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Item 8. Financial Statements and Supplementary Data

2022-03-31 compared with 2021-03-25 · 696 added, 497 removed, 553 unchanged (68% of the section changed)

Financial Statements and Supplementary Data

Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Financial Statements

and Supplementary Data

Consolidated Financial Statements Index

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Financial Statements:

Consolidated Balance Sheets at December 31, 2021 and 2020

Consolidated Statements of Income for each of the three years in the period ended December 31, 2020

Consolidated Statements of Comprehensive Income for each of the three years in the period ended December 31, 2021

Consolidated Statements of Shareholders’ Equity for each of the three years in the period ended December 31, 2021

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Shareholders, Board of Directors, and Audit Committee

Oklahoma City, 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.

(the “Company”) as of December 31, 2021 and 2020, the related consolidated

statements of comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, referred to as the “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, 2021 and 2020, and the results of its operations and its cash flows for each of the years in

the three-year period ended December 31, 2021, 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.

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.

Those standards require that we plan and perform the audit to obtain reasonable

assurance about whether the 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.

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.

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.

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.

Our audits included performing procedures to assess the risks of material misstatement of the 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 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 financial statements.

We believe our audits provide a reasonable basis for our opinion.

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Consolidated Balance Sheets

(Dollar amounts in thousands)

(Dollar amounts in thousands, except par value)

Cash and due from banks

Federal funds sold

Cash and cash equivalents

Interest-bearing time deposits in other banks

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

Loans, net of allowance for loan losses of $ 10,316 and $ 9,639 at December 31, 2021 and December 31, 2020, respectively

Loans held for sale, at fair value

Premises and equipment, net

Available-for-sale debt securities

Nonmarketable equity securities

Goodwill and other intangibles, net

Core deposit intangibles

Interest receivable and other assets

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Total deposits

Income taxes payable

Interest payable and other liabilities

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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;

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shares issued and outstanding:

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

9,071,417 and 9,044,765 at December 31,

2021 and December 31, 2020 respectively

Additional paid-in capital

Retained earnings

Accumulated other comprehensive income

Total shareholders’ equity

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See Notes to Consolidated Financial Statements

Consolidated Statements of Income

Consolidated Statements of Comprehensive Income

(Dollar amounts in thousands, except per share data)

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Interest-bearing time deposits in other banks

Interest-bearing deposits in other banks

Debt securities, taxable

Debt securities, tax-exempt

Other interest and dividend income

Total interest income

Interest Expense

Other borrowings

Total interest expense

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Weighted average common shares outstanding - diluted

Other Comprehensive Income

Unrealized gains on securities, net of tax benefit of $ 29,000

Reclassification adjustment for gains included in net income

Other comprehensive gain, net of tax benefit of $ 29,000

Comprehensive Income

See Notes to Consolidated Financial Statements

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(Dollar Amounts in thousands, except share data)

Year Ended December 31,

Twelve Months Ended

Common Stock (Shares)

Balance at beginning of period

Common stock issued

Shares issued for restricted stock units

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Balance at beginning of period

Shares issued, net of offering costs

Shares acquired and canceled

Shares issued for restricted stock units

Balance at end of period

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Balance at beginning of period

Capital contribution

Shares issued, net of offering costs

Reclassification of undistributed S Corporation earnings

Stock-based compensation expense

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Balance at beginning of period

Reclassification of undistributed S Corporation earnings

Common stock acquired and canceled

Cash dividends declared ($0.41, $0.60, $7.71 per share)

Cash dividends declared ($ 0.45 , $ 0.41 , $ 0.60 per share) December 31, 2021 and 2020, respectively)

Balance at end of period

Accumulated Other Comprehensive Income

Balance at beginning of period

Net unrealized gain

Balance at end of period

Total Shareholders' equity

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(Dollar Amounts in thousands)

For the Years Ended December 31,

For the Twelve Months Ended December 31,

Operating Activities

Items not requiring (providing) cash

Adjustments to reconcile net income to net cash provided by operating activities

Depreciation and amortization

Provision for loan losses

Net increase on other real estate owned

Amortization of premiums and discounts on securities

Gain on sales of loans

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Cash disbursements for loans originated for sale

(Gain) loss on sale of other real estate owned

Gain on sale of other real estate owned

Deferred income tax (benefit)

