Bank7 Corp. 10-K

Item 8 . Financial Statements and Supplementary Data Consolidated Financial Statements Index Page Report of Independent Registered Public Accounting Firm 57 Consolidated Financial Statements: Consolidated Balance Sheets at December 31, 2020 and 2019 59 Consolidated Statements of Income for each of the three years in the period ended December 31, 2020 60 Consolidated Statements of Shareholders’ Equity for each of the three years in the period ended December 31, 2020 61 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2020 62 Notes to Consolidated Financial Statements 63 55 Table of Contents Bank7 Corp. Consolidated Financial Statements 56 Table of Contents Report of Independent Registered Public Accounting Firm Shareholders, Board of Directors, and Audit Committee Bank7 Corp. Oklahoma City, Oklahoma Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Bank7 Corp. (the Company) as of December 31, 2020 and 2019, the related consolidated statements of income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. 57 Stockholders, Board of Directors, and Audit Committee Bank7 Corp. Page 2 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. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe our audits provide a reasonable basis for our opinion. We have served as the Company’s auditor since 2011. /s/ BKD, LLP Oklahoma City, Oklahoma March 25, 2021 58 Table of Contents Bank7 Corp. Consolidated Balance Sheets (Dollar amounts in thousands) Assets December 31, 2020 December 31, 2019 Cash and due from banks $ 153,901 $ 117,128 Interest-bearing time deposits in other banks 16,412 30,147 Loans, net of allowance for loan losses of $9,639 and $7,846 at December 31, 2020 and 2019, respectively 826,974 699,458 Loans held for sale, at fair value 324 1,031 Premises and equipment, net 9,151 9,624 Nonmarketable equity securities 1,172 1,100 Goodwill and other intangibles, net 1,583 1,789 Interest receivable and other assets 7,152 6,115 Total assets $ 1,016,669 $ 866,392 Liabilities and Shareholders’ Equity Deposits Noninterest-bearing $ 246,569 $ 219,221 Interest-bearing 658,945 538,262 Total deposits 905,514 757,483 Income taxes payable 9 357 Interest payable and other liabilities 3,827 8,426 Total liabilities 909,350 766,266 Shareholders’ equity Preferred stock, par value $0.01 per share, 1,000,000 shares authorized; none issued or outstanding - - Common stock, non-voting, par value $0.01 per share, 20,000,000 shares authorized; none issued or outstanding - - Common stock, $0.01 par value; 50,000,000 shares authorized; shares issued and outstanding: 9,044,765 and 10,057,506, at December 31, 2020 and 2019 respectively 90 101 Additional paid-in capital 93,162 92,391 Retained earnings 14,067 7,634 Total shareholders’ equity 107,319 100,126 Total liabilities and shareholders’ equity $ 1,016,669 $ 866,392 See Notes to Consolidated Financial Statements 59 Table of Contents Bank7 Corp. Consolidated Statements of Income (Dollar amounts in thousands, except per share data) Twelve months ended December 31, 2020 2019 2018 Interest Income Loans, including fees $ 52,450 $ 48,200 $ 44,279 Interest-bearing time deposits in other banks 525 1,709 588 Interest-bearing deposits in other banks 339 1,800 1,933 Total interest income 53,314 51,709 46,800 Interest Expense Deposits 6,153 9,516 6,994 Other borrowings - - 175 Total interest expense 6,153 9,516 7,169 Net Interest Income 47,161 42,193 39,631 Provision for Loan Losses 5,350 - 200 Net Interest Income After Provision for Loan Losses 41,811 42,193 39,431 Noninterest Income Secondary market income 175 164 212 Service charges on deposit accounts 442 392 347 Other 1,048 752 772 Total noninterest income 1,665 1,308 1,331 Noninterest Expense Salaries and employee benefits 10,130 21,265 8,113 Furniture and equipment 868 829 684 Occupancy 1,957 1,677 1,310 Data and item processing 1,091 1,078 966 Accounting, marketing and legal fees 536 757 305 Regulatory assessments 506 126 542 Advertising and public relations 400 588 553 Travel, lodging and entertainment 241 368 699 Other 1,863 1,744 1,793 Total noninterest expense 17,592 28,432 14,965 Income Before Taxes 25,884 15,069 25,797 Income tax expense 6,618 6,844 797 Net Income $ 19,266 $ 8,225 $ 25,000 Earnings per common share - basic $ 2.05 $ 0.81 $ 3.08 Earnings per common share - diluted 2.05 0.81 3.03 Weighted average common shares outstanding - basic 9,378,769 10,145,032 8,105,856 Weighted average common shares outstanding - diluted 9,379,154 10,147,311 8,237,638 See Notes to Consolidated Financial Statements 60 Table of Contents Bank7 Corp. Consolidated Statements of Shareholders’ Equity (Dollar Amounts in thousands, except share data) Year Ended December 31, 2020 2019 2018 Common Stock (Shares) Balance at beginning of period 10,057,506 10,187,500 7,287,500 Common stock issued - - 2,900,000 Shares issued for restricted stock units 19,437 19,431 - Shares acquired and canceled (1,032,178 ) (149,425 ) - Balance at end of period 9,044,765 10,057,506 10,187,500 Common Stock (Amount) Balance at beginning of period $ 101 $ 102 $ 73 Shares issued, net of offering costs - - 29 Shares acquired and canceled (11 ) (1 ) - Balance at end of period $ 90 $ 101 $ 102 Additional Paid-in Capital Balance at beginning of period $ 92,391 $ 80,275 $ 6,987 Capital contribution - - 137 Shares issued, net of offering costs - - 50,125 Reclassification of undistributed S Corporation earnings - - 22,872 Stock-based compensation expense 771 12,116 154 Balance at end of period $ 93,162 $ 92,391 $ 80,275 Retained Earnings Balance at beginning of period $ 7,634 $ 8,089 $ 62,116 Net income 19,266 8,225 25,000 Reclassification of undistributed S Corporation earnings - - (22,872 ) Common stock acquired and canceled (9,065 ) (2,645 ) - Cash dividends declared ($0.41, $0.60, $7.71 per share) (3,768 ) (6,035 ) (56,155 ) Balance at end of period $ 14,067 $ 7,634 $ 8,089 Total shareholders' equity $ 107,319 $ 100,126 $ 88,466 See Notes to Consolidated Financial Statements 61 Table of Contents Bank7 Corp. Consolidated Statements of Cash Flows (Dollar Amounts in thousands) For the Years Ended December 31, 2020 2019 2018 Operating Activities Net income $ 19,266 $ 8,225 $ 25,000 Items not requiring (providing) cash Depreciation and amortization 1,093 849 1,097 Provision for loan losses 5,350 - 200 Net increase on other real estate owned - - (10 ) Gain on sales of loans (175 ) (164 ) (212 ) Stock-based compensation expense 771 12,116 154 (Gain) loss on sale of premises and equipment (3 ) 183 - Cash receipts from the sale of loans originated for sale 8,924 7,697 8,185 Cash disbursements for loans originated for sale (8,042 ) (8,052 ) (8,097 ) (Gain) loss on sale of other real estate owned - (330 ) 3 Deferred income tax benefit (875 ) (20 ) (1,069 ) Changes in Interest receivable and other assets (162 ) 1,064 (1,405 ) Interest payable and other liabilities (912 ) (2,388 ) 3,155 Net cash provided by operating activities 25,235 19,180 27,001 Investing Activities Maturities of interest-bearing time deposits in other banks 28,162 18,583 3,884 Purchases of interest-bearing time deposits in other banks (14,427 ) (16,971 ) (5,475 ) Net change in loans (132,866 ) (107,458 ) (36,981 ) Purchases of premises and equipment (438 ) (3,100 ) (378 ) Proceeds from sale of premises and equipment 27 403 1,336 Change in nonmarketable equity securities (72 ) (45 ) (6 ) Proceeds from sale of foreclosed assets - 518 47 Net cash used in investing activities (119,614 ) (108,070 ) (37,573 ) Financing Activities Net change in deposits 148,031 81,580 50,072 Repayment of borrowed funds - - (5,600 ) Cash distributions (7,803 ) (1,006 ) (56,155 ) Capital injection - - 137 Common stock acquired and canceled (9,076 ) (2,646 ) - Net change in common stock - - 50,154 Net cash provided by financing activities 131,152 77,928 38,608 Increase (Decrease) in Cash and Due from Banks 36,773 (10,962 ) 28,036 Cash and Due from Banks, Beginning of Period 117,128 128,090 100,054 Cash and Due from Banks, End of Period $ 153,901 $ 117,128 $ 128,090 Supplemental Disclosure of Cash Flows Information Interest paid $ 6,502 $ 9,342 $ 7,304 Income taxes paid $ 7,731 $ 6,779 $ - Dividends declared and not paid $ 994 $ 5,029 $ - Non-cash stock contribution $ - $ 11,627 $ - Supplemental Disclosure of Non-Cash Investing Activities Foreclosed assets acquired in settlement of loans $ - $ 78 $ 50 See Notes to Consolidated Financial Statements 62 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements Note 1: Nature of Operations and Summary of Significant Accounting Policies Nature of Operations Bank7 Corp. (the “Company”), formerly known as Haines Financial Corp, is a bank holding company whose principal activity is the ownership and management of its wholly owned subsidiary, Bank7 (the “Bank”). The Bank is primarily engaged in providing a full range of banking and financial services to individual and corporate customers located in Oklahoma, Kansas, and Texas. The Bank is subject to competition from other financial institutions. The Company is subject to the regulation of certain federal agencies and undergoes periodic examinations by those regulatory authorities. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company, the Bank and its subsidiary, 1039 NW 63 rd , LLC, which holds real estate utilized by the Bank. All significant intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, valuation of other real estate owned, other-than-temporary impairments, income taxes, goodwill and intangibles and fair values of financial instruments. Cash Equivalents The Company considers all liquid investments with original maturities of three months or less to be cash equivalents. Interest-Bearing Time Deposits in Other Banks 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. 63 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements Securities 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 securities. 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. The Company had no “available-for-sale” or “held to maturity” investments as of December 31, 2020 and 2019. Loans Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoffs are reported at their outstanding principal balances adjusted for unearned income, charge-offs, the allowance for loan losses, any unamortized deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans. For loans amortized at cost, interest income is accrued based on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, as well as premiums and discounts, are deferred and amortized over the respective term of the loan. The accrual of interest on loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Past-due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful. All interest accrued but not collected for loans that are placed on nonaccrual or charged off are reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Mortgage Loans Held for Sale Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or fair value in the aggregate. Net unrealized losses, if any, are recognized through a 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. Allowance for Loan Losses The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. 64 Table of Contents Bank7 Corp. 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 consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For those loans that are classified as impaired, an allowance is established when the discounted cash flows or collateral value or observable market price of the impaired loan is lower than the carrying value of that loan. The general component covers nonimpaired loans and is based on historical charge-off experience and expected loss given default derived from the Company’s internal risk rating process. Other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral-dependent. Groups of loans with similar risk characteristics are collectively evaluated for impairment based on the group’s historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans. Accordingly, the Company does not separately identify individual consumer loans for impairment measurements, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower. Premises and Equipment 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 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 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. 65 Table of Contents Bank7 Corp. 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. The required investment in common stock is based on a predetermined formula, carried at cost and evaluated for impairment. Long-Lived Asset Impairment The Company evaluates the recoverability of the carrying value of long-lived assets whenever events or circumstances indicate the carrying amount may not be recoverable. 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. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount of fair value less costs to sell. Revenue and expenses from operations and changes in the valuation allowance are included in current operations. Goodwill and Intangible Assets 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. Segments While the chief decision-makers monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis. Discrete financial information is not available other than on a Company-wide basis. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment. 66 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements Income Taxes 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. 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. 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. 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, 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 In addition to lending and related activities, the Company offers various services to customers that generate revenue. 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. 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. 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. 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. 67 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements Recent Accounting Pronouncements In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The ASU requires lessees to recognize a lease liability and a right-of-use asset for all leases, excluding short-term leases, at the commencement date. The guidance in the ASU is effective for reporting periods beginning after December 15, 2021. Additionally, a modified retrospective transition approach is required for 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, 2022 with a cumulative-effect adjustment to retained earnings required for the first reporting period. Management is still assessing the impact of this ASU. The Company will adopt this ASU in the first quarter of 2023. In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): 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. 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. Early 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. 2018-13, Fair Value Measurement (Topic 820). ASU 2018-13 removes, modifies and adds disclosure requirements on fair value measurements. 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. The CARES Act also includes a range of other provisions designed to support the U.S. economy and mitigate the impact of COVID-19 on financial institutions and their customers, including through the authorization of various programs and measures that the U.S. Department of the Treasury, the Small Business Administration, the Federal Reserve Board, and other federal banking agencies may or are required to implement. Further, in response to the COVID-19 outbreak, the Federal Reserve Board has implemented or announced a number of facilities to provide emergency liquidity to various segments of the U.S. economy and financial market. 68 Table of Contents Bank7 Corp. 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 payments. 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. Note 2: 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 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. 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. 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. 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 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. Net deferred tax assets are included in other assets and no valuation allowance is considered necessary. Note 3: 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, 2020 was $0. 69 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements Note 4: Earnings Per Share Basic earnings per common share represents the amount of earnings for the period available to each share of common stock outstanding during the reporting period. Basic EPS is computed based upon net income divided by the weighted average number of common shares outstanding during the year. Diluted EPS represents the amount of earnings for the period available to each share of common stock outstanding including common stock that would have been outstanding assuming the issuance of common shares for all dilutive potential common shares outstanding during each reporting period. Diluted EPS is computed based upon net income 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: As of and for the Years ended December 31, 2020 2019 2018 (Dollars in thousands, except per share amounts) Numerator Net income $ 19,266 $ 8,225 $ 25,000 Denominator Weighted-average shares outstanding for basic earnings per share 9,378,769 10,145,032 8,105,856 Dilutive effect of stock compensation (1) 385 2,279 131,782 Denominator for diluted earnings per share 9,379,154 10,147,311 8,237,638 Earnings per common share Basic $ 2.05 $ 0.81 $ 3.08 Diluted $ 2.05 $ 0.81 $ 3.03 (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. 70 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements Note 5: Loans and Allowance for Loan Losses A summary of loans at December 31, 2020 and December 31, 2019, are as follows (dollars in thousands): December 31, 2020 December 31, 2019 Construction & development $ 107,855 $ 70,628 1 - 4 family real estate 29,079 34,160 Commercial real estate - other 290,489 273,278 Total commercial real estate 427,423 378,066 Commercial & industrial 351,248 260,762 Agricultural 50,519 57,945 Consumer 9,898 11,895 Gross loans 839,088 708,668 Less allowance for loan losses (9,639 ) (7,846 ) Less deferred loan fees (2,475 ) (1,364 ) Net loans $ 826,974 $ 699,458 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. 71 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements The following table presents, by portfolio segment, the activity in the allowance for loan losses for the years ended December 31, 2020, 2019, and 2018 (dollars in thousands): Construction & Development 1 - 4 Family Real Estate Commercial Real Estate - Other Commercial & Industrial Agricultural Consumer Total December 31, 2020 Balance, beginning of period $ 782 $ 378 $ 3,025 $ 2,887 $ 642 $ 132 $ 7,846 Charge-offs - - - (3,289 ) (300 ) (1 ) (3,590 ) Recoveries - 2 - 18 10 3 33 Net charge-offs - 2 - (3,271 ) (290 ) 2 (3,557 ) Provision (credit) for loan losses 457 (46 ) 312 4,419 228 (20 ) 5,350 Balance, end of period $ 1,239 $ 334 $ 3,337 $ 4,035 $ 580 $ 114 $ 9,639 Construction & Development 1 - 4 Family Real Estate Commercial Real Estate - Other Commercial & Industrial Agricultural Consumer Total December 31, 2019 Balance, beginning of period $ 1,136 $ 433 $ 2,035 $ 3,231 $ 818 $ 179 $ 7,832 Charge-offs - (2 ) - (4 ) (11 ) (1 ) (18 ) Recoveries - 5 - 24 3 - 32 Net recoveries - 3 - 20 (8 ) (1 ) 14 Provision (credit) for loan losses (354 ) (58 ) 990 (364 ) (168 ) (46 ) - Balance, end of period $ 782 $ 378 $ 3,025 $ 2,887 $ 642 $ 132 $ 7,846 Construction & Development 1 - 4 Family Commercial Commercial Real Estate - Other Commercial & Industrial Agricultural Consumer Total December 31, 2018 Balance, beginning of period $ 1,407 $ 431 $ 1,865 $ 2,779 $ 1,015 $ 157 $ 7,654 Charge-offs - (25 ) - (73 ) - - (98 ) Recoveries - 3 - 71 1 1 76 Net charge-offs - (22 ) - (2 ) 1 1 (22 ) Provision (credit) for loan losses (271 ) 24 170 454 (198 ) 21 200 Balance, end of period $ 1,136 $ 433 $ 2,035 $ 3,231 $ 818 $ 179 $ 7,832 72 Table of Contents Bank7 Corp. 