Bank7 Corp. - Quarter Report: 2021 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2021

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

For the transition period from to

Commission File Number: 001-38656

Bank7 Corp.

(Exact name of registrant as specified in its charter)

Oklahoma		20-0763496
( State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1039 N.W. 63^rd Street		73116-7361
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: 405-810-8600

Securities registered pursuant to Section 12(b) of the Act:

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

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

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

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

Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒ (Do not check if a smaller reporting company)	Smaller reporting company	☐

Emerging growth company	☒

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

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

As of May 11, 2021, the registrant had 9,049,256 shares of common stock, par value $0.01, outstanding.

TABLE OF CONTENTS

		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements
	Unaudited Consolidated Balance Sheets	2
	Unaudited Consolidated Statements of Income	3
	Unaudited Consolidated Statements of Shareholders’ Equity	4
	Unaudited Consolidated Statements of Cash Flows	5
	Notes to Unaudited Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44
Item 4.	Controls and Procedures	44

PART II.	OTHER INFORMATION	45

Item 1.	Legal Proceedings	45
Item 1A.	Risk Factors	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 6.	Exhibits	45
	Signatures	46

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Forward-Looking Statements

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

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Item 1.

Unaudited Financials

Bank7 Corp.

Unaudited Condensed Consolidated Balance Sheets

(Dollar amounts in thousands, except share data)

Assets	March 31, 2021 (unaudited)		December 31, 2020

Cash and due from banks	$	170,132	$	153,901
Interest-bearing time deposits in other banks		6,963		16,412
Loans, net of allowance for loan losses of $10,864 and $9,639 at March 31, 2021 and December 31, 2020, respectively		850,544		826,974
Loans held for sale, at fair value		-		324
Premises and equipment, net		9,053		9,151
Nonmarketable equity securities		1,187		1,172
Goodwill and other intangibles, net		1,536		1,583
Interest receivable and other assets		6,661		7,152

Total assets	$	1,046,076	$	1,016,669

Liabilities and Shareholders’ Equity

Deposits
Noninterest-bearing	$	269,087	$	246,569
Interest-bearing		659,942		658,945

Total deposits		929,029		905,514

Income taxes payable		2,050		9
Interest payable and other liabilities		3,267		3,827

Total liabilities		934,346		909,350

Shareholders’ equity
Preferred stock, par value $0.01 per share, 1,000,000 shares authorized; none issued or outstanding		-		-
Common stock, non-voting, par value $0.01 per share, 20,000,000 shares authorized; none issued or outstanding		-		-
Common stock, $0.01 par value; 50,000,000 shares authorized; shares issued and outstanding: 9,049,256 and 9,044,765 at March 31, 2021 and December 31, 2020 respectively		90		90
Additional paid-in capital		93,464		93,162
Retained earnings		18,176		14,067

Total shareholders’ equity		111,730		107,319

Total liabilities and shareholders’ equity	$	1,046,076	$	1,016,669

See Notes to Unaudited Condensed Consolidated Financial Statements

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Bank7 Corp.

Unaudited Condensed Consolidated Statements of Income

(Dollar amounts in thousands, except per share data)

	Three months ended March 31,
	2021		2020
Interest Income
Loans, including fees	$	13,094	$	13,106
Interest-bearing time deposits in other banks		68		162
Interest-bearing deposits in other banks		26		239

Total interest income		13,188		13,507

Interest Expense
Deposits		875		2,075

Total interest expense		875		2,075

Net Interest Income		12,313		11,432

Provision for Loan Losses		1,275		650

Net Interest Income After Provision for Loan Losses		11,038		10,782

Noninterest Income
Secondary market income		14		38
Service charges on deposit accounts		120		119
Other		203		173

Total noninterest income		337		330

Noninterest Expense
Salaries and employee benefits		2,790		2,474
Furniture and equipment		202		216
Occupancy		472		461
Data and item processing		279		276
Accounting, marketing and legal fees		148		126
Regulatory assessments		141		23
Advertising and public relations		34		269
Travel, lodging and entertainment		89		53
Other		390		455

Total noninterest expense		4,545		4,353

Income Before Taxes		6,830		6,759
Income tax expense		1,726		1,708
Net Income	$	5,104	$	5,051

Earnings per common share - basic	$	0.56	$	0.51
Earnings per common share - diluted		0.56		0.51
Weighted average common shares outstanding - basic		9,049,007		9,972,899
Weighted average common shares outstanding - diluted		9,058,685		9,972,899

See Notes to Unaudited Condensed Consolidated Financial Statements

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Bank7 Corp.

Unaudited Condensed Consolidated Statements of Shareholders’ Equity

(Dollar Amounts in thousands, except share data)

	Three Months Ended March 31,
	2021			2020
Common Stock (Shares)
Balance at beginning of period		9,044,765			10,057,506
Shares issued for restricted stock units		4,491			-
Shares acquired and canceled		-			(793,094	)
Balance at end of period		9,049,256			9,264,412

Common Stock (Amount)
Balance at beginning of period	$	90		$	101
Shares acquired and canceled		-			(8	)
Balance at end of period	$	90		$	93

Additional Paid-in Capital
Balance at beginning of period	$	93,162		$	92,391
Stock-based compensation expense		302			180
Balance at end of period	$	93,464		$	92,571

Retained Earnings
Balance at beginning of period	$	14,067		$	7,634
Net income		5,104			5,051
Common stock acquired and canceled		-			(6,807	)
Cash dividends declared ($0.11 and $0.10 per share for March 31, 2021 and 2020, respectively)		(995	)		(926	)
Balance at end of period	$	18,176		$	4,952

Total Shareholders' equity	$	111,730		$	97,616

See Notes to Unaudited Condensed Consolidated Financial Statements

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Bank7 Corp.

Unaudited Condensed Consolidated Statements of Cash Flows

(Dollar Amounts in thousands)

	For the Three Months Ended March 31,
	2021			2020

Operating Activities
Net income	$	5,104		$	5,051
Items not requiring (providing) cash
Depreciation and amortization		262			270
Provision for loan losses		1,275			650
Gain on sales of loans		(14	)		(38	)
Stock-based compensation expense		302			180
Cash receipts from the sale of loans originated for sale		2,267			2,440
Cash disbursements for loans originated for sale		(1,929	)		(1,371	)
Deferred income tax benefit		(314	)		(20	)
Changes in
Interest receivable and other assets		805			203
Interest payable and other liabilities		1,481			1,098

Net cash provided by operating activities		9,239			8,463

Investing Activities
Maturities of interest-bearing time deposits in other banks		9,449			12,723
Purchases of interest-bearing time deposits in other banks		-			(12,678	)
Net change in loans		(24,845	)		(78,412	)
Purchases of premises and equipment		(117	)		(238	)
Change in nonmarketable equity securities		(15	)		11

Net cash used in investing activities		(15,528	)		(78,594	)

Financing Activities
Net change in deposits		23,515			113,473
Cash distributions		(995	)		(5,029	)
Common stock acquired and canceled		-			(6,815	)

Net cash provided by financing activities		22,520			101,629

Increase in Cash and Due from Banks		16,231			31,498

Cash and Due from Banks, Beginning of Period		153,901			117,128

Cash and Due from Banks, End of Period	$	170,132		$	148,626

Supplemental Disclosure of Cash Flows Information
Interest paid	$	969		$	2,245
Dividends declared and not paid	$	995		$	926

See Notes to Unaudited Condensed Consolidated Financial Statements

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Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1:

Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations

Bank7 Corp. (the “Company”), formerly known as Haines Financial Corp, is a bank holding company whose principal activity is the ownership and management of its wholly owned subsidiary, Bank7 (the “Bank”). The Bank is primarily engaged in providing a full range of banking and financial services to individual and corporate customers located in Oklahoma, Kansas, and Texas. The Bank is subject to competition from other financial institutions. The Company is subject to the regulation of certain federal agencies and undergoes periodic examinations by those regulatory authorities.

Basis of Presentation

The accompanying unaudited interim consolidated financial statements contained herein reflect all adjustments which are, in the opinion of management, necessary to provide a fair statement of the financial position, results of operations, and cash flows of the Company for the interim periods presented. All such adjustments are of a normal and recurring nature. There have been no significant changes in the accounting policies of the Company since December 31, 2020, the date of the most recent annual report. The condensed consolidated balance sheet of the Company as of December 31, 2020 has been derived from the audited consolidated balance sheet of the Company as of that date. Certain information and notes normally included in the Company’s annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The information contained in the financial statements and footnotes included in Company’s annual report for the year ended December 31, 2020, should be referred to in connection with these unaudited interim consolidated financial statements. Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.

Share Repurchase Program

During the three months ended March 31, 2021, there were no repurchased shares under the Company’s share repurchase program. During the three months ended March 31, 2020, 793,094 shares were repurchased under the Company’s share repurchase program at an average price of $8.59 per share.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company, the Bank and its subsidiary, 1039 NW 63^rd, LLC, which holds real estate utilized by the Bank. All significant intercompany accounts and transactions have been eliminated in consolidation.

