What changed in this filing

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Item 1. Business

2021-03-25 compared with 2020-03-30 · 190 added, 204 removed, 240 unchanged (62% of the section changed)

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We are Bank7 Corp., a bank holding company headquartered in Oklahoma City, Oklahoma.

Through our wholly-owned subsidiary, Bank7, we operate nine full-service branches in Oklahoma,

the Dallas/Fort Worth metropolitan area and Kansas.

Through our wholly-owned subsidiary, Bank7, we operate nine full-service branches in Oklahoma, the

Dallas/Fort Worth metropolitan area and Kansas.

We were formed in 2004 in connection with our acquisition of First National Bank of Medford, which was renamed Bank7 (the “Bank”).

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delivering fast, consistent and well-designed banking solutions.

As of December 31, 2019, we had total assets of $866.4 million, total loans of $707.3 million, total deposits of $757.5 million and total shareholders’ equity of $100.1 million.

As of December 31, 2020, we had total assets of $1.0 billion, total loans of $836.6 million, total deposits of $905.5 million and total shareholders’ equity of $107.3 million.

Our website is:

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We also provide consumer lending services to individuals for personal and household purposes, including secured and unsecured term loans and home improvement loans.

Consumer lending services include (i) residential real estate loans and mortgage

banking services, (ii) personal lines of credit, (iii) loans for the purchase of automobiles, and (iv) other installment loans.

We also offer deposit banking products, including (i) commercial deposit services, commercial checking, money market, and other deposit accounts, and (ii) retail deposit services

such as certificates of deposit, money market accounts, checking accounts, negotiable order of withdrawal accounts, savings accounts, and automated teller machine access.

Consumer lending services include (i) residential real estate loans and

mortgage banking services, (ii) personal lines of credit, (iii) loans for the purchase of automobiles, and (iv) other installment loans.

We also offer deposit banking products, including (i) commercial deposit services, commercial checking, money market, and other deposit accounts, and (ii) retail deposit services such

as certificates of deposit, money market accounts, checking accounts, negotiable order of withdrawal accounts, savings accounts, and automated teller machine access.

Strategic Focus

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We will continue to focus on daily execution, making sound credit decisions and maintaining cost discipline, which have been the hallmark of our success.

Our customers will remain

our top priority as we focus on efficiently providing tailored banking products and services to business owners and entrepreneurs, with a goal of generating robust growth and delivering exceptional returns to our shareholders.

Additionally, our

bank will continue to position itself for future growth both organically and through strategic acquisitions.

Our customers will remain our

top priority as we focus on efficiently providing tailored banking products and services to business owners and entrepreneurs, with a goal of generating robust growth and delivering exceptional returns to our shareholders.

Additionally, our bank

will continue to position itself for future growth both organically and through strategic acquisitions.

Cost Discipline and Efficiency

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Organic Growth

Much of our historic asset growth has been driven organically and within our current markets, in particular the Dallas/Fort Worth metropolitan area, Oklahoma City, and Tulsa, where

we recently opened a full-service branch, contain ample opportunities for us to grow our customer base and increase our loans and deposits.

Although our expansion with brick and mortar branches will be limited, we believe operating strategically

placed branches will be important, and therefore we will continue to selectively build our presence in key markets.

Much of our historic asset growth has been driven organically and within our current markets.

In particular the Dallas/Fort Worth metropolitan area, Oklahoma City, and Tulsa, where we

recently opened a full-service branch, contain ample opportunities for us to grow our customer base and increase our loans and deposits.

Although our expansion with brick and mortar branches will be limited, we believe operating strategically placed

branches will be important, and therefore we will continue to selectively build our presence in key markets.

We also intend to continually enhance our internet and mobile banking products to remain competitive in the marketplace.

We have experience with and have benefited from acquisitions, and we intend to pursue acquisitive growth as a public company.

In 2011, we acquired First State Bank in Camargo,

Oklahoma from the Federal Deposit Insurance Corporation, or FDIC, and in 2014, we acquired Montezuma State Bank, a bank with $107 million in assets.

Our acquisition focus will initially be on banks within communities along the I-35 corridor, which

is a natural business connector between Oklahoma City and the Dallas/Fort Worth metropolitan area.

However, we may pursue opportunities in other Oklahoma and Texas markets if there is a strategic and cultural fit.

We plan to focus on banks with

stable, low-cost core deposits that would maintain or enhance our current funding mix.

We are headquartered in Oklahoma City, Oklahoma, and we operate four additional branches in Oklahoma, including our newest branch in Tulsa.

We also operate two branches in the

Dallas/Fort Worth metropolitan area and two branches in southwest Kansas.

We are headquartered in Oklahoma City, Oklahoma, and we operate four additional branches in Oklahoma.

We also operate two branches in the Dallas/Fort Worth metropolitan area and two

branches in Kansas.

The banking and financial services industry is highly competitive, and we compete with a wide range of financial institutions within our markets, including local, regional and

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high-quality customer service culture, our positive reputation and our long-standing community relationships enable us to compete successfully within our markets and enhance our ability to attract and retain customers.

As of December 31, 2019, we had approximately 78 full-time equivalent employees.

