What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-03-25 compared with 2020-03-30 · 426 added, 395 removed, 624 unchanged (57% of the section changed)

Financial Statements and Supplementary Data

Consolidated Financial Statements Index

Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

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Notes to Consolidated Financial Statements

Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Shareholders, Board of Directors

and Audit Committee

Shareholders, Board of Directors, and Audit Committee

Oklahoma City, Oklahoma

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Accordingly, we express no such opinion.

Stockholders, Board of Directors, and Audit Committee

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

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Interest-bearing time deposits in other banks

Loans, net of allowance for loan losses of $7,846 and

$7,832 at December 31, 2019 and 2018, respectively

Loans held for sale

Loans, net of allowance for loan losses of $9,639 and $7,846 at December 31, 2020 and 2019, respectively

Loans held for sale, at fair value

Premises and equipment, net

Nonmarketable equity securities

Foreclosed assets held for sale

Goodwill and intangibles

Goodwill and other intangibles, net

Interest receivable and other assets

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Shareholders’ equity

Preferred stock, par value $0.01 per share, 1,000,000

shares authorized;

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;

Common stock, non-voting, par value $0.01 per share, 20,000,000 shares authorized;

none issued or outstanding

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50,000,000 shares authorized;

issued and outstanding:

10,057,506 and 10,187,500, respectively

shares issued and outstanding:

9,044,765 and 10,057,506, at December 31, 2020 and 2019 respectively

Additional paid-in capital

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(Dollar amounts in thousands, except per share data)

For the Years Ended December 31,

Twelve months ended

Interest Income

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Stock-based compensation expense

Loss on sale of premises and equipment

(Gain) loss on sale of premises and equipment

Cash receipts from the sale of loans originated for sale

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Proceeds from sale of premises and equipment

Purchase of nonmarketable equity securities

Change in nonmarketable equity securities

Proceeds from sale of foreclosed assets

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Net cash provided by financing activities

(Decrease) Increase in Cash and Due from Banks

Cash and Due from Banks, Beginning of Year

Cash and Due from Banks, End of Year

Increase (Decrease) in Cash and Due from Banks

Cash and Due from Banks, Beginning of Period

Cash and Due from Banks, End of Period

Supplemental Disclosure of Cash Flows Information

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Non-cash stock contribution

Supplemental Disclosure of Non-Cash Investing Activities

Foreclosed assets acquired in settlement of loans

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Nature of Operations and Summary of Significant Accounting Policies

Nature of Operati ons

(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, Bank 7 (the

Nature of Operations

(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.

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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.

significant intercompany accounts and transactions have been eliminated in consolidation.

All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that

affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

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.

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.

Cash Equivalents

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Interest-Bearing Time Deposits in Other Banks

Interest-bearing time deposits in other banks totaled $30.1 million and $31.8 million at December 31, 2019 and December 31, 2018, respectively, and have original maturities generally ranging from one to

Interest-bearing time deposits in other banks totaled $16.4 million and $30.1 million at December 31, 2020 and December 31, 2019 respectively, and have original maturities generally ranging

from one to five years.

Notes to Consolidated Financial Statements

Debt securities that management has the positive intent and ability to hold to maturity are classified as “held-to-maturity” and recorded at amortized cost.

Trading securities are recorded at fair

value with changes in fair value included in earnings.

Securities not classified as held-to-maturity or trading, including equity securities with readily determinable fair values, are classified as “available-for-sale” and recorded

at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income.

Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the

Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

For debt securities with fair value below amortized cost when the Company does not

intend to sell a debt security, and it is more likely than not the Company will not have to sell the security before recovery of its cost basis, it recognizes the credit component of an other-than-temporary impairment of a debt

security in earnings and the remaining portion in other comprehensive income.

Trading securities are recorded at

fair value with changes in fair value included in earnings.

Securities not classified as held-to-maturity or trading, including equity securities with readily determinable fair values, are classified as “available-for-sale” and recorded at fair

value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income.

Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities.

losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

For debt securities with fair value below amortized cost when the Company does not intend to sell a debt security, and

it is more likely than not the Company will not have to sell the security before recovery of its cost basis, it recognizes the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in

other comprehensive income.

The Company had no “available-for-sale” or “held to maturity” investments as of December 31, 2020 and 2019.

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.

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.

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

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.

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.

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valuation allowance by charges to noninterest income.

Gains and losses on loan sales are recorded in noninterest income and direct loan origination costs and fees are deferred at origination of the loan and are recognized in

noninterest income upon the sale of the loan.

Gains and losses on loan sales are recorded in noninterest income and direct loan origination costs and fees are deferred at origination of the loan and are recognized in noninterest income

upon the sale of the loan.

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.

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.

Notes to Consolidated Financial Statements

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.

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.

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.

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.

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.

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.

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

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Premises and equipment are stated at cost, less accumulated depreciation.

Depreciation is charged to operating expense and is computed using the straight-line method over the estimated useful lives of

Depreciation is charged to operating expense and is computed using the straight-line method over the estimated useful

lives of the assets.

Maintenance and repairs are charged to expense as incurred while improvements are capitalized.