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Investing Activities

Net cash received for acquisition, net of cash paid

Maturities of interest-bearing time deposits in other banks

Purchases of interest-bearing time deposits in other banks

Proceeds from sale of securities available-for-sale

Maturities, prepayments and calls of securities available-for-sale

Net change in loans

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Net change in deposits

Repayment of borrowed funds

Cash distributions

Capital injection

Common stock acquired and canceled

Net change in common stock

Common stock issued for restricted stock units

Net cash provided by financing activities

Increase (Decrease) in Cash and Due from Banks

Increase in Cash and Due from Banks

Cash and Due from Banks, Beginning of Period

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Non-cash stock contribution

Supplemental Disclosure of Non-Cash Investing Activities

Foreclosed assets acquired in settlement of loans

Supplemental Disclosure of Investing Activities

Cash consideration for acquisition

Fair value of assets acquired in acquisition

Fair value of liabilities assumed in acquisition

See Notes to Consolidated Financial Statements

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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 “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.

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

Basis of Presentation

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.

Certain amounts

from 2020 and 2019 have been reclassified to conform with the 2021 presentation.

These reclassifications were not material to the Company’s financial statements.

Use of Estimates

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

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

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.

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.

Included in cash and cash

equivalents is $ 270 ,000 restricted cash related to the acquisition of Watonga Bancshares, Inc.

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.

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 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

Interest-bearing time deposits in other banks totaled $ 3.2 million and $ 16.4 million at December 31, 2021 and December 31, 2020 respectively, and have

original maturities generally ranging from one to five years , and are carried at cost.

Available-for-Sale Debt Securities

Available-for-sale debt securities are carried at fair value with unrealized gains and losses excluded from earnings and reported separately 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.

The Company currently has no securities designated as trading or held-to-maturity.

Interest income is

recognized at the coupon rate adjusted for amortization and accretion of premiums and discounts.

Discounts are accreted into interest income over the estimated life of the related security and premiums are amortized against income to the earlier

of the call date or weighted average life of the related security using the interest method.

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

They are included

in non-interest income or expense and, when applicable, are reported as a reclassification adjustment in other comprehensive income.

Notes to Consolidated Financial Statements

Declines in the

fair value of individual available-for-sale securities below their cost that are other-than-temporary result in write-downs of the individual securities to their fair value.

The Company monitors the investment security portfolio for impairment

on an individual security basis and has a process in place to identify securities that could potentially have a credit impairment that is other than temporary.

This process involves analyzing the length of time and the extent to which the fair

value has been less than the amortized cost basis, the market liquidity for the security, the financial condition and near-term prospects of the issuer, expected cash flows, and the Company’s intent and ability to hold the investment for a

period of time sufficient to recover the temporary impairment.

A decline in value due to a credit event that is considered other-than-temporary is recorded as a loss in noninterest income.

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.

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

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.

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.

Loans acquired through business combinations are required to be carried at fair value as of the date of the combination.

Fair value is the

price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date.

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.

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.

Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed.

Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio,

adverse situations that may affect the borrower’s ability to repay and estimated value of any underlying collateral and prevailing economic conditions.

This evaluation is inherently subjective as it requires estimates that are susceptible to

significant revision as more information becomes available.

Notes to Consolidated Financial Statements

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.

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.

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.

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.

Notes to Consolidated Financial Statements

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.

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.

Notes to Consolidated Financial Statements

Long-Lived Asset Impairment

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

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.

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, 2021, 2020, and 2019.

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.

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

Revenue and expenses from operations and changes in the valuation allowance are included in current operations.

Business Combinations

The acquisition method of accounting is used for business combinations.

Under the acquisition accounting method, the acquiring Company

recognizes 100% of the assets acquired and liabilities assumed at the acquisition date fair value.

The excess of fair value of the consideration transferred over the acquisition date fair value of net assets acquired is recorded as goodwill.

Further, one-time extraordinary expenses related to the acquisition are expected to be incurred.

Goodwill and Intangible Assets

Intangible assets totaled $ 1.6

million and goodwill, net of accumulated amortization totaled $ 8.5 million for the year ended December 31, 2021, compared to intangible

assets of $ 572 ,000 and goodwill, net of accumulated amortization of $ 1.0 million for the year ended December 31, 2020.

The increase is due to core deposit intangible acquired and goodwill recognized as a result of the acquisition of Watonga

Bancshares, Inc.

on December 9, 2021.

Goodwill resulting from a business combination represents the excess of the fair value of the consideration transferred over the fair value of

the net assets acquired and liabilities assumed as of the acquisition date.

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.

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.

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.

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

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.

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Notes to Consolidated Financial Statements

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.