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Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, valuation of other real estate owned, other-than-temporary impairments, income taxes, goodwill and intangibles and fair values of financial instruments.

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoffs are reported at their outstanding principal balances adjusted for unearned income, charge-offs, the allowance for loan losses, any unamortized deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans.

For loans amortized at cost, interest income is accrued based on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, as well as premiums and discounts, are deferred and amortized over the respective term of the loan.

The accrual of interest on loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. 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 interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

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. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

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Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

The allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For those loans that are classified as impaired, an allowance is established when the discounted cash flows or collateral value or observable market price of the impaired loan is lower than the carrying value of that loan. The general component covers nonimpaired loans and is based on historical charge-off experience and expected loss given default derived from the Company’s internal risk rating process. Other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral-dependent.

Groups of loans with similar risk characteristics are collectively evaluated for impairment based on the group’s historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans. Accordingly, the Company does not separately identify individual consumer loans for impairment measurements, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The ASU requires lessees to recognize a lease liability and a right-of-use asset for all leases, excluding short-term leases, at the commencement date. The guidance in the ASU is effective for reporting periods beginning after December 15, 2021. Additionally, a modified retrospective transition approach is required for a leases existing at the earliest comparative period presented. Management is assessing the impact of this ASU; however, it is not expected to have a significant impact on the Company’s financial condition, results of operation, or capital position, but will impact the presentation on the balance sheet of the Company’s current operating leases. The Company will adopt this ASU in the fourth quarter of 2021.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326). The ASU requires the replacement of the current incurred loss model with an expected loss model, referred to as the current expected credit loss (CECL) model. The guidance in the ASU is effective for reporting periods beginning after December 15, 2022 with a cumulative-effect adjustment to retained earnings required for the first reporting period. Management is still assessing the impact of this ASU. The Company will adopt this ASU in the first quarter of 2023.

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Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

Legislative and Regulatory Developments

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law. It contains substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic. The goal of the CARES Act is to prevent a severe economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors. The CARES Act also includes a range of other provisions designed to support the U.S. economy and mitigate the impact of COVID-19 on financial institutions and their customers, including through the authorization of various programs and measures that the U.S. Department of the Treasury, the Small Business Administration, the Federal Reserve Board, and other federal banking agencies may or are required to implement. Further, in response to the COVID-19 outbreak, the Federal Reserve Board has implemented or announced a number of facilities to provide emergency liquidity to various segments of the U.S. economy and financial market.

In April 2020, the Company began originating loans to qualified small businesses under the Paycheck Protection Program (PPP) administered by the Small Business Administration (SBA). PPP loans are fully guaranteed by the SBA and thus have a zero percent risk weight under applicable risk-based capital rules. As of March 31, 2021, the Company had 401 PPP loans with balances totaling $64.7 million.

The extent to which the COVID-19 pandemic impacts the Company’s business, liquidity, asset valuations, results of operations, and financial condition, as well as its regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic. Moreover, the effects of the COVID-19 pandemic may have a material adverse effect on all or a combination of valuation impairments on the Company's intangible assets, loans, or deferred tax assets.

Note 2:

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.

Note 3:

Earnings Per Share

Basic earnings per common share represents the amount of earnings for the period available to each share of common stock outstanding during the reporting period. Basic EPS is computed based upon net income divided by the weighted average number of common shares outstanding during the year.

Diluted EPS represents the amount of earnings for the period available to each share of common stock outstanding including common stock that would have been outstanding assuming the issuance of common shares for all dilutive potential common shares outstanding during each reporting period. Diluted EPS is computed based upon net income dividend by the weighted average number of commons shares outstanding during each period, adjusted for the effect of dilutive potential common shares, such as restricted stock awards and nonqualified stock options, calculated using the treasury stock method.

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Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

The following table shows the computation of basic and diluted earnings per share:

	For the three months ended March 31,
	2021		2020
(Dollars in thousands, except per share amounts)
Numerator
Net income	$	5,104	$	5,051

Denominator
Weighted-average shares outstanding for basic earnings per share		9,049,007		9,972,899
Dilutive effect of stock compensation ⁽¹⁾		9,678		-
Denominator for diluted earnings per share		9,058,685		9,972,899

Earnings per common share
Basic	$	0.56	$	0.51
Diluted	$	0.56	$	0.51

(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 265,750 and 186,500 for the three month periods ended March 31, 2021 and 2020, respectively; Restricted stock units of 30,000 for the three month period ended March 31, 2021

Note 4:

Loans and Allowance for Loan Losses

A summary of loans at March 31, 2021 and December 31, 2020, are as follows (dollars in thousands):

	March 31, 2021			December 31, 2020

Construction & development	$	108,714		$	107,855
1 - 4 family real estate		34,454			29,079
Commercial real estate - other		308,399			290,489
Total commercial real estate		451,567			427,423

Commercial & industrial		361,440			351,248
Agricultural		42,346			50,519
Consumer		8,907			9,898

Gross loans		864,260			839,088

Less allowance for loan losses		(10,864	)		(9,639	)
Less deferred loan fees		(2,852	)		(2,475	)

Net loans	$	850,544		$	826,974

Included in the commercial & industrial loan balance are $64.7 million and $44.9 million of loans that were originated under the SBA PPP program as of March 31, 2021 and December 31, 2020, respectively.

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Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

The following table presents, by portfolio segment, the activity in the allowance for loan losses for the three months ended March 31, 2021 and 2020 (dollars in thousands):

	Construction & Development		1 - 4 Family Real Estate		Commercial Real Estate - Other		Commercial & Industrial		Agricultural			Consumer			Total

March 31, 2021
Balance, beginning of period	$	1,239	$	334	$	3,337	$	4,035	$	580		$	114		$	9,639

Charge-offs		-		-		-		-		-			(50	)		(50	)
Recoveries		-		-		-		-		-			-			-

Net charge-offs		-		-		-		-		-			(50	)		(50	)

Provision (credit) for loan losses		128		99		540		508		(48	)		48			1,275

Balance, end of period	$	1,367	$	433	$	3,877	$	4,543	$	532		$	112		$	10,864

	Construction & Development		1 - 4 Family Real Estate			Commercial Real Estate - Other		Commercial & Industrial		Agricultural			Consumer			Total

March 31, 2020
Balance, beginning of period	$	782	$	378		$	3,025	$	2,887	$	642		$	132		$	7,846

Charge-offs		-		-			-		-		-			-			-
Recoveries		-		1			-		6		10			-			17

Net recoveries		-		1			-		6		10			-			17

Provision (credit) for loan losses		162		(3	)		7		602		(101	)		(17	)		650

Balance, end of period	$	944	$	376		$	3,032	$	3,495	$	551		$	115		$	8,513

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Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

The following table presents, by portfolio segment, the balance in allowance for loan losses and the gross loans based upon portfolio segment and impairment method as of March 31, 2021 and December 31, 2020 (dollars in thousands):

	Construction & Development		1 - 4 Family Real Estate		Commercial Real Estate - Other		Commercial & Industrial		Agricultural		Consumer		Total

March 31, 2021
Allowance Balance
Ending balance Individually evaluated for impairment	$	-	$	-	$	-	$	171	$	-	$	-	$	171
Collectively evaluated for impairment		1,367		433		3,877		4,372		532		112		10,693

Total	$	1,367	$	433	$	3,877	$	4,543	$	532	$	112	$	10,864

Gross Loans
Ending balance Individually evaluated for impairment	$	-	$	-	$	7,974	$	14,290	$	409	$	188	$	22,861
Collectively evaluated for impairment		108,714		34,454		300,425		347,150		41,937		8,719		841,399

Total	$	108,714	$	34,454	$	308,399	$	361,440	$	42,346	$	8,907	$	864,260

December 31, 2020
Allowance Balance
Ending balance Individually evaluated for impairment	$	-	$	-	$	-	$	177	$	-	$	-	$	177
Collectively evaluated for impairment		1,239		334		3,337		3,858		580		114		9,462

Total	$	1,239	$	334	$	3,337	$	4,035	$	580	$	114	$	9,639

Gross Loans
Ending balance Individually evaluated for impairment	$	-	$	-	$	8,054	$	14,601	$	468	$	-	$	23,123
Collectively evaluated for impairment		107,855		29,079		282,435		336,647		50,051		9,898		815,965

Total	$	107,855	$	29,079	$	290,489	$	351,248	$	50,519	$	9,898	$	839,088

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Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

Internal Risk Categories

Each loan segment is made up of loan categories possessing similar risk characteristics.

Risk characteristics applicable to each segment of the loan portfolio are described as follows:

Real Estate – The real estate portfolio consists of residential and commercial properties. Repayment of these loans is primarily dependent on the personal income and credit rating of the borrowers. Credit risk in these loans can be impacted by economic conditions within the Company’s market areas that might impact either property values or a borrower’s personal income. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers. Commercial real estate loans in this category typically involve larger principal amounts and are repaid primarily from the cash flow of a borrower’s principal business operation, the sale of the real estate or income independent of the loan purpose. Credit risk in these loans is driven by the creditworthiness of a borrower, property values, the local economy and other economic conditions impacting a borrower’s business or personal income.