Premises and equipment is tested for impairment if events or changes in circumstances occur that indicate that the carrying

amount of any premises and equipment may not be recoverable.

Premises and equipment is tested for impairment if events or changes in circumstances occur that indicate that the carrying amount

of any premises and equipment may not be recoverable.

Premises that are identified to be sold are transferred to other real estate owned at the lower of their carrying amounts or their fair values less estimated costs to sell.

Any losses on premises identified to be sold are charged to operating expense.

When premises and equipment are transferred to other real estate owned, sold, or otherwise retired, the cost and applicable accumulated depreciation are

removed from the respective accounts and any resulting gains or losses are reported in the statement of income.

Any losses on

premises identified to be sold are charged to operating expense.

When premises and equipment are transferred to other real estate owned, sold, or otherwise retired, the cost and applicable accumulated depreciation are removed from the respective

accounts and any resulting gains or losses are reported in the statement of income.

Notes to Consolidated Financial Statements

Non-Marketable Equity Securities

Non-marketable equity securities consist primarily of Federal Home Loan Bank of Topeka (FHLB) stock and Federal Reserve Bank of Kansas City stock and are required investments for financial institutions

that are members of the FHLB and Federal Reserve systems.

Non-marketable equity securities consist primarily of Federal Home Loan Bank of Topeka (FHLB) stock and Federal Reserve Bank of Kansas City stock and are required investments for financial

institutions that are members of the FHLB and Federal Reserve systems.

The required investment in common stock is based on a predetermined formula, carried at cost and evaluated for impairment.

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The Company evaluates the recoverability of the carrying value of long-lived assets whenever events or circumstances indicate the carrying amount may not be recoverable.

If a long-lived asset is tested

for recoverability and the undiscounted estimated future cash flows is expected to result from the use and eventual disposition of the asset is less than the carrying amount of the asset, the asset cost is adjusted to fair value and

an impairment loss is recognized as the amount by which the carrying amount of a long-lived asset exceeds its fair value.

If a long-lived asset

is tested for recoverability and the undiscounted estimated future cash flows is expected to result from the use and eventual disposition of the asset is less than the carrying amount of the asset, the asset cost is adjusted to fair value and an

impairment loss is recognized as the amount by which the carrying amount of a long-lived asset exceeds its fair value.

No asset impairment was recognized during the years ended December 31, 2020, 2019, and 2018.

Foreclosed Assets Held for Sale

Foreclosed assets held for sale consist of assets acquired through, or in lieu of, loan foreclosure and are initially recorded at fair value, less cost to sell at the date of foreclosure, establishing a

new cost basis.

Foreclosed assets held for sale consist of assets acquired through, or in lieu of, loan foreclosure and are initially recorded at fair value, less cost to sell at the date of foreclosure,

establishing a new cost basis.

Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount of fair value less costs to sell.

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Goodwill and Intangible Assets

Goodwill is tested annually for impairment.

If the implied fair value of goodwill is lower than its carrying amount, a goodwill impairment is indicated and goodwill is written down to its implied fair

Goodwill is tested annually for impairment or more frequently if other impairment indicators are present.

If the implied fair value of goodwill is lower than its carrying amount, a goodwill

impairment is indicated and goodwill is written down to its implied fair value.

Subsequent increases in goodwill value are not recognized in the accompanying consolidated financial statements.

Other intangible assets consist of core deposit intangible assets and are amortized on a straight-line basis based on an estimated useful life of 10 years.

Such assets are periodically evaluated as to

the recoverability of their carrying values.

Such assets are periodically

evaluated as to the recoverability of their carrying values.

While the chief decision-makers monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis.

Discrete financial

information is not available other than on a Company-wide basis.

Discrete financial information is not available other than on a Company-wide basis.

Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.

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Prior to September 24, 2018, the Company had elected to be taxed as an S Corporation for federal and state income tax purposes.

As such, stockholders were taxed on their pro rata share of earnings and deductions of the

Company, regardless of the amount of distributions received.

As such, stockholders were taxed on their pro rata share of

earnings and deductions of the Company, regardless of the amount of distributions received.

Generally, the Company was not subject to federal income tax.

Effective September 24, 2018, the Company converted from an S Corporation to a C Corporation and is subject to federal and

state taxes at that date.

Effective September 24, 2018, the Company converted from an S Corporation to a C Corporation

and is subject to federal and state taxes at that date.

The Company uses a comprehensive model for recognizing, measuring, presenting, and disclosing in the financial statements tax positions taken or expected to be taken on a tax return.

A tax position is recognized as a

benefit only if it is ‘‘more likely than not’’ that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur.

The amount recognized is the largest amount of tax benefit that is greater than 50% likely

of being realized on examination.

position is recognized as a benefit only if it is ‘‘more likely than not’’ that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur.

The amount recognized is the largest amount of tax benefit

that is greater than 50% likely of being realized on examination.

For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

The Company recognizes interest accrued and penalties related to unrecognized tax benefits in tax expense.

During the years ended December 31, 2019, 2018 and 2017, the Company recognized no interest and penalties.

During the years ended December 31, 2020, 2019 and 2018, the Company recognized no

interest and penalties.