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, 2020 and December 31, 2019 (dollars in thousands): Construction & Development 1 - 4 Family Real Estate Commercial Real Estate - Other Commercial & Industrial Agricultural Consumer Total December 31, 2020 Allowance Balance Ending balance Individually evaluated for impairment $ - $ - $ - $ 177 $ - $ - $ 177 Collectively evaluated for impairment 1,239 334 3,337 3,858 580 114 9,462 Total $ 1,239 $ 334 $ 3,337 $ 4,035 $ 580 $ 114 $ 9,639 Gross Loans Ending balance Individually evaluated for impairment $ - $ - $ 8,054 $ 14,601 $ 468 $ - $ 23,123 Collectively evaluated for impairment 107,855 29,079 282,435 336,647 50,051 9,898 815,965 Total $ 107,855 $ 29,079 $ 290,489 $ 351,248 $ 50,519 $ 9,898 $ 839,088 December 31, 2019 Allowance Balance Ending balance Individually evaluated for impairment $ - $ - $ 26 $ - $ - $ - $ 26 Collectively evaluated for impairment 782 378 2,999 2,887 642 132 7,820 Total $ 782 $ 378 $ 3,025 $ 2,887 $ 642 $ 132 $ 7,846 Gross Loans Ending balance Individually evaluated for impairment $ - $ - $ 5,841 $ 2,750 $ 2,527 $ - $ 11,118 Collectively evaluated for impairment 70,628 34,160 267,437 258,012 55,418 11,895 697,550 Total $ 70,628 $ 34,160 $ 273,278 $ 260,762 $ 57,945 $ 11,895 $ 708,668 73 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements Internal Risk Categories Each loan segment is made up of loan categories possessing similar risk characteristics. Risk characteristics applicable to each segment of the loan portfolio are described as follows: Real Estate – The real estate portfolio consists of residential and commercial properties. Residential loans are generally secured by owner occupied 1–4 family residences. Repayment of these loans is primarily dependent on the personal income and credit rating of the borrowers. Credit risk in these loans can be impacted by economic conditions within the Company’s market areas that might impact either property values or a borrower’s personal income. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers. Commercial real estate loans in this category typically involve larger principal amounts and are repaid primarily from the cash flow of a borrower’s principal business operation, the sale of the real estate or income independent of the loan purpose. Credit risk in these loans is driven by the creditworthiness of a borrower, property values, the local economy and other economic conditions impacting a borrower’s business or personal income. Commercial & Industrial – The commercial portfolio includes loans to commercial customers for use in financing working capital needs, equipment purchases and expansions. The loans in this category are repaid primarily from the cash flow of a borrower’s principal business operation. Credit risk in these loans is driven by creditworthiness of a borrower and the economic conditions that impact the cash flow stability from business operations. Agricultural – Loans secured by agricultural assets are generally made for the purpose of acquiring land devoted to crop production, cattle or poultry or the operation of a similar type of business on the secured property. Sources of repayment for these loans generally include income generated from operations of a business on the property, rental income or sales of the property. Credit risk in these loans may be impacted by crop and commodity prices, the creditworthiness of a borrower, and changes in economic conditions which might affect underlying property values and the local economies in the Company’s market areas. Consumer – The consumer loan portfolio consists of various term and line of credit loans such as automobile loans and loans for other personal purposes. Repayment for these types of loans will come from a borrower’s income sources that are typically independent of the loan purpose. Credit risk is driven by consumer economic factors, such as unemployment and general economic conditions in the Company’s market area and the creditworthiness of a borrower. Loan grades are numbered 1 through 4. Grade 1 is considered satisfactory. The grades of 2 and 3, or Watch and Special Mention, respectively, represent loans of lower quality and are considered criticized. Grade of 4, or Substandard, refers to loans that are classified. • Grade 1 (Pass) – These loans generally conform to Bank policies, and are characterized by policy conforming advance rates on collateral, and have well-defined repayment sources. In addition, these credits are extended to Borrowers and/or Guarantors with a strong balance sheet and either substantial liquidity or a reliable income history. • Grade 2 (Watch) – These loans are still considered “Pass” credits; however, various factors such as industry stress, material changes in cash flow or financial conditions, or deficiencies in loan documentation, or other risk issues determined by the Lending Officer, Commercial Loan Committee (CLC), or Credit Quality Committee (CQC) warrant a heightened sense and frequency of monitoring. 74 Table of Contents Bank7 Corp. 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 weaknesses is necessary. No risk of probable loss exists. Credits in this category are expected to quickly migrate to a “2” or a “4” as this is viewed as a transitory loan grade. • Grade 4 (Substandard) – These loans are not adequately protected by the sound worth and debt service capacity of the Borrower, but may be well – secured. They have defined weaknesses relative to cash flow, collateral, financial condition, or other factors that might jeopardize repayment of all of the principal and interest on a timely basis. There is the possibility that a future loss will occur if weaknesses are not remediated. The Company evaluates the definitions of loan grades and the allowance for loan losses methodology on an ongoing basis. No changes were made to either during the period ended 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, 2020 and December 31, 2019 (dollars in thousands): Construction & Development 1 - 4 Family Real Estate Commercial Real Estate - Other Commercial & Industrial Agricultural Consumer Total December 31, 2020 Grade 1 (Pass) $ 107,855 $ 28,711 $ 248,194 $ 328,656 $ 50,051 $ 9,898 $ 773,365 2 (Watch) - 368 24,155 7,691 - - 32,214 3 (Special Mention) - - 10,086 300 - - 10,386 4 (Substandard) - - 8,054 14,601 468 - 23,123 Total $ 107,855 $ 29,079 $ 290,489 $ 351,248 $ 50,519 $ 9,898 $ 839,088 Construction & Development 1 - 4 Family Real Estate Commercial Real Estate - Other Commercial & Industrial Agricultural Consumer Total December 31, 2019 Grade 1 (Pass) $ 70,628 $ 33,622 $ 267,437 $ 241,176 $ 53,290 $ 11,895 $ 678,048 2 (Watch) - 538 - 5,312 - - 5,850 3 (Special Mention) - - - 11,524 2,128 - 13,652 4 (Substandard) - - 5,841 2,750 2,527 - 11,118 Total $ 70,628 $ 34,160 $ 273,278 $ 260,762 $ 57,945 $ 11,895 $ 708,668 75 Table of Contents Bank7 Corp. 