None of our employees are represented by any collective bargaining unit or are parties to a

collective bargaining agreement.

We consider our relationship with our employees to be good and have not experienced interruptions of operations due to labor disagreements.

Human Capital

Our corporate culture is defined by core values which include integrity, accountability, professionalism, community-focused and efficiency.

We value our employees by investing in

competitive compensation and benefit packages and fostering a team environment centered on professional service and open communication.

Attracting, retaining and developing qualified, engaged employees who embody these values are crucial our success.

We offer all of our employees a comprehensive benefits package that includes medical, dental and vision insurance, a flexible spending plan, group life insurance, short-term and long-term disability insurance, a traditional 401(k) Plan, competitive

paid time off/paid holidays, and competitive incentives.

We are committed and focused on the health and safety of our employees, customers, and communities and are committed to providing a safe and secure work environment in accordance with

applicable labor, safety, health, anti-discrimination and other workplace laws.

We strive for all of our employees to feel safe at work.

To that end, we maintain a whistleblower hotline that allows associates and others to anonymously voice concerns.

We prohibit retaliation against an individual who reported a concern or assisted with an inquiry or investigation.

The COVID-19 pandemic presented challenges to maintain employee and customer safety while continuing to be open for business.

Accordingly, we launched a proactive response to the

escalating COVID-19 outbreak that included securing and distributing the necessary PPE to all locations, enacting all applicable government-mandated/CDC-recommended guidelines for safe social distancing (including the installation of plexiglass

barriers, floor spacing markers and hand-sanitizer stations), and increasing emphasis on facility cleaning.

Supervision and Regulation

The following is a general summary of the material aspects of certain statutes and regulations that are applicable to us.

These summary descriptions are not

Please refer to the full text of the statutes, regulations, and corresponding guidance for more information.

These statutes and regulations are subject to change, and additional statutes, regulations, and corresponding guidance may be

We are unable to predict future changes or the effects, if any, that these changes could have on our business or our revenues.

We are extensively regulated under U.S.

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As a result, our growth and earnings performance may be affected not only by management decisions and general economic

conditions, but also by federal and state statutes and by the regulations and policies of various bank regulatory agencies, including the Oklahoma Banking Department (“OBD”), the Federal Reserve, the Federal Deposit Insurance Corporation (“FDIC”)

and the Consumer Financial Protection Bureau (“CFPB”).

Furthermore, tax laws administered by the Internal Revenue Service (“IRS”) and state taxing authorities, accounting rules developed by the Financial Accounting Standards Board (“FASB”),

securities laws administered by the Securities and Exchange Commission (“SEC”) and state securities authorities and Anti-Money Laundering (“AML”) laws enforced by the U.S.

the Consumer Financial Protection Bureau (“CFPB”).

Furthermore, tax laws administered by the Internal Revenue Service (“IRS”) and state taxing authorities, accounting rules developed by the Financial Accounting Standards Board (“FASB”), securities

laws administered by the Securities and Exchange Commission (“SEC”) and state securities authorities and Anti-Money Laundering (“AML”) laws enforced by the U.S.

Department of the Treasury, or Treasury, also impact our business.

Federal and state banking laws impose a comprehensive system of supervision, regulation and enforcement on the operations of banks, their holding companies and their affiliates.

These laws are intended primarily for the protection of depositors, customers and the Depositor Insurance Fund of the FDIC (“DIF”) rather than for shareholders.

Federal and state laws, and the related regulations of the bank regulatory agencies,

affect, among other things, the scope of business, the kinds and amounts of investments banks may make, reserve requirements, capital levels relative to operations, the nature and amount of collateral for loans, the establishment of branches, the

ability to merge, consolidate and acquire, dealings with insiders and affiliates and the payment of dividends.

laws are intended primarily for the protection of depositors, customers and the Depositor Insurance Fund of the FDIC (“DIF”) rather than for shareholders.

Federal and state laws, and the related regulations of the bank regulatory agencies, affect,

among other things, the scope of business, the kinds and amounts of investments banks may make, reserve requirements, capital levels relative to operations, the nature and amount of collateral for loans, the establishment of branches, the ability to

merge, consolidate and acquire, dealings with insiders and affiliates and the payment of dividends.

This supervisory and regulatory framework subjects banks and bank holding companies to regular examination by their respective regulatory agencies, which results in examination

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management’s ability and performance, earnings, liquidity and various other factors.

These regulatory agencies have broad discretion to impose restrictions and limitations on the operations of a regulated entity and exercise enforcement powers over

a regulated entity (including terminating deposit insurance, imposing orders, fines and other civil and criminal penalties, removing officers and directors and appointing supervisors and conservators) where the agencies determine, among other

things, that such operations are unsafe or unsound, fail to comply with applicable law or are otherwise inconsistent with laws and regulations or with the supervisory policies of these agencies.

These regulatory agencies have broad discretion to impose restrictions and limitations on the operations of a regulated entity and exercise enforcement powers over a

regulated entity (including terminating deposit insurance, imposing orders, fines and other civil and criminal penalties, removing officers and directors and appointing supervisors and conservators) where the agencies determine, among other things,

that such operations are unsafe or unsound, fail to comply with applicable law or are otherwise inconsistent with laws and regulations or with the supervisory policies of these agencies.