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

Agricultural – Loans secured by agricultural assets are generally made for the purpose of acquiring land devoted to crop production, cattle or poultry or the operation of a similar type of business on the secured property. Sources of repayment for these loans generally include income generated from operations of a business on the property, rental income or sales of the property. Credit risk in these loans may be impacted by crop and commodity prices, the creditworthiness of a borrower, and changes in economic conditions which might affect underlying property values and the local economies in the Company’s market areas.

Consumer – The consumer loan portfolio consists of various term and line of credit loans such as automobile loans and loans for other personal purposes. Residential loans in this category are generally secured by owner occupied 1–4 family residences. Repayment for these types of loans will come from a borrower’s income sources that are typically independent of the loan purpose. Credit risk is driven by consumer economic factors, such as unemployment and general economic conditions in the Company’s market area and the creditworthiness of a borrower.

Loan grades are numbered 1 through 4. Grade 1 is considered satisfactory. The grades of 2 and 3, or Watch and Special Mention, respectively, represent loans of lower quality and are considered criticized. Grade of 4, or Substandard, refers to loans that are classified.

•

Grade 1 (Pass) – These loans generally conform to Bank policies, and are characterized by policy conforming advance rates on collateral, and have well-defined repayment sources. In addition, these credits are extended to Borrowers and/or Guarantors with a strong balance sheet and either substantial liquidity or a reliable income history.

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Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

•

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

•

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

•

Grade 4 (Substandard) – These loans are not adequately protected by the sound worth and debt service capacity of the Borrower, but may be well secured. They have defined weaknesses relative to cash flow, collateral, financial condition, or other factors that might jeopardize repayment of all of the principal and interest on a timely basis. There is the possibility that a future loss will occur if weaknesses are not remediated.

The Company evaluates the definitions of loan grades and the allowance for loan losses methodology on an ongoing basis. No changes were made to either during the period ended March 31, 2021.

The following table presents the credit risk profile of the Company’s loan portfolio based on internal rating category as of March 31, 2021 and December 31, 2020 (dollars in thousands):

	Construction & Development		1 - 4 Family Real Estate		Commercial Real Estate - Other		Commercial & Industrial		Agricultural		Consumer		Total

March 31, 2021
Grade
1 (Pass)	$	108,714	$	34,331	$	246,748	$	339,922	$	41,937	$	8,719	$	780,371
2 (Watch)		-		123		43,326		6,561		-		-		50,010
3 (Special Mention)		-		-		10,351		667		-		-		11,018
4 (Substandard)		-		-		7,974		14,290		409		188		22,861

Total	$	108,714	$	34,454	$	308,399	$	361,440	$	42,346	$	8,907	$	864,260

	Construction & Development		1 - 4 Family Real Estate		Commercial Real Estate - Other		Commercial & Industrial		Agricultural		Consumer		Total

December 31, 2020
Grade
1 (Pass)	$	107,855	$	28,711	$	248,194	$	328,656	$	50,051	$	9,898	$	773,365
2 (Watch)		-		368		24,155		7,691		-		-		32,214
3 (Special Mention)		-		-		10,086		300		-		-		10,386
4 (Substandard)		-		-		8,054		14,601		468		-		23,123

Total	$	107,855	$	29,079	$	290,489	$	351,248	$	50,519	$	9,898	$	839,088

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Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

The following table presents the Company’s loan portfolio aging analysis of the recorded investment in loans as of March 31, 2021 and December 31, 2020 (dollars in thousands):

	Past Due
	30–59 Days		60–89 Days		Greater than 90 Days		Total		Current		Total Loans		Total Loans > 90 Days & Accruing

March 31, 2021
Construction & development	$	-	$	-	$	-	$	-	$	108,714	$	108,714	$	-
1 - 4 Family Real Estate		-		-		-		-		34,454		34,454		-
Commercial Real Estate - other		-		-		1,960		1,960		306,439		308,399		1,960
Commercial & industrial		-		21		-		21		361,419		361,440		-
Agricultural		-		76		-		76		42,270		42,346		-
Consumer		188		-		-		188		8,719		8,907		-

Total	$	188	$	97	$	1,960	$	2,245	$	862,015	$	864,260	$	1,960

December 31, 2020
Construction & development	$	714	$	-	$	-	$	714	$	107,141	$	107,855	$	-
1 - 4 Family Real Estate		-		-		-		-		29,079		29,079		-
Commercial Real Estate - other		1,444		-		1,960		3,404		287,085		290,489		1,960
Commercial & industrial		-		-		-		-		351,248		351,248		-
Agricultural		-		-		-		-		50,519		50,519		-
Consumer		193		-		-		193		9,705		9,898		-

Total	$	2,351	$	-	$	1,960	$	4,311	$	834,777	$	839,088	$	1,960

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Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

The following table presents impaired loans as of March 31, 2021 and December 31, 2020 (dollars in thousands):

	Unpaid Principal Balance		Recorded Investment with No Allowance		Recorded Investment with an Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized
											Three Months Ended March 31, 2021
March 31, 2021
Construction & development	$	-	$	-	$	-	$	-	$	-	$	-	$	-
1 - 4 Family Real Estate		-		-		-		-		-		-		-
Commercial Real Estate - other		8,321		7,974		-		7,974		-		8,001		122
Commercial & industrial		17,909		14,119		171		14,290		171		14,336		202
Agricultural		709		409		-		409		-		409		-
Consumer		238		188		-		188		-		63		-

Total	$	27,177	$	22,690	$	171	$	22,861	$	171	$	22,809	$	324


December 31, 2020											Three Months Ended March 31, 2020
Construction & development	$	-	$	-	$	-	$	-	$	-	$	-	$	-
1 - 4 Family Real Estate		-		-		-		-		-		-		-
Commercial Real Estate - other		8,353		8,054		-		8,054		-		3,926		71
Commercial & industrial		18,082		14,424		177		14,601		177		4,093		181
Agricultural		768		468		-		468		-		2,847		38
Consumer		-		-		-		-		-		-		-

Total	$	27,203	$	22,946	$	177	$	23,123	$	177	$	10,866	$	290

Impaired loans include nonperforming loans and also include loans modified in troubled-debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.

Included in certain loan categories in the impaired loans are troubled debt restructurings that were classified as impaired. At March 31, 2021, the Company had $1.6 million of commercial real estate loans, $10.8 million of commercial industrial, and $409,000 of agricultural loans that were modified in troubled-debt restructurings and impaired, compared to $1.6 million of commercial real estate, $10.9 million of commercial and industrial, and $469,000 of agricultural loans that were modified in troubled-debt restructurings and impaired as of December 31, 2020. There were no newly modified troubled-debt restructurings during the three months ended March 31, 2021.

There were no troubled-debt restructurings modified in the past three months that subsequently defaulted for the period ended March 31, 2021.

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Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

The following table represents information regarding nonperforming assets at March 31, 2021 and December 31, 2020 (dollars in thousands):

	Construction & Development		1 - 4 Family Real Estate		Commercial Real Estate - Other		Commercial & Industrial		Agricultural		Consumer		Total

March 31, 2021
Nonaccrual loans	$	-	$	-	$	2,898	$	10,922	$	409	$	188	$	14,417
Troubled-debt restructurings (1)		-		-		-		-		-		-		-
Accruing loans 90 or more days past due		-		-		1,960		-		-		-		1,960

Total nonperforming loans	$	-	$	-	$	4,858	$	10,922	$	409	$	188	$	16,377

	Construction & Development		1 - 4 Family Real Estate		Commercial Real Estate - Other		Commercial & Industrial		Agricultural		Consumer		Total

December 31, 2020
Nonaccrual loans	$	-	$	-	$	3,043	$	11,063	$	469	$	-	$	14,575
Troubled-debt restructurings (1)		-		-		-		-		-		-		-
Accruing loans 90 or more days past due		-		-		1,960		-		-		-		1,960

Total nonperforming loans	$	-	$	-	$	5,003	$	11,063	$	469	$	-	$	16,535

(1)

$12.71 million and $12.98 million of TDRs as of March 31, 2021 and December 31, 2020, respectively, are included in the nonaccrual loans balance in the line above.

The CARES Act includes a provision that permits a financial institution to elect to suspend temporarily troubled debt restructuring accounting under ASC Subtopic 310-40 in certain circumstances (“section 4013”). To be eligible under section 4013, a loan modification must be (1) related to COVID-19; (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (A) 60 days after the date of termination of the National Emergency or (B) January 1, 2022. In response to this section of the CARES Act, the federal banking agencies issued a revised interagency statement on April 7, 2020 that, in consultation with the Financial Accounting Standards Board, confirmed that for loans not subject to section 4013, short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not troubled debt restructurings under ASC Subtopic 310-40. This includes short-term (e.g., up to six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. As of March 31, 2021, seven loans totaling $42.3 million were modified, related to COVID-19, which were not considered troubled debt restructurings.