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.

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.

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.

During the years ended December 31,

2021, 2020 and 2019, 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.

We are no longer

subject to U.S.

federal or state tax examinations for years before 2018.

Comprehensive Income

Comprehensive income includes all changes in stockholders' equity during a period, except those resulting from transactions with stockholders.

Besides net income, other components of the Company's comprehensive income includes the after tax effect of changes in the net unrealized gain/loss on debt securities available-for-sale.

The Company's policy is to release material stranded tax

effects included in accumulated other comprehensive income on a specific identification basis.

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.

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

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.

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.

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, 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.

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

Notes to Consolidated Financial Statements

1 unchanged sentence

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.

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 annual 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 in the process of planning implementation of this ASU;

however, it is not expected to have a significant impact on the Company’s financial condition,

results of operation, or capital position, but will impact the presentation on the balance sheet of the Company’s current operating leases.

The Company will adopt this ASU in the fourth quarter of 2022.

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

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.

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.

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 in the process of planning implementation, and has established a committee to assist in implementation and evaluation.

The Company will adopt this ASU in the first quarter

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) which provides relief for companies preparing for discontinuation

of interest rates such as the London Interbank Offered Rate (“LIBOR”).

On March 5, 2021, the U.K.

Financial Conduct Authority (“FCA”) announced that the majority of LIBOR rates will no longer be published after December 31, 2021, although a

number of key settings will continue until June 2023, to support the rundown of legacy contracts only.

As a result, LIBOR should be discontinued as a reference rate.

The main provisions for contract modifications include optional relief by

allowing the modification as a continuation of the existing contract without additional analysis and other optional expedients regarding embedded features.

ASU 2020-04 was effective upon issuance and generally can be applied through December 31,

The adoption of ASU 2020-04 did not significantly impact the 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

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.

Further, in response to

the COVID-19 outbreak, the Federal Reserve Board has implemented or announced a number of facilities to provide emergency liquidity to various segments of the U.S.

economy and financial market.

In April 2020, the Company began originating loans to qualified small businesses under the Paycheck Protection Program (PPP) administered by the Small Business Administration (SBA).

PPP loans are fully guaranteed

by the SBA and thus have a zero percent risk weight under applicable risk-based capital rules.

As of December 31, 2021, the Company had 43

PPP loans with balances totaling $ 18.7 million, and 166 PPP loans with balances totaling $ 44.9 million as of December 31, 2020.

The Company recognized

$ 2.3 million in fee income during the year ended December 31, 2021, with $ 269,000 remaining to be recognized, as compared to $ 1.4 million recognized

and $ 442,000 to be recognized as of December 31, 2020 .

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 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.

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.

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.

Recent Events, Including Mergers and Acquisitions

On December 9, 2021, the Company’s largest shareholder sold approximately 1.1 million shares of stock pursuant to an S-3 registered secondary offering.

The Company incurred $ 163 ,000 in non-recurring expenses associated with the offering, which are included in noninterest expenses.

The effect of this purchase and related expenses was included in the consolidated

financial statement of the Company as of December 31, 2021.

Business Combinations

On December 9, 2021, the Company acquired 100 % of the outstanding equity of Watonga Bancshares, Inc.

(“Watonga”), the bank holding company for Cornerstone Bank, for $ 29.3

million in cash.

Immediately following the acquisition, Watonga was dissolved and Cornerstone Bank merged with and into Bank7.

A preliminary summary of the fair value of assets acquired and liabilities assumed from Watonga are as follows:

(in thousands)

Estimated Fair Value

Assets Acquired

Cash and cash equivalents

Investment securities available-for-sale

Federal funds sold

Premises and equipment

Core deposit intangible

Prepaid expenses and other assets

Total assets acquiried

Liabilities Assumed

Accounts payable and accrued expenses

Total liabilities assumed

Net assets acquired

Consideration transferred

With the acquisition of the Watonga, the Company continues to expand in the Oklahoma market and increases the Company’s core

None of the goodwill associated with the acquisition is expected to be deductible for income tax purposes.

All goodwill was allocated to the Company’s only reporting unit, which is the Company as a whole.

Notes to Consolidated Financial Statements

The Company engaged a third-party specialist to develop the fair value estimate of Watonga’s loan portfolio as of the

acquisition date in accordance with ASC 820.

Inputs and assumptions used in the fair value estimate of the loan portfolio, includes interest rate, servicing, credit and liquidity risk, and required equity return.

