounting, marketing, and legal fees 984 800 184 23.00 % 800 536 264 49.25 % Regulatory assessments 1,344 604 740 122.52 % 604 506 98 19.37 % Advertising and public relations 477 282 195 69.15 % 282 400 (118 ) -29.50 % Travel, lodging and entertainment 363 409 (46 ) -11.25 % 409 241 168 69.71 % Other expense 2,568 2,300 268 11.65 % 2,300 1,863 437 23.46 % Total noninterest expense $ 28,641 $ 20,397 $ 8,244 40.42 % $ 20,397 $ 17,592 $ 2,805 15.94 % For the year ended December 31, 2022 compared to the year ended December 31, 2021: - Salaries and employee benefits expense was $17.0 million compared to $12.0 million, an increase of $5.1 million, or 42.2%.
The following table sets forth the major components of our noninterest expense for the years ended December 31, 2023, 2022 and 2021: For the Years Ended For the Years Ended December 31, December 31, 2023 2022 $ Increase (Decrease) % Increase (Decrease) 2022 2021 $ Increase (Decrease) % Increase (Decrease) (Dollars in thousands) (Dollars in thousands) Noninterest expense: Salaries and employee benefits $ 17,385 $ 17,040 $ 345 2.02 % $ 17,040 $ 11,983 $ 5,057 42.20 % Furniture and equipment 995 1,468 (473 ) -32.22 % 1,468 883 585 66.25 % Occupancy 2,689 2,329 360 15.46 % 2,329 1,899 430 22.64 % Data and item processing 1,730 2,068 (338 ) -16.34 % 2,068 1,237 831 67.18 % Accounting, marketing, and legal fees 543 984 (441 ) -44.82 % 984 800 184 23.00 % Regulatory assessments 1,537 1,344 193 14.36 % 1,344 604 740 122.52 % Advertising and public relations 427 477 (50 ) -10.48 % 477 282 195 69.15 % Travel, lodging and entertainment 374 363 11 3.03 % 363 409 (46 ) -11.25 % Other expense 7,740 2,568 5,172 201.40 % 2,568 2,300 268 11.65 % Total noninterest expense $ 33,420 $ 28,641 $ 4,779 16.69 % $ 28,641 $ 20,397 $ 8,244 40.42 % For the year ended December 31, 2023 compared to the year ended December 31, 2022: - Other expense was $7.7 million compared to $2.6 million, an increase of $5.2 million, or 200%.
Analysis of Changes in Interest Income and Expenses For the Year Ended December 31, 2022 vs 2021 For the Year Ended December 31, 2021 vs 2020 Change due to: Change due to: Volume (1) Rate (1) Interest Variance Volume (1) Rate (1) Interest Variance (Dollars in thousands) (Dollars in thousands) Increase (decrease) in interest income: Short-term investments $ 10 $ 1,485 $ 1,495 $ 70 $ (585 ) $ (515 ) Debt securities 7,633 (5,303 ) 2,330 354 (211 ) 143 Total loans 14,635 4,000 18,635 5,260 (1,943 ) 3,317 Total increase (decrease) in interest income 22,278 182 22,460 5,684 (2,739 ) 2,945 Increase (decrease) in interest expense: Deposits: Transaction accounts 942 5,504 6,446 380 (1,713 ) (1,333 ) Time deposits (322 ) 145 (177 ) (33 ) (1,734 ) (1,767 ) Total interest-bearing deposits 620 5,649 6,269 347 (3,447 ) (3,100 ) Total increase (decrease) in interest expense 620 5,649 6,269 347 (3,447 ) (3,100 ) Increase (Decrease) in net interest income $ 21,657 $ (5,466 ) $ 16,191 $ 5,337 $ 708 $ 6,045 (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. 29 Table of Contents Weighted Average Yield of Debt Securities The following table summarizes the maturity distribution schedule with corresponding weighted average taxable equivalent yields of the debt securities portfolio at December 31, 2022.
Analysis of Changes in Interest Income and Expenses For the Year Ended December 31, 2023 vs 2022 For the Year Ended December 31, 2022 vs 2021 Change due to: Change due to: Volume (1) Rate (1) Interest Variance Volume (1) Rate (1) Interest Variance (Dollars in thousands) (Dollars in thousands) Increase (decrease) in interest income: Short-term investments $ 580 $ 6,327 $ 6,907 $ 10 $ 1,485 $ 1,495 Debt securities 61 387 448 7,633 (5,303 ) 2,330 Total loans 11,210 24,230 35,440 14,635 4,000 18,635 Total increase (decrease) in interest income 11,851 30,944 42,795 22,278 182 22,460 Increase (decrease) in interest expense: Deposits: Transaction accounts 1,086 19,654 20,740 942 5,504 6,446 Time deposits 809 8,127 8,936 (322 ) 145 (177 ) Total interest-bearing deposits 1,895 27,781 29,676 620 5,649 6,269 Total increase (decrease) in interest expense 1,895 27,781 29,676 620 5,649 6,269 Increase (Decrease) in net interest income $ 9,956 $ 3,163 $ 13,119 $ 21,658 $ (5,467 ) $ 16,191 (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. 25 Table of Contents Weighted Average Yield of Debt Securities The following table summarizes the maturity distribution schedule with corresponding weighted average taxable equivalent yields of the debt securities portfolio at December 31, 2023.
The following table presents the balance and associated percentage of each major category in our loan portfolio as of December 31, 2022, December 31, 2021 and December 31, 2020: As of December 31, 2022 2021 2020 Amount % of Total Amount % of Total Amount % of Total (Dollars in thousands) Construction & development $ 163,203 12.8 % $ 169,322 16.4 % $ 107,855 12.8 % 1-4 family real estate 76,928 6.0 % 62,971 6.1 % 29,079 3.5 % Commercial real estate - other 439,001 34.5 % 339,655 32.9 % 290,489 34.6 % Total commercial real estate 679,132 53.3 % 571,948 55.5 % 427,423 50.9 % Commercial & industrial 513,011 40.3 % 361,974 35.1 % 351,248 41.9 % Agricultural 66,145 5.2 % 73,010 7.1 % 50,519 6.0 % Consumer 14,949 1.2 % 24,046 2.3 % 9,898 1.2 % Gross loans 1,273,237 100.0 % 1,030,978 100.0 % 839,088 100.0 % Less: unearned income, net (2,781 ) (2,577 ) (2,475 ) Total Loans, net of unearned income 1,270,456 1,028,401 836,613 Less: Allowance for loan losses (14,734 ) (10,316 ) (9,639 ) Net loans $ 1,255,722 $ 1,018,085 $ 826,974 During the second quarter of 2020, we began originating loans to qualified small businesses under the PPP administered by the SBA under the provisions of the CARES Act.
The following table presents the balance and associated percentage of each major category in our loan portfolio as of December 31, 2023, December 31, 2022 and December 31, 2021: As of December 31 2023 2022 2021 Amount % of Total Amount % of Total Amount % of Total (Dollars in thousands) Construction & development $ 137,206 10.1 % $ 163,203 12.8 % $ 169,322 16.4 % 1-4 family real estate 100,576 7.4 % 76,928 6.0 % 62,971 6.1 % Commercial real estate - other 518,622 38.0 % 439,001 34.5 % 339,655 32.9 % Total commercial real estate 756,404 55.5 % 679,132 53.3 % 571,948 55.5 % Commercial & industrial 526,185 38.5 % 513,011 40.3 % 361,974 35.1 % Agricultural 66,495 4.9 % 66,145 5.2 % 73,010 7.1 % Consumer 14,517 1.1 % 14,949 1.2 % 24,046 2.3 % Gross loans 1,363,601 100.0 % 1,273,237 100.0 % 1,030,978 100.0 % Less: unearned income, net (2,762 ) (2,781 ) (2,577 ) Total Loans, net of unearned income 1,360,839 1,270,456 1,028,401 Less: Allowance for credit losses (19,691 ) (14,734 ) (10,316 ) Net loans $ 1,341,148 $ 1,255,722 $ 1,018,085 We have established internal concentration limits in the loan portfolio for CRE loans, hospitality loans, energy loans, and construction loans, among others.
Results of Operations Years Ended December 31, 2022, December 31, 2021, and December 31, 2020 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. 27 Table of Contents Net Interest Margin For the Year Ended December 31, 2022 2021 2020 Average Balance Interest Income/ Expense Average Yield/ Rate 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 $ 129,624 $ 1,673 1.29 % $ 126,136 $ 178 0.25 % $ 116,295 $ 828 0.71 % Debt securities, taxable 145,915 2,313 1.59 4,663 312 3.84 1,123 36 3.21 Debt securities, tax exempt (1) 21,635 360 1.66 1,852 31 1.62 - - - Loans held for sale 586 - - 318 - - 244 - - Total loans (2) 1,143,380 74,403 6.51 905,804 55,768 6.16 823,228 52,450 6.37 Total interest-earning assets 1,441,140 78,749 5.46 1,038,773 56,289 5.42 940,890 53,314 5.67 Noninterest-earning assets 23,532 7,361 8,067 Total assets $ 1,464,672 $ 1,046,134 $ 948,957 Funding sources: Interest-bearing liabilities: Deposits: Transaction accounts $ 724,617 7,842 1.08 % $ 430,268 1,396 0.32 % $ 377,519 2,729 0.72 % Time deposits 165,735 1,480 0.89 205,437 1,657 0.81 207,442 3,424 1.65 Total interest-bearing deposits 890,352 9,322 1.05 635,705 3,053 0.48 584,961 6,153 1.05 Total interest-bearing liabilities 890,352 9,322 1.05 635,705 3,053 0.48 584,961 6,153 1.05 Noninterest-bearing liabilities: Noninterest-bearing deposits 432,901 288,446 256,431 Other noninterest-bearing liabilities 7,520 4,930 5,206 Total noninterest-bearing liabilities 440,421 293,376 261,637 Shareholders’ equity 133,899 117,053 102,359 Total liabilities and shareholders’ equity $ 1,464,672 $ 1,046,134 $ 948,957 Net interest income $ 69,427 $ 53,236 $ 47,161 Net interest spread 4.42 % 4.94 % 4.61 % Net interest margin 4.82 % 5.12 % 5.01 % (1) Taxable-equivalent yield of 2.20% as of December 31, 2022, applying a 24.5% effective tax rate (2) Average loan balances include monthly average nonaccrual loans of $8.8 million, $12.6 million and $11.3 million for the years ended December 31, 2022, 2021 and 2020, respectively.
Net Interest Margin For the Year Ended December 31, 2023 2022 2021 Average Balance Interest Income/ Expense Average Yield/ Rate 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 $ 174,600 $ 8,580 4.91 % $ 129,624 $ 1,673 1.29 % $ 126,136 $ 178 0.25 % Debt securities, taxable 152,094 2,791 1.84 145,915 2,313 1.59 4,663 312 3.84 Debt securities, tax exempt (1) 19,430 330 1.70 21,635 360 1.66 1,852 31 1.62 Loans held for sale 158 - - 586 - - 318 - - Total loans (2) 1,315,578 109,843 8.35 1,143,380 74,403 6.51 905,804 55,768 6.16 Total interest-earning assets 1,661,860 121,544 7.31 1,441,140 78,749 5.46 1,038,773 56,289 5.42 Noninterest-earning assets 25,943 23,532 7,361 Total assets $ 1,687,803 $ 1,464,672 $ 1,046,134 Funding sources: Interest-bearing liabilities: Deposits: Transaction accounts $ 825,169 28,582 3.46 % $ 724,617 7,842 1.08 % $ 430,268 1,396 0.32 % Time deposits 256,672 10,416 4.06 165,735 1,480 0.89 205,437 1,657 0.81 Total interest-bearing deposits 1,081,841 38,998 3.60 890,352 9,322 1.05 635,705 3,053 0.48 Total interest-bearing liabilities 1,081,841 38,998 3.60 890,352 9,322 1.05 635,705 3,053 0.48 Noninterest-bearing liabilities: Noninterest-bearing deposits 433,603 432,901 288,446 Other noninterest-bearing liabilities 10,423 7,520 4,930 Total noninterest-bearing liabilities 444,026 440,421 293,376 Shareholders' equity 161,936 133,899 117,053 Total liabilities and shareholders' equity $ 1,687,803 $ 1,464,672 $ 1,046,134 Net interest income $ 82,546 $ 69,427 $ 53,236 Net interest spread 3.71 % 4.42 % 4.94 % Net interest margin 4.97 % 4.82 % 5.12 % (1) Taxable-equivalent yield of 2.24% as of December 31, 2023, applying a 24.0% effective tax rate (2) Average loan balances include monthly average nonaccrual loans of $18.8 million, $8.8 million and $12.6 million for the years ended December 31, 2023, 2022 and 2021, respectively.