Regulatory Capital Requirements

The federal banking agencies require that banking organizations meet several risk-based capital adequacy requirements.

These risk-based capital adequacy requirements are intended to

provide a measure of capital adequacy that reflects the perceived degree of risk associated with a banking organization’s operations, both for transactions reported on the banking organization’s balance sheet as assets and for transactions that are

recorded as off-balance sheet items, such as letters of credit and recourse arrangements.

In 2013, the federal bank regulatory agencies issued final rules, or the Basel III Capital Rules, establishing a new comprehensive capital framework for

banking organizations.

The Basel III Capital Rules implement the Basel Committee’s December 2010 framework for strengthening international capital standards and certain provisions of the Dodd-Frank Act.

The Basel III Capital Rules became effective

on January 1, 2015.

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

a CET1 to risk-weighted assets of

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 establish a “capital conservation buffer” of 2.5% above the regulatory minimum risk-based capital requirements.

An institution is subject to

limitations on certain activities, including payment of dividends, share repurchases and discretionary bonuses to executive officers, if its capital level is below the capital conservation buffer ratio.

The Basel III minimum capital ratios as applicable to the Bank and to the Company in 2019, after the full phase-in period of the capital conservation buffer, are summarized in the

Total risk based capital (total capital to risk-weighted assets)

Tier 1 risk based capital (tier 1 to risk-weighted assets)

Common equity tier 1 risk based capital (CET1 to risk-weighted assets)

Tier 1 leverage ratio (tier 1 to average assets)

The calculation of all types of regulatory capital is subject to definitions, deductions and adjustments specified in the

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 December 31, 2020, 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

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At each lower capital category, a bank is subject to increased restrictions on its operations.

For example, a bank is generally prohibited from making capital distributions and

paying management fees to its holding company if doing so would make the bank “undercapitalized.” Asset growth and branching restrictions apply to undercapitalized banks, which are required to submit written capital restoration plans meeting

specified requirements (including a guarantee by the parent holding company, if any).

“Significantly undercapitalized” banks are subject to broad regulatory restrictions, including among other things, capital directives, forced mergers,

restrictions on the rates of interest they may pay on deposits, restrictions on asset growth and activities, and prohibitions on paying bonuses or increasing compensation to senior executive officers without FDIC approval.

undercapitalized” are subject to even more severe restrictions, including, subject to a narrow exception, the appointment of a conservator or receiver within 90 days after becoming critically undercapitalized.

The appropriate federal banking agency may determine (after notice and opportunity for a hearing) that the institution is in an unsafe or unsound condition or deems the institution

to be engaging in an unsafe or unsound practice.

For example, a bank is generally prohibited from making capital distributions and paying

management fees to its holding company if doing so would make the bank “undercapitalized.” Asset growth and branching restrictions apply to undercapitalized banks, which are required to submit written capital restoration plans meeting specified

requirements (including a guarantee by the parent holding company, if any).

“Significantly undercapitalized” banks are subject to broad regulatory restrictions, including among other things, capital directives, forced mergers, restrictions on the

rates of interest they may pay on deposits, restrictions on asset growth and activities, and prohibitions on paying bonuses or increasing compensation to senior executive officers without FDIC approval.

“Critically undercapitalized” are subject to

even more severe restrictions, including, subject to a narrow exception, the appointment of a conservator or receiver within 90 days after becoming critically undercapitalized.

The appropriate federal banking agency may determine (after notice and opportunity for a hearing) that the institution is in an unsafe or unsound condition or deems the institution to

be engaging in an unsafe or unsound practice.

The appropriate agency is also permitted to require an adequately capitalized or undercapitalized institution to comply with the supervisory provisions as if the institution were in the next lower

category (but not treat a significantly undercapitalized institution as critically undercapitalized) based on supervisory information other than the capital levels of the institution.

The capital classification of a bank affects the frequency of regulatory examinations, the bank’s ability to engage in certain activities and the deposit insurance premium paid by

The capital classification of a bank affects the frequency of regulatory examinations, the bank’s ability to engage in certain activities and the deposit insurance premium paid by the

A bank’s capital category is determined solely for the purpose of applying prompt correct action regulations and the capital category may not accurately reflect the bank’s overall financial condition or prospects.

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Acquisitions, Activities and Change in Control .

The BHCA generally requires the prior approval by the Federal Reserve for any merger involving a bank holding company or a

bank holding company’s acquisition of more than 5% of a class of voting securities of any additional bank or bank holding company or to acquire all or substantially all of the assets of any additional bank or bank holding company.

Subject to certain conditions (including deposit concentration limits established by the BHCA and the Dodd-Frank Act), the Federal Reserve may allow a bank holding company to

acquire banks located in any state of the United States.

The BHCA generally requires the prior approval by the Federal Reserve for any merger involving a bank holding company or a bank

holding company’s acquisition of more than 5% of a class of voting securities of any additional bank or bank holding company or to acquire all or substantially all of the assets of any additional bank or bank holding company.