The fair value of loans was

calculated using a discounted cash flow analysis based on the remaining maturity and repricing terms.

Cash flows were adjusted by estimating future credit losses and the rate of prepayments.

Projected monthly cash flows were then discounted to

present value using a risk-adjusted market rate for similar loans.

There was no carryover of Watonga’s allowance for loan losses associated with the loans that were acquired, as the loans were initially recorded at fair value as of the acquisition

None of the acquired loans were deemed purchased-credit impaired as of the acquisition date.

The core deposit intangible asset recognized is being amortized over its estimated useful life of approximately 10 years.

The fair value of retail demand and interest-bearing deposit accounts was assumed to approximate the carrying value as these accounts have no

stated maturity and are payable on demand.

The fair value of time deposits was estimated by discounting the contractual future cash flows using market rates offered for time deposits of similar remaining maturities.

The Company has determined the above noted acquisition constitutes a business combination as defined by ASC Topic 805, which

establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired and the liabilities assumed.

The Company has recorded the assets purchased and liabilities

assumed at their estimated fair value in accordance with ASC Topic 805.

As of the acquisition

date, the Company evaluated $ 117.3 million of net loans ($ 118.5 million gross loans less $ 1.2 million discount) purchased in conjunction with the acquisition of

Watonga Bancshares, Inc.

in accordance with the provisions of FASB ASC Topic 310-20, Nonrefundable Fees and Other Costs.

As of December 31, 2021, the net loan balance of the ASC Topic 310-20 purchased loans is $ 114.6 million ($ 115.8 million gross loans

less $ 1.2 million discount).

The fair value discount is being accreted into interest income over the weighted average life of the loans

using a constant yield method.

The Company acquired $ 86.2 million in available-for-sale debt securities ($ 86.6

less $ 375 ,000 discount) valued at fair value as of the acquisition date.

As of the acquisition

date, the Company acquired $ 8.4 million ($ 6.9

million, plus $ 1.5 million premium) of premises and equipment evaluated at appraised value

The fair values of assets acquired and liabilities assumed are preliminary and based on valuation estimates and assumptions.

accounting for business combinations require estimates and judgments regarding expectations of future cash flows of the acquired business, and the allocations of those cash flows to identifiable tangible and intangible assets.

The estimates and

assumptions underlying the preliminary valuations are subject to collection of information necessary to complete the valuations (specifically related to projected financial information) within the measurement periods, which are up to one year from

the acquisition date.

Although the Company does not currently expect material changes to the initial value of net assets acquired, the Company continues to evaluate assumptions related to the valuation of the assets acquired and liabilities assumed.

Any adjustments to our estimates of purchase price allocation will be made in the periods in which the adjustments are determined, and the cumulative effect of such adjustments will be calculated as if the adjustments had been completed as of the

acquisition date.

Notes to Consolidated Financial Statements

Summary of Unaudited Pro Forma Information

The following table presents unaudited pro-forma information as if the acquisition of Watonga had occurred on January 1, 2020.

This pro-forma information gives effect

to certain adjustments, including purchase accounting fair value adjustments, amortization of core deposit and other intangibles and related income tax effects and is based on our historical results for the periods presented.

Transaction-related

costs related to each acquisition are not reflected in the pro-forma amounts.

The pro-forma information does not necessarily reflect the results of operations that would have occurred had the Company acquired Watonga at the beginning of fiscal year

Cost savings are also not reflected in the unaudited pro-forma amounts.

Actual from Acquisition Date

through December 31, 2021

Pro-Forma for Year Ended December 31,

Net interest income

Non-interest income

Pro-forma earnings per share:

Acquisition costs, which primarily consists of professional services, are expensed as incurred as a component of non-interest

The Company incurred total acquisition costs of $ 712 ,000 during the year ended December 31, 2021.

Subsequent Events

Subsequent to year-end, the Company completed the sale of a bank building acquired in the acquisition of Watonga Bancshares on

March 17, 2022 for the amount of $ 3.73 million.

Restriction on Cash and Due from Banks

On March 26, 2020, the Federal Reserve Board reduced reserve requirement ratios to zero percent, effectively eliminating reserve requirements

for all depository institutions.

There was no reserve requirement as of December 31, 2021.

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.

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.

Notes to Consolidated Financial Statements

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

5 unchanged sentences

Earnings per common share

(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.