As of December 31, 2022 2021 2020 (Dollars in thousands) Nonaccrual loans $ 8,039 $ 9,885 $ 14,575 Troubled-debt restructurings (1) - - - Accruing loans 90 or more days past due 9,941 496 1,960 Total nonperforming loans 17,980 10,381 16,535 Other real estate owned - - - Total nonperforming assets $ 17,980 $ 10,381 $ 16,535 Ratio of nonperforming loans to total loans 1.42 % 1.01 % 1.98 % Ratio of nonaccrual loans to total loans 0.63 % 0.96 % 1.74 % Ratio of allowance for loan losses to total loans 1.16 % 1.00 % 1.15 % Ratio of allowance for loan losses to nonaccrual loans 183.28 % 104.36 % 66.13 % Ratio of nonperforming assets to total assets 1.13 % 0.77 % 1.63 % (1) $1.2 million, $1.4 million and $12.98 million of TDRs as of December 31, 2022, 2021 and 2020, respectively. 36 Table of Contents The following tables present an aging analysis of loans as of the dates indicated.
As of December 31, 2023 2022 2021 (Dollars in thousands) Nonaccrual loans (1) $ 18,941 $ 8,039 $ 9,885 Accruing loans 90 or more days past due 10,026 9,941 496 Total nonperforming assets $ 28,967 $ 17,980 $ 10,381 Ratio of nonperforming loans to total loans 2.13 % 1.42 % 1.01 % Ratio of nonaccrual loans to total loans 1.39 % 0.63 % 0.96 % Ratio of allowance for credit losses to total loans 1.45 % 1.16 % 1.00 % Ratio of allowance for credit losses to nonaccrual loans 103.96 % 183.28 % 104.36 % Ratio of nonperforming assets to total assets 1.64 % 1.13 % 0.77 % (1) Includes $10.12 million of loans modified to borrowers experiencing financial difficulty, see Note 6 of the financial statements. 32 Table of Contents The following tables present an aging analysis of loans as of the dates indicated.
This action by the Federal Reserve followed a prior reduction of the targeted federal funds rates to a range of 1.0% to 1.25% effective March 4, 2020. As the pandemic eased through 2021 and inflation increased, the Federal Reserve aggressively raised the federal funds target rate to 4.25-4.50% by the end of 2022.
This action by the Federal Reserve followed a prior reduction of the targeted federal funds rates to a range of 1.0% to 1.25% effective March 4, 2020.
Interest income on short-term investments decreased $515,000, or 62.2%, to $313,000 for year ended December 31, 2021 compared to 2020, due to yield decrease of 46 basis points. Interest expense on interest-bearing deposits totaled $9.3 million for the year ended December 31, 2022, compared to $3.1 million for 2021, an increase of $6.2 million, or 205.3%.
Interest income on short-term investments increased $1.5 million, or 839.9%, to $1.7 million for year ended December 31, 2022 compared to 2021, due to yield increase of 104 basis points. Interest expense on interest-bearing deposits totaled $39.0 million for the year ended December 31, 2023, compared to $9.3 million for 2022, an increase of $29.7 million, or 318.3%.
Loans accounted for on a nonaccrual basis were $8.0 million as of December 31, 2022, $9.9 million as of December 31, 2021 and $14.6 million as of December 31, 2020. OREO was $0 as of December 31, 2022, December 31, 2021 and December 31, 2020. The following table presents information regarding nonperforming assets as of the dates indicated.
Nonperforming assets consist of nonperforming loans plus OREO. Loans accounted for on a nonaccrual basis were $21.2 million as of December 31, 2023, $8.0 million as of December 31, 2022 and $9.9 million as of December 31, 2021. OREO was $0 as of December 31, 2023, December 31, 2022 and December 31, 2021.
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 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.
The impairment amount on a collateral dependent loan is charged off to the allowance if deemed not collectible and the impairment amount on a loan that is not collateral dependent is set up as a specific reserve. 35 Table of Contents In cases where a borrower experiences financial difficulties and we make certain concessionary modifications to contractual terms, the loan is classified as a TDR.
The impairment amount on a collateral dependent loan is charged off to the allowance if deemed not collectible and the impairment amount on a loan that is not collateral dependent is set up as a specific reserve.
Net interest margin for the years ended December 31, 2022, 2021 and 2020 was 4.82%, 5.12% and 5.01%, respectively. The following table sets forth the effects of changing rates and volumes on our net interest income during the period shown.
The following table sets forth the effects of changing rates and volumes on our net interest income during the period shown.
Total shareholders’ equity increased to $144.1 million as of December 31, 2022, compared to $127.4 million as of December 31, 2021 and $107.3 million as of December 31, 2020. The increases were driven by retained capital from net income during the periods.
Total shareholders’ equity increased to $170.3 million as of December 31, 2023, compared to $144.1 million as of December 31, 2022 and $127.4 million as of December 31, 2021.
These actions positively impacted growth in net interest income in 2022 but the higher rates could negatively impact loan customers in a slowing economy. 2022 Highlights For the year ended December 31, 2022, we reported pre-tax net income of $39.3 million, an increase of $8.3 million, or 27.0% compared to pre-tax net income of $30.9 million for the year ended December 31, 2021.
These actions positively impacted growth in net interest income in for 2023 and 2022, but the higher rates could negatively impact loan customers in a slowing economy. 2023 Overview We reported total loans of $1.36 billion as of December 31, 2023, an increase of $90.4 million, or 7.1%, from December 31, 2022.
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.
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.
Outstanding loan balances categorized by internal risk grades as of the periods indicated are summarized as follows: As of December 31, 2022 Pass Watch Special mention Substandard Total (Dollars in thousands) Construction & development $ 163,203 $ - $ - $ - $ 163,203 1-4 family real estate 76,928 - - - 76,928 Commercial real estate - Other 397,295 14,976 24,747 1,983 439,001 Commercial & industrial 493,412 - 584 19,015 513,011 Agricultural 65,857 288 - - 66,145 Consumer 14,927 - - 22 14,949 Total $ 1,211,622 $ 15,264 $ 25,331 $ 21,020 $ 1,273,237 As of December 31, 2021 Pass Watch Special mention Substandard Total (Dollars in thousands) Construction & development $ 169,322 $ - $ - $ - $ 169,322 1-4 family real estate 62,971 - - - 62,971 Commercial real estate - Other 282,268 14,976 27,112 15,299 339,655 Commercial & industrial 341,661 4,658 6,300 9,355 361,974 Agricultural 72,295 255 460 - 73,010 Consumer 24,000 - - 46 24,046 Total $ 952,517 $ 19,889 $ 33,872 $ 24,700 $ 1,030,978 As of December 31, 2020 Pass Watch Special mention Substandard Total (Dollars in thousands) Construction & development $ 107,855 $ - $ - $ - $ 107,855 1-4 family real estate 28,711 368 - - 29,079 Commercial real estate - Other 248,194 24,155 10,086 8,054 290,489 Commercial & industrial 328,656 7,691 300 14,601 351,248 Agricultural 50,051 - - 468 50,519 Consumer 9,898 - - - 9,898 Total $ 773,365 $ 32,214 $ 10,386 $ 23,123 $ 839,088 38 Table of Contents Troubled Debt Restructurings TDRs are defined as those loans in which a bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider.
Outstanding loan balances categorized by internal risk grades as of the periods indicated are summarized as follows: 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 As of December 31, 2022 Pass Watch Special mention Substandard Total (Dollars in thousands) Construction & development $ 163,203 $ - $ - $ - $ 163,203 1-4 family real estate 76,928 - - - 76,928 Commercial real estate - Other 397,295 14,976 24,747 1,983 439,001 Commercial & industrial 493,412 - 584 19,015 513,011 Agricultural 65,857 288 - - 66,145 Consumer 14,927 - - 22 14,949 Total $ 1,211,622 $ 15,264 $ 25,331 $ 21,020 $ 1,273,237 As of December 31, 2021 Pass Watch Special mention Substandard Total (Dollars in thousands) Construction & development $ 169,322 $ - $ - $ - $ 169,322 1-4 family real estate 62,971 - - - 62,971 Commercial real estate - Other 282,268 14,976 27,112 15,299 339,655 Commercial & industrial 341,661 4,658 6,300 9,355 361,974 Agricultural 72,295 255 460 - 73,010 Consumer 24,000 - - 46 24,046 Total $ 952,517 $ 19,889 $ 33,872 $ 24,700 $ 1,030,978 34 Table of Contents Deposits We gather deposits primarily through our twelve branch locations and online though our website.
Contractual Obligations The following tables contain supplemental information regarding our total contractual obligations as of December 31, 2022: Payments Due as of December 31, 2022 Within One Year One to Three Years Three to Five Years After Five Years Total (Dollars in thousands) Deposits without a stated maturity $ 1,245,798 $ - $ - $ - $ 1,245,798 Time deposits 157,233 26,002 267 - 183,502 Operating lease commitments 532 815 453 530 2,330 Total contractual obligations $ 1,403,563 $ 26,817 $ 720 $ 530 $ 1,431,630 We believe that we will be able to meet our contractual obligations as they come due through the maintenance of adequate cash levels.
The increases were driven by retained capital from net income during the periods. 38 Table of Contents Contractual Obligations The following tables contain supplemental information regarding our total contractual obligations as of December 31, 2023: 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.
Treasuries - - 98,168 1.18 2,492 1.11 - - 100,660 1.18 Corporate debt securities - - - - 4,934 3.36 - - 4,933 3.36 Total $ 2,615 1.53 % $ 123,014 1.17 % $ 22,571 1.78 % $ 24,965 1.66 % $ 173,165 1.34 % Percentage of total 1.51 % 71.04 % 13.03 % 14.42 % 100.00 % *Yield is on a taxable-equivalent basis using 21% tax rate Provision for Loan Losses For the year ended December 31, 2022 compared to the year ended December 31, 2021: - The provision for loan losses increased from $4.2 million to $4.5 million; and - The allowance as a percentage of loans increased by 16 basis points to 1.16%.
Treasuries 99,325 1.19 2,780 1.04 2,552 1.12 - - 104,657 1.18 Corporate debt securities - - - - 4,337 3.36 - - 4,337 3.36 Total $ 105,669 1.18 % $ 24,360 1.29 % $ 17,450 1.97 % $ 22,008 1.71 % $ 169,487 1.36 % Percentage of total 62.35 % 14.36 % 10.30 % 12.99 % 100.00 % *Yield is on a taxable-equivalent basis using 21% tax rate Provision for Credit Losses For the year ended December 31, 2023 compared to the year ended December 31, 2022: - The provision for credit losses increased from $4.5 million to $21.1 million; and - The allowance as a percentage of loans increased by 29 basis points to 1.44%. - Increases are related to the single loan customer discussed in the 2023 Overview.
The following is a discussion of the critical accounting policies and significant estimates that we believe require us to make the most complex or subjective decisions or assessments. Additional information about these policies can be found in Note 1 of the Company’s consolidated financial statements included in the Annual Report on the Form 10-K.
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.
The decrease was related to the cost of interest-bearing deposits decreasing to 0.48% for the year ended December 31, 2021 from 1.05% for the year ended December 31, 2020, which was related to the aforementioned changes in market interest rates related to the pandemic.
The increase was related to the cost of interest-bearing deposits increasing to 1.05% for the year ended December 31, 2022 from 0.48% for the year ended December 31, 2021. Net interest margin for the years ended December 31, 2023, 2022 and 2021 was 4.97%, 4.82% and 5.12%, respectively.