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, 2020 and December 31, 2019 (dollars in thousands): Past Due Total Loans > 90 Days & Accruing 30–59 Days 60–89 Days Greater than 90 Days Total Current Total Loans December 31, 2020 Construction & development $ 714 $ - $ - $ 714 $ 107,141 $ 107,855 $ - 1 - 4 Family Real Estate - - - - 29,079 29,079 - Commercial Real Estate - other 1,444 - 1,960 3,404 287,085 290,489 1,960 Commercial & industrial - - - - 351,248 351,248 - Agricultural - - - - 50,519 50,519 - Consumer 193 - - 193 9,705 9,898 - Total $ 2,351 $ - $ 1,960 $ 4,311 $ 834,777 $ 839,088 $ 1,960 December 31, 2019 Construction & development $ - $ - $ - $ - $ 70,628 $ 70,628 $ - 1 - 4 Family Real Estate - - - - 34,160 34,160 - Commercial Real Estate - other - - - - 273,278 273,278 - Commercial & industrial - - 14 14 260,748 260,762 14 Agricultural - - 598 598 57,347 57,945 598 Consumer 90 - - 90 11,805 11,895 - Total $ 90 $ - $ 612 $ 702 $ 707,966 $ 708,668 $ 612 The following table presents impaired loans as of December 31, 2020 and December 31, 2019 (dollars in thousands): Unpaid Principal Balance Recorded Investment with No Allowance Recorded Investment with an Allowance Total Recorded Investment Related Allowance Average Recorded Investment Interest Income Recognized December 31, 2020 Construction & development $ - $ - $ - $ - $ - $ - $ - 1 - 4 Family Real Estate - - - - - 570 - Commercial Real Estate - other 8,353 8,054 - 8,054 - 5,209 554 Commercial & industrial 18,082 14,424 177 14,601 177 15,668 1,049 Agricultural 768 468 - 468 - 2,318 (13 ) Consumer - - - - - - - Total $ 27,203 $ 22,946 $ 177 $ 23,123 $ 177 $ 23,765 $ 1,590 December 31, 2019 Construction & development $ - $ - $ - $ - $ - $ - $ - 1 - 4 Family Real Estate - - - - - 208 - Commercial Real Estate - other 5,841 4,032 1,809 5,841 26 2,557 440 Commercial & industrial 2,750 2,750 - 2,750 - 5,495 281 Agricultural 2,527 1,744 - 1,744 - 2,238 174 Consumer - - - - - 98 - Total $ 11,118 $ 8,526 $ 1,809 $ 10,335 $ 26 $ 10,596 $ 895 Impaired loans include nonperforming loans and also include loans modified in troubled-debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection. Included in certain loan categories in the impaired loans are troubled debt restructurings that were classified as impaired. At 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. 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. 76 Table of Contents Bank7 Corp. 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 & Development 1 - 4 Family Real Estate Commercial Real Estate - Other Commercial & Industrial Agricultural Consumer Total December 31, 2020 Nonaccrual loans $ - $ - $ 3,043 $ 11,063 $ 469 $ - $ 14,575 Troubled-debt restructurings (1) - - - - - - - Accruing loans 90 or more days past due - - 1,960 - - - 1,960 Total nonperforming loans $ - $ - $ 5,003 $ 11,063 $ 469 $ - $ 16,535 Construction & Development 1 - 4 Family Real Estate Commercial Real Estate - Other Commercial & Industrial Agricultural Consumer Total December 31, 2019 Nonaccrual loans $ - $ - $ 1,809 $ - $ - $ - $ 1,809 Troubled-debt restructurings (1) - - - - 912 - 912 Accruing loans 90 or more days past due - - - 14 598 - 612 Total nonperforming loans $ - $ - $ 1,809 $ 14 $ 1,510 $ - $ 3,333 (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. 77 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements Note 6: Premises and Equipment Major classifications of premises and equipment, stated at cost and net of accumulated depreciation are as follows (dollars in thousands): December, 2020 December 31, 2019 Land, buildings and improvements $ 10,172 $ 9,942 Furniture and equipment 2,177 2,117 Automobiles 846 760 13,195 12,819 Less accumulated depreciation (4,044 ) (3,195 ) Net premises and equipment $ 9,151 $ 9,624 Note 7: Intangible Assets The gross carrying amount and accumulated amortization of recognized intangible assets at December 31, 2020 and 2019, were (dollars in thousands): December 31, 2020 December 31, 2019 Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Core deposit intangible $ 2,061 $ (1,489 ) $ 2,061 $ (1,283 ) 78 Table of Contents Bank7 Corp. 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 thousands): 2021 $ 206 2022 206 2023 160 $ 572 Note 8: Interest-Bearing Deposits Interest-bearing time deposits in denominations of $250,000 or more were $76.8 million and $57.0 million at December 31, 2020 and 2019, respectively. At December 31, 2020, the scheduled maturities of interest-bearing time deposits were as follows (dollars in thousands): 2021 $ 164,753 2022 27,950 2023 18,613 2024 771 Thereafter 51 $ 212,138 Note 9: Income Taxes 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, 2018. 79 Table of Contents Bank7 Corp. 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): Year Ended December 31, 2020 2019 2018 Federal: Current $ 5,944 $ 5,516 $ 1,563 Deferred (684 ) - (1,036 ) Total federal tax provision $ 5,260 $ 5,516 $ 527 State: Current $ 1,549 $ 1,308 $ 303 Deferred (191 ) 20 (33 ) Total state tax provision $ 1,358 $ 1,328 $ 270 Total income tax provision $ 6,618 $ 6,844 $ 797 The provision for income taxes for the years ended December 31, 2020, 2019 and 2018 differs from the federal rate of 21% due to the following: Year Ended December 31, 2020 2019 2018 Statutory U.S. Federal Income Tax $ 5,434 $ 3,160 $ 5,417 Increase (decrease) resulting from: State Taxes 1,077 1,048 213 Benefit of S corporation status - - (3,933 ) Permanent Differences 118 2,327 - Conversion as of September 24, 2018 to C Corporation - - (863 ) Other (11 ) 309 (37 ) Provision for income taxes $ 6,618 $ 6,844 $ 797 80 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements Deferred tax assets (liabilities) included in other assets in the accompanying consolidated balance sheet consist of the following: Year Ended December 31, 2020 2019 Deferred tax assets: Allowance for loan losses $ 2,395 $ 1,918 Non-accrual loans 156 60 Deferred revenue 302 165 Deferred compensation 152 78 Total deferred tax assets $ 3,005 $ 2,221 Deferred tax liabilities: Property and equipment $ (753 ) $ (320 ) Intangible assets (180 ) (202 ) Prepaid expenses (94 ) (122 ) Method change IRC 481(a) - (476 ) Other (14 ) (12 ) Total deferred tax liabilities $ (1,041 ) $ (1,132 ) Net deferred tax assets $ 1,964 $ 1,089 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. 