Nonqualified stock options outstanding of 264,000 , 185,250 and 163,000 as

of December 31, 2021, 2020 and 2019, 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

Debt Securities

The following table summarizes the amortized cost and fair value of debt securities available-for-sale at December 31, 2021 and the corresponding amounts of gross

unrealized gains and losses recognized in accumulated other comprehensive income:

Amortized Cost

Gross Unrealized

Available-for-sale

Federal agencies

Mortgage-backed securities (1)

State and political subdivisions

Total available-for-sale

Total debt securities

(1) All of our mortgage-backed securities and collateralized mortgage obligations are issued and/or guaranteed by U.S.

government agencies or U.S.

government-sponsored entities.

The amortized cost and estimated fair value of investment securities at December 31, 2021, by contractual maturity, are shown below.

The expected life of mortgage-backed

securities will differ from contractual maturities because borrowers may have the right to call or prepay the underlying mortgage loans with or without call or prepayment penalties.

Notes to Consolidated Financial Statements

Amortized Cost

Available-for-sale

Due in one year or less

Due after one year through five years

Due after five years through ten years

Due after ten years

Mortgage-backed securities (1)

Total available-for-sale

(1) All of our mortgage-backed securities and collateralized mortgage obligations are issued and/or guaranteed by U.S.

government agencies or U.S.

government-sponsored entities.

There were no holdings of securities of any issuer in an

amount greater than 10% of stockholders equity at December 31, 2021

There were no realized gains and losses from the sale

of investment securities for the year ended December 31, 2021.

The following table details book value of pledged securities as of December 31, 2021:

Book value of pledged securities

The following table details gross unrealized losses and fair values of investment securities aggregated by investment category and length of time that the individual

securities have been in a continuous unrealized loss position at December 31, 2021.

As of December 31, 2021, the Company had the ability and intent to hold the debt securities classified as available-for-sale for a period of time sufficient for a

recovery of cost.

The unrealized losses are due to increases in market interest rates over the yields available at the time the underlying debt securities were acquired as a result of the acquisition of Watonga Bancshares, Inc.

on December 9, 2021.

The fair value of those debt securities having unrealized losses is expected to recover as the securities approach their maturity date or repricing date, or if market yields for such investments decline.

Management has no intent or requirement to

sell before the recovery of the unrealized loss;

therefore, no impairment loss was realized in the Company’s consolidated statement of

comprehensive income.

Less than Twelve Months

Twelve Months or Longer

Gross Unrealized

(in thousands, except number of securities)

Available-for-sale

Total available-for-sale

Loans and Allowance for Loan Losses

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

Notes to Consolidated Financial Statements

Construction & development

5 unchanged sentences

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.

Included in the commercial &

industrial loan balance at December 31, 2021 and December 31, 2020, are $ 18.7 million and $ 44.9 million of loans that were originated under the SBA PPP program, respectively.

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):

The following table presents, by portfolio segment, the activity in the

allowance for loan losses for the years ended December 31, 2021, 2020, and 2019 (dollars in thousands):

Construction &

2 unchanged sentences

Balance, beginning of period

Net charge-offs

Net (charge-offs) recoveries

Provision (credit) for loan losses

4 unchanged sentences

Balance, beginning of period

Net recoveries

Net (charge-offs) recoveries

Provision (credit) for loan losses

4 unchanged sentences

Balance, beginning of period

Net charge-offs

Net (charge-offs) recoveries

Provision (credit) for loan losses

1 unchanged sentence

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):

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, 2021 and December 31, 2020 (dollars in thousands):

Construction &

3 unchanged sentences

Ending balance

Individually evaluated for impairment

Collectively evaluated for impairment

Individually evaluated for

Collectively evaluated for

Ending balance

Individually evaluated for impairment

Collectively evaluated for impairment

Individually evaluated for

Collectively evaluated for

December 31, 2020

1 unchanged sentence

Ending balance

Individually evaluated for impairment

Collectively evaluated for impairment

Individually evaluated for

Collectively evaluated for

Ending balance

Individually evaluated for impairment

Collectively evaluated for impairment

Individually evaluated for

Collectively evaluated for

Notes to Consolidated Financial Statements

2 unchanged sentences

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.

Real Estate – The real estate portfolio consists of residential and commercial

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.

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

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.

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.

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.

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.

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.

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.

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.

The weaknesses require close attention

and the remediation of those weaknesses is necessary.

No risk of probable loss exists.

1 unchanged sentence

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.

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):

No changes were made to

either during the period ended December 31, 2021.