Subject to certain conditions (including deposit concentration limits established by the BHCA and the Dodd-Frank Act), the Federal Reserve may allow a bank holding company to acquire

banks located in any state of the United States.

Federal law also prohibits any person or company from acquiring “control” of an FDIC-insured depository institution or its holding company without prior notice to the appropriate federal bank

Permitted Activities .

The BHCA generally prohibits the Company from controlling or engaging in any business

other than that of banking, managing and controlling banks or furnishing services to banks and their subsidiaries.

The BHCA generally prohibits the Company from controlling or engaging in any business other

than that of banking, managing and controlling banks or furnishing services to banks and their subsidiaries.

This general prohibition is subject to a number of exceptions.

The principal exception allows bank holding companies to engage in,

and to own shares of companies engaged in, certain businesses found by the Federal Reserve prior to November 11, 1999 to be “so closely related to banking as to be a proper incident thereto.” This authority would permit the Company to engage in a

variety of banking-related businesses, including the ownership and operation of a savings association, or any entity engaged in consumer finance, equipment leasing, the operation of a computer service bureau (including software development) and

mortgage banking and brokerage.

The principal exception allows bank holding companies to engage in, and to own

shares of companies engaged in, certain businesses found by the Federal Reserve prior to November 11, 1999 to be “so closely related to banking as to be a proper incident thereto.” This authority would permit the Company to engage in a variety of

banking-related businesses, including the ownership and operation of a savings association, or any entity engaged in consumer finance, equipment leasing, the operation of a computer service bureau (including software development) and mortgage banking

and brokerage.

The BHCA generally does not place territorial restrictions on the domestic activities of nonbank subsidiaries of bank holding companies.

The Federal Reserve has the power to order any bank holding company or its

subsidiaries to terminate any activity or to terminate its ownership or control of any subsidiary when the Federal Reserve has reasonable grounds to believe that continuing such activity, ownership or control constitutes a serious risk to the

financial soundness, safety or stability of any bank subsidiary of the bank holding company.

The Federal Reserve has the power to order any bank holding company or its subsidiaries to

terminate any activity or to terminate its ownership or control of any subsidiary when the Federal Reserve has reasonable grounds to believe that continuing such activity, ownership or control constitutes a serious risk to the financial soundness,

safety or stability of any bank subsidiary of the bank holding company.

Source of Strength .

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Under this requirement the Company is expected to commit resources to support the Bank, including at times when the Company may not be in a financial position to provide it.

Company must stand ready to use its available resources to provide adequate capital to the Bank during periods of financial stress or adversity.

The Company must also maintain the financial flexibility and capital raising capacity to obtain

additional resources for assisting the Bank.

must stand ready to use its available resources to provide adequate capital to the Bank during periods of financial stress or adversity.

The Company must also maintain the financial flexibility and capital raising capacity to obtain additional

resources for assisting the Bank.

The Company’s failure to meet its source of strength obligations may constitute an unsafe and unsound practice or a violation of the Federal Reserve’s regulations or both.

The source of strength

obligation most directly affects bank holding companies where a bank holding company’s subsidiary bank fails to maintain adequate capital levels.

Any capital loans by a bank holding company to the subsidiary bank are subordinate in right of payment

to deposits and to certain other indebtedness of the subsidiary bank.

The BHCA provides that in the event of a bank holding company’s bankruptcy any commitment by a bank holding company to a federal bank regulatory agency to maintain the capital of

its subsidiary bank will be assumed by the bankruptcy trustee and entitled to priority of payment.

The source of strength obligation most

directly affects bank holding companies where a bank holding company’s subsidiary bank fails to maintain adequate capital levels.

Any capital loans by a bank holding company to the subsidiary bank are subordinate in right of payment to deposits and

to certain other indebtedness of the subsidiary bank.

The BHCA provides that in the event of a bank holding company’s bankruptcy any commitment by a bank holding company to a federal bank regulatory agency to maintain the capital of its subsidiary

bank will be assumed by the bankruptcy trustee and entitled to priority of payment.

Safe and Sound Banking Practices .

Bank holding companies and their non-banking subsidiaries are prohibited from engaging in activities that represent unsafe and unsound

banking practices or that constitute a violation of law or regulations.

Under certain conditions the Federal Reserve may conclude that certain actions of a bank holding company, such as a payment of a cash dividend, would constitute an unsafe and

unsound banking practice.

Bank holding companies and their non-banking subsidiaries are prohibited from engaging in activities that represent unsafe and unsound banking

practices or that constitute a violation of law or regulations.

Under certain conditions the Federal Reserve may conclude that certain actions of a bank holding company, such as a payment of a cash dividend, would constitute an unsafe and unsound

banking practice.

The Federal Reserve also has the authority to regulate the debt of bank holding companies, including the authority to impose interest rate ceilings and reserve requirements on such debt.

Under certain circumstances the

Federal Reserve may require a bank holding company to file written notice and obtain its approval prior to purchasing or redeeming its equity securities, unless certain conditions are met.