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. The Company is not presently under examination by the Internal Revenue Service or any state tax authority. 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. 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): 81 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements For the Year Ended December 31, 2020 2019 Balance at beginning of year $ 13 $ 13 Additions for positions taken in prior years - - Reductions for positions taken in prior years - - Balance at end of year $ 13 $ 13 There were no interest or penalties related to uncertain tax positions reflected in the consolidated statements of income for the years ended December 31, 2020, 2019, and 2018. Note 10: 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. Note 11: Advances and Borrowings 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. 82 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements Note 12: Shareholders’ Equity On September 5, 2019, the Company adopted a Repurchase Plan (the “RP”). The RP initially authorized the repurchase of up to 500,000 shares of the Company’s common stock. On March 13, 2020, the Company’s Board of Directors approved a 500,000 share expansion, and on November 2, 2020, approved a 750,000 share expansion to the existing stock repurchase program, for a total of 1,750,000 shares authorized under the program. All shares repurchased under the RP have been retired and not held as treasury stock. The timing, price and amount of stock repurchases under the RP may be determined by management. At 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: Year Ended December 31, 2020 2019 Number of shares repurchased 1,032,178 - Average price of shares repurchased $ 8.73 $ - Shares remaining to be repurchased 717,822 500,000 The Company and Bank are subject to risk-based capital guidelines issued by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance-sheet items as calculated under GAAP, regulatory reporting requirements and regulatory capital standards. The Company’s and Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Furthermore, the Company’s and the Bank’s regulators could require adjustments to regulatory capital not reflected in these financial statements. Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios (set forth in the following table) of total, Tier I, and Common Equity capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier I capital (as defined) to average assets (as defined). Management believes, as of 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. 83 Table of Contents Bank7 Corp. 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): Actual Minimum Capital Requirements With Capital Conservation Buffer Minimum To Be Well Capitalized Under Prompt Corrective Action Amount Ratio Amount Ratio Amount Ratio Amount Ratio As of December 31, 2020 Total capital to risk-weighted assets Company $ 115,375 14.73 % $ 62,641 8.00 % $ 82,216 10.50 % N/A N/A Bank $ 115,335 14.75 % $ 62,563 8.00 % $ 82,114 10.50 % $ 78,204 10.00 % Tier I capital to risk-weighted assets Company $ 105,736 13.50 % $ 46,981 6.00 % $ 66,556 8.50 % N/A N/A Bank $ 105,696 13.51 % $ 46,922 6.00 % $ 66,473 8.50 % $ 62,563 8.00 % CET I capital to risk-weighted assets Company $ 105,736 13.50 % $ 35,236 4.50 % $ 54,811 7.00 % N/A N/A Bank $ 105,696 13.51 % $ 35,192 4.50 % $ 54,743 7.00 % $ 50,832 6.50 % Tier I capital to average assets Company $ 105,736 10.78 % $ 39,218 4.00 % N/A N/A N/A N/A Bank $ 105,696 10.78 % $ 39,233 4.00 % N/A N/A $ 49,041 5.00 % As of December 31, 2019 Total capital to risk-weighted assets Company $ 105,137 15.25 % $ 55,157 8.00 % $ 72,393 10.50 % N/A N/A Bank $ 106,148 15.42 % $ 55,076 8.00 % $ 72,287 10.50 % $ 68,845 10.00 % Tier I capital to risk-weighted assets Company $ 97,291 14.11 % $ 41,368 6.00 % $ 58,604 8.50 % N/A N/A Bank $ 98,302 14.28 % $ 41,307 6.00 % $ 58,518 8.50 % $ 55,076 8.00 % CET I capital to risk-weighted assets Company $ 97,291 14.11 % $ 31,026 4.50 % $ 48,262 7.00 % N/A N/A Bank $ 98,302 14.28 % $ 30,980 4.50 % $ 48,192 7.00 % $ 44,749 6.50 % Tier I capital to average assets Company $ 97,291 11.53 % $ 33,833 4.00 % N/A N/A N/A N/A Bank $ 98,302 11.65 % $ 33,793 4.00 % N/A N/A $ 42,241 5.00 % The federal banking agencies require that banking organizations meet several risk-based capital adequacy requirements. The current risk-based capital standards applicable to the Company and the Bank are based on the Basel III Capital Rules established by the Basel Committee on Banking Supervision (the “Basel Committee”). The Basel Committee is a committee of central banks and bank supervisors/regulators from the major industrialized countries that develops broad policy guidelines for use by each country’s supervisors in determining the supervisory policies they apply. The requirements are intended to ensure that banking organizations have adequate capital given the risk levels of assets and off-balance sheet financial instruments. The Basel III Capital Rules require the Bank and the Company to comply with four minimum capital standards: a Tier 1 leverage ratio of at least 4.0%; a CET1 to risk-weighted assets of 4.5%; a Tier 1 capital to risk-weighted assets of at least 6.0%; and a total capital to risk-weighted assets of at least 8.0%. The calculation of all types of regulatory capital is subject to definitions, deductions and adjustments specified in the regulations. 84 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements The Basel III Capital Rules also require a “capital conservation buffer” of 2.5% above the regulatory minimum risk-based capital requirements. The 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. 85 Table of Contents Bank7 Corp. 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, 2020, approximately $36.8 million of retained earnings was available for dividend declaration from the Bank without prior regulatory approval. Note 13: Related-Party Transactions 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): Balance Beginning of the Period Additions Collections/ Terminations Balance End of the Period Year ended December 31, 2020 $ 1,055 $ - $ (1,055 ) $ - Year ended December 31, 2019 $ 6,897 $ 2,613 $ (8,455 ) $ 1,055 In management’s opinion, such loans and other extensions of credit and deposits were made in the ordinary course of business and were made on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with other persons. Further, in management’s opinion, these loans did not involve more than normal risk of collectability or present other unfavorable features. 