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Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 5:

Shareholders’ Equity

On September 5, 2019, the Company adopted a Repurchase Plan (the “RP”). The RP initially authorized the repurchase of up to 500,000 shares of the Company’s common stock. On March 13, 2020, the Company’s Board of Directors approved a 500,000 share expansion, and on November 2, 2020, approved a 750,000 share expansion to the existing stock repurchase program, for a total of 1,750,000 shares authorized under the program. All shares repurchased under the RP have been retired and not held as treasury stock. The timing, price and amount of stock repurchases under the RP may be determined by management. At March 31, 2021, there were 717,822 shares remaining that could be repurchased under the Company’s Repurchase Program. Stock repurchases under the RP will take place pursuant to a Rule 10b5-1 Plan with pricing and purchasing parameters established by management.

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

	Three Months Ended March 31,
	2021		2020
Number of shares repurchased		-		793,094
Average price of shares repurchased	$	-	$	8.59
Shares remaining to be repurchased		717,822		206,906

The Company and Bank are subject to risk-based capital guidelines issued by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance-sheet items as calculated under GAAP, regulatory reporting requirements and regulatory capital standards. The Company’s and Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Furthermore, the Company’s and the Bank’s regulators could require adjustments to regulatory capital not reflected in these financial statements.

Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios (set forth in the following table) of total, Tier I, and Common Equity capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier I capital (as defined) to average assets (as defined). Management believes, as of March 31, 2021, that the Company and Bank meet all capital adequacy requirements to which it is subject and maintains capital conservation buffers that allow the Company and Bank to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to certain executive officers.

As of March 31, 2021, 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. There are no conditions or events since that notification that management believes have changed the Bank’s category.

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Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

In April 2020, we began originating loans to qualified small businesses under the PPP administered by the SBA. Federal bank regulatory agencies have issued an interim final rule that permits banks to neutralize the regulatory capital effects of participating in the Paycheck Protection Program Lending Facility (the “PPP Facility”) and clarify that PPP loans have a zero percent risk weight under applicable risk-based capital rules. 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. The PPP loans of $64.7 million we originated are included in the calculation of our leverage ratio as of March 31, 2021 as we did not utilize the PPP Facility for funding purposes.

The Company’s and Bank’s actual capital amounts and ratios are presented in the following table (dollars in thousands):

	Actual					Minimum Capital Requirements					With Capital Conservation Buffer					Minimum To Be Well Capitalized Under Prompt Corrective Action
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio

As of March 31, 2021
Total capital to risk-weighted assets
Company	$	119,986		15.34	%	$	62,583		8.00	%	$	82,140		10.50	%		N/A		N/A
Bank		119,933		15.35	%		62,501		8.00	%		82,033		10.50	%	$	78,126		10.00	%
Tier I capital to risk-weighted assets
Company		110,194		14.09	%		46,937		6.00	%		66,494		8.50	%		N/A		N/A
Bank		110,154		14.10	%		46,876		6.00	%		66,407		8.50	%		62,501		8.00	%
CET I capital to risk-weighted assets
Company		110,194		14.09	%		35,203		4.50	%		54,760		7.00	%		N/A		N/A
Bank		110,154		14.10	%		35,157		4.50	%		54,688		7.00	%		50,782		6.50	%
Tier I capital to average assets
Company		110,194		11.23	%		39,255		4.00	%		N/A		N/A			N/A		N/A
Bank		110,154		11.23	%		39,229		4.00	%		N/A		N/A			49,036		5.00	%

As of December 31, 2020
Total capital to risk-weighted assets
Company	$	115,375		14.73	%	$	62,641		8.00	%	$	82,216		10.50	%		N/A		N/A
Bank		115,335		14.75	%		62,563		8.00	%		82,114		10.50	%	$	78,204		10.00	%
Tier I capital to risk-weighted assets
Company		105,736		13.50	%		46,981		6.00	%		66,556		8.50	%		N/A		N/A
Bank		105,696		13.51	%		46,922		6.00	%		66,473		8.50	%		62,563		8.00	%
CET I capital to risk-weighted assets
Company		105,736		13.50	%		35,236		4.50	%		54,811		7.00	%		N/A		N/A
Bank		105,696		13.51	%		35,192		4.50	%		54,743		7.00	%		50,832		6.50	%
Tier I capital to average assets
Company		105,736		10.78	%		39,218		4.00	%		N/A		N/A			N/A		N/A
Bank		105,696		10.78	%		39,233		4.00	%		N/A		N/A			49,041		5.00	%

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Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

The federal banking agencies require that banking organizations meet several risk-based capital adequacy requirements. The current risk-based capital standards applicable to the Company and the Bank are based on the Basel III Capital Rules established by the Basel Committee on Banking Supervision (the “Basel Committee”). The Basel Committee is a committee of central banks and bank supervisors/regulators from the major industrialized countries that develops broad policy guidelines for use by each country’s supervisors in determining the supervisory policies they apply. The requirements are intended to ensure that banking organizations have adequate capital given the risk levels of assets and off-balance sheet financial instruments.

The Basel III Capital Rules require the Bank and the Company to comply with four minimum capital standards: a Tier 1 leverage ratio of at least 4.0%; a CET1 to risk-weighted assets of 4.5%; a Tier 1 capital to risk-weighted assets of at least 6.0%; and a total capital to risk-weighted assets of at least 8.0%. The calculation of all types of regulatory capital is subject to definitions, deductions and adjustments specified in the regulations.

The Basel III Capital Rules also require a “capital conservation buffer” of 2.5% above the regulatory minimum risk-based capital requirements. The capital conservation buffer is designed to absorb losses during periods of economic stress and effectively increases the minimum required risk-weighted capital ratios. Banking institutions with a ratio of CET1 to risk-weighted assets below the effective minimum (4.5% plus the capital conservation buffer) are subject to limitations on certain activities, including payment of dividends, share repurchases and discretionary bonuses to executive officers based on the amount of the shortfall.

As of March 31, 2021, the Company’s and the Bank’s capital ratios exceeded the minimum capital adequacy guideline percentage requirements under the Basel III Capital Rules on a fully phased-in basis.

The Bank is subject to certain restrictions on the amount of dividends that it may declare without prior regulatory approval. At March 31, 2021, approximately $21.4 million of retained earnings was available for dividend declaration from the Bank without prior regulatory approval.

Note 6:

Related-Party Transactions

At March 31, 2021 and December 31, 2020, the Company had loans outstanding to executive officers, directors, significant shareholders and their affiliates (related parties) approximating $0. A summary of the activity related to these loans is as follows (dollars in thousands):

	Balance Beginning of the Period		Additions		Collections/ Terminations			Balance End of the Period

Three months ended March 31, 2021	$	-	$	-	$	-		$	-
Year ended December 31, 2020	$	1,055	$	-	$	(1,055	)	$	-

In management’s opinion, such loans and other extensions of credit and deposits were made in the ordinary course of business and were made on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with other persons. Further, in management’s opinion, these loans did not involve more than normal risk of collectability or present other unfavorable features.

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Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

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 $46,000 for the three months ended March 31, 2021 and 2020. In addition, payroll and office sharing arrangements were in place between the Company and certain of its affiliates.

Note 7:

Employee Benefits

401(k) Savings Plan

The Company has a retirement savings 401(k) plan covering substantially all employees. Employees may contribute up to the maximum legal limit with the Bank matching up to 5% of the employee’s salary. Employer contributions charged to expense for the three months ended March 31, 2021 and 2020 totaled $65,000 and $45,000, respectively.

Stock-Based Compensation

The Company adopted a nonqualified incentive stock option plan (the “Bank7 Corp. 2018 Equity Incentive Plan”) in September 2018. The Bank7 Corp. 2018 Equity Incentive Plan will terminate in September 2028, if not extended. Compensation expense related to the Plan for the three months ended March 31, 2021 and 2020 totaled $302,000 and $180,000, respectively. There were 689,050 shares available for future grants as of March 31, 2021.

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 RSUs are considered fixed awards as the number of shares and fair value are known at the date of grant and the fair value at the grant date is amortized over the vesting and/or service period.

The Company uses newly issued shares for granting RSUs and stock options.

The following table is a summary of the stock option activity under the Bank7 Corp. 2018 Equity Incentive Plan (dollar amounts in thousands, except per share data):

	Options		Wgtd. Avg. Exercise Price		Wgtd. Avg. Remaining Contractual Term		Aggregate Intrinsic Value
Three Months Ended March 31, 2021
Outstanding at December 31, 2020		185,250	$	18.73
Options Granted		80,500		14.31
Options Exercised		-		-
Options Forfeited		-		-
Outstanding at March 31, 2021		265,750		17.39		8.32	$	278,100
Exercisable at March 31, 2021		85,682		18.76		7.61	$	6,225

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model and is based on certain assumptions including risk-free rate of return, dividend yield, stock price volatility and the expected term. The fair value of each option is expensed over its vesting period.