We or one of our subsidiaries file income tax returns in the U.S.

federal jurisdiction and various state jurisdictions.

We are no longer subject to U.S.

federal or state tax examinations for

years before 2017.

Revenue Recognition

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Contract performance typically occurs in one year or less.

Incremental costs of obtaining a

contract are expensed when incurred when the amortization period is one year or less.

costs of obtaining a contract are expensed when incurred when the amortization period is one year or less.

Service and transaction fees on depository accounts

Customers often pay certain fees to the bank to access the cash on deposit including certain non-transactional fees such as account maintenance or dormancy fees, and certain transaction based fees such as ATM, wire

transfer, or foreign exchange fees.

Customers often pay certain fees to the bank to access the cash on deposit including certain non-transactional fees such as account maintenance or dormancy fees, and certain transaction based

fees such as ATM, wire transfer, or foreign exchange fees.

Revenue is recognized when the transactions occur or as services are performed over primarily monthly or quarterly periods.

Payment is typically received in the period the transactions occur, or in some cases,

within 90 days of the service period.

Interchange Fees

Interchange fees, or “swipe” fees, are charges that merchants pay to the processors who, in turn, share that revenue with us and other card-issuing banks for processing electronic payment transactions.

Payment is typically received in the period the transactions

occur, or in some cases, within 90 days of the service period.

Interchange Fees

represent the portion of the debit card transaction amount that the card issuer retains to compensate it for processing transactions and providing rewards.

Interchange fees are settled and recognized on a daily or monthly basis.

Interchange fees, or “swipe” fees, are charges that merchants pay to the processors who, in turn, share that revenue with us and other card-issuing banks for processing electronic payment

transactions.

Interchange fees represent the portion of the debit card transaction amount that the card issuer retains to compensate it for processing transactions and providing rewards.

Interchange fees are settled and recognized on a daily or

monthly basis.

Notes to Consolidated Financial Statements

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606).

The ASU supersedes and replaces nearly all existing revenue recognition guidance, including industry-specific guidance, and

establishes a new control-based revenue recognition model for revenue from contracts with customers.

The revenue line items in scope of this ASU have been identified and final assessment is pending;

however, the majority of the Company’s financial

instruments are not within the scope of Topic 606.

Material revenue streams within the scope of Topic 606 include service charges on deposits.

The guidance in the ASU is effective for annual reporting periods beginning after December 15, 2018.

2014-09 was adopted for the annual period ending December 31, 2019 and did not have a significant impact on the Company’s financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10):

Recognition and Measurement of Financial Assets and Financial Liabilities.

The ASU requires certain equity investments

to be measured at fair value with changes recognized in net income.

It also requires the use of the exit price notion when measuring the fair value of financial instruments for disclosure purpose and eliminates the requirement to disclose the

methods and significant assumptions used to estimate the fair value disclosed for financial instruments measured at amortized cost.

The guidance in the ASU is effective for annual reporting periods beginning after December 15, 2018.

ASU 2016-01 was

adopted for the annual period ending December 31, 2019 and did not have a significant impact on the Company’s financial statements.

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

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 material 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 first quarter of 2021.

Additionally, a modified retrospective transition approach is required for leases existing at the earliest comparative

period presented.

It is expected that adoption will not 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 expects to adopt the standard 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, 2021 with a cumulative-effect adjustment to retained earnings required for the first reporting period.

Management is still

assessing the impact of this ASU.

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

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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Simplifying the Test for Goodwill Impairment.

The ASU amends existing guidance to simplify the subsequent measurement of

goodwill by eliminating Step 2 from the goodwill impairment test.

The guidance in the ASU is effective for reporting periods beginning after December 15, 2021 with prospective application.

It is expected that adoption will not have a significant

impact on the Company’s financial condition and results of operations.

The Company expects to adopt the standard in the first quarter of 2020.

The ASU amends existing guidance to simplify the

subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test.

Under the new guidance, if a reporting unit’s carrying amount exceeds its fair value an entity will record an impairment charge based on that difference.

The standard eliminates today’s requirement to calculate a goodwill impairment charge using Step 2, which requires an entity to calculate any impairment charge by comparing the implied fair value of goodwill with its carrying amount.

adoption is permitted.

ASU 2017-04 was adopted as of January 1, 2020, with no significant impacts on the Company’s financial statements.

In August 2018, the FASB issued ASU No.

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ASU 2018-13 removes, modifies and adds disclosure requirements on fair value measurements.

ASU 2018-13 will be effective for the

Company on January 1, 2020.

Early adoption is permitted.

In addition, early adoption of any removed or modified disclosures and delayed adoption of the additional disclosures until the effective date is also permitted.

It is expected that adoption

will not have a significant impact on the Company’s financial condition and results of operations.

The Company expects to adopt the standard in the first quarter of 2020.

ASU 2018-13 was

adopted on January 1, 2020, and did not have a significant impact on the Company’s 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.

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

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.

Notes to Consolidated Financial Statements

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

PPP loans are fully guaranteed by the Small Business Administration (SBA).

As of December 31, 2020, the Company had 166 PPP loans with balances totaling $44.9 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.

Change in Capital Structure

On June 26, 2018, the Company amended and restated its Certificate of Incorporation.