Under certain circumstances the Federal

Reserve may require a bank holding company to file written notice and obtain its approval prior to purchasing or redeeming its equity securities, unless certain conditions are met.

Dividend Payments, Stock Redemptions and Repurchases .

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Dividends may be declared and paid in a corporation’s own authorized but unissued shares out of the surplus of the corporation upon the satisfaction of certain conditions.

It is the Federal Reserve’s policy that bank holding companies should generally pay dividends on common stock only out of income available over the past year, and only if

prospective earnings retention is consistent with the organization’s expected future needs and financial condition.

It is also the Federal Reserve’s policy that bank holding companies should not maintain dividend levels that undermine their ability

to be a source of strength to its banking subsidiaries.

Additionally, the Federal Reserve has indicated that bank holding companies should carefully review their dividend policy and has discouraged payment ratios that are at maximum allowable

levels unless both asset quality and capital are very strong.

Bank holding companies must consult with the Federal Reserve before redeeming any equity or other capital instrument included in Tier 1 or Tier 2 capital prior to stated maturity,

if such redemption could have a material effect on the level or composition of the organization’s capital base.

In addition, bank holding companies are unable to repurchase shares equal to 10% or more of its net worth if it would not be

well-capitalized (as defined by the Federal Reserve) after giving effect to such repurchase.

Bank holding companies experiencing financial weaknesses, or that are at significant risk of developing financial weaknesses, must consult with the Federal

Reserve before redeeming or repurchasing common stock or other regulatory capital instruments.

It is the Federal Reserve’s policy that bank holding companies should generally pay dividends on common stock only out of income available over the past year, and only if prospective

earnings retention is consistent with the organization’s expected future needs and financial condition.

It is also the Federal Reserve’s policy that bank holding companies should not maintain dividend levels that undermine their ability to be a

source of strength to its banking subsidiaries.

Additionally, the Federal Reserve has indicated that bank holding companies should carefully review their dividend policy and has discouraged payment ratios that are at maximum allowable levels unless

both asset quality and capital are very strong.

Bank holding companies must consult with the Federal Reserve before redeeming any equity or other capital instrument included in Tier 1 or Tier 2 capital (or, for small bank holding

companies like the Company, before redeeming any instruments included in equity as defined under GAAP) prior to stated maturity, if such redemption could have a material effect on the level or composition of the organization’s capital base.

addition, bank holding companies are unable to repurchase shares equal to 10% or more of its net worth if it would not be well-capitalized (as defined by the Federal Reserve) after giving effect to such repurchase.

Bank holding companies experiencing

financial weaknesses, or that are at significant risk of developing financial weaknesses, must consult with the Federal Reserve before redeeming or repurchasing common stock or other regulatory capital instruments.

The Bank is an Oklahoma-chartered member bank and is subject to examination, supervision and regulation by the OBD and the Federal Reserve.

The Bank is also subject

to certain regulations of the FDIC and the CFPB.

The OBD supervises and regulates all areas of the Bank’s operations including, without limitation, the making of loans, the issuance of securities, the conduct of the Bank’s

corporate affairs, the satisfaction of capital adequacy requirements, the payment of dividends, and the establishment or closing of banking offices.

The Federal Reserve is the Bank’s primary federal regulatory agency, and periodically examines the

Bank’s operations and financial condition and compliance with federal law.

In addition, the Bank’s deposit accounts are insured by the DIF to the maximum extent provided under federal law and FDIC regulations, and the FDIC has certain enforcement

powers over the Bank.

The Bank is also subject to

certain regulations of the FDIC and the CFPB.

The OBD supervises and regulates all areas of the Bank’s operations including, without limitation, the making of loans, the issuance of securities, the conduct of the Bank’s corporate

affairs, the satisfaction of capital adequacy requirements, the payment of dividends, and the establishment or closing of banking offices.

The Federal Reserve is the Bank’s primary federal regulatory agency, and periodically examines the Bank’s

operations and financial condition and compliance with federal law.

In addition, the Bank’s deposit accounts are insured by the DIF to the maximum extent provided under federal law and FDIC regulations, and the FDIC has certain enforcement powers

over the Bank.

Depositor Preference .

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As an FDIC-insured institution, the Bank is required to pay deposit insurance premiums to the FDIC.

The amount of such premiums is determined by

multiplying the institution’s assessment rate by its assessment base.

The assessment base is based on the institution’s risk classification which is assigned based on the institution’s capital levels and the level of supervisory concern the

institution poses to the regulators.

The assessment base is calculated as the institution’s average consolidated total assets minus average tangible equity.

Additionally, the Dodd-Frank Act altered the minimum designated reserve ratio of the DIF, increasing the minimum from 1.15% to 1.35% of the estimated amount of total insured

deposits, and eliminating the requirement that the FDIC pay dividends to depository institutions when the reserve ratio exceeds certain thresholds.

At least semi-annually, the FDIC updates its loss and income projections for the DIF and, if needed,

may increase or decrease the assessment rates, following notice and comment on proposed rulemaking.

The amount of such premiums is determined by multiplying

the institution’s assessment rate by its assessment base.

The assessment base is based on the institution’s risk classification which is assigned based on the institution’s capital levels and the level of supervisory concern the institution poses to

the regulators.