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Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

The following table shows the assumptions used for computing stock-based compensation expense under the fair value method on options granted during the period presented:

	Three Months Ended
	March 31, 2021			March 31, 2020
Risk-free interest rate		0.52	%		1.71	%
Dividend yield		2.89	%		2.20	%
Stock price volatility		66.67	%		41.27	%
Expected term		6.41			7.51

The following table summarizes share information about RSUs for the three months ended March 31, 2021:

Three Months Ended March 31, 2021	Number of Shares			Wgtd. Avg. Grant Date Fair Value
Outstanding at December 31, 2020		118,000		$	18.09
Shares granted		25,200			14.31
Shares settled		(6,398	)		18.49
Shares forfeited		-			-
End of the period balance		136,802		$	17.37

As of March 31, 2021, there was approximately $2.1 million of unrecognized compensation expense related to 136,802 unvested RSUs and $834,000 of unrecognized compensation expense related to 265,750 unvested and/or unexercised stock options. The stock option expense is expected to be recognized over a weighted average period of 3.09 years, and the RSU expense is expected to be recognized over a weighted average period of 3.00 years.

Note 8:

Disclosures About Fair Value of Assets and Liabilities

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value:

Level 1

Quoted prices in active markets for identical assets or liabilities

Level 2

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

Level 3

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

Recurring Measurements

There were no assets measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020.

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Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

Nonrecurring Measurements

The following table presents the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2021 and December 31, 2020 (dollars in thousands):

	Fair Value		(Level 1)		(Level 2)		(Level 3)

March 31, 2021
Impaired loans (collateral- dependent)	$	188	$	-	$	-	$	188

December 31, 2020
Impaired loans (collateral- dependent)	$	11,358	$	-	$	-	$	11,358

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

Collateral-Dependent Impaired Loans, Net of Allowance for Loan Losses

The estimated fair value of collateral-dependent impaired loans is based on fair value, less estimated cost to sell. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy.

The Company considers evaluation analysis as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. Values of the collateral underlying collateral-dependent loans are obtained when the loan is determined to be collateral-dependent and subsequently as deemed necessary by executive management and loan administration. Values are reviewed for accuracy and consistency by executive management and loan administration. The ultimate collateral values are reduced by discounts to consider lack of marketability and estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral.

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Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

Unobservable (Level 3) Inputs

The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements.

	Fair Value		Valuation Technique	Unobservable Inputs	Weighted- Average
March 31, 2021
Collateral-dependent impaired loans	$	188	Appraisals from comparable properties	Estimated cost to sell		3-5	%

December 31, 2020
Collateral-dependent impaired loans	$	11,358	Appraisals from comparable properties	Estimated cost to sell		3-5	%

The following tables presents estimated fair values of the Company’s financial instruments not recorded at fair value at March 31, 2021 and December 31, 2020 (dollars in thousands):

			Fair Value Measurements
	Carrying Amount		Level 1		Level 2		Level 3		Total
March 31, 2021

Financial Assets
Cash and due from banks	$	170,132	$	170,132	$	-	$	-	$	170,132
Interest-bearing time
deposits in other banks		6,963		-		6,963		-		6,963
Loans, net of allowance		850,544		-		849,804		188		849,992
Nonmarketable equity securities		1,187		-		1,187		-		1,187
Interest receivable		3,526		-		3,526		-		3,526

Financial Liabilities
Deposits	$	929,029	$	-	$	928,307	$	-	$	928,307
Interest payable		192		-		192		-		192

December 31, 2020

Financial Assets
Cash and due from banks	$	153,901	$	153,901	$	-	$	-	$	153,901
Interest-bearing time
deposits in other banks		16,412		-		16,412		-		16,412
Loans, net of allowance		826,974		-		815,223		11,358		826,581
Mortgage loans held for sale		324		-		324		-		324
Nonmarketable equity securities		1,172		-		1,172		-		1,172
Interest receivable		4,365		-		4,365		-		4,365

Financial Liabilities
Deposits	$	905,514	$	-	$	904,928	$	-	$	904,928
Interest payable		286		-		286		-		286

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Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying consolidated balance sheets at amounts other than fair value:

Cash and Due from Banks, Interest-Bearing Time Deposits in Other Banks, Nonmarketable Equity Securities, Interest Receivable and Interest Payable

The carrying amount approximates fair value.

Loans and Mortgage Loans Held for Sale

The Company determines fair value of loans by using exit market assumptions including factors such as liquidity, credit quality and risk of nonperformance. The fair value is estimated by discounting the future cash flows using the market rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics were aggregated for purposes of the calculations.

Deposits

Deposits include demand deposits, savings accounts, NOW accounts and certain money market deposits. The carrying amount approximates fair value. The fair value of fixed-maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities.

Commitments to Extend Credit, Lines of Credit and Standby Letters of Credit

The fair values of unfunded commitments are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. The fair values of standby letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date. The estimated fair values of the Company’s commitments to extend credit, lines of credit and standby letters of credit were not material at March 31, 2021 and December 31, 2020.

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Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 9:

Financial Instruments with Off-Balance Sheet Risk

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the accompanying consolidated balance sheets. The following summarizes those financial instruments with contract amounts representing credit risk as of March 31, 2021 and December 31, 2020 (dollars in thousands):

	March 31, 2021		December 31, 2020

Commitments to extend credit	$	208,395	$	206,520
Financial and performance standby letters of credit		2,198		2,366

	$	210,593	$	208,886

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Each instrument generally has fixed expiration dates or other termination clauses. Since many of the instruments are expected to expire without being drawn upon, total commitments to extend credit amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary, by the Company upon extension of credit is based on management’s credit evaluation of the customer. Standby letters of credit are irrevocable conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

Note 10:

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 4 regarding loans. Current vulnerabilities due to off-balance sheet credit risk are discussed in Note 9.

As of March 31, 2021, hospitality loans were 24% of gross total loans with outstanding balances of $208.3 million and unfunded commitments of $62.0 million; energy loans were 11% of gross total loans with outstanding balances of $93.3 million and unfunded commitments of $10.0 million.

The Company evaluates goodwill for potential goodwill impairment on an annual basis or more often based on consideration if any impairment indicators have occurred. A prolonged strain on the U.S. economy impacting the Company could result in goodwill being partially or fully impaired. At March 31, 2021, goodwill of $1.0 million was recorded on the consolidated balance sheet.

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ITEM 2.

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Quarterly Report and in our Annual Report on Form 10-K for the year ended December 31, 2020.

Unless the context indicates otherwise, references in this management’s discussion and analysis to “we”, “our”, and “us,” refer to Bank7 Corp. and its consolidated subsidiaries. All references to “the Bank” refer to Bank7, our wholly owned subsidiary.

General

We are Bank7 Corp., a bank holding company headquartered in Oklahoma City, Oklahoma. Through our wholly-owned subsidiary, Bank7, we operate nine locations in Oklahoma, the Dallas/Fort Worth, Texas metropolitan area and Kansas. We are focused on serving business owners and entrepreneurs by delivering fast, consistent and well-designed loan and deposit products to meet their financing needs. We intend to grow organically by selectively opening additional branches in our target markets and pursuing strategic acquisitions.

As a bank holding company, we generate most of our revenue from interest income on loans and from short-term investments. The primary source of funding for our loans and short-term investments are deposits held by our subsidiary, Bank7. We measure our performance by our return on average assets, return on average equity, earnings per share, capital ratios, efficiency ratio (calculated by dividing noninterest expense by the sum of net interest income on a tax equivalent basis) and noninterest income.

As of March 31, 2021, we had total assets of $1.0 billion, total loans of $861.4 million, total deposits of $929.0 million and total shareholders’ equity of $111.7 million.

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Results of Operations

Performance Summary. For the first quarter of 2021 and 2020, we reported a pre-tax income of $6.8 million. For the first quarter of 2021, interest income decreased by $319,000, or 2.4%, compared to the first quarter of 2020. For the first quarter of 2021, average total loans were $847.5 million with loan yields of 6.27% as compared to $747.8 million with loan yields of 7.05% for the first quarter of 2020.

Our provision for loan losses for the first quarter of 2021 was $1.28 million, compared to $650,000 for the first quarter of 2020. The increase in provision expense was due to the higher potential for risk of loss related to an elevated level of nonperforming assets for an extended duration.

Return on average assets was 2.11% for the first quarter of 2021, as compared to 2.32% for the same period in 2020. The return on average equity was 19.02% for the first quarter of 2021, as compared to 19.97% for the same period in 2020. The efficiency ratio was 35.9% for the three months ended March 31, 2021, as compared to 37.0% for the same period in 2020.