The original Certificate of Incorporation was amended to change the name of the Company from Haines Financial Corp to Bank7 Corp.

In addition, the amendment changed the capital structure to authorize the issuance of 50,000,000 shares of common stock, par value $0.01 per share (the “Common Stock”), 20,000,000 shares of non-voting common stock, par value $0.01 per share (the

“Non-voting Common Stock”), and 1,000,000 shares of preferred stock, par value $0.01 per share (the “Preferred Stock”).

The original Certificate of Incorporation was amended to change the name of the Company from Haines

Financial Corp to Bank7 Corp.

par value $0.01 per share (the “Non-voting Common Stock”), and 1,000,000 shares of preferred stock, par value $0.01 per share (the “Preferred Stock”).

The Company completed a 24-to-1 stock split of the Company’s outstanding shares of common stock for shareholders on record as of July 6, 2018.

The stock was payable in the form of a dividend on or about July 9, 2018.

The stock was payable in the form of a dividend

on or about July 9, 2018.

Shareholders received 24 additional shares for each share held.

All share and per share amounts in the consolidated financial statements and related notes have been retroactively adjusted to reflect this stock split for all periods presented.

All share and per share amounts in the consolidated financial statements and related notes have been retroactively adjusted to reflect this stock split

for all periods presented.

Initial Public Offering

On September 20, 2018, the Company completed the initial public offering of its common stock.

In connection with the Company’s initial public offering, the Company sold and issued 2,900,000 shares of common stock at

$19 per share.

In connection with the Company’s initial public offering, the Company sold and issued 2,900,000

shares of common stock at $19 per share.

After deducting the underwriting discounts and offering expenses, the Company received total net proceeds of $50.1 million from the initial public offering.

In connection with the initial public offering, the Company terminated its S Corporation status and became a taxable entity (“C Corporation”) on September 24, 2018.

As such, any periods prior to September 24, 2018 will

only reflect an effective state income tax rate.

As such, any periods prior

to September 24, 2018 will only reflect an effective state income tax rate.

As a result of the termination of S Corporation status, we increased our deferred tax asset and recorded an initial tax benefit of $863,000.

The deferred tax asset is the result of timing differences

in the recognition of income/deductions for generally accepted accounting principles (“GAAP”) and tax purposes.

The deferred tax asset is the

result of timing differences in the recognition of income/deductions for generally accepted accounting principles (“GAAP”) and tax purposes.

Net deferred tax assets are included in other assets and no valuation allowance is considered necessary.

We or one of our subsidiaries file income tax returns in the U.S.

federal jurisdiction and various state jurisdictions.

We are no longer subject to U.S.

federal or state tax examinations for years before 2016.

Restriction on Cash and Due from Banks

The Company is required to maintain reserve funds in cash and/or on deposit with the Federal Reserve Bank.

The reserve required at December 31, 2019 was $18.0 million.

The reserve required at December 31, 2020 was $0.

Notes to Consolidated Financial Statements

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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.

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.

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

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(Dollars in thousands, except per share amounts)

Denominator for basic earnings per common share

Weighted-average shares outstanding for basic earnings per share

Dilutive effect of stock compensation (1)

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Earnings per common share

(1) Nonqualified stock options outstanding of 163,000 and 150,000 as of December 31, 2019 and 2018, respectively, have not been included in diluted earnings per share because to do so would have been antidilutive for the

periods presented.

(1) Nonqualified stock options outstanding of 185,250, 163,000 and 150,000 as of December 31, 2020, 2019 and 2018, respectively, have not been included in diluted earnings per share because to do so would have been

antidilutive for the periods presented.

Notes to Consolidated Financial Statements

Loans and Allowance for Loan Losses

A summary of loans at December 31, 2019 and 2018, are as follows (dollars in thousands):

A summary of loans at December 31, 2020 and December 31, 2019, are as follows (dollars in thousands):

Construction & development

1-4 family commercial

1 - 4 family real estate

Commercial real estate - other

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Less deferred loan fees

Included in the commercial & industrial loan balance at December 31, 2020, are $44.9 million of loans that were originated under the SBA PPP program.

Notes to Consolidated Financial Statements

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Balance, beginning of period

Net charge-offs

Net recoveries

Provision (credit) for loan losses

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Notes to 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 December 31, 2019 and 2018 (dollars in thousands):

Construction &

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Internal Risk Categories

Certain loan segments were reclassified during 2018.

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

The Company’s re-alignment of the segments primarily consisted of

reclassifying consumer-related and agricultural-related real estate loans from the real estate category to the consumer and agricultural categories, respectively.

Management believes this accurately represents the risk profile of each loan segment.

In addition, the real estate segment was renamed to commercial real estate, and the commercial segment was renamed to commercial & industrial.

The prior period amounts have been revised to conform to the current period presentation.

reclassifications did not have a significant impact on the allowance for loan losses.

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.

Residential loans are generally secured by owner occupied 1–4 family residences.

Residential loans are generally secured by

owner occupied 1–4 family residences.

Repayment of these loans is primarily dependent on the personal income and credit rating of the borrowers.