The assessment rate is calculated as the institution’s average consolidated total assets minus average tangible equity.

Additionally, the Dodd-Frank Act altered the minimum designated reserve ratio of the DIF, increasing the minimum from 1.15% to 1.35% of the estimated amount of total insured deposits,

and eliminating the requirement that the FDIC pay dividends to depository institutions when the reserve ratio exceeds certain thresholds.

At least semi-annually, the FDIC updates its loss and income projections for the DIF and, if needed, may

increase or decrease the assessment rates, following notice and comment on proposed rulemaking.

As a result, the Bank’s FDIC deposit insurance premiums could increase.

FICO Assessments .

In addition to paying basic deposit insurance assessments, insured depository institutions must pay Financing Corporation, or FICO, assessments.

mixed-ownership governmental corporation chartered by the former Federal Home Loan Bank Board to recapitalize the former Federal Savings and Loan Insurance Corporation.

Since 1996, federal legislation requires that all FDIC-insured depository

institutions pay assessments to cover interest payments on FICO’s outstanding obligations.

During the year ended December 31, 2019, the Bank did not pay any FICO assessments.

Examination Assessments .

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Bank Reserves .

The Federal Reserve requires all depository institutions to maintain reserves against some transaction accounts (primarily NOW and Super NOW checking

The Federal Reserve requires all depository institutions to maintain reserves against some transaction accounts (primarily NOW and Super NOW checking accounts).

The balances maintained to meet the reserve requirements imposed by the Federal Reserve may be used to satisfy liquidity requirements.

An institution may borrow from the Federal Reserve “discount window” as a secondary source of funds if

the institution meets the Federal Reserve’s credit standards.

An institution may borrow from the Federal Reserve “discount window” as a secondary source of funds if the

institution meets the Federal Reserve’s credit standards.

Dividend Payments .

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Oklahoma law also places restrictions on the declaration of dividends by Oklahoma state-chartered banks, including the Bank, to their shareholders.

Before any dividend may be declared by the Bank, not less than 10% of the net profits of the Bank

must be transferred to a surplus fund until the surplus equals 100% of the Bank’s capital stock.

Before any dividend may be declared by the Bank, not less than 10% of the net profits of the Bank must

be transferred to a surplus fund until the surplus equals 100% of the Bank’s capital stock.

This may decrease any amount available for the payment of dividends in a particular period if the surplus funds for the Bank fail to comply with this

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and a financial institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be undercapitalized.

As described above, the Bank exceeded its minimum capital requirements under applicable

regulatory guidelines as of December 31, 2019.

As described above, the Bank exceeded its minimum capital requirements under applicable regulatory

guidelines as of December 31, 2020.

Transactions with Affiliates .

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in, stock or other securities thereof, the taking of such securities as collateral for loans, and the purchase of assets of the Company or other affiliates.

Such restrictions and limitations prevent the Company or other affiliates from borrowing

from the Bank unless the loans are secured by marketable obligations of designated amounts.

Furthermore, such secured loans and investments by the Bank to or in the Company or to or in any other non-banking affiliate are limited, individually, to

10% of the Bank’s capital and surplus, and such transactions are limited in the aggregate to 20% of the Bank’s capital and surplus.

All such transactions, as well as contracts entered into between the Bank and affiliates, must be on terms that are

no less favorable to the Bank than those that would be available from non-affiliated third parties.

Federal Reserve policies also forbid the payment by bank subsidiaries of management fees which are unreasonable in amount or exceed the fair market

value of the services rendered or, if no market exists, actual costs plus a reasonable profit.

Such restrictions and limitations prevent the Company or other affiliates from borrowing from

the Bank unless the loans are secured by marketable obligations of designated amounts.

Furthermore, such secured loans and investments by the Bank to or in the Company or to or in any other non-banking affiliate are limited, individually, to 10% of

the Bank’s capital and surplus, and such transactions are limited in the aggregate to 20% of the Bank’s capital and surplus.

All such transactions, as well as contracts entered into between the Bank and affiliates, must be on terms that are no less

favorable to the Bank than those that would be available from non-affiliated third parties.

Federal Reserve policies also forbid the payment by bank subsidiaries of management fees which are unreasonable in amount or exceed the fair market value of

the services rendered or, if no market exists, actual costs plus a reasonable profit.

Loans to Directors, Executive Officers and Principal Shareholders .

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These statutes and

regulations impose limits the amount of loans the Bank may make to directors and other insiders and require that the loans must be made on substantially the same terms, including interest rates and collateral, as prevailing at the time for

comparable transactions with persons not affiliated with the Company or the Bank, that the Bank must follow credit underwriting procedures at least as stringent as those applicable to comparable transactions with persons who are not affiliated with

the Company or the Bank;

transactions with persons not affiliated with the Company or the Bank, that the Bank must follow credit underwriting procedures at least as stringent as those applicable to comparable transactions with persons who are not affiliated with the Company

and that the loans must not involve a greater than normal risk of non-payment or include other features not favorable to the Bank.

Furthermore, the Bank must periodically report all loans made to directors and other

insiders to the bank regulators.