The increase was primarily related to an increase in interest earning assets. For the year ended December 31, 2022, average loans totaled $1.14 billion, an increase of $237.6 million or 26.2%, from December 31, 2021.
Total deposits were $1.59 billion as of December 31, 2023, an increase of $160.0 million, or 11.2%, from December 31, 2022. Pre-tax net income was $37.2 million, a decrease of $2.0 million, or 5.2%, for the year ended December 31, 2023 as compared to pre-tax net income of $39.3 million for the same period in 2022.
Removed
As of December 31, 2022, total loans were $1.27 billion, an increase of $242.1 million, or 23.5%, from December 31, 2021. Total deposits were $1.43 billion as of December 31, 2022, an increase of $211.8 million, or 17.4%, from December 31, 2021.
Added
As the pandemic eased through 2021 and inflation increased, the Federal Reserve aggressively raised the federal funds target rate to 4.25-4.50% by the end of 2022 and to 5.25%-5.50% by the end of 2023.
Removed
For the year ended December 31, 2021 compared to the year ended December 31, 2020: - Total interest income on loans increased $3.3 million, or 6.3%, to $55.8 million, which was attributable to a $82.6 million increase in the average balance of loans to $905.8 million during the year ended 2021 as compared with the average balance of $823.2 million for the year ended 2020; - Loan fees totaled $7.8 million, an increase of $2.8 million or 54.7%. $949,000 of the increase was due to PPP fee income recognized; - Yields on our interest-earning assets totaled 5.42%, a decrease of 25 basis points which was attributable to lower loan rates and a decrease in yield on short term investments of 46 basis points, both were primarily impacted by the aforementioned changes in market interest rates related to the pandemic; and - Net interest margin for the years ended 2021 and 2020 was 5.12% and 5.01%, respectively. 28 Table of Contents The FED influences the general market rates of interest, including the deposit and loan rates offered by many financial institutions.
Added
The provision for credit losses for the year ended December 31, 2023 increased $16.7 million, or 373.5%, from $4.5 million compared to the same period in 2022.
Removed
Federal agencies $ 11 2.62 % $ 176 1.83 % $ 955 1 % $ - 0 % $ 1,142 1.21 % Mortgage-backed securities 500 1.17 9,599 0.96 3,541 1.30 24,434 1.66 38,074 1.45 State and political subdivisions 2,104 1.61 15,070 1.24 10,650 1.44 531 1.48 28,356 1.35 U.S.
Added
During the year ended December 31, 2023, we had a single loan customer file for bankruptcy, and as a result, we recorded a charge-off of $16.5 million, increased nonaccrual loans by $18.4 million, and recorded an additional specific reserve to the allowance for credit losses and provision for loan losses of $2.0 million.
Removed
The increase was attributable to overall increases in compensation to remain competitive, and due to our acquisition of Cornerstone Bank in late 2021, which increased employee headcount.
Added
See Note (6) of the financial statements for further disclosure and discussion. 23 Table of Contents Results of Operations Years Ended December 31, 2023, December 31, 2022, and December 31, 2021 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.
Removed
Included in our commercial & industrial balance at December 31, 2022 and 2021, are $2.6 million and $18.7 million of PPP loans, respectively. We have established internal concentration limits in the loan portfolio for CRE loans, hospitality loans, energy loans, and construction loans, among others. All loan types are within our established limits.
Added
Federal agencies $ 33 2.29 % $ 102 2.89 % $ - 0 % $ - 0 % $ 135 2.74 % Mortgage-backed securities 483 1.03 9,685 1.32 2,470 1.54 21,864 1.71 34,502 1.59 State and political subdivisions 5,828 1.08 11,793 1.32 8,091 1.52 144 1.66 25,856 1.34 U.S.
Removed
Included in certain loan categories of impaired loans are TDRs on which we have granted certain material concessions to the borrower as a result of the borrower experiencing financial difficulties.
Added
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. 26 Table of Contents Noninterest Expense Noninterest expense for the year ended December 31, 2023 was $33.4 million compared to $28.6 million for the year ended December 31, 2022, an increase of $4.8 million or 16.7%.
Removed
The concessions granted by us may include, but are not limited to: (1) a modification in which the maturity date, timing of payments or frequency of payments is modified, (2) an interest rate lower than the current market rate for new loans with similar risk, or (3) a combination of the first two concessions.
Added
The increase was primarily attributable to expenses related to the operation of oil and gas assets acquired during the fourth quarter of 2023, see Note 2 of the financial statements.
Removed
If a borrower on a restructured accruing loan has demonstrated performance under the previous terms, is not experiencing financial difficulty and shows the capacity to continue to perform under the restructured terms, the loan will remain on accrual status.
Added
The following table presents information regarding nonperforming assets as of the dates indicated.
Removed
Otherwise, the loan will be placed on nonaccrual status until the borrower demonstrates a sustained period of performance, which generally requires six consecutive months of payments. Loans identified as TDRs are evaluated for impairment using the present value of the expected cash flows or the estimated fair value of the collateral, if the loan is collateral dependent.
Added
We also participate in the One-Way Buy Insured Cash Sweep service and similar services, which provide for one-way buy transactions among banks for the purpose of purchasing cost-effective floating-rate funding without collateralization or stock purchase requirements. As of December 31, 2023, 2022, and 2021 brokered deposits were $273.5 million, $249.9 million, and $71.7 million, respectively.
Removed
The fair value is determined, when possible, by an appraisal of the property less estimated costs related to liquidation of the collateral. The appraisal amount may also be adjusted for current market conditions.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

121 edited+147 added−42 removed103 unchanged
Biggest changeNotes to Consolidated Financial Statements The following table presents the Company’s loan portfolio aging analysis of the recorded investment in loans as of December 31, 2022 and December 31, 2021 (dollars in thousands): Past Due 30–59 Days 60–89 Days Greater than 90 Days Total Current Total Loans Total Loans > 90 Days & Accruing December 31, 2022 Construction & development $ - $ - $ - $ - $ 163,203 $ 163,203 $ - 1 - 4 family real estate - - - - 76,928 76,928 - Commercial real estate - other - 617 - 617 438,384 439,001 - Commercial & industrial (1) 21 - 9,923 9,944 503,067 513,011 9,923 Agricultural 4 - - 4 66,141 66,145 - Consumer 291 82 22 395 14,554 14,949 18 Total $ 316 $ 699 $ 9,945 $ 10,960 $ 1,262,277 $ 1,273,237 $ 9,941 (1) The $9.92 million that is greater than 90 days past due consists of a single loan that is well collateralized and for which collection is being diligently pursued.
Biggest changeNotes to Consolidated Financial Statements The following table presents the credit risk profile of the Company’s loan portfolio based on internal rating category, prior to the adoption of ASU 2016-13, as of December 31, 2022 (dollars in thousands): Construction & Development 1 - 4 Family Real Estate Commercial Real Estate - Other Commercial & Industrial Agricultural Consumer Total December 31, 2022 Grade 1 (Pass) $ 163,203 $ 76,928 $ 397,295 $ 493,412 $ 65,857 $ 14,927 $ 1,211,622 2 (Watch) - - 14,976 - 288 - 15,264 3 (Special Mention) - - 24,747 584 - - 25,331 4 (Substandard) - - 1,983 19,015 - 22 21,020 Total $ 163,203 $ 76,928 $ 439,001 $ 513,011 $ 66,145 $ 14,949 $ 1,273,237 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 December 31, 2023 and December 31, 2022 (dollars in thousands): Past Due Total Loans 30–59 Days 60–89 Days Greater than 90 Days Total Current Total Loans > 90 Days & Accruing 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 December 31, 2022 Construction & development $ - $ - $ - $ - $ 163,203 $ 163,203 $ - 1 - 4 family real estate - - - - 76,928 76,928 - Commercial real estate - other - 617 - 617 438,384 439,001 - Commercial & industrial (1) 21 - 9,923 9,944 503,067 513,011 9,923 Agricultural 4 - - 4 66,141 66,145 - Consumer 291 82 22 395 14,554 14,949 18 Total $ 316 $ 699 $ 9,945 $ 10,960 $ 1,262,277 $ 1,273,237 $ 9,941 (1) The $9.95 m illi on and $ 9.92 million that is greater than 90 days past due as of December 31, 2023 and December 31, 2022, respectively, primarily consists of a single borrower that is well collateralized and for which collection is being diligently pursued .
The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay and estimated value of any underlying collateral and prevailing economic conditions.
The allowance for credit losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay and estimated value of any underlying collateral and prevailing economic conditions.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2022 and 2021 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2023 and 2022 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America.
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. 47 Table of Contents On a quarterly basis, we run various simulation models including a static balance sheet and dynamic growth balance sheet.
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. 42 Table of Contents On a quarterly basis, we run various simulation models including a static balance sheet and dynamic growth balance sheet.
No asset impairment was recognized during the years ended December 31, 2022, 2021, and 2020. Foreclosed Assets Held for Sale Foreclosed assets held for sale consist of assets acquired through, or in lieu of, loan foreclosure and are initially recorded at fair value, less cost to sell at the date of foreclosure, establishing a new cost basis.
No asset impairment was recognized during the years ended December 31, 2023, 2022, and 2021. Foreclosed Assets Held for Sale Foreclosed assets held for sale consist of assets acquired through, or in lieu of, loan foreclosure and are initially recorded at fair value, less cost to sell at the date of foreclosure, establishing a new cost basis.
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. 48 Table of Contents Item 8 .
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. 43 Table of Contents Item 8 .
Notes to Consolidated Financial Statements Note 5: Debt Securities The following table summarizes the amortized cost and fair value of debt securities available-for-sale at December 31, 2022 and December 31, 2021, and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income: (in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Available-for-sale as of December 31, 2022 U.S.
Notes to Consolidated Financial Statements Note 5: Debt Securities The following table summarizes the amortized cost and fair value of debt securities available-for-sale at December 31, 2023 and December 31, 2022, and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income: (in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Available-for-sale as of December 31, 2023 U.S.
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. 69 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements Loan grades are numbered 1 through 4. Grade 1 is considered satisfactory.
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. 72 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements Loan grades are numbered 1 through 4. Grade 1 is considered satisfactory.
Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize all benefits related to these deductible differences as of December 31, 2022.
Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize all benefits related to these deductible differences as of December 31, 2023.
As of December 31, 2022, the Company’s and the Bank’s capital ratios exceeded the minimum capital adequacy guideline percentage requirements under the Basel III Capital Rules on a fully phased-in basis. The Bank is subject to certain restrictions on the amount of dividends that it may declare without prior regulatory approval.
As of December 31, 2023, 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.
The calculation of all types of regulatory capital is subject to definitions, deductions and adjustments specified in the regulations. 80 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements The Basel III Capital Rules also require a “capital conservation buffer” of 2.5% above the regulatory minimum risk-based capital requirements.
The calculation of all types of regulatory capital is subject to definitions, deductions and adjustments specified in the regulations. 86 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements The Basel III Capital Rules also require a “capital conservation buffer” of 2.5% above the regulatory minimum risk-based capital requirements.
As of December 31, 2022, the Company had the ability and intent to hold the debt securities classified as available-for-sale for a period of time sufficient for a recovery of cost. The unrealized losses are due to increases in market interest rates over the yields available at the time the underlying debt securities were purchased and acquired.
As of December 31, 2023, 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 and acquired.
In addition, payroll and office sharing arrangements were in place between the Company and certain of its affiliates. 81 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements Note 15: Employee Benefits 401(k) Savings Plan The Company has a retirement savings 401(k) plan covering substantially all employees.
In addition, payroll and office sharing arrangements were in place between the Company and certain of its affiliates. 87 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements Note 15: Employee Benefits 401(k) Savings Plan The Company has a retirement savings 401(k) plan covering substantially all employees.
Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method. They are included in noninterest income or expense and, when applicable, are reported as a reclassification adjustment in other comprehensive income. 55 Table of Contents Bank7 Corp.
Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method. They are included in noninterest income or expense and, when applicable, are reported as a reclassification adjustment in other comprehensive income. 52 Table of Contents Bank7 Corp.