Credit risk in these loans can be impacted by economic conditions within the Company’s market areas that might impact either property values

or a borrower’s personal income.

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.

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.

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.

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

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.

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.

4, or Substandard, refers to loans that are classified.

Notes to Consolidated Financial Statements

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

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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 imprudent handling or structural issues.

Notes to Consolidated Financial Statements

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

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No changes were made to either during the period ended December 31, 2020.

The following table presents the credit risk profile of the Company’s loan portfolio based on internal rating category as of December 31, 2019 and 2018 (dollars in thousands):

The following table presents the credit risk profile of the Company’s loan portfolio based on internal rating category as of December 31, 2020 and December 31, 2019 (dollars in thousands):

Construction &

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Notes to Consolidated Financial Statements

The following table presents the Company’s loan portfolio aging analysis of the recorded investment in loans as of December 31, 2019 and 2018 (dollars in thousands):

The following table presents the Company’s loan portfolio aging analysis of the recorded investment in loans as of December 31, 2020 and December 31, 2019 (dollars in thousands):

December 31, 2020

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Commercial & industrial

The following table presents impaired loans as of December 31, 2019 and 2018 (dollars in thousands):

The following table presents impaired loans as of December 31, 2020 and December 31, 2019 (dollars in thousands):

December 31, 2020

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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.

Notes to Consolidated Financial Statements

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 December 31, 2019, the Company had $2,721,000 of commercial real estate loans that were

modified in troubled-debt restructurings and impaired and $501,000 in commercial loan modifications as of December 31, 2018.

There were $2.7 million in newly modified troubled-debt restructurings during the year

ended December 31, 2019, consisting of $1.8 million of commercial real estate loans and $900,000 in agricultural loans.

The modification of the terms of the TDR loan included a reduction of the stated interest rate of the loan to a stated rate of

interest lower than the current market rate for new debt with similar risk.

These modifications did not result in any increase or decrease to the allowance for loan losses for the year ending December 31, 2019.

These TDRs resulted in no charge offs

during the year ended December 31, 2019.

There were no newly modified TDRs during the year ended December 31, 2018.

There were no troubled-debt restructurings modified in the past twelve months that subsequently defaulted for the year ended December 31, 2019.

The following table represents information regarding nonperforming assets at December 31, 2019 and 2018 (dollars in thousands):

At December 31, 2020, the Company had $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 and $1.8 million of commercial real estate and $900,000 of agricultural loan modifications

as of December 31, 2019.

There were $11.4 million in newly modified troubled-debt restructurings during the year ended December 31, 2020, consisting of $10.9 million of commercial and industrial loans and $469,000 in agricultural loans.

modification of the terms of the TDR loan included a reduction of the stated interest rate of the loan to a stated rate of interest lower than the current market rate for new debt with similar risk.

Notes to Consolidated Financial Statements

Troubled-debt restructurings of $10.9 million in commercial and industrial and $469,000 in agricultural loans modified in the past twelve months subsequently defaulted during the period ended

December 31, 2020.

The following table represents information regarding nonperforming assets at December 31, 2020 and December 31, 2019 (dollars in thousands):

Construction &

Real Estate -

December 31, 2020

Nonaccrual loans

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Total nonperforming loans

(1) $1.81 million and $501,000 of TDRs as of December 31, 2019 and December 31, 2018, respectively, are included in the nonaccrual loans balance in the line above

Construction &

Real Estate -

December 31, 2019

Nonaccrual loans

Troubled-debt restructurings (1)

Accruing loans 90 or more days past due

Total nonperforming loans

(1) $12.98 million and $1.81 million of TDRs as of December 31, 2020 and 2019, 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 December 31, 2020, eight loans totaling $33.0 million were modified, related to

COVID-19, which were not considered troubled debt restructurings.

Notes to Consolidated Financial Statements

Premises and Equipment

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Net premises and equipment

Notes to Consolidated Financial Statements

Intangible Assets

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Core deposit intangible

Notes to Consolidated Financial Statements

Amortization expense for intangible assets totaled $206,000 for the years ended December 31, 2020, 2019, and 2018.

Estimated amortization expense for each of the following four years is as follows (dollars in

Estimated amortization expense for each of the following four years is as follows (dollars in thousands):

Interest-Bearing Deposits

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At December 31, 2020, the scheduled maturities of interest-bearing time deposits were as follows (dollars in thousands):

Notes to Consolidated Financial Statements

In connection with the initial public offering, as discussed in Note 2, the Company terminated its S Corporation status and became a taxable entity (“C Corporation”) effective September 24,

As such, any periods

prior to September 24, 2018 will only reflect an effective state income tax rate.

Notes to Consolidated Financial Statements

The (benefit)/provision for income taxes for the years ended December 31, 2020, 2019 and 2018 consists of the following (dollars in thousands):

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Net deferred tax assets

In assessing the Company’s ability to realize deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.

realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

Management considers projected future taxable income and tax planning strategies

in making this assessment.

Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company

will realize all benefits related to these deductible differences as of December 31, 2019.

In assessing the Company’s ability to realize deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

Management considers projected future taxable income

and tax planning strategies in making this assessment.

Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more

likely than not that the Company will realize all benefits related to these deductible differences as of December 31, 2020.

The Company does not have any net operating loss or tax credit carryforwards as of December 31, 2020.

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The Company establishes reserves for uncertain tax positions that reflect management’s best estimate of deductions and credits that may not be sustained on a more-likely-than-not basis.

Recognized income tax positions

are measured at the largest amount that is considered greater than 50% likely of being realized.

Recognized income tax positions are measured at the largest amount that is considered greater than 50% likely of being realized.

Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

A reconciliation of the beginning and ending

amount of uncertain tax positions is as follows (in thousands):

reconciliation of the beginning and ending amount of uncertain tax positions is as follows (in thousands):

Notes to Consolidated Financial Statements

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Letters of Credit

The Bank has entered into an arrangement with the FHLB resulting in the FHLB issuing letters of credit on behalf of the Bank with the resulting beneficiary being certain public funds in connection with these deposits.

Outstanding letters of credit to secure these public funds at December 31, 2019 and 2018 were $1.3 million and $1.5 million, respectively.

Loans with a collateral value of approximately $73.0 million were used to secure the letters of credit.

The Bank has entered into an arrangement with the FHLB resulting in the FHLB issuing letters of credit on behalf of the Bank with the resulting beneficiary being certain public funds in

connection with these deposits.

Outstanding letters of credit to secure these public funds at December 31, 2020 and 2019 were $884,000 and $1.3 million, respectively.

Loans with a collateral value of approximately $65.7 million were used to

secure the letters of credit.

Advances and Borrowings

The Bank has a blanket floating lien security agreement with a maximum borrowing capacity of $71.7 million at December 31, 2019, with the FHLB, under which the Bank is required to maintain collateral for any advances,

including its stock in the FHLB, as well as qualifying first mortgage and other loans.

The Bank has a blanket floating lien security agreement with a maximum borrowing capacity of $64.8 million at December 31, 2020, with the FHLB, under which the Bank is required to maintain

collateral for any advances, including its stock in the FHLB, as well as qualifying first mortgage and other loans.

The Bank had no advances from the FHLB at December 31, 2020 or 2019.

Notes to Consolidated Financial Statements

Shareholders’ Equity

On September 5, 2019, the Company adopted a Repurchase Plan (the “RP”).

The RP authorizes the repurchase of up to 500,000 shares of the Company’s common stock.

To date the Company has made no repurchases under the

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.

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 December 31, 2020, 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:

A summary of the activity under the RP is as

Year Ended December 31,

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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.

Notes to Consolidated 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 December 31, 2019, 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

As of December 31, 2019, 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.

categorized as well capitalized, the Bank must maintain capital ratios as set forth in the table.

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 December 31, 2020, 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 December 31, 2020, 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.

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

Notes to 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 $44.9

million we originated are included in the calculation of our leverage ratio as of December 31, 2020 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):

Capital Requirements

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As of December 31, 2020

Total capital to risk-weighted assets Company

Tier I capital to risk-weighted assets Company

CET I capital to risk-weighted assets Company

Tier I capital to average assets Company

Total capital to risk-weighted assets

Tier I capital to risk-weighted assets

CET I capital to risk-weighted assets

Tier I capital to average assets

As of December 31, 2019

Total capital to risk-weighted assets Company

Tier I capital to risk-weighted assets Company

CET I capital to risk-weighted assets Company

Tier I capital to average assets Company

In July 2013, the federal regulatory authorities issued a new capital rule based, in part, on revisions developed by the Basel Committee on Banking Supervision to the Basel capital framework (Basel III).

became subject to the new rule effective January 1, 2015.

Generally, the new rule implements higher minimum capital requirements, revises the definition of regulatory capital components and related calculations, adds a new common equity tier 1

capital ratio, implements a new capital conservation buffer, increases the risk weighting for past due loans and provides a transition period for several aspects of the new rule.

In addition, banks with less than $250 billion in assets were given a

one-time opt-out election under Basel III Capital Rules to filter from regulatory capital certain accumulated other comprehensive income (AOCI) components.

The Bank made the opt-out election and excludes the AOCI components from the capital ratio

computations.

The current (new) capital rule provides that, 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 common equity tier 1 capital above its minimum risk-based capital requirements.

The buffer is measured relative to risk-weighted assets.

As fully phased in, a banking organization with a buffer greater than 2.5% would not be subject to additional limits on dividend payments or discretionary bonus payments;

however, a banking organization with a buffer

less than 2.5% would be subject to increasingly stringent limitations as the buffer approaches zero.

The new rule also prohibits a banking organization from making dividend payments or discretionary bonus payments if its eligible retained income is

negative in that quarter and its capital conservation buffer ratio was less than 2.5% as the beginning of that quarter.

Eligible net income is defined as net income for the four calendar quarters preceding the current calendar quarter, net of any

distributions and associated tax effects not already reflected in net income.