As of December 31, 2019, the Bank had lines of credit for loans to insiders of $8.0 million and loans outstanding to insiders of $1.1 million.

Furthermore, the Bank must periodically report all loans made to directors and other insiders to the bank

As of December 31, 2020, the Bank had no lines of credit for loans to insiders and no loans outstanding to insiders.

Limits on Loans to One Borrower .

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exceptions, loans and extensions of credit from Oklahoma state-chartered banks outstanding to any borrower (including certain related entities of the borrower) at any one time may not exceed 30% of the capital, less intangible assets, of the bank.

An Oklahoma state-chartered bank may lend an additional amount if the loan is fully secured by certain types of collateral, like bonds or notes of the United States.

Certain types of loans are exempted from the lending limits, including loans

secured by segregated deposits held by the bank.

Oklahoma state-chartered bank may lend an additional amount if the loan is fully secured by certain types of collateral, like bonds or notes of the United States.

Certain types of loans are exempted from the lending limits, including loans secured by

segregated deposits held by the bank.

The Bank’s legal lending limit to any one borrower was $34.6 million as of December 31, 2020.

Safety and Soundness Standards/Risk Management .

The federal banking agencies have adopted guidelines establishing operational and managerial standards to promote the safety

and soundness of federally insured depository institutions.

The federal banking agencies have adopted guidelines establishing operational and managerial standards to promote the safety and

soundness of federally insured depository institutions.

The guidelines set forth standards for internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth,

compensation, fees and benefits, asset quality and earnings.

If an institution fails to comply with any of the standards set forth in the guidelines, the financial institution’s primary federal regulator may require the institution to submit

a plan for achieving and maintaining compliance.

If an institution fails to comply with any of the standards set forth in the guidelines, the financial institution’s primary federal regulator may require the institution to submit a

plan for achieving and maintaining compliance.

If a financial institution fails to submit an acceptable compliance plan, or fails in any material respect to implement a compliance plan that has been accepted by its primary federal regulator, the

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institution to increase its capital, restrict the rates the institution pays on deposits or require the institution to take any action the regulator deems appropriate under the circumstances.

Noncompliance with the standards established by the

safety and soundness guidelines may also constitute grounds for other enforcement action by the federal bank regulatory agencies, including cease and desist orders and civil money penalty assessments.

Noncompliance with the standards established by the safety

and soundness guidelines may also constitute grounds for other enforcement action by the federal bank regulatory agencies, including cease and desist orders and civil money penalty assessments.

Branching Authority .

Deposit-taking banking offices must be approved by the Federal Reserve and, if such office is established within the State of Oklahoma, the OBD, which

consider a number of factors, including financial history, capital adequacy, earnings prospects, character of management, needs of the community and consistency with corporate power.

The Dodd-Frank Act permits insured state banks to engage in

interstate branching if the laws of the state where the new banking office is to be established would permit the establishment of the banking office if it were chartered by a bank in such state.

Finally, we may also establish banking offices in

other states by merging with banks or by purchasing banking offices of other banks in other states, subject to certain restrictions.

New branches must be approved by the Federal Reserve and the OBD, which consider a number of factors, including financial history, capital adequacy,

earnings prospects, character of management, needs of the community and consistency with corporate power.

The Dodd-Frank Act permits insured state banks to engage in interstate branching if the laws of the state where the new banking office is to be

established would permit the establishment of the banking office if it were chartered by a bank in such state.

Finally, we may also establish banking offices in other states by merging with banks or by purchasing banking offices of other banks in

other states, subject to certain restrictions.

Interstate Deposit Restrictions .

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Anti-Money Laundering and the Office of Foreign Assets Control Regulation .

The USA PATRIOT Act is designed to deny terrorists and criminals the ability to obtain access to

The USA PATRIOT Act is designed to deny terrorists and criminals the ability to obtain access to the

financial system and has significant implications for depository institutions, brokers, dealers and other businesses involved in the transfer of money.

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Debt Collection Practices Act, the Service Members Civil Relief Act, the Military Lending Act, and these laws’ respective state law counterparts, as well as state usury laws and laws regarding unfair and deceptive acts and practices.

other federal laws, among other things, require disclosures of the cost of credit and terms of deposit accounts, provide substantive consumer rights, prohibit discrimination in credit transactions, regulate the use of credit report information,

provide financial privacy protections, prohibit unfair, deceptive and abusive practices and subject us to substantial regulatory oversight.

Violations of applicable consumer protection laws can result in significant potential liability from

litigation brought by customers, including actual damages, restitution and attorneys’ fees.

Federal bank regulators, state attorneys general and state and local consumer protection agencies may also seek to enforce consumer protection requirements

and obtain these and other remedies, including regulatory sanctions, customer rescission rights, action by the state and local attorneys general in each jurisdiction in which we operate and civil money penalties.

Failure to comply with consumer

protection requirements may also result in failure to obtain any required bank regulatory approval for mergers or acquisitions or prohibition from engaging in such transactions even if approval is not required.