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 $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. 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. Note 14: Employee Benefits 401(k) Savings Plan The Company has a retirement savings 401(k) plan covering substantially all employees. Employees may contribute up to the maximum legal limit with the Bank matching up to 5% of the employee’s salary. Employer contributions charged to expense for the years ended December 31, 2020, 2019 and 2018 totaled $230,000, $223,000 and $198,000, respectively. 86 Table of Contents Bank7 Corp. 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 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 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. The Company grants to employees and directors restricted stock units (RSUs) which vest ratably over either three or five years and stock options which vest ratably over four years. All RSUs and stock options are granted at the fair value of the common stock at the time of the award. The RSUs are considered fixed awards as the number of shares and fair value are known at the date of grant and the fair value at the grant date is amortized over the vesting and/or service period. The Company uses newly issued shares for granting RSUs and stock options. 87 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements The following table is a summary of the stock option activity under the Bank7 Corp. 2018 Equity Incentive Plan (dollar amounts in thousands, except per share data): Options Wgtd. Avg. Exercise Price Wgtd. Avg. Remaining Contractual Term Aggregate Intrinsic Value Twelve Months Ended December 31, 2020 Outstanding at December 31, 2019 163,000 $ 18.75 Options Granted 26,500 18.49 Options Exercised - - Options Forfeited (4,250 ) 17.73 Outstanding at December 31, 2020 185,250 18.73 7.94 $ 0 Exercisable at December 31, 2020 75,625 18.88 7.75 $ 0 Twelve Months Ended December 31, 2019 Outstanding at December 31, 2018 150,000 $ 19.00 Options Granted 20,500 16.98 Options Exercised - - Options Forfeited (7,500 ) 19.00 Outstanding at December 31, 2019 163,000 18.75 8.79 $ 41 Exercisable at December 31, 2019 35,625 19.00 8.73 $ 0 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. 88 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements The following table shows the assumptions used for computing stock-based compensation expense under the fair value method on options granted during the period presented: Year Ended December 31, 2020 December 31, 2019 Risk-free interest rate 1.71 % 2.48 % Dividend yield 2.20 % 2.20 % Stock price volatility 41.27 % 31.14 % Expected term 7.51 7.01 The following table summarizes share information about RSUs for the years ended December 31, 2020 and 2019: Number of Shares Wgtd. Avg. Grant Date Fair Value Twelve Months Ended December 31, 2020 Outstanding at December 31, 2019 104,000 $ 19.09 Shares granted 41,000 16.19 Shares settled (26,000 ) 19.09 Shares forfeited (1,000 ) 18.49 End of the period balance 118,000 $ 18.09 Twelve Months Ended December 31, 2019 Outstanding at December 31, 2018 130,000 $ 19.09 Shares granted - - Shares settled (26,000 ) 19.09 Shares forfeited - - End of the period balance 104,000 $ 19.09 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. Note 15: Disclosures About Fair Value of Assets and Liabilities Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value: Level 1 Quoted prices in active markets for identical assets or liabilities Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities 89 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements Level 3 Unobservable inputs supported by little or no market activity and significant to the fair value of the assets or liabilities Recurring Measurements There were no assets measured at fair value on a recurring basis as of 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, 2020 and December 31, 2019 (dollars in thousands): Fair Value (Level 1) (Level 2) (Level 3) December 31, 2020 Impaired loans (collateral- dependent) $ 11,358 $ - $ - $ 11,358 December 31, 2019 Impaired loans (collateral- dependent) $ 1,783 $ - $ - $ 1,783 Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below. Collateral-Dependent Impaired Loans, Net of Allowance for Loan Losses The estimated fair value of collateral-dependent impaired loans is based on fair value, less estimated cost to sell. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy. The Company considers evaluation analysis as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. Values of the collateral underlying collateral-dependent loans are obtained when the loan is determined to be collateral-dependent and subsequently as deemed necessary by executive management and loan administration. Values are reviewed for accuracy and consistency by executive management and loan administration. The ultimate collateral values are reduced by discounts to consider lack of marketability and estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral. 90 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements Unobservable (Level 3) Inputs The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements. Fair Value Valuation Technique Unobservable Inputs Weighted- Average December 31, 2020 Collateral-dependent impaired loans $ 11,358 Appraisals from comparable properties Estimated cost to sell 3-5 % December 31, 2019 Collateral-dependent impaired loans $ 1,783 Appraisals from comparable properties Estimated cost to sell 3-5 % 91 Table of Contents Bank7 Corp. 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, 2020 and December 31, 2019 (dollars in thousands): Carrying Fair Value Measurements Amount Level 1 Level 2 Level 3 Total December 31, 2020 Financial Assets Cash and due from banks $ 153,901 $ 153,901 $ - $ - $ 153,901 Interest-bearing time deposits in other banks $ 16,412 $ - $ 16,412 $ - $ 16,412 Loans, net of allowance $ 826,974 $ - $ 815,223 $ 11,358 $ 826,581 Mortgage loans held for sale $ 324 $ - $ 324 $ - $ 324 Nonmarketable equity securities $ 1,172 $ - $ 1,172 $ - $ 1,172 Interest receivable $ 4,365 $ - $ 4,365 $ - $ 4,365 Financial Liabilities Deposits $ 905,514 $ - $ 904,928 $ - $ 904,928 Interest payable $ 286 $ - $ 286 $ - $ 286 December 31, 2019 Financial Assets Cash and due from banks $ 117,128 $ 117,128 $ - $ - $ 117,128 Interest-bearing time deposits in other banks $ 30,147 $ - $ 30,147 $ - $ 30,147 Loans, net of allowance $ 699,458 $ - $ 698,698 $ 1,783 $ 700,481 Mortgage loans held for sale $ 1,031 $ - $ 1,031 $ - $ 1,031 Nonmarketable equity securities $ 1,100 $ - $ 1,100 $ - $ 1,100 Interest receivable $ 3,954 $ - $ 3,954 $ - $ 3,954 Financial Liabilities Deposits $ 757,483 $ - $ 757,520 $ - $ 757,520 Interest payable $ 636 $ - $ 636 $ - $ 636 The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying consolidated balance sheets at amounts other than fair value: Cash and Due from Banks, Interest-Bearing Time Deposits in Other Banks, Nonmarketable Equity Securities, Interest Receivable and Interest Payable The carrying amount approximates fair value. 