Management believes, as of December 31, 2022, that the Company and Bank meet all capital adequacy requirements to which it is subject and maintains capital conservation buffers that allow the Company and Bank to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to certain executive officers.
Management believes, as of December 31, 2023, 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.
Specifically, a bank may exclude all PPP loans pledged as collateral to the PPP Facility from its average total consolidated assets for the purposes of calculating its leverage ratio, while PPP loans that are not pledged as collateral to the PPP Facility will be included. 79 Table of Contents Bank7 Corp.
Specifically, a bank may exclude all PPP loans pledged as collateral to the PPP Facility from its average total consolidated assets for the purposes of calculating its leverage ratio, while PPP loans that are not pledged as collateral to the PPP Facility will be included. 85 Table of Contents Bank7 Corp.
Interchange fees are settled and recognized on a daily or monthly basis. Interchange fees are included with noninterest income and recorded net of related expenses as the Bank acts as an agent, introducing the customer transactions to the processor. 59 Table of Contents Bank7 Corp.
Interchange fees are settled and recognized on a daily or monthly basis. Interchange fees are included with noninterest income and recorded net of related expenses as the Bank acts as an agent, introducing the customer transactions to the processor. 58 Table of Contents Bank7 Corp.
Notes to 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 December 31, 2022 and December 31, 2021.
Notes to 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 December 31, 2023 and December 31, 2022.
For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The Company recognizes interest accrued and penalties related to unrecognized tax benefits in tax expense. During the years ended December 31, 2022, 2021 and 2020, the Company recognized no interest and penalties.
For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The Company recognizes interest accrued and penalties related to unrecognized tax benefits in tax expense. During the years ended December 31, 2023, 2022 and 2021, the Company recognized no interest and penalties.
As of December 31, 2022, the most recent notification from the Federal Deposit Insurance Corporation (FDIC) categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain capital ratios as set forth in the table.
As of December 31, 2023, 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.
Note 12: Advances and Borrowings The Bank has a blanket floating lien security agreement with a maximum borrowing capacity of $129.2 million at December 31, 2022, with the FHLB, under which the Bank is required to maintain collateral for any advances, including its stock in the FHLB, as well as qualifying first mortgage and other loans.
Note 12: Advances and Borrowings The Bank has a blanket floating lien security agreement with a maximum borrowing capacity of $159.2 million and $129.2 million at December 31, 2023 December 31, 2022, respectively, with the FHLB, under which the Bank is required to maintain collateral for any advances, including its stock in the FHLB, as well as qualifying first mortgage and other loans.
(the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively, referred to as the “financial statements”).
(“Company”) as of December 31, 2023 and 2022, the related consolidated statements of comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”).
Notes to Consolidated Financial Statements The provision for income taxes for the years ended December 31, 2022, 2021 and 2020 differs from the federal rate of 21% due to the following: Year Ended December 31, 2022 2021 2020 Statutory U.S.
Notes to Consolidated Financial Statements The provision for income taxes for the years ended December 31, 2023, 2022 and 2021 differs from the federal rate of 21% due to the following: Year Ended December 31, 2023 2022 2021 Statutory U.S.
The Company does not have any net operating loss or tax credit carryforwards as of December 31, 2022. The Company is not presently under examination by the Internal Revenue Service or any state tax authority.
The Company does not have any net operating loss or tax credit carryforwards as of December 31, 2023. The Company is not presently under examination by the Internal Revenue Service or any state tax authority.
Rental expense on all operating leases, including those rented on a monthly or temporary basis were as follows (Dollars in thousands): Year Ending December 31: 2022 $ 777 2021 799 2020 837 As of December 31, 2022, a right of use lease asset included in interest receivable and other assets on the balance sheet totaled $2.0 million, and a related lease liability included in accrued interest payable and other liabilities on the balance sheet totaled $2.1 million.
Rental expense on all operating leases, including those rented on a monthly or temporary basis were as follows (Dollars in thousands): Year Ending December 31: 2023 $ 1,001 2022 777 2021 799 As of December 31, 2023, a right of use lease asset included in interest receivable and other assets on the balance sheet totaled $2.0 million, and a related lease liability included in accrued interest payable and other liabilities on the balance sheet totaled $2.0 million.
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, 2022 U.S.
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.
The Company grants to employees and directors restricted stock units (RSUs) which vest ratably over either three or five years and stock options which vest ratably over four years. All RSUs and stock options are granted at the fair value of the common stock at the time of the award.
The 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.
On October 28, 2021, the Company adopted a new Repurchase Plan (the “New RP”) that authorizes the repurchase of up to 750,000 shares of the Company’s stock. Stock repurchases under the New RP will take place pursuant to a Rule 10b5-1 Plan with pricing and purchasing parameters established by management. There were no repurchases as of December 31, 2022.
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 as of December 31, 2023.
At December 31, 2022, goodwill of $8.6 million was recorded on the consolidated balance sheet. 89 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements Note 19: Operating Leases Lessee On January 1, 2022, the Company adopted ASU No. 2016-02, Leases (Topic 842), which requires the recognition of the Company’s operating leases on its balance sheet.
At December 31, 2023, goodwill of $8.5 million was recorded on the consolidated balance sheet. 93 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements Note 19: Operating Leases Lessee On January 1, 2022, the Company adopted ASU No. 2016-02, Leases (Topic 842), which requires the recognition of the Company’s operating leases on its balance sheet.
Employees may contribute up to the maximum legal limit with the Bank matching up to 5% of the employee’s salary. Employer contributions charged to expense for the years ended December 31, 2022, 2021 and 2020 totaled $366,000, $267,000 and $230,000, respectively.
Employees may contribute up to the maximum legal limit with the Bank matching up to 5% of the employee’s salary. Employer contributions charged to expense for the years ended December 31, 2023, 2022 and 2021 totaled $399,000, $366,000 and $267,000, respectively.
Goodwill and Intangible Assets Intangible assets totaled $1.3 million and goodwill, net of accumulated amortization totaled $8.6 million for the year ended December 31, 2022, compared to intangible assets of $1.6 million and goodwill, net of accumulated amortization of $8.5 million for the year ended December 31, 2021.
Goodwill and Intangible Assets Intangible assets totaled $1.0 million and goodwill, net of accumulated amortization totaled $8.5 million for the year ended December 31, 2023, compared to intangible assets of $1.3 million and goodwill, net of accumulated amortization of $8.6 million for the year ended December 31, 2022.
The Company evaluates the definitions of loan grades and the allowance for loan losses methodology on an ongoing basis. No changes were made to either during the period ended December 31, 2022. 70 Table of Contents Bank7 Corp.
The Company evaluates the definitions of loan grades and the allowance for loan losses methodology on an ongoing basis. No changes were made to either during the period ended December 31, 2023. 73 Table of Contents Bank7 Corp.
A summary of the activity under the RP is as follows: Year Ended December 31, 2022 2021 Number of shares repurchased - - Average price of shares repurchased $ - $ - Shares remaining to be repurchased 750,000 750,000 78 Table of Contents Bank7 Corp.
A summary of the activity under the RP is as follows: Year Ended December 31, 2023 2022 Number of shares repurchased - - Average price of shares repurchased $ - $ - Shares remaining to be repurchased 750,000 750,000 84 Table of Contents Bank7 Corp.
Financial Statements and Supplementary Data Consolidated Financial Statements Index Page Report of Independent Registered Public Accounting Firm (PCAOB ID: 686 ) 50 Consolidated Financial Statements: Consolidated Balance Sheets at December 31, 2022 and 2021 51 Consolidated Statements of Comprehensive Income for each of the three years in the period ended December 31, 2022 52 Consolidated Statements of Shareholders’ Equity for each of the three years in the period ended December 31, 2022 53 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2022 54 Notes to Consolidated Financial Statements 55 49 Table of Contents Report of Independent Registered Public Accounting Firm Shareholders, Board of Directors, and Audit Committee Bank7 Corp.
Financial Statements and Supplementary Data Consolidated Financial Statements Index Page Report of Independent Registered Public Accounting Firm (PCAOB ID: 686 ) 45 Consolidated Financial Statements: Consolidated Balance Sheets at December 31, 2023 and 2022 48 Consolidated Statements of Comprehensive Income for each of the three years in the period ended December 31, 2023 49 Consolidated Statements of Shareholders’ Equity for each of the three years in the period ended December 31, 2023 50 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2023 51 Notes to Consolidated Financial Statements 52 44 Table of Contents Report of Independent Registered Public Accounting Firm Shareholders, Board of Directors, and Audit Committee Bank7 Corp.
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. 82 Table of Contents Bank7 Corp.
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.
Notes to Consolidated Financial Statements The following table is a summary of the stock option activity under the Bank7 Corp. 2018 Equity Incentive Plan (dollar amounts in thousands, except per share data): Options Wgtd. Avg. Exercise Price Wgtd. Avg.
The following table is a summary of the stock option activity under the Bank7 Corp. 2018 Equity Incentive Plan (dollar amounts in thousands, except per share data): Options Wgtd. Avg. Exercise Price Wgtd. Avg.
At December 31, 2022, approximately $59.4 million of retained earnings was available for dividend declaration from the Bank without prior regulatory approval. Note 14: Related-Party Transactions At December 31, 2022 and December 31, 2021, the Company had loans outstanding to executive officers, directors, significant shareholders and their affiliates (related parties) approximating $132,000 and $0, respectively.
At December 31, 2023, approximately $65.5 million of retained earnings was available for dividend declaration from the Bank without prior regulatory approval. Note 14: Related-Party Transactions At December 31, 2023 and December 31, 2022, the Company had loans outstanding to executive officers, directors, significant shareholders and their affiliates (related parties) approximating $203,000 and $132,000, respectively.
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: As of December 31, 2022 2021 2020 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 Percent Change in Net Interest Income Percent Change in Fair Value of Equity +400 13.41 % 20.90 % 32.34 % 23.35 % 39.57 % 19.41 % +300 9.96 % 20.13 % 23.63 % 21.37 % 29.73 % 17.53 % +200 6.50 % 19.17 % 14.88 % 19.21 % 19.87 % 15.51 % +100 2.99 % 18.04 % 6.07 % 16.86 % 9.90 % 13.36 % Base -0.77 % 16.91 % -2.80 % 14.33 % -0.14 % 11.06 % -100 -4.82 % 15.25 % -5.38 % 11.30 % -3.11 % 10.35 % The results are primarily due to behavior of demand, money market and savings deposits during such rate fluctuations.
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: As of December 31, 2023 2022 2021 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 Percent Change in Net Interest Income Percent Change in Fair Value of Equity +400 23.35 % 17.72 % 13.41 % 20.90 % 32.34 % 23.35 % +300 19.04 % 16.63 % 9.96 % 20.13 % 23.63 % 21.37 % +200 14.74 % 15.45 % 6.50 % 19.17 % 14.88 % 19.21 % +100 10.42 % 14.20 % 2.99 % 18.04 % 6.07 % 16.86 % Base 5.76 % 12.72 % -0.77 % 16.91 % -2.80 % 14.33 % -100 0.73 % 11.22 % -4.82 % 15.25 % -5.38 % 11.30 % The results are primarily due to behavior of demand, money market and savings deposits during such rate fluctuations.
Amortization expense for intangible assets totaled $307,000, $183,000 and $206,000 for the years ended December 31, 2022, 2021 and 2020, respectively. Estimated amortization expense for each of the remaining life is as follows (dollars in thousands): 2023 $ 305 2024 155 2025 125 2026 125 2027 125 Thereafter 501 Total $ 1,336 74 Table of Contents Bank7 Corp.
Amortization expense for intangible assets totaled $305,000, $307,000 and $183,000 for the years ended December 31, 2023, 2022 and 2021, respectively. Estimated amortization expense for each of the remaining life is as follows (dollars in thousands): 2024 $ 155 2025 125 2026 125 2027 125 2028 125 Thereafter 376 Total $ 1,031 80 Table of Contents Bank7 Corp.