Pre-tax return on average assets was 2.82% for the first quarter of 2021, as compared to 3.11% for the same period in 2020. The pre-tax return on average equity was 25.45% for the first quarter of 2021, as compared to 26.73% for the same period in 2020.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law. It contains substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic. The CARES Act created a $349 billion loan program called the Paycheck Protection Program (the “PPP”) for loans to small businesses for, among other things, payroll, group health care benefit costs and qualifying mortgage, rent and utility payments. PPP loans are fully guaranteed by the Small Business Administration (SBA). As of March 31, 2021, we had 401 PPP loans with balances totaling $64.7 million. We recognized $830,000 in PPP origination fees during the three month period ended March 31, 2021. Deferred PPP origination fees as of March 31, 2021 totaled $757,000.

Net Interest Income and Net Interest Margin. Net interest income, representing interest income less interest expense, was the primary contributor to income and earnings for the periods shown. Interest income is generated from interest earned on loans, dividends, and interest earned on deposits at other institutions. Interest expense is incurred on interest-bearing liabilities including deposits and other borrowings. Net interest income is evaluated by measuring (i) yield on loans and other interest-earning assets, (ii) the costs of deposits and other funding sources and (iii) net interest margin. Net interest margin is calculated as the annualized net interest income divided by average interest-earning assets.

Changes in market interest rates and interest rates earned on interest-earning assets or paid on interest-bearing liabilities, as well as the volume and types of interest-earning assets, interest-bearing and noninterest-bearing liabilities, are usually the largest drivers of periodic changes in net interest margin and net interest income.

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

	Net Interest Margin
	For the Three Months Ended March 31,
	2021							2020
	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(1)	$	125,739	$	92		0.30	%	$	117,046	$	398		1.37	%
Investment securities(2)		1,172		2		0.69	%		1,100		3		1.10	%
Loans held for sale		378		-		0.00	%		127		-		0.00	%
Total loans(3)		847,498		13,094		6.27	%		747,774		13,106		7.05	%
Total interest-earning assets		974,787		13,188		5.49	%		866,047		13,507		6.27	%
Noninterest-earning assets		7,103							8,756
Total assets	$	981,890						$	874,803

Funding sources:
Interest-bearing liabilities:
Deposits:
Transaction accounts	$	419,991		362		0.35	%	$	342,406		1,010		1.19	%
Time deposits		205,557		513		1.01	%		205,085		1,065		2.09	%
Total interest-bearing deposits		625,548		875		0.57	%		547,491		2,075		1.52	%
Total interest-bearing liabilities		625,548		875		0.57	%		547,491		2,075		1.52	%

Noninterest-bearing liabilities:
Noninterest-bearing deposits		243,290							221,000
Other noninterest-bearing liabilities		4,193							4,594
Total noninterest-bearing liabilities		247,483							225,594
Shareholders' equity		108,859							101,718
Total liabilities and shareholders' equity	$	981,890						$	874,803

Net interest income			$	12,313						$	11,432
Net interest spread(4)						4.92	%						4.75	%
Net interest margin						5.12	%						5.31	%

(1)	Includes income and average balances for fed funds sold, interest-earning deposits in banks and other miscellaneous interest-earning assets.

(2)	Includes income and average balances for FHLB and FRB stock.

(3)	Non-accrual loans of $12.7 million are included in loans.

(4)	Net interest spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities

For the first quarter of 2021 compared to the first quarter of 2020:

Interest income on short term investments totaled $92,000 as compared to $398,000, a decrease of $306,000 or 76.9% which was attributable to a decrease in yield on short term investments of 107 basis points, or 78.1%;

Loan fees totaled $1.99 million, an increase of $731,000 or 58.0% which was attributable to PPP fees;

Yield on interest earning assets totaled 5.49%, a decrease of 78 basis points or 12.4%, compared to yield on interest earning assets of 6.27% for the first quarter of 2020 which was attributable to a decreasing rate environment; and

Net interest margin for the first quarter of 2021 was 5.12% compared to 5.31% for the first quarter of 2020.

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

	Analysis of Changes in Interest Income and Expenses Including Loan Fee Income
	For the Three Months Ended March 31, 2021 over 2020
	Change due to:
	Volume⁽¹⁾		Rate⁽¹⁾			Interest Variance
	(Dollars in thousands)
Increase (decrease) in interest income:
Short-term investments	$	29	$	(335	)	$	(306	)
Investment securities		0		(1	)		(1	)
Total loans		1,733		(1,745	)		(12	)
Total increase in interest income		1,762		(2,081	)		(319	)

Increase (decrease) in interest expense:
Deposits
Transaction accounts		227		(875	)		(648	)
Time deposits		2		(554	)		(552	)
Total interest-bearing deposits		229		(1,429	)		(1,200	)
Total increase in interest expense		229		(1,429	)		(1,200	)

Increase (Decrease) in net interest income	$	1,533	$	(652	)	$	881

(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.

Provision for Loan Losses

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

The Allowance as a percentage of loans was 1.26% at March 31, 2021 as compared to 1.15% at December 31, 2020. The increase in the allowance was due to the higher potential for risk of loss related to an elevated level of nonperforming assets for an extended duration.

Noninterest Income

Noninterest income for the three months ended March 31, 2021 was $337,000 compared to $330,000 for the same period in 2020, an increase of $7,000, or 2.1%. The following table sets forth the major components of our noninterest income for the three months ended March 31, 2021 and 2020:

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	For the Three Months Ended
	March 31,
	2021		2020		$ Increase (Decrease)			% Increase (Decrease)
	(Dollars in thousands)
Noninterest income:
Secondary market income	$	14	$	38	$	(24	)		-63.16	%
Service charges on deposit accounts		120		119		1			0.84	%
Other income and fees		203		173		30			17.34	%
Total noninterest income	$	337	$	330	$	7			2.12	%

Noninterest Expense

Noninterest expense for the three months ended March 31, 2021 was $4.6 million compared to $4.4 million for the same period in 2020, an increase of $192,000, or 4.4%. The following table sets forth the major components of our noninterest expense for the three months ended March 31, 2021 and 2020:

	For the Three Months Ended
	March 31,
	2021		2020		$ Increase (Decrease)			% Increase (Decrease)
	(Dollars in thousands)
Noninterest expense:
Salaries and employee benefits	$	2,790	$	2,474	$	316			12.77	%
Furniture and equipment		202		216		(14	)		-6.48	%
Occupancy		472		461		11			2.39	%
Data and item processing		279		276		3			1.09	%
Accounting, marketing, and legal fees		148		126		22			17.46	%
Regulatory assessments		141		23		118			513.04	%
Advertising and public relations		34		269		(235	)		-87.36	%
Travel, lodging and entertainment		89		53		36			67.92	%
Other expense		390		455		(65	)		-14.29	%
Total noninterest expense	$	4,545	$	4,353	$	192			4.41	%

Salaries and employee benefits totaled $2.8 million for the first quarter of 2021 compared to $2.5 million for the same period in 2020, an increase of $316,000, or 12.8%. This increase was attributable to an increase in employee base due to bank-wide organic growth.

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Financial Condition

The following discussion of our financial condition compares March 31, 2021 and December 31, 2020.

Loan Portfolio

The following table presents the balance and associated percentage of each major category in our loan portfolio as of March 31, 2021 and December 31, 2020:

	As of March 31,						As of December 31,
	2021						2020
	Amount			% of Total			Amount			% of Total
	(Dollars in thousands)
Construction & development	$	108,714			12.6	%	$	107,855			12.8	%
1-4 family real estate		34,454			4.0	%		29,079			3.5	%
Commercial real estate - Other		308,399			35.7	%		290,489			34.6	%
Total commercial real estate		451,567			52.3	%		427,423			50.9	%

Commercial & industrial		361,440			41.8	%		351,248			41.9	%
Agricultural		42,346			4.9	%		50,519			6.0	%
Consumer		8,907			1.0	%		9,898			1.2	%
Gross Loans		864,260			100.0	%		839,088			100.0	%
Less unearned income, net		(2,852	)					(2,475	)
Total Loans, net of unearned income		861,408						836,613
Allowance for loan and lease losses		(10,864	)					(9,639	)
Net loans	$	850,544					$	826,974

Our loans represent the largest portion of our earning assets. The quality and diversification of the loan portfolio is an important consideration when reviewing our financial condition. As of March 31, 2021 and December 31, 2020, our gross loans were $864.3 million and $839.1 million, respectively. Included in the commercial & industrial loan balance at March 31, 2021 and December 31, 2020, respectively, are $64.7 million and $44.9 million of loans that were originated under the SBA PPP program.

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

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

	As of March 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				Total
	Fixed Rate		Adjustable Rate		Fixed Rate		Adjustable Rate		Fixed Rate		Adjustable Rate		Fixed Rate		Adjustable Rate		Total
	(Dollars in thousands)
Construction & development	$	14	$	52,486	$	898	$	54,354	$	-	$	962	$	-	$	-	$	108,714
1-4 family real estate		1,457		14,724		5,424		12,166		38		645		-		-		34,454
Commercial real estate - other		965		76,996		54,963		170,243		289		3,389		-		1,554		308,399
Total commercial real estate		2,436		144,206		61,285		236,763		327		4,996		-		1,554		451,567

Commercial & industrial		31,167		176,804		25,286		120,687		10		7,486		-		-		361,440
Agricultural		3,328		23,579		1,862		12,110		527		332		-		608		42,346
Consumer		1,437		-		5,830		76		1,057		422		85		-		8,907
Gross loans	$	38,368	$	344,589	$	94,263	$	369,636	$	1,921	$	13,236	$	85	$	2,162	$	864,260

	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				Total
	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

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Allowance for Loan and Lease Losses

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

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

The allowance was $10.9 million at March 31, 2021, compared to $9.6 million at December 31, 2020.