92 Table of Contents Bank7 Corp. 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. Loans with similar characteristics were aggregated for purposes of the calculations. Deposits Deposits include demand deposits, savings accounts, NOW accounts and certain money market deposits. The carrying amount approximates fair value. The fair value of fixed-maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of similar remaining maturities. Commitments to Extend Credit, Lines of Credit and Standby Letters of Credit The fair values of unfunded commitments are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. The fair values of standby letters of credit and lines of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date. The estimated fair values of the Company’s commitments to extend credit, lines of credit and standby letters of credit were not material at December 31, 2020 or December 31, 2019. Note 16: Financial Instruments with Off-Balance Sheet Risk The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the accompanying consolidated balance sheets. The following summarizes those financial instruments with contract amounts representing credit risk as of December 31, 2020 and December 31, 2019 (dollars in thousands): December 31, 2020 December 31, 2019 Commitments to extend credit $ 206,520 $ 191,459 Financial and performance standby letters of credit 2,366 3,338 $ 208,886 $ 194,797 Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Each instrument generally has fixed expiration dates or other termination clauses. Since many of the instruments are expected to expire without being drawn upon, total commitments to extend credit amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary, by the Company upon extension of credit is based on management’s credit evaluation of the customer. Standby letters of credit are irrevocable conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. 93 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements Note 17: Significant Estimates and Concentrations GAAP requires disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Estimates related to the allowance for loan losses are reflected in Note 4 regarding loans. Current vulnerabilities due to off-balance sheet credit risk are discussed in Note 9 . As of 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 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 U.S. 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. Note 18: Operating Leases 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): 2021 470 2022 225 2023 164 2024 46 Thereafter 4 $ 909 94 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements Note 19: Parent-only Financial Statements Condensed Balance Sheets Assets December 31, 2020 December 31, 2019 Cash and due from banks $ 302 $ 296 Investment in bank subsidiary 106,268 99,076 Dividends receivable 995 5,029 Goodwill 1,011 1,011 Other assets - - Total assets $ 108,576 $ 105,412 Liabilities and Shareholders’ Equity Other liabilities 1,257 5,286 Total liabilities 1,257 5,286 Total shareholders’ equity 107,319 100,126 Total liabilities and shareholders’ equity $ 108,576 $ 105,412 95 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements Condensed Statements of Income For the Years Ended December 31, 2020 2019 2018 Income Dividends received from subsidiary bank $ 12,846 $ 6,035 $ 11,930 Other - 155 - Total Income 12,846 6,190 11,930 Expense Interest expense - - 175 Other - 4 315 Total expense - 4 490 Income and equity in undistributed net income of bank subsidiary 12,846 6,185 11,440 Equity in undistributed net income of bank subsidiary 6,420 2,040 13,521 Income before Taxes 19,266 8,225 24,961 Income tax expense - - (39 ) Net Income Available to Common Shareholders $ 19,266 $ 8,225 $ 25,000 Condensed Statements of Cash Flows For the Years Ended December 31, 2020 2019 2018 Operating Activities Net income $ 19,266 $ 8,225 $ 25,000 Items not requiring (providing) cash Equity in undistributed net income (6,420 ) (2,040 ) (13,521 ) Dividends receivable from subsidiary bank (995 ) (5,029 ) - Stock-based compensation expense - - 154 Changes in Accounts payable and accrued expenses - (149 ) - Other current assets and liabilities 5,034 - 199 Net cash provided by operating activities 16,885 1,007 11,832 Financing Activities Repayment of borrowed funds - - (5,600 ) Common stock acquired and canceled (9,076 ) - 50,154 Dividends paid (7,803 ) (1,006 ) (56,155 ) Net cash used in financing activities (16,879 ) (1,006 ) (11,601 ) Increase in Cash and Due from Banks 6 1 231 Cash and Due from Banks, Beginning of Period 296 295 64 Cash and Due from Banks, End of Period $ 302 $ 296 $ 295 Supplemental Disclosure of Cash Flows Information Interest paid $ - $ - $ 175 Dividends declared and not paid $ 995 $ 5,029 $ - 96 Table of Contents Bank7 Corp. Notes to Consolidated Financial Statements Note 20: Selected Quarterly Financial Data (Unaudited) The following tables summarize the unaudited condensed results of operations for each of the quarters during the fiscal years ended December 31, 2020 and 2019: For the three months ended March 31, 2020 June 30, 2020 September 30, 2020 December 31, 2020 Net interest income $ 11,432 $ 11,929 $ 11,601 $ 12,199 Provision for loan losses 650 1,400 1,250 2,050 Noninterest income 330 301 334 700 Noninterest expense 4,353 4,123 4,584 4,532 Income before income taxes 6,759 6,707 6,101 6,317 Income tax expense 1,708 1,671 1,661 1,578 Net income $ 5,051 $ 5,036 $ 4,440 $ 4,739 EPS Basic $ 0.51 $ 0.54 $ 0.48 $ 0.52 Diluted $ 0.51 $ 0.54 $ 0.48 $ 0.52 For the three months ended March 31, 2019 June 30, 2019 September 30, 2019 December 31, 2019 Net interest income $ 10,353 $ 10,583 $ 10,600 $ 10,657 Provision for loan losses - - - - Noninterest income 223 295 509 281 Noninterest expense 3,755 4,048 16,072 4,557 Income (loss) before income taxes 6,821 6,830 (4,963 ) 6,381 Income tax expense 1,705 1,704 1,556 1,879 Net income (loss) $ 5,116 $ 5,126 $ (6,519 ) $ 4,502 EPS Basic $ 0.50 $ 0.50 $ (0.64 ) $ 0.45 Diluted $ 0.50 $ 0.50 $ (0.64 ) $ 0.45 97 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.