The following table represents information regarding nonperforming assets at December 31, 2022 and December 31, 2021 (dollars in thousands): Construction & Development 1 - 4 Family Real Estate Commercial Real Estate - Other Commercial & Industrial Agricultural Consumer Total December 31, 2022 Nonaccrual loans $ - $ - $ 1,348 $ 6,686 $ - $ 5 $ 8,039 Troubled-debt restructurings (1) - - - - - - - Accruing loans 90 or more days past due - - - 9,923 - 18 9,941 Total nonperforming loans $ - $ - $ 1,348 $ 16,609 $ - $ 23 $ 17,980 Construction & Development 1 - 4 Family Real Estate Commercial Real Estate - Other Commercial & Industrial Agricultural Consumer Total December 31, 2021 Nonaccrual loans $ - $ - $ 2,708 $ 7,163 $ - $ 14 $ 9,885 Troubled-debt restructurings (1) - - - - - - - Accruing loans 90 or more days past due - - - 401 77 18 496 Total nonperforming loans $ - $ - $ 2,708 $ 7,564 $ 77 $ 32 $ 10,381 (1) $1.2 million of TDRs as of December 31, 2022 and $1.4 million as of December 31, 2021, are included in the nonaccrual loans balance. 73 Table of Contents Bank7 Corp.
The following table represents information regarding nonperforming assets at December 31, 2022 (dollars in thousands): Construction & Development 1 - 4 Family Real Estate Commercial Real Estate - Other Commercial & Industrial Agricultural Consumer Total December 31, 2022 Nonaccrual loans $ - $ - $ 1,348 $ 6,686 $ - $ 5 $ 8,039 Troubled-debt restructurings (1) - - - - - - - Accruing loans 90 or more days past due - - - 9,923 - 18 9,941 Total nonperforming loans $ - $ - $ 1,348 $ 16,609 $ - $ 23 $ 17,980 (1) $1.2 million of TDRs as of December 31, 2022, are included in the nonaccrual loans balance. 79 Table of Contents Bank7 Corp.
In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful. All interest accrued but not collected for loans that are placed on nonaccrual or charged off are reversed against interest income.
Past-due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful. All interest accrued but not collected for loans that are placed on nonaccrual or charged off are reversed against interest income.
The required investment in common stock is based on a predetermined formula, carried at cost and evaluated for impairment. 57 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements Long-Lived Asset Impairment The Company evaluates the recoverability of the carrying value of long-lived assets whenever events or circumstances indicate the carrying amount may not be recoverable.
The required investment in common stock is based on a predetermined formula, carried at cost and evaluated for impairment. Long-Lived Asset Impairment The Company evaluates the recoverability of the carrying value of long-lived assets whenever events or circumstances indicate the carrying amount may not be recoverable.
The following table shows the computation of basic and diluted earnings per share: As of and for the Years ended December 31, 2022 2021 2020 (Dollars in thousands, except per share amounts) Numerator Net income $ 29,638 $ 23,159 $ 19,266 Denominator Weighted-average shares outstanding for basic earnings per share 9,101,523 9,056,117 9,378,769 Dilutive effect of stock compensation (1) 103,193 35,419 385 Denominator for diluted earnings per share 9,204,716 9,091,536 9,379,154 Earnings per common share Basic $ 3.26 $ 2.56 $ 2.05 Diluted $ 3.22 $ 2.55 $ 2.05 (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 5,000, 264,000, and 185,250 as of December 31, 2022, 2021, and 2020, respectively; Restricted stock units outstanding of 0, 0, and 10,000 as of December 31, 2022, 2021, and 2020, respectively. 62 Table of Contents Bank7 Corp.
The following table shows the computation of basic and diluted earnings per share: As of and for the Years ended December 31, 2023 2022 2021 (Dollars in thousands, except per share amounts) Numerator Net income $ 28,275 $ 29,638 $ 23,159 Denominator Weighted-average shares outstanding for basic earnings per share 9,161,565 9,101,523 9,056,117 Dilutive effect of stock compensation (1) 102,742 103,193 35,419 Denominator for diluted earnings per share 9,264,307 9,204,716 9,091,536 Earnings per common share Basic $ 3.09 $ 3.26 $ 2.56 Diluted $ 3.05 $ 3.22 $ 2.55 (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 5,000, 5,000, and 264,000 as of December 31, 2023, 2022, and 2021, respectively; Restricted stock units outstanding of 156,186, 0, and 0 as of December 31, 2023, 2022, and 2021, respectively. 66 Table of Contents Bank7 Corp.
Outstanding letters of credit to secure these public funds at December 31, 2022 and 2021 were $800,000 and $600,000, respectively. Loans with a collateral value of approximately $130.0 million and $78.7 million were used to secure the letters of credit at December 31, 2022 and 2021, respectively.
Outstanding letters of credit to secure these public funds at December 31, 2023 and 2022 were $400,000 and $800,000, respectively. Loans with a collateral value of approximately $159.6 million and $130.0 million were used to secure the letters of credit at December 31, 2023 and 2022, respectively.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe our audits provide a reasonable basis for our opinion.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. 45 Shareholders, Board of Directors, and Audit Committee Bank7 Corp.
A summary of the fair value of assets acquired and liabilities assumed from Watonga are as follows: (in thousands) Estimated Fair Value Assets Acquired Cash and cash equivalents $ 41,747 Available-for-sale debt securities 86,166 Federal funds sold 7,941 Loans 117,335 Premises and equipment 8,669 Core deposit intangible 1,254 Prepaid expenses and other assets 4,512 Total assets acquiried $ 267,624 Liabilities Assumed Deposits $ 243,487 Accounts payable and accrued expenses 2,232 Total liabilities assumed $ 245,719 Net assets acquired $ 21,905 Consideration transferred 29,498 Goodwill $ 7,593 Goodwill increased $124,000 for the twelve months ended December 31, 2022, respectively, related to the resolution of contractual obligations, assessment of the fair value of premises and equipment, and tax provision adjustments.
A summary of the fair value of assets acquired and liabilities assumed from Watonga are as follows: Estimated Fair Value (in thousands) Assets Acquired Cash and cash equivalents $ 41,747 Available-for-sale debt securities 86,166 Federal funds sold 7,941 Loans 117,335 Premises and equipment 8,669 Core deposit intangible 1,254 Prepaid expenses and other assets 4,512 Total assets acquiried $ 267,624 Liabilities Assumed Deposits $ 243,487 Accounts payable and accrued expenses 2,086 Total liabilities assumed $ 245,573 Net assets acquired $ 22,051 Consideration transferred 29,498 Goodwill $ 7,447 Goodwill decreased $146,000 for the year ended December 31, 2023 related to tax provision adjustments.
The following summarizes those financial instruments with contract amounts representing credit risk as of December 31, 2022 and December 31, 2021 (dollars in thousands): December 31, 2022 December 31, 2021 Commitments to extend credit $ 198,027 $ 200,393 Financial and performance standby letters of credit 1,043 5,809 $ 199,070 $ 206,202 Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.
The following summarizes those financial instruments with contract amounts representing credit risk as of December 31, 2023 and December 31, 2022 (dollars in thousands): December 31, 2023 December 31, 2022 Commitments to extend credit $ 256,888 $ 198,027 Financial and performance standby letters of credit 4,247 1,043 $ 261,135 $ 199,070 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.
Year Ended December 31, 2022 Year Ended December 31, 2021 (in thousands) Proceeds from sales, prepayments and calls $ 31,556 $ - Gross realized gains on sales, prepayments and calls 10 - Gross realized losses on sales, prepayments and calls (137 ) - Total realized (losses), net $ (127 ) $ - The following table details book value of pledged securities as of December 31, 2022: (in thousands) December 31, 2022 December 31, 2021 Book value of pledged securities $ 85,280 $ 37,477 64 Table of Contents Bank7 Corp.
Year Ended December 31, 2023 2022 (in thousands) Proceeds from sales, maturities, prepayments and calls $ 7,422 $ 31,556 Gross realized gains on sales, prepayments and calls - 10 Gross realized losses on sales, prepayments and calls (16 ) (137 ) Total realized (losses), net $ (16 ) $ (127 ) The following table details book value of pledged securities as of December 31, 2023: Year Ended December 31, (in thousands) 2023 2022 Book value of pledged securities $ 121,283 $ 85,280 68 Table of Contents Bank7 Corp.
The decrease in intangible assets is due to amortization of core deposit intangibles and the increase in goodwill recognized is due to the resolution of contractual obligations, assessment of fair value of premises and equipment, and tax provision adjustments that relate to the acquisition of Watonga Bancshares, Inc. on December 9, 2021.
The decrease in intangible assets is due to amortization of core deposit intangibles and the decrease in goodwill recognized is tax provision adjustments that relate to the acquisition of Watonga Bancshares, Inc. on December 9, 2021.
Notes to Consolidated Financial Statements Condensed Statements of Cash Flows For the Years Ended December 31, 2022 2021 2020 Operating Activities Net income $ 29,638 $ 23,159 $ 19,266 Items not requiring (providing) cash Equity in undistributed net income (24,900 ) (19,081 ) (6,420 ) Changes in Other current assets and liabilities (374 ) (102 ) 4,039 Net cash provided by operating activities 4,364 3,976 16,885 Financing Activities Common stock issued, net of offering costs - 1 (9,076 ) Dividends paid (4,364 ) (3,982 ) (7,803 ) Net cash used in financing activities (4,364 ) (3,981 ) (16,879 ) Increase (Decrease) in Cash and Due from Banks - (5 ) 6 Cash and Due from Banks, Beginning of Period 297 302 296 Cash and Due from Banks, End of Period $ 297 $ 297 $ 302 Supplemental Disclosure of Cash Flows Information Dividends declared and not paid $ 1,463 $ 1,089 $ 995 92 Table of Contents
Notes to Consolidated Financial Statements Condensed Statements of Cash Flows For the Years Ended December 31, 2023 2022 2021 Operating Activities Net income $ 28,275 $ 29,638 $ 23,159 Items not requiring (providing) cash Equity in undistributed net income (21,485 ) (24,900 ) (19,081 ) Changes in Other current assets and liabilities (727 ) (374 ) (102 ) Net cash provided by operating activities 6,063 4,364 3,976 Financing Activities Common stock issued, net of offering costs 1 - 1 Dividends paid (6,323 ) (4,364 ) (3,982 ) Net cash used in financing activities (6,322 ) (4,364 ) (3,981 ) Increase (Decrease) in Cash and Due from Banks (259 ) - (5 ) Cash and Due from Banks, Beginning of Period 297 297 302 Cash and Due from Banks, End of Period $ 38 $ 297 $ 297 Supplemental Disclosure of Cash Flows Information Dividends declared and not paid $ 1,932 $ 1,463 $ 1,089 97 Table of Contents Item 9.
Compensation expense, net of settlement of shares for payroll withholding related to the Plan for the years ended December 31, 2022, 2021 and 2020 totaled $1,384,000, $862,000 and $771,000, respectively. There were 700,087 shares available for future grants as of December 31, 2022.
Compensation expense, net of settlement of shares for payroll withholding related to the Plan for the years ended December 31, 2023, 2022 and 2021 totaled $2,164,000, $1,384,000 and $1,040,000, respectively. There were 637,371 shares available for future grants as of December 31, 2023.
Interest-Bearing Time Deposits in Other Banks Interest-bearing time deposits in other banks totaled $5.5 million and $3.2 million at December 31, 2022 and December 31, 2021 respectively, and have original maturities generally ranging from one to five years.
Interest-Bearing Time Deposits in Other Banks Interest-bearing time deposits in other banks totaled $17.7 million and $5.5 million at December 31, 2023 and December 31, 2022 respectively, and have original maturities generally ranging from three months to five years.