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

	For the Three Months Ended March 31,
	2021			2020
	(Dollars in thousands)
Balance at beginning of the period	$	9,639		$	7,846
Provision for loan losses		1,275			650
Charge-offs:
Construction & development		-			-
1-4 family real estate		-			-
Commercial real estate - Other		-			-
Commercial & industrial		-			-
Agricultural		-			-
Consumer		(50	)		-
Total charge-offs		(50	)		-
Recoveries:
Construction & development		-			-
1-4 family real estate		-			1
Commercial real estate - Other		-			-
Commercial & industrial		-			6
Agricultural		-			10
Consumer		-			-
Total recoveries		-			17
Net charge-offs		(50	)		17
Balance at end of the period	$	10,864		$	8,513

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

	As of March 31,					As of December 31,
	2021					2020
	Amount		Percent			Amount		Percent
	(Dollars in thousands)
Construction & development	$	1,367		12.6	%	$	1,239		12.9	%
1-4 family real estate		433		4.0	%		334		3.5	%
Commercial real estate - Other		3,877		35.7	%		3,337		34.6	%
Commercial & industrial		4,543		41.8	%		4,035		41.9	%
Agricultural		532		4.9	%		580		6.0	%
Consumer		112		1.0	%		114		1.2	%
Total	$	10,864		100.0	%	$	9,639		100.0	%

Nonperforming Assets

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

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

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

The CARES Act includes a provision that permits a financial institution to elect to suspend temporarily troubled debt restructuring accounting under ASC Subtopic 310-40 in certain circumstances (“section 4013”). To be eligible under section 4013, a loan modification must be (1) related to COVID-19; (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (A) 60 days after the date of termination of the National Emergency or (B) January 1, 2022. In response to this section of the CARES Act, the federal banking agencies issued a revised interagency statement on April 7, 2020 that, in consultation with the Financial Accounting Standards Board, confirmed that for loans not subject to section 4013, short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not troubled debt restructurings under ASC Subtopic 310-40. As of March 31, 2021, seven loans totaling $42.3 million were modified, related to COVID-19, which were not considered troubled debt restructurings.

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

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

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

	As of March 31,			As of December 31,
	2021			2020
	(Dollars in thousands)
Nonaccrual loans		14,417			14,575
Troubled-debt restructurings (1)		-			-
Accruing loans 90 or more days past due		1,960			1,960
Total nonperforming loans		16,377			16,535
Other real estate owned		-			-
Total nonperforming assets	$	16,377		$	16,535
Ratio of nonperforming loans to total loans		1.90	%		1.98	%
Ratio of nonperforming assets to total assets		1.57	%		1.63	%

(1)

$12.7 million and $13.0 million of TDRs as of March 31, 2021 and December 31, 2020, respectively, are included in the nonaccrual loans balance in the line above

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

	As of March 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	$	-	$	-	$	-	$	-	$	-	$	108,714	$	108,714
1-4 family real estate		-		-		-		-		-		34,454		34,454
Commercial real estate - Other		-		-		1,960		1,960		1,960		306,439		308,399
Commercial & industrial		-		21		-		-		21		361,419		361,440
Agricultural		-		76		-		-		76		42,270		42,346
Consumer		188		-		-		-		188		8,719		8,907
Total	$	188	$	97	$	1,960	$	1,960	$	2,245	$	862,015	$	864,260

	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 real estate		-		-		-		-		-		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

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

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

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

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

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

Substandard loans totaled $22.9 million as of March 31, 2021, a decrease of $262,000 compared to December 31, 2020. The decrease primarily related to pay downs on existing substandard loans.

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

	As of March 31, 2021
	Pass		Watch		Special mention		Substandard		Total
	(Dollars in thousands)
Construction & development	$	108,714	$	-	$	-	$	-	$	108,714
1-4 family real estate		34,331		123		-		-		34,454
Commercial real estate - Other		246,748		43,326		10,351		7,974		308,399
Commercial & industrial		339,922		6,561		667		14,290		361,440
Agricultural		41,937		-		-		409		42,346
Consumer		8,719		-		-		188		8,907
Total	$	780,371	$	50,010	$	11,018	$	22,861	$	864,260

	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

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Troubled Debt Restructurings

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

The following table presents loans restructured as TDRs as of March 31, 2021 and December 31, 2020:

	As of March 31, 2021
	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Specific reserves allocated
	(Dollars in thousands)
Commercial & industrial		1	$	10,751	$	10,751	$	-
Agricultural		1		409		409		-
Commercial real estate		1		1,554		1,554		-
Total		3	$	12,714	$	12,714	$	-

	As of December 31, 2020
	(Dollars in thousands)
Commercial & industrial		1	$	10,886	$	10,886	$	-
Agricultural		1		469		469		-
Commercial real estate		1		1,622		1,622		-
Total		3	$	12,977	$	12,977	$	-

There were no payment defaults with respect to loans modified as TDRs as of March 31, 2021 and December 31, 2020. Impairment analyses are prepared on TDRs in conjunction with the normal allowance process. There were no TDRs restructured during the three months ended March 31, 2021 and TDR’s restructured during the twelve months ended December 31, 2020 required $0 in specific reserves.

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

	As of March 31, 2021				As of December 31, 2020
	Number of contracts		Amount		Number of contracts		Amount
	(Dollars in thousands)
Accrual		-	$	-		-	$	-
Nonaccrual		3		12,714		3		12,977
Total		3	$	12,714		3	$	12,977

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Deposits

We gather deposits primarily through our nine branch locations and online through our website. We offer a variety of deposit products including demand deposit accounts and interest-bearing products, such as savings accounts and certificates of deposit. We put continued effort into gathering noninterest-bearing demand deposit accounts through loan production cross-selling, customer referrals, marketing efforts and various involvement with community networks. Some of our interest-bearing deposits are obtained through brokered transactions. We participate in the CDARS and ICS programs, where customer funds are placed into multiple deposit accounts, each in an amount under the standard FDIC insurance maximum of $250,000, and placed at a network of banks across the United States. Total deposits as of March 31, 2021 and December 31, 2020 were $929.0 million and $905.5 million, respectively. The following table sets forth deposit balances by certain categories as of the dates indicated and the percentage of each deposit category to total deposits.

	March 31,					As of December 31,
	2021					2020
	Amount		Percentage of Total			Amount		Percentage of Total
	(Dollars in thousands)
Noninterest-bearing demand	$	269,087		29.0	%	$	246,569		27.2	%
Interest-bearing:
NOW deposits		230,605		24.8	%		232,676		25.6	%
Money market		164,403		17.7	%		160,108		17.7	%
Savings deposits		59,377		6.4	%		54,008		6.0	%
Time deposits > $100,000		182,463		19.6	%		187,964		20.8	%
Other time deposits		23,094		2.5	%		24,189		2.7	%
Total interest-bearing		659,942		71.0	%		658,945		72.8	%
Total deposits	$	929,029		100.0	%	$	905,514		100.0	%

The following table summarizes our average deposit balances and weighted average rates for the three-month period ending March 31, 2021 and year ended December 31, 2020:

	For the Three Months Ended March 31,					For the Year Ended December 31,
	2021					2020
	Average Balance		Weighted Average Rate			Average Balance		Weighted Average Rate
Noninterest-bearing demand	$	243,290		0.00	%	$	256,431		0.00	%
Interest-bearing:
NOW deposits		201,274		0.43	%		163,989		0.78	%
Money market		164,960		0.29	%		154,724		0.72	%
Savings deposits		53,757		0.24	%		58,806		0.56	%
Time deposits		205,557		1.01	%		207,442		1.65	%
Total interest-bearing		625,548		0.57	%		584,961		1.05	%
Total deposits	$	868,838		0.41	%	$	841,392		0.73	%

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

	As of March 31, 2021
	Three Months		Three to Six Months		Six to 12 Months		After 12 Months		Total
Time deposits ($250,000 or less)	$	25,756	$	21,509	$	60,029	$	21,454	$	128,748
Time deposits (more than $250,000)		8,106		20,192		32,311		16,200		76,809
Total time deposits	$	33,862	$	41,701	$	92,340	$	37,654	$	205,557

	As of December 31, 2020
	Three Months		Three to Six Months		Six to 12 Months		After 12 Months		Total
Time deposits ($250,000 or less)	$	29,730	$	25,894	$	54,410	$	25,777	$	135,811
Time deposits (more than $250,000)		11,119		7,845		35,770		21,608		76,342
Total time deposits	$	40,849	$	33,739	$	90,180	$	47,385	$	212,153

Liquidity

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

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

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

As of March 31, 2021, we had no unsecured fed funds lines with correspondent depository institutions with no amounts advanced. In addition, based on the values of loans pledged as collateral, we had borrowing availability with the FHLB of $70.4 million as of March 31, 2021 and $64.8 million as of December 31, 2020.