A summary of payout restrictions based on the capital conservation buffer is as follows:

Total capital to risk-weighted assets

Tier I capital to risk-weighted assets

CET I capital to risk-weighted assets

Tier I capital to average assets

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%;

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

Notes to Consolidated Financial Statements

Capital Conservation Buffer

(as a % of risk-weighted assets)

Maximum Payout

(as a % of eligible retained income)

Greater than 2.5%

No payout limitations applies

≤2.5% and >1.875%

≤1.875% and >1.25%

≤1.25% and >0.625%

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 fully

phased-in basis.

Notes to Consolidated Financial Statements

The Bank is subject to certain restrictions on the amount of dividends that it may declare without prior regulatory approval.

At December 31, 2019, approximately $34.6 million of retained earnings was available for

dividend declaration from the Bank without prior regulatory approval.

At December 31, 2020, approximately $36.8 million of retained

earnings was available for dividend declaration from the Bank without prior regulatory approval.

Related-Party Transactions

At December 31, 2019 and 2018, the Company had loans outstanding to executive officers, directors, significant shareholders and their affiliates (related parties) approximating $1.1 million and $6.9 million,

respectively.

At December 31, 2020 and December 31, 2019, the Company had loans outstanding to executive officers, directors, significant shareholders and their affiliates (related parties) approximating $0

and $1.1 million, respectively.

A summary of these loans is as follows (dollars in thousands):

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Year ended December 31, 2019

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.

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.

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 $184,000 for the years ended December 31, 2019,

2018, and 2017.

Lease expense totaled $177,000, $184,000 and

$184,000 for the years ended December 31, 2020, 2019 and 2018, respectively.

In addition, payroll and office sharing arrangements were in place between the Company and certain of its affiliates.

Notes to Consolidated Financial Statements

During the year, the Bank sold two loans to Haines Capital Group, LLC, a related party of the Company, totaling $20.4 million in principal and accrued interest.

The loans were sold in-full, at

par value and without recourse.

Employee Benefits

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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.

contributions charged to expense for the years ended December 31, 2019, 2018, and 2017 totaled $223,000, $198,000 and $178,000, respectively.

Employees may contribute up to the maximum legal limit with the Bank matching up to 5% of the employee’s

Employer contributions charged to expense for the years ended December 31, 2020, 2019 and 2018 totaled $230,000, $223,000 and $198,000, respectively.

Notes to Consolidated Financial Statements

Stock-Based Compensation

The Company adopted a nonqualified incentive stock option plan (the “Bank7 Corp.

2018 Equity Incentive Plan”) in September 2018.

2018 Equity Incentive Plan”) in September 2018 and amended the Bank7 Corp.

2018 Equity Plan on May 20, 2020

adding an additional 507,500 shares to the plan.

The Bank7 Corp.

2018 Equity Incentive Plan will terminate in September 2028, if not

Compensation expense related to the Plan for the years ended December 31, 2019 and 2018 totaled $628,000 and $154,000 respectively.

On September 5, 2019, the Company’s largest shareholders, the Haines Family Trusts, contributed approximately 6.5% of their shares (656,925 shares) to the Company.

2018 Equity Incentive Plan will terminate in September 2028, if not extended.

Compensation expense related to the Plan for the years ended December 31, 2020, 2019 and 2018 totaled

$771,000, $628,000 and $154,000, respectively.

There were 694,750 shares available for future grants as of December 31, 2020.

On September 5, 2019, our largest shareholders, the Haines Family Trusts, contributed approximately 6.5% of their shares (656,925 shares) to the Company.

Subsequently, the Company immediately

issued those shares to certain executive officers, which was charged as compensation expense of $11.8 million, including payroll taxes, through the income statement of the Company.

Additionally, at the discretion of the employees receiving shares to

assist in paying tax withholdings, 149,425 shares were withheld and subsequently canceled, resulting in a charge to retained earnings of $2.6 million.

In connection with its IPO in September 2018, the Company granted to employees restricted stock units (RSUs) which vest ratably over five years and stock options which vest ratably over four years.

All RSUs and stock

options were 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.

Additionally, at the discretion of the employees receiving shares

to assist in paying tax withholdings, 149,425 shares were withheld and subsequently canceled, resulting in a charge to retained earnings of $2.6 million.

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.

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.

Notes to Consolidated Financial Statements

The following table is a summary of the stock option activity under the Bank7 Corp.

2018 Equity Incentive Plan (dollar amounts in thousands, except per share data):

Contractual Term

Year Ended December 31, 2019

Remaining Contractual Term

Twelve Months Ended December 31, 2020

Outstanding at December 31, 2019

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Exercisable at December 31, 2020

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.

Twelve Months Ended December 31, 2019

Outstanding at December 31, 2018

Options Granted

Options Exercised

Options Forfeited

Outstanding at December 31, 2019

Exercisable at December 31, 2019

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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December 31, 2020

December 31, 2019

Risk-free interest rate

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Expected term

The following table summarizes share information about RSUs for the year ended December 31, 2019:

The following table summarizes share information about RSUs for the years ended December 31, 2020 and 2019:

Date Fair Value

Twelve Months Ended December 31, 2020

Outstanding at December 31, 2019

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End of the period balance

As of December 31, 2019, there was approximately $1.8 million of unrecognized compensation expense related to 104,000 unvested RSUs and $383,000 of unrecognized compensation expense related to 163,000 unvested and/or

unexercised stock options.