Federal Income Tax $ 8,244 $ 6,492 $ 5,434 Increase (decrease) resulting from: State Taxes 1,154 1,214 1,077 Permanent Differences 240 121 118 Return to provision and deferred true ups (7 ) - - FIN 48 Activity (13 ) - - Other 1 (72 ) (11 ) Provision for income taxes $ 9,619 $ 7,755 $ 6,618 Deferred tax assets (liabilities) included in other assets in the accompanying consolidated balance sheet consist of the following: Year Ended December 31, 2022 2021 Deferred tax assets: Allowance for loan losses $ 3,345 $ 2,413 Non-accrual Loans 204 135 Deferred Compensation 218 253 Deferred Revenue 302 285 Discounts and premiums on assets acquired 191 318 Net unrealized loss on securities available for sale 2,639 - Accrued expenses 204 - Lease liabilities 492 - Total deferred tax assets $ 7,595 $ 3,404 Deferred tax liabilities: Property and equipment $ (1,066 ) $ (1,189 ) Intangible assets (402 ) (473 ) Prepaid Expenses (149 ) (25 ) Right of Use Asset (500 ) - Net unrealized gains on securities available for sale - (478 ) Other (15 ) (15 ) Total deferred tax liabilities $ (2,132 ) $ (2,180 ) Net deferred tax assets $ 5,463 $ 1,224 76 Table of Contents Bank7 Corp.
Federal Income Tax $ 7,789 $ 8,244 $ 6,492 Increase (decrease) resulting from: State Taxes 1,069 1,154 1,214 Permanent Differences 57 240 121 Return to provision and deferred true ups 13 (7 ) - FIN 48 Activity - (13 ) - Other 20 1 (72 ) Provision for income taxes $ 8,948 $ 9,619 $ 7,755 Deferred tax assets (liabilities) included in other assets in the accompanying consolidated balance sheet consist of the following: Year Ended December 31, 2023 2022 Deferred tax assets: Allowance for loan losses $ 4,666 $ 3,345 Non-accrual Loans 317 204 Deferred Compensation 347 218 Deferred Revenue 291 302 Discounts and premiums on assets acquired 15 191 Net unrealized loss on securities available for sale 1,651 2,639 Accrued expenses - 204 Lease liabilities 471 492 Other 330 - Total deferred tax assets $ 8,088 $ 7,595 Deferred tax liabilities: Property and equipment $ (940 ) $ (1,066 ) Intangible assets (355 ) (402 ) Prepaid Expenses (124 ) (149 ) Right of Use Asset (464 ) (500 ) Other (318 ) (15 ) Total deferred tax liabilities $ (2,201 ) $ (2,132 ) Net deferred tax assets $ 5,887 $ 5,463 82 Table of Contents Bank7 Corp.
Consolidated Statements of Comprehensive Income (Dollar amounts in thousands, except per share data) Year ended December 31, 2022 2021 2020 Interest Income Loans, including fees $ 74,403 $ 55,768 $ 52,450 Interest-bearing time deposits in other banks 46 169 525 Debt securities, taxable 2,313 143 - Debt securities, tax-exempt 360 31 - Other interest and dividend income 1,627 178 339 Total interest income 78,749 56,289 53,314 Interest Expense Deposits 9,322 3,053 6,153 Total interest expense 9,322 3,053 6,153 Net Interest Income 69,427 53,236 47,161 Provision for Loan Losses 4,468 4,175 5,350 Net Interest Income After Provision for Loan Losses 64,959 49,061 41,811 Noninterest Income Mortgage lending income 486 435 175 Loss on sales, prepayments, and calls of available-for-sale debt securities (127 ) - - Service charges on deposit accounts 900 550 442 Other 1,680 1,265 1,048 Total noninterest income 2,939 2,250 1,665 Noninterest Expense Salaries and employee benefits 17,040 11,983 10,130 Furniture and equipment 1,468 883 868 Occupancy 2,329 1,899 1,957 Data and item processing 2,068 1,237 1,091 Accounting, marketing and legal fees 984 800 536 Regulatory assessments 1,344 604 506 Advertising and public relations 477 282 400 Travel, lodging and entertainment 363 409 241 Other 2,568 2,300 1,863 Total noninterest expense 28,641 20,397 17,592 Income Before Taxes 39,257 30,914 25,884 Income tax expense 9,619 7,755 6,618 Net Income $ 29,638 $ 23,159 $ 19,266 Earnings per common share - basic $ 3.26 $ 2.56 $ 2.05 Earnings per common share - diluted 3.22 2.55 2.05 Weighted average common shares outstanding - basic 9,101,523 9,056,117 9,378,769 Weighted average common shares outstanding - diluted 9,204,716 9,091,536 9,379,154 Other Comprehensive Income Unrealized gains(losses) on securities, net of tax benefit of $ 2.8 million, $ 0 , and $ 0 for the years ended December 30, 2022 , 2021 , and 2020 , respectively $ (9,543 ) $ 144 $ - Reclassification adjustment for realized loss included in net income net of tax of $ 31 , $ 0 , and $ 0 the years ended 2022 , 2021 , and 2020 , respectively 96 - - Other comprehensive (loss) income $ (9,447 ) $ 144 $ - Comprehensive Income $ 20,191 $ 23,303 $ 19,266 See accompanying notes to Consolidated Financial Statements 52 Table of Contents Bank7 Corp.
Consolidated Statements of Comprehensive Income (Dollar amounts in thousands, except per share data) Year ended December 31, 2023 2022 2021 Interest Income Loans, including fees $ 109,843 $ 74,403 $ 55,768 Interest-bearing time deposits in other banks 519 46 169 Debt securities, taxable 2,791 2,313 143 Debt securities, tax-exempt 330 360 31 Other interest and dividend income 8,061 1,627 178 Total interest income 121,544 78,749 56,289 Interest Expense Deposits 38,998 9,322 3,053 Total interest expense 38,998 9,322 3,053 Net Interest Income 82,546 69,427 53,236 Provision for Credit Losses 21,145 4,468 4,175 Net Interest Income After Provision for Credit Losses 61,401 64,959 49,061 Noninterest Income Mortgage lending income 331 486 435 Loss on sales, prepayments, and calls of available-for-sale debt securities (16 ) (127 ) - Service charges on deposit accounts 869 900 550 Other 8,058 1,680 1,265 Total noninterest income 9,242 2,939 2,250 Noninterest Expense Salaries and employee benefits 17,385 17,040 11,983 Furniture and equipment 995 1,468 883 Occupancy 2,689 2,329 1,899 Data and item processing 1,730 2,068 1,237 Accounting, marketing and legal fees 543 984 800 Regulatory assessments 1,537 1,344 604 Advertising and public relations 427 477 282 Travel, lodging and entertainment 374 363 409 Other 7,740 2,568 2,300 Total noninterest expense 33,420 28,641 20,397 Income Before Taxes 37,223 39,257 30,914 Income tax expense 8,948 9,619 7,755 Net Income $ 28,275 $ 29,638 $ 23,159 Earnings per common share - basic $ 3.09 $ 3.26 $ 2.56 Earnings per common share - diluted 3.05 3.22 2.55 Weighted average common shares outstanding - basic 9,161,565 9,101,523 9,056,117 Weighted average common shares outstanding - diluted 9,264,307 9,204,716 9,091,536 Other Comprehensive Income (Loss) Unrealized gains (losses) on securities, net of (tax expense) tax benefit of ($ 1.0 million), $ 2.8 million, and $ 0 for the years ended December 31, 2023 , 2022 , and 2021 , respectively $ 3,146 $ (9,543 ) $ 144 Reclassification adjustment for realized loss included in net income net of tax of $ 4 , $ 31 , and $ 0 for the years ended 2023 , 2022 , and 2021 , respectively 12 96 - Other comprehensive income(loss) $ 3,158 $ (9,447 ) $ 144 Comprehensive Income $ 31,433 $ 20,191 $ 23,303 See accompanying notes to Consolidated Financial Statements 49 Table of Contents Bank7 Corp.
Under the acquisition accounting method, the acquiring Company recognizes 100% of the assets acquired and liabilities assumed at the acquisition date fair value. The excess of fair value of the consideration transferred over the acquisition date fair value of net assets acquired is recorded as goodwill. Further, one-time extraordinary expenses related to the acquisition are expected to be incurred.
The excess of fair value of the consideration transferred over the acquisition date fair value of net assets acquired is recorded as goodwill. Further, one-time extraordinary expenses related to the acquisition are expected to be incurred.
Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount of fair value less costs to sell. Revenue and expenses from operations and changes in the valuation allowance are included in current operations. Business Combinations The acquisition method of accounting is used for business combinations.
Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount of fair value less costs to sell. Revenue and expenses from operations and changes in the valuation allowance are included in current operations. 56 Table of Contents Bank7 Corp.
The Bank leases office and retail banking space in Woodward, Oklahoma from Haines Realty Investments Company, LLC, a related party of the Company. Lease expense totaled $155,000, $175,000 and $177,000 for the years ended December 31, 2022, 2021 and 2020, 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 expense totaled $251,000, $155,000 and $175,000 for the years ended December 31, 2023, 2022 and 2021, respectively.
As of December 31, 2022, our operating leases have a weighted-average remaining lease term of 12.5 years and a weighted-average discount rate of 3.6 percent.
As of December 31, 2023, our operating leases have a weighted-average remaining lease term of 16.0 years and a weighted-average discount rate of 3.8 percent.
Consolidated Statements of Cash Flows (Dollar amounts in thousands) Year Ended December 31, 2022 2021 2020 Operating Activities Net income $ 29,638 $ 23,159 $ 19,266 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 1,406 1,031 1,093 Provision for loan losses 4,468 4,175 5,350 Amortization of premiums and discounts on securities 812 30 - Gain on sales of loans (486 ) (435 ) (175 ) Net loss on sale of available for sale debt securities 127 - - Stock-based compensation expense 1,384 862 771 Gain on sale of premises and equipment (24 ) (1 ) (3 ) Cash receipts from the sale of loans originated for sale 33,776 23,954 8,924 Cash disbursements for loans originated for sale (32,826 ) (23,659 ) (8,042 ) Deferred income tax (benefit) (1,423 ) 235 (875 ) Changes in Interest receivable and other assets (1,865 ) 907 (162 ) Interest payable and other liabilities 4,727 (303 ) (912 ) Net cash provided by operating activities 39,714 29,955 25,235 Investing Activities Net cash received for acquisition, net of cash paid - 20,432 - Maturities of interest-bearing time deposits in other banks 2,490 13,175 28,162 Purchases of interest-bearing time deposits in other banks (4,727 ) - (14,427 ) Proceeds from sale of available-for-sale debt securities 11,820 1,173 - Maturities, prepayments and calls of available-for-sale debt securities 19,736 290 - Purchases of available-for-sale debt securities (133,052 ) - - Net change in loans (242,105 ) (77,951 ) (132,866 ) Purchases of premises and equipment (294 ) (599 ) (438 ) Proceeds from sale of premises and equipment 3,370 17 27 Change in nonmarketable equity securities (7 ) (30 ) (72 ) Net cash used in investing activities (342,769 ) (43,493 ) (119,614 ) Financing Activities Net change in deposits 211,829 68,470 148,031 Cash distributions (4,366 ) (3,982 ) (7,803 ) Net cash settlement of equity compensation (145 ) - - Common stock issued for restricted stock units - 1 (9,076 ) Net cash provided by financing activities 207,318 64,489 131,152 Net Increase/(Decrease) in Cash and Due from Banks (95,737 ) 50,951 36,773 Cash and Due from Banks, Beginning of Period 204,852 153,901 117,128 Cash and Due from Banks, End of Period $ 109,115 $ 204,852 $ 153,901 Supplemental Disclosure of Cash Flows Information Interest paid $ 9,100 $ 3,222 $ 6,502 Income taxes paid $ 9,981 $ 7,511 $ 7,731 Dividends declared and not paid $ 1,463 $ 1,089 $ 994 Measurement period goodwill adjustment $ 124 $ - $ - Supplemental Disclosure of Investing Activities Cash consideration for acquisition $ - $ 29,266 $ - Fair value of assets acquired in acquisition $ - $ 267,327 $ - Fair value of liabilities assumed in acquisition $ - $ 245,528 $ - See accompanying notes to Consolidated Financial Statements 54 Table of Contents Bank7 Corp.