Capital Requirements

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

As of March 31, 2021, the Bank was in compliance with all applicable regulatory requirements and categorized as “well-capitalized” under the prompt corrective action frame work. There have been no conditions or events since March 31, 2021 that management believes would change this classification.

The table below presents our applicable capital requirements, as well as our capital ratios as of March 31, 2021 and December 31, 2020. The Company exceeded all regulatory capital requirements and the Bank was considered to be “well-capitalized” as of the dates reflected in the tables below.

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Basel III Capital Rules

Under the Basel III Capital Rules, in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, a banking organization must hold a capital conservation buffer composed of CET1 capital above its minimum risk-based capital requirements. As of March 31, 2021, the Company and the Bank met all capital adequacy requirements under the Basel III Capital Rules.

	Actual					With Capital Conservation Buffer					Minimum to be Considered "Well- Capitalized"
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
As of March 31, 2021:
Total capital (to risk-weighted assets)
Bank7 Corp.	$	119,986		15.34	%	$	82,140		10.50	%		N/A		N/A
Bank		119,933		15.35	%		82,033		10.50	%	$	78,126		10.00	%
Tier 1 capital (to risk-weighted assets)
Bank7 Corp.		110,194		14.09	%		66,494		8.50	%		N/A		N/A
Bank		110,154		14.10	%		66,407		8.50	%		62,501		8.00	%
CET 1 capital (to risk-weighted assets)
Bank7 Corp.		110,194		14.09	%		54,760		7.00	%		N/A		N/A
Bank		110,154		14.10	%		54,688		7.00	%		50,782		6.50	%
Tier 1 capital (to average assets)
Bank7 Corp.		110,194		11.23	%		N/A		N/A			N/A		N/A
Bank		110,154		11.23	%		N/A		N/A			49,036		5.00	%

	Actual					With Capital Conservation Buffer					Minimum to be Considered "Well- Capitalized"
	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	%

Shareholders’ equity provides a source of permanent funding, allows for future growth and provides a cushion to withstand unforeseen adverse developments. Total shareholders’ equity increased to $111.7 million as of March 31, 2021, compared to $107.3 million as of December 31, 2020. The increases were driven by retained capital from net income during the period.

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Contractual Obligations

The following tables contain supplemental information regarding our total contractual obligations as of March 31, 2021, and December 31, 2020:

	Payments Due as of March 31, 2021
	Within One Year		One to Three Years		Three to Five Years		After Five Years		Total
	(Dollars in thousands)
Deposits without a stated maturity	$	723,472	$	-	$	-	$	-	$	723,472
Time deposits		167,904		36,829		824		-		205,557
Operating lease commitments		465		306		38		-		809
Total contractual obligations	$	891,841	$	37,135	$	862	$	-	$	929,838

	Payments Due as of December 31, 2020
	Within One Year		One to Three Years		Three to Five Years		After Five Years		Total
	(Dollars in thousands)
Deposits without a stated maturity	$	693,361	$	-	$	-	$	-	$	693,361
Time deposits		164,753		46,563		822		-		212,138
Operating lease commitments		470		390		49		-		909
Total contractual obligations	$	858,584	$	46,953	$	871	$	-	$	906,408

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

Off-Balance Sheet Arrangements

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

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

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

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

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The following table summarizes commitments as of the dates presented.

	As of March 31, 2021		As of December 31, 2020
	(Dollars in thousands)
Commitments to extend credit	$	208,395	$	206,520
Standby letters of credit		2,198		2,366
Total	$	210,593	$	208,886

Critical Accounting Policies and Estimates

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

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

The following is a discussion of the critical accounting policies and significant estimates that we believe require us to make the most complex or subjective decisions or assessments. Additional information about these policies can be found in Note 1 of our consolidated unaudited financial statements as of March 31, 2021.

Allowance for Loan and Lease Losses

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

To determine the adequacy of the allowance, the loan portfolio is broken into segments based on loan type and risk characteristics. Historical loss experience factors by segment, adjusted for changes in trends and conditions, are used to determine an indicated allowance for each portfolio segment. These factors are evaluated and updated based on the composition of the specific loan segment. Other considerations include volumes and trends of delinquencies, nonaccrual loans, levels of bankruptcies, criticized and classified loan trends, expected losses on real estate secured loans, new credit products and policies, economic conditions, concentrations of credit risk and the experience and abilities of our lending personnel. In addition to the segment evaluations, impaired loans with a balance of $250,000 or more are individually evaluated based on facts and circumstances of the loan to determine if a specific allowance amount may be necessary. Specific allowances may also be established for loans whose outstanding balances are below the $250,000 threshold when it is determined that the risk associated with the loan differs significantly from the risk factor amounts established for its loan segment.

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Goodwill and Intangibles

Goodwill from an acquisition is the value attributable to unidentifiable intangible elements acquired. At a minimum, annual evaluation of the value of goodwill is required. Management evaluated the carrying value of our goodwill as of March 31, 2021 and December 31, 2020 and determined that no impairment existed.

An entity may assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Factors assessed include all relevant events and circumstances including macroeconomic conditions, industry and market conditions, cost factors that have a negative effect on earnings and cash flows, overall financial performance, other relevant entity or reporting unit specific events and, if applicable, a sustained decrease in share price.

Other intangible assets consist of core deposit intangible assets and are amortized on a straight-line basis based on the estimated useful life of 10 years. Such assets are periodically evaluated as to the recoverability of their carrying values.

Income Taxes

We file a consolidated income tax return. Deferred taxes are recognized under the balance sheet method based upon the future tax consequences of temporary differences between the carrying amounts and tax basis of assets and liabilities, using the tax rates expected to apply to taxable income in the periods when the related temporary differences are expected to be realized.

The amount of accrued current and deferred income taxes is based on estimates of taxes due or receivable from taxing authorities either currently or in the future. Changes in these accruals are reported as tax expense, and involve estimates of the various components included in determining taxable income, tax credits, other taxes and temporary differences. Changes periodically occur in the estimates due to changes in tax rates, tax laws and regulations and implementation of new tax planning strategies. The process of determining the accruals for income taxes necessarily involves the exercise of considerable judgment and consideration of numerous subjective factors.

Management performs an analysis of our tax positions annually and believes it is more likely than not that all of its tax positions will be utilized in future years.

ITEM 3.

Quantitative and Qualitative Disclosures about Market Risk

There have been no significant changes in our disclosures regarding market risk since December 31, 2020, the date of our most recent annual report to shareholders.

ITEM 4.

Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness as of March 31, 2021 of our disclosure controls and procedures, as defined Rules 13a-15(e) and 15d-15(e) under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply judgment in evaluating its controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the fiscal quarter covered by this Form 10-Q.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended March 31, 2021 that has materially affected, or is reasonably likely to materially affect, such controls.

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PART II

ITEM 1.

Legal Proceedings

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

ITEM 1A.

Risk Factors

There were no material changes from the risks disclosed in the Risk Factors section of our Annual Report on Form 10-K for the year ended December, 31, 2020.

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

On September 5, 2019, the Company’s Board of Directors approved a stock repurchase program authorizing the repurchase of up to 500,000 shares of the Company’s common stock. On March 13, 2020, the Company’s Board of Directors approved a 500,000 share expansion and on November 2, 2020, approved a 750,000 share expansion to the existing stock repurchase program, for a total of 1,750,000 shares authorized under the program. The Company may repurchase shares of common stock on the open market or through privately negotiated transactions at times and prices considered appropriate, at the discretion of the Company, and subject to its assessment of alternative uses of capital, stock trading price, general market conditions and regulatory factors. The stock repurchase programs do not obligate the Company to acquire any specific number of shares and will continue in effect until terminated by the Board of Directors of the Company. Shares of common stock repurchased under these programs will be retired subsequent to acquisition. During the three months ended March 31, 2021, there were no shares purchased under the Company’s Repurchase Program. At March 31, 2021, there were 717,822 shares remaining that could be repurchased under the Company’s Repurchase Program.

ITEM 6.

Exhibits

31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS	XBRL Instance Document.

101.SCH	XBRL Taxonomy Extension Schema Document.

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB	XBRL Taxonomy Extension Label Linkbase Document.

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.

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

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SIGNATURES

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

		BANK7 CORP.

DATED:	May 11, 2021	By: /s/ Thomas L. Travis
		Thomas L. Travis
		President and Chief Executive Officer

DATED:	May 11, 2021	By: /s/ Kelly J. Harris
		Kelly J. Harris
		Senior Vice President and Chief Financial Officer