The stock option expense is expected to be recognized over a weighted average period of four years, and the RSU expense is expected to be recognized over a weighted average period of five years.

Twelve Months Ended December 31, 2019

Outstanding at December 31, 2018

Shares granted

Shares settled

Shares forfeited

End of the period balance

As of December 31, 2020, there was approximately $1.9 million of unrecognized compensation expense related to 118,000 unvested RSUs and $363,000 of unrecognized compensation expense related to

185,250 unvested and/or unexercised stock options.

The stock option expense is expected to be recognized over a weighted average period of 2.22 years, and the RSU expense is expected to be recognized over a weighted average period of 3.08 years.

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.

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:

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for substantially the full term of the assets or liabilities

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

Notes to Consolidated Financial Statements

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 December 31, 2019 and 2018.

There were no assets measured at fair value on a recurring basis as of December 31, 2020 and December 31, 2019.

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 December 31,

2019 and 2018 (dollars in thousands):

Decmeber 31, 2019

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 December 31, 2020 and December 31, 2019 (dollars in thousands):

December 31, 2020

Impaired loans (collateral- dependent)

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Impaired loans (collateral- dependent)

Foreclosed assets held for sale

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.

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.

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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.

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.

Foreclosed Assets Held for Sale

Foreclosed assets held for sale are carried at the lower of fair value at acquisition date or current estimated fair value, less estimated cost to sell when the asset is acquired.

Estimated fair value of foreclosed

assets is based on appraisals or evaluations.

Foreclosed assets held for sale are classified within Level 3 of the fair value hierarchy.

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.

Notes to Consolidated Financial Statements

Appraisals of foreclosed assets held for sale are obtained when the asset is acquired and subsequently as deemed necessary by the Company.

Appraisals are reviewed for accuracy and consistency by executive management

and loan administration.

Unobservable (Level 3) Inputs

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Estimated cost to sell

Foreclosed assets held for sale

Appraisals from comparable properties

Estimated cost to sell

Notes to Consolidated Financial Statements

The following tables presents estimated fair values of the Company’s financial instruments not recorded at fair value at December 31, 2019 and 2018 (dollars in thousands):

The following tables presents estimated fair values of the Company’s financial instruments not recorded at fair value at December 31, 2020 and December 31, 2019 (dollars in thousands):

Fair Value Measurements

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The carrying amount approximates fair value.

Notes to Consolidated Financial Statements

Loans and Mortgage Loans Held for Sale

The fair value of loans 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.

The fair value of loans 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.

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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.

Notes to Consolidated Financial Statements

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 December 31, 2019 or 2018.

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 December 31, 2020 or December 31, 2019.

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.

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 December 31, 2019 and 2018 (dollars in thousands):

The following summarizes

those financial instruments with contract amounts representing credit risk as of December 31, 2020 and December 31, 2019 (dollars in thousands):

Commitments to extend credit

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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.

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 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.

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

Notes to Consolidated Financial Statements

Significant Estimates and Concentrations

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

Notes to Consolidated Financial Statements

As of December 31, 2020, hospitality loans were 23% of gross total loans with outstanding balances of $194.3 million and unfunded commitments of $65.0 million;

energy loans were 14% of gross total loans with

outstanding balances of $102.1 million and unfunded commitments of $28.9 million.

The Company evaluates goodwill for potential goodwill impairment on an annual basis or more often based on consideration if any triggering events have occurred.

A prolonged strain on the U.S.

Economy impacting the

Company could result in goodwill being partially or fully impaired.

energy loans were 12% of gross

total loans with outstanding balances of $101.9 million and unfunded commitments of $10.7 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

economy impacting the Company could result in goodwill being partially or fully impaired.

At December 31, 2020, goodwill of $1.0 million was recorded on the consolidated balance sheet.

Operating Leases

GAAP require The Company leases certain of its branch facilities and office equipment under operating leases.

Rental expense for these leases was $770,000 and $596,000, and $421,000 for the years ended December 31,

2019, 2018, and 2017 respectively.

The Company leases certain of its branch facilities and office equipment under operating leases.

Rental expense for these leases was $837,000, $770,000 and $596,000 for the years ended

December 31, 2020, 2019, and 2018 respectively.

Future minimum rental commitments of branch facilities and office equipment due under non-cancelable operating leases at December 31, 2020, were as follows (dollars in thousands):

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Total liabilities and shareholders’ equity

Notes to Consolidated Financial Statements

Condensed Statements of Income

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Net Income Available to Common Shareholders

Notes to Consolidated Financial Statements

Condensed Statements of Cash Flows

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Repayment of borrowed funds

Common stock issued, net of offering costs

Common stock acquired and canceled

Dividends paid

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Income before income taxes

Income tax expense (benefit)

Net income (loss)

Income tax expense

For the three months ended

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Noninterest expense

Income before income taxes

Income (loss) before income taxes

Income tax expense

(1) The quarterly EPS amounts, when added, may not coincide with the full fiscal year EPS reported on the Consolidated Statements of Income due to differences in the computed weighted average shares outstanding as well as rounding differences.

Net income (loss)

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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 8. Financial Statements and Supplementary Data