Consolidated Statements of Cash Flows (Dollar amounts in thousands) Year Ended December 31, 2023 2022 2021 Operating Activities Net income $ 28,275 $ 29,638 $ 23,159 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 1,302 1,406 1,031 Provision for credit losses 21,145 4,468 4,175 Amortization of premiums and discounts on securities 381 812 30 Gain on sales of loans (331 ) (486 ) (435 ) Net loss on sale of available-for-sale debt securities 16 127 - Stock-based compensation expense 2,164 1,384 1,040 Gain on sale of premises and equipment (77 ) (24 ) (1 ) Cash receipts from the sale of loans originated for sale 10,535 33,776 23,954 Cash disbursements for loans originated for sale (10,922 ) (32,826 ) (23,659 ) Deferred income tax (benefit) (1,259 ) (1,423 ) 235 Changes in Interest receivable and other assets (2,536 ) (1,865 ) 907 Interest payable and other liabilities 432 4,727 (303 ) Net cash provided by operating activities 49,125 39,714 30,133 Investing Activities Net cash (paid) received for acquisition (16,482 ) - 20,432 Maturities of interest-bearing time deposits in other banks 8,471 2,490 13,175 Purchases of interest-bearing time deposits in other banks (20,676 ) (4,727 ) - Proceeds from sale of available-for-sale debt securities - 11,820 1,173 Maturities, prepayments and calls of available-for-sale debt securities 7,422 19,736 290 Purchases of available-for-sale debt securities - (133,052 ) - Net change in loans (106,762 ) (242,105 ) (77,951 ) Purchases of premises and equipment (2,834 ) (294 ) (599 ) Proceeds from sale of premises and equipment 78 3,370 17 Change in nonmarketable equity securities (74 ) (7 ) (30 ) Net cash used in investing activities (130,857 ) (342,769 ) (43,493 ) Financing Activities Net change in deposits 159,991 211,829 68,470 Cash distributions (6,323 ) (4,366 ) (3,982 ) Shares purchased and retired for restricted stock units (513 ) (454 ) (178 ) Net settlement of stock options 503 309 - Common stock issued for restricted stock units 1 - 1 Net cash provided by financing activities 153,659 207,318 64,311 Net Increase/(Decrease) in Cash and Due from Banks 71,927 (95,737 ) 50,951 Cash and Due from Banks, Beginning of Period 109,115 204,852 153,901 Cash and Due from Banks, End of Period $ 181,042 $ 109,115 $ 204,852 Supplemental Disclosure of Cash Flows Information Interest paid $ 37,935 $ 9,100 $ 3,222 Income taxes paid $ 10,800 $ 9,981 $ 7,511 Dividends declared and not paid $ 1,932 $ 1,463 $ 1,089 Measurement period goodwill adjustment $ (146 ) $ 124 $ - Supplemental Disclosure of Investing Activities Cash consideration for acquisition $ - $ - $ 29,266 Fair value of assets acquired in acquisition $ - $ - $ 267,327 Fair value of liabilities assumed in acquisition $ - $ - $ 245,528 See accompanying notes to Consolidated Financial Statements 51 Table of Contents Bank7 Corp.
The fair value of each option is expensed over its vesting period.
The fair value of each option is expensed over its vesting period. 88 Table of Contents Bank7 Corp.
Notes to Consolidated Financial Statements Note 7: Premises and Equipment Major classifications of premises and equipment, stated at cost and net of accumulated depreciation are as follows (dollars in thousands): December 31, 2022 December 31, 2021 Land, buildings and improvements $ 15,504 $ 18,327 Furniture and equipment 2,803 3,100 Automobiles 958 946 19,265 22,373 Less accumulated depreciation (6,159 ) (5,116 ) Net premises and equipment $ 13,106 $ 17,257 Note 8: Goodwill and Core Deposit Intangibles The following is a summary of goodwill and intangible assets (dollars in thousands): Gross Carrying Amount Accumulated Amortization Net Carrying Amount As of December 31, 2022 Goodwill $ 8,833 $ (230 ) $ 8,603 Core deposit intangibles 3,315 (1,979 ) 1,336 Total $ 12,148 $ (2,209 ) $ 9,939 Gross Carrying Amount Accumulated Amortization Net Carrying Amount As of December 31, 2021 Goodwill $ 8,709 $ (230 ) $ 8,479 Core deposit intangibles 3,315 (1,672 ) 1,643 Total $ 12,024 $ (1,902 ) $ 10,122 See Note 2 for discussion on the $124,000 in adjustments to Goodwill as of the year-ended December 31, 2022.
Notes to Consolidated Financial Statements Note 7: Premises and Equipment Major classifications of premises and equipment, stated at cost and net of accumulated depreciation are as follows (dollars in thousands): December 31, 2023 2022 Land, buildings and improvements $ 18,138 $ 15,504 Furniture and equipment 2,625 2,803 Automobiles 976 958 21,739 19,265 Less accumulated depreciation (6,797 ) (6,159 ) Net premises and equipment $ 14,942 $ 13,106 Note 8: Goodwill and Core Deposit Intangibles The following is a summary of goodwill and intangible assets (dollars in thousands): Gross Carrying Amount Accumulated Amortization Net Carrying Amount As of December 31, 2023 Goodwill $ 8,688 $ (230 ) $ 8,458 Core deposit intangibles 3,315 (2,284 ) 1,031 Total $ 12,003 $ (2,514 ) $ 9,489 Gross Carrying Amount Accumulated Amortization Net Carrying Amount As of December 31, 2022 Goodwill $ 8,833 $ (230 ) $ 8,603 Core deposit intangibles 3,315 (1,979 ) 1,336 Total $ 12,148 $ (2,209 ) $ 9,939 See Note 2 for discussion on the $146,000 in adjustments to Goodwill as of the year-ended December 31, 2023.
Notes to Consolidated Financial Statements Note 20: Parent-only Financial Statements (dollars in thousands) Condensed Balance Sheets Assets December 31, 2022 December 31, 2021 Cash and due from banks $ 297 $ 297 Investment in bank subsidiary 143,049 126,783 Dividends receivable 1,463 1,089 Goodwill 1,011 1,011 Total assets $ 145,820 $ 129,180 Liabilities and Shareholders’ Equity Dividends Payable $ 1,463 $ 1,089 Other liabilities 257 683 Total liabilities 1,720 1,772 Total shareholders’ equity 144,100 127,408 Total liabilities and shareholders’ equity $ 145,820 $ 129,180 Condensed Statements of Comprehensive Income For the Years Ended December 31, 2022 2021 2020 Income Dividends from subsidiary bank $ 4,738 $ 4,078 $ 12,846 Total Income 4,738 4,078 12,846 Expense Other - - - Total expense - - - Income and equity in undistributed net income of bank subsidiary 4,738 4,078 12,846 Equity in undistributed net income of bank subsidiary 24,900 19,081 6,420 Income before Taxes 29,638 23,159 19,266 Net Income Available to Common Shareholders $ 29,638 $ 23,159 $ 19,266 Other Comprehensive Income Equity in other comprehensive (loss) income of subsidiary (9,447 ) 144 - Other comprehensive gain(loss) $ (9,447 ) $ 144 $ - Comprehensive Income $ 20,191 $ 23,303 $ 19,266 91 Table of Contents Bank7 Corp.
Notes to Consolidated Financial Statements Note 22: Parent-only Financial Statements Condensed Balance Sheets December 31, Assets 2023 2022 Cash and due from banks $ 40 $ 297 Investment in bank subsidiary 169,275 143,049 Dividends receivable 1,932 1,463 Goodwill 1,011 1,011 Total assets $ 172,258 $ 145,820 Liabilities and Shareholders’ Equity Dividends Payable $ 1,932 $ 1,463 Other liabilities - 257 Total liabilities 1,932 1,720 Total shareholders’ equity 170,326 144,100 Total liabilities and shareholders’ equity $ 172,258 $ 145,820 Condensed Statements of Comprehensive Income For the Years Ended December 31, 2023 2022 2021 Income Dividends from subsidiary bank $ 6,790 $ 4,738 $ 4,078 Total Income 6,790 4,738 4,078 Expense Other - - - Total expense - - - Income and equity in undistributed net income of bank subsidiary 6,790 4,738 4,078 Equity in undistributed net income of bank subsidiary 21,485 24,900 19,081 Income before Taxes 28,275 29,638 23,159 Income tax expense - - - Net Income Available to Common Shareholders $ 28,275 $ 29,638 $ 23,159 Other Comprehensive Income Equity in other comprehensive (loss) income of subsidiary $ 3,158 $ (9,447 ) $ 144 Other comprehensive gain(loss) $ 3,158 $ (9,447 ) $ 144 Comprehensive Income $ 31,433 $ 20,191 $ 23,303 96 Table of Contents Bank7 Corp.
Segments While the chief decision-makers monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis. Discrete financial information is not available other than on a Company-wide basis.
Segments While the chief decision-makers monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis. Discrete financial information is not available other than on a Company-wide basis. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.
There were no newly modified troubled-debt restructurings during the year ended December 31, 2022. There were no troubled-debt restructurings modified in the past twelve months that subsequently defaulted for the year ended December 31, 2022.
There were no newly modified troubled-debt restructurings during the year ended December 31, 2022. As of December 31, 2022, there were no troubled-debt restructurings modified and subsequently defaulted for the year ended December 31, 2022.
The Bank had no advances from the FHLB at December 31, 2022 or 2021. Note 13: Shareholders’ Equity On September 5, 2019, the Company adopted a Repurchase Plan (the “RP”). The RP initially authorized the repurchase of up to 500,000 shares of the Company’s common stock.
The Bank had no advances from the FHLB at December 31, 2023 or 2022. Note 13: 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.
Loans acquired through business combinations are required to be carried at fair value as of the date of the combination. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date. 53 Table of Contents Bank7 Corp.
Notes to Consolidated Financial Statements Collateral-Dependent Impaired Loans, Net of Allowance for Loan Losses The estimated fair value of collateral-dependent impaired loans is based on fair value, less estimated cost to sell. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy.
For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below. Collateral-Dependent Impaired Loans, Net of Allowance for Loan Losses The estimated fair value of collateral-dependent impaired loans is based on fair value, less estimated cost to sell.
There were no subsequent events requiring recognition or disclosure. 61 Table of Contents Bank7 Corp. Notes to 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.
Notes to 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 December 31, 2023.
The stock option expense is expected to be recognized over a weighted average period of 2.05 years, and the RSU expense is expected to be recognized over a weighted average period of 2.32 years. 84 Table of Contents Bank7 Corp.
The RSU expense is expected to be recognized over a weighted average period of 3.85 years, the stock option expense is expected to be recognized over a weighted average period of 1.29 years. 89 Table of Contents Bank7 Corp.
The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Note 18: Significant Estimates and Concentrations GAAP requires disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Estimates related to the allowance for loan losses are reflected in Note 6 regarding loans.
Note 18: Significant Estimates and Concentrations GAAP requires disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Estimates related to the allowance for loan losses are reflected in Note 6 regarding loans.
Future minimum rental commitments of branch facilities and office equipment due under non-cancelable operating leases at December 31, 2022, were as follows (dollars in thousands): 2023 $ 532 2024 448 2025 367 2026 298 2027 155 Thereafter 530 Total lease payments 2,330 Less imputed interest (254 ) Operating lease liability $ 2,076 90 Table of Contents Bank7 Corp.
Future minimum rental commitments of branch facilities and office equipment due under non-cancelable operating leases at December 31, 2023, were as follows (dollars in thousands): 2024 $ 553 2025 353 2026 274 2027 200 2028 108 Thereafter 850 Total lease payments 2,338 Less imputed interest (350 ) Operating lease liability $ 1,988 94 Table of Contents Bank7 Corp.
Remaining Contractual Term Aggregate Intrinsic Value Year Ended December 31, 2021 Outstanding at December 31, 2020 185,250 $ 18.73 Options Granted 80,500 14.31 Options Exercised - - Options Forfeited (1,750 ) 14.31 Outstanding at December 31, 2021 264,000 17.41 7.56 $ 1,474,840 Exercisable at December 31, 2021 121,932 18.82 6.82 $ 509,257 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.