These and other

federal laws, among other things, require disclosures of the cost of credit and terms of deposit accounts, provide substantive consumer rights, prohibit discrimination in credit transactions, regulate the use of credit report information, provide

financial privacy protections, prohibit unfair, deceptive and abusive practices and subject us to substantial regulatory oversight.

Violations of applicable consumer protection laws can result in significant potential liability from litigation

brought by customers, including actual damages, restitution and attorneys’ fees.

Federal bank regulators, state attorneys general and state and local consumer protection agencies may also seek to enforce consumer protection requirements and obtain

these and other remedies, including regulatory sanctions, customer rescission rights, action by the state and local attorneys general in each jurisdiction in which we operate and civil money penalties.

Failure to comply with consumer protection

requirements may also result in failure to obtain any required bank regulatory approval for mergers or acquisitions or prohibition from engaging in such transactions even if approval is not required.

Rulemaking authority for most federal consumer protection laws was transferred from the prudential regulators to the CFPB on July 21, 2011.

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intense and complex environment for consumer finance regulation.

The CFPB has significant authority to implement and enforce federal consumer protection laws and new requirements for financial services products provided for in the Dodd-Frank Act,

as well as the authority to identify and prohibit UDAAP.

The CFPB has significant authority to implement and enforce federal consumer protection laws and new requirements for financial services products provided for in the Dodd-Frank Act, as

well as the authority to identify and prohibit UDAAP.

The review of products and practices to prevent such acts and practices is a continuing focus of the CFPB, and of banking regulators more broadly.

The ultimate impact of this heightened

scrutiny is uncertain but could result in changes to pricing, practices, products and procedures.

It could also result in increased costs related to regulatory oversight, supervision and examination, additional remediation efforts and possible

In addition, the Dodd-Frank Act provides the CFPB with broad supervisory, examination and enforcement authority over various consumer financial products and services, including the ability to require reimbursements and other payments to

customers for alleged legal violations and to impose significant penalties, as well as injunctive relief that prohibits lenders from engaging in allegedly unlawful practices.

The CFPB also has the authority to obtain cease and desist orders

providing for affirmative relief or monetary penalties.

The ultimate impact of this heightened scrutiny

is uncertain but could result in changes to pricing, practices, products and procedures.

It could also result in increased costs related to regulatory oversight, supervision and examination, additional remediation efforts and possible penalties.

addition, the Dodd-Frank Act provides the CFPB with broad supervisory, examination and enforcement authority over various consumer financial products and services, including the ability to require reimbursements and other payments to customers for

alleged legal violations and to impose significant penalties, as well as injunctive relief that prohibits lenders from engaging in allegedly unlawful practices.

The CFPB also has the authority to obtain cease and desist orders providing for

affirmative relief or monetary penalties.

The Dodd-Frank Act does not prevent states from adopting stricter consumer protection standards.

State regulation of financial products and potential enforcement actions could also adversely

affect our business, financial condition or results of operations.

State regulation of financial products and potential enforcement actions could also adversely affect our

business, financial condition or results of operations.

The CFPB has examination and enforcement authority over providers with more than $10 billion in assets.

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organization’s incentive compensation arrangements pose a risk to the safety and soundness of the organization.

Further, the Basel III capital rules limit discretionary bonus payments to bank executives if the institution’s regulatory capital

ratios fail to exceed certain thresholds.

Although the federal bank regulatory agencies proposed additional rules in 2016 related to incentive compensation for all banks with more than $1.0 billion in assets, those rules would not be applicable to

the Company or the Bank.

The scope and content of the U.S.

Further, the Basel III capital rules limit discretionary bonus payments to bank executives if the institution’s regulatory capital ratios

fail to exceed certain thresholds.

Although the federal bank regulatory agencies proposed additional rules in 2016 related to incentive compensation for all banks with more than $1.0 billion in assets, which would include the Company and the Bank,

those rules have not been finalized and the scope and content of the U.S.

banking regulators’ policies on executive compensation are continuing to develop and are likely to continue evolving in the near future.

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determine eligibility for a product or service, such as that shown on consumer credit reports and asset and income information from applications.

Consumers also have the option to direct banks and other financial institutions not to share

information about transactions and experiences with affiliated companies for the purpose of marketing products or services.

Consumers also have the option to direct banks and other financial institutions not to share information

about transactions and experiences with affiliated companies for the purpose of marketing products or services.

Impact of Monetary Policy

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Congress, the Oklahoma Legislature and other governmental bodies from time to time.

Such proposals, if enacted, may further alter the structure, regulation and competitive relationship among financial institutions, and may subject the Company or

the Bank to increased regulation, disclosure and reporting requirements.

Such proposals, if enacted, may further alter the structure, regulation and competitive relationship among financial institutions, and may subject the Company or the

Bank to increased regulation, disclosure and reporting requirements.

In addition, the various banking regulatory agencies often adopt new rules and regulations to implement and enforce existing legislation.

It cannot be predicted whether, or in

what form, any such legislation or regulations may be enacted or the extent to which the business of the Company or the Bank would be affected thereby.

It cannot be predicted whether, or in what

form, any such legislation or regulations may be enacted or the extent to which the business of the Company or the Bank would be affected thereby.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business