Remaining Contractual Term Aggregate Intrinsic Value Year Ended December 31, 2022 Outstanding at December 31, 2021 264,000 $ 17.41 Options Granted 5,000 23.87 Options Exercised (17,450 ) 17.73 Options Forfeited - - Outstanding at December 31, 2022 251,550 17.52 6.64 $ 2,032,509 Exercisable at December 31, 2022 170,485 18.39 6.05 $ 1,229,200 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 following table presents a summary of realized gains and losses from the sale, prepayment and call of debt securities for the twelve months ended December 31, 2022 and December 31, 2021.
Treasury note with a fair value of $99.32 million . The following table presents a summary of realized gains and losses from the sale, prepayment and call of debt securities for the year ended December 31, 2023 and December 31, 2022.
Notes to Consolidated Financial Statements The Company’s and Bank’s actual capital amounts and ratios are presented in the following table (dollars in thousands): Actual Minimum Capital Requirements With Capital Conservation Buffer Minimum To Be Well Capitalized Under Prompt Corrective Action Amount Ratio Amount Ratio Amount Ratio Amount Ratio As of December 31, 2022 Total capital to risk-weighted assets Company $ 158,158 12.41 % $ 101,990 8.00 % $ 133,862 10.50 % N/A N/A Bank 158,158 12.42 % 101,909 8.00 % 133,756 10.50 % 127,387 10.00 % Tier I capital to risk-weighted assets Company 143,424 11.25 % 76,493 6.00 % 108,365 8.50 % N/A N/A Bank 143,424 11.26 % 76,432 6.00 % 108,279 8.50 % 101,909 8.00 % CET I capital to risk-weighted assets Company 143,424 11.25 % 57,370 4.50 % 89,241 7.00 % N/A N/A Bank 143,424 11.26 % 57,324 4.50 % 89,171 7.00 % 82,801 6.50 % Tier I capital to average assets Company 143,424 9.19 % 62,460 4.00 % N/A N/A N/A N/A Bank 143,424 9.18 % 62,489 4.00 % N/A N/A 78,111 5.00 % As of December 31, 2021 Total capital to risk-weighted assets Company $ 127,946 12.54 % $ 81,620 8.00 % $ 107,126 10.50 % N/A N/A Bank 127,844 12.54 % 81,539 8.00 % 107,020 10.50 % $ 101,924 10.00 % Tier I capital to risk-weighted assets Company 117,631 11.53 % 61,215 6.00 % 86,721 8.50 % N/A N/A Bank 117,528 11.53 % 61,154 6.00 % 86,635 8.50 % 81,539 8.00 % CET I capital to risk-weighted assets Company 117,631 11.53 % 45,911 4.50 % 71,417 7.00 % N/A N/A Bank 117,528 11.53 % 45,866 4.50 % 71,347 7.00 % 66,250 6.50 % Tier I capital to average assets Company 117,631 10.56 % 44,571 4.00 % N/A N/A N/A N/A Bank 117,528 10.55 % 44,571 4.00 % N/A N/A 55,714 5.00 % The federal banking agencies require that banking organizations meet several risk-based capital adequacy requirements.
Notes to Consolidated Financial Statements The Company’s and Bank’s actual capital amounts and ratios are presented in the following table (dollars in thousands): Actual Minimum Capital Requirements With Capital Conservation Buffer Minimum To Be Well Capitalized Under Prompt Corrective Action Amount Ratio Amount Ratio Amount Ratio Amount Ratio As of 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 % As of December 31, 2022 Total capital to risk-weighted assets Company $ 158,158 12.41 % $ 101,990 8.00 % $ 133,862 10.50 % N/A N/A Bank 158,158 12.42 % 101,909 8.00 % 133,756 10.50 % $ 127,387 10.00 % Tier I capital to risk-weighted assets Company 143,424 11.25 % 76,493 6.00 % 108,365 8.50 % N/A N/A Bank 143,424 11.26 % 76,432 6.00 % 108,279 8.50 % 101,909 8.00 % CET I capital to risk-weighted assets Company 143,424 11.25 % 57,370 4.50 % 89,241 7.00 % N/A N/A Bank 143,424 11.26 % 57,324 4.50 % 89,171 7.00 % 82,801 6.50 % Tier I capital to average assets Company 143,424 9.19 % 62,460 4.00 % N/A N/A N/A N/A Bank 143,424 9.18 % 62,489 4.00 % N/A N/A 78,111 5.00 % The federal banking agencies require that banking organizations meet several risk-based capital adequacy requirements.
Notes to Consolidated Financial Statements Note 6: Loans and Allowance for Loan Losses A summary of loans at December 31, 2022 and December 31, 2021, are as follows (dollars in thousands): December 31, 2022 December 31, 2021 Construction & development $ 163,203 $ 169,322 1 - 4 family real estate 76,928 62,971 Commercial real estate - other 439,001 339,655 Total commercial real estate 679,132 571,948 Commercial & industrial 513,011 361,974 Agricultural 66,145 73,010 Consumer 14,949 24,046 Gross loans 1,273,237 1,030,978 Less allowance for loan losses (14,734 ) (10,316 ) Less deferred loan fees (2,781 ) (2,577 ) Net loans $ 1,255,722 $ 1,018,085 Included in the commercial & industrial loan balance at December 31, 2022 and December 31, 2021, are $2.6 million and $18.7 million of loans that were originated under the SBA PPP program, respectively. 66 Table of Contents Bank7 Corp.
Notes to Consolidated Financial Statements Note 6: Loans and Allowance for Loan Losses A summary of loans at December 31, 2023 and December 31, 2022, are as follows (dollars in thousands): December 31, 2023 2022 Construction & development $ 137,206 $ 163,203 1 - 4 family real estate 100,576 76,928 Commercial real estate - other 518,622 439,001 Total commercial real estate $ 756,404 $ 679,132 Commercial & industrial 526,185 513,011 Agricultural 66,495 66,145 Consumer 14,517 14,949 Gross loans 1,363,601 1,273,237 Less allowance for credit losses (19,691 ) (14,734 ) Less deferred loan fees (2,762 ) (2,781 ) Net loans $ 1,341,148 $ 1,255,722 Included in the commercial & industrial loan balances are $2.0 million and $2.6 million of loans that were originated under the SBA PPP program as of December 31, 2023 and December 31, 2022, respectively. 70 Table of Contents Bank7 Corp.
Consolidated Statements of Shareholders’ Equity (Dollar amounts in thousands, except per share data) Year Ended December 31, 2022 2021 2020 Common Stock (Shares) Balance at beginning of period 9,071,417 9,044,765 10,057,506 Exercise of employee stock options 17,450 - - Shares issued for restricted stock units 43,106 26,652 19,437 Shares acquired and canceled - - (1,032,178 ) Balance at end of period 9,131,973 9,071,417 9,044,765 Common Stock (Amount) Balance at beginning of period $ 91 $ 90 $ 101 Shares issued for restricted stock units - 1 (11 ) Balance at end of period $ 91 $ 91 $ 90 Additional Paid-in Capital Balance at beginning of period $ 94,024 $ 93,162 $ 92,391 Shares purchased and retired (145 ) 426 257 Stock-based compensation expense 1,384 436 514 Balance at end of period $ 95,263 $ 94,024 $ 93,162 Retained Earnings Balance at beginning of period $ 33,149 $ 14,067 $ 7,634 Net income 29,638 23,159 19,266 Common stock acquired and canceled - - (9,065 ) Cash dividends declared ($ 0.52 , $ 0.45 , $ 0.41 per share) December 31, 2022, 2021, and 2020, respectively (4,738 ) (4,077 ) (3,768 ) Balance at end of period $ 58,049 $ 33,149 $ 14,067 Accumulated Other Comprehensive Income(Loss) Balance at beginning of period $ 144 $ - $ - Comprehensive income(loss) (9,447 ) 144 - Balance at end of period $ (9,303 ) $ 144 $ - Total Shareholders’ equity $ 144,100 $ 127,408 $ 107,319 See accompanying notes to Consolidated Financial Statements 53 Table of Contents Bank7 Corp.
Consolidated Statements of Shareholders’ Equity (Dollar amounts in thousands, except per share data) Year Ended December 31, 2023 2022 2021 Common Stock (Shares) Balance at beginning of period 9,131,973 9,071,417 9,044,765 Exercise of employee stock options 28,423 17,450 - Shares issued for restricted stock units 57,354 61,902 35,582 Shares acquired and canceled (20,054 ) (18,796 ) (8,930 ) Balance at end of period 9,197,696 9,131,973 9,071,417 Common Stock (Amount) Balance at beginning of period $ 91 $ 91 $ 90 Shares issued for restricted stock units 1 - 1 Balance at end of period $ 92 $ 91 $ 91 Additional Paid-in Capital Balance at beginning of period $ 95,263 $ 94,024 $ 93,162 Shares purchased and retired for restricted stock units (513 ) (454 ) (178 ) Exercise of stock options 503 309 - Stock-based compensation expense 2,164 1,384 1,040 Balance at end of period $ 97,417 $ 95,263 $ 94,024 Retained Earnings Balance at beginning of period $ 58,049 $ 33,149 $ 14,067 Net income 28,275 29,638 23,159 Cumulative effect of change in accounting principle, net of tax of $178 (Note 1) (572 ) - - Cash dividends declared ($ 0.74 , $ 0.52 , and $ 0.45 per share for the years ended December 31, 2023, 2022, and 2021, respectively) (6,790 ) (4,738 ) (4,077 ) Balance at end of period $ 78,962 $ 58,049 $ 33,149 Accumulated Other Comprehensive Income(Loss) Balance at beginning of period $ (9,303 ) $ 144 $ - Comprehensive income(loss) 3,158 (9,447 ) 144 Balance at end of period $ (6,145 ) $ (9,303 ) $ 144 Total Shareholders’ equity $ 170,326 $ 144,100 $ 127,408 See accompanying notes to Consolidated Financial Statements 50 Table of Contents Bank7 Corp.
Notes to Consolidated Financial Statements Note 9: Interest-Bearing Deposits Interest-bearing time deposits in denominations of $250,000 or more were $42.6 million and $45.9 million at December 31, 2022 and 2021, respectively.
Notes to Consolidated Financial Statements Note 9: Interest-Bearing Deposits The aggregate amount of interest-bearing time deposits in denominations that meet or exceed the insured limit were $88.1 million and $42.6 million at December 31, 2023 and 2022, respectively.
Immediately following the acquisition, Watonga was dissolved and Cornerstone Bank merged with and into Bank7.
(“Watonga”), the bank holding company for Cornerstone Bank, for $29.3 million in cash. Immediately following the acquisition, Watonga was dissolved and Cornerstone Bank merged with and into Bank7.
The effect of this purchase and related expenses was included in the consolidated financial statement of the Company as of December 31, 2021. Business Combinations On December 9, 2021, the Company acquired 100% of the outstanding equity of Watonga Bancshares, Inc. (“Watonga”), the bank holding company for Cornerstone Bank, for $29.3 million in cash.
The Company incurred $423,000 in non-recurring expenses associated with the offering, which are included in noninterest expenses. The effect of this purchase and related expenses was included in the consolidated financial statement of the Company as of December 31, 2021. Business Combinations On December 9, 2021, the Company acquired 100% of the outstanding equity of Watonga Bancshares, Inc.
Grant Date Fair Value Year Ended December 31, 2021 Outstanding at December 31, 2020 118,000 $ 18.09 Shares granted 90,575 19.95 Shares vested (35,582 ) 18.30 Shares forfeited - - End of the period balance 172,993 $ 19.02 As of December 31, 2022, there was approximately $1.8 million of unrecognized compensation expense related to 113,000 unvested RSUs and $351,000 of unrecognized compensation expense related to 252,000 unvested and/or unexercised stock options.
Grant Date Fair Value Year Ended December 31, 2022 Outstanding at December 31, 2021 172,993 $ 19.02 Shares granted 3,000 22.66 Shares vested (61,902 ) 18.88 Shares forfeited (1,500 ) 22.13 End of the period balance 112,591 $ 19.15 As of December 31, 2023, there was approximately $4.5 million of unrecognized compensation expense related to 211,000 unvested RSUs and $156,000 of unrecognized compensation expense related to 221,000 unvested and/or unexercised stock options.

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