The following table presents the credit risk profile of the

Company’s loan portfolio based on internal rating category as of December 31, 2021 and December 31, 2020 (dollars in thousands):

Construction &

31 unchanged sentences

Commercial & industrial

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.

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.

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, 2021, the Company had $ 1.4

million of commercial real estate loans that were classified as troubled-debt restructurings and impaired and $ 1.6 million of

commercial real estate, $ 10.9 million of commercial and industrial, and $ 469 ,000 of agricultural loan modifications as of December 31, 2020.

There were no newly modified troubled-debt restructurings during the year ended December 31, 2021.

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.

There were no troubled-debt restructurings modified in the past twelve months that subsequently defaulted for the year ended December 31, 2021.

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

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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”).

(1) $ 1.4 million and $ 12.98 million of TDRs

as of December 31, 2021 and December 31, 2020, respectively, are included in the nonaccrual loans balance in the line above.

Notes to Consolidated Financial Statements

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.

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

As of December 31, 2021, one loan totaling $ 3.1 million was

modified, related to COVID-19, which was not considered a troubled debt restructuring.

Premises and Equipment

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Net premises and equipment

Intangible Assets

The gross carrying amount and accumulated amortization of recognized intangible assets at December 31, 2020 and 2019, were (dollars in thousands):

Core deposit intangible

Goodwill and Core Deposit Intangibles

The Company recorded $ 7.5 million of goodwill as a result of the acquisition of Watonga

Bancshares, Inc.

on December 9, 2021.

The gross carrying amount and accumulated amortization of recognized intangible assets at December 31, 2021 and 2020, were (dollars in

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):

Amortization expense

for intangible assets totaled $ 183 ,000 for the year ended December 31, 2021 and $ 206 ,000 for the years ended 2020, and 2019.

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

Interest-Bearing Deposits

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At December 31, 2021, the scheduled maturities of interest-bearing time deposits were as follows (dollars in thousands):

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,

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):

The (benefit)/provision for

income taxes for the years ended December 31, 2021, 2020 and 2019 consists of the following (dollars in thousands):

Year Ended December 31,

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Increase (decrease) resulting from:

Benefit of S corporation status

Permanent Differences

Conversion as of September 24, 2018 to C Corporation

Provision for income taxes

Notes to Consolidated Financial Statements

Deferred tax assets (liabilities) included in other assets in the accompanying consolidated balance sheet consist of the following:

Deferred tax assets

(liabilities) included in other assets in the accompanying consolidated balance sheet consist of the following:

Year Ended December 31,

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Deferred revenue

Discounts and premiums on assets acquired

Deferred compensation

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Prepaid expenses

Method change IRC 481(a)

Net unrealized (loss) on available for sale securities

Total deferred tax liabilities

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

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.

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, 2021.

The Company does not have any net operating loss or tax credit carryforwards as of December 31, 2021.

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.

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.

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

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):

Notes to Consolidated Financial Statements

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Balance at end of year

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.

There were no interest or

penalties related to uncertain tax positions reflected in the consolidated statements of income for the years ended December 31, 2021, 2020, and 2019.

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.

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, 2021 and 2020 were $ 600,000 and $ 884,000 respectively.

Loans with a collateral

value of approximately $ 78.7 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 $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 has a blanket floating lien security agreement with a maximum borrowing capacity of $ 78.1 million at December 31, 2021, 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, 2021 or 2020.

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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

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 RP, for a total of 1,750,000 shares authorized under the RP.

All shares repurchased under the RP have been

retired and not held as treasury stock.

The RP expired on September 5, 2021.

On October 28, 2021, the Company adopted a new Repurchase Plan (the “New RP”) that authorizes the repurchase of up to 750,000 shares of the Company’s stock.

Stock repurchases under the New RP will take place pursuant to a Rule 10b5-1 Plan with pricing and purchasing parameters established by

There were no repurchases after the new adoption as of December 31, 2021.

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

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.

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.

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

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, 2021, that the Company and Bank meet all capital adequacy requirements to which it is subject and maintains capital conservation buffers that allow the Company and Bank to avoid limitations on capital distributions, including

dividend payments and certain discretionary bonus payments to certain executive officers.

As of December 31, 2021, the most recent notification from the Federal Deposit Insurance Corporation (FDIC) categorized the Bank as well

capitalized under the regulatory framework for prompt corrective action.

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

There are no conditions or events since that notification that management believes have changed the Bank’s category.

There are no conditions or events since that notification that

management believes have changed the Bank’s category.

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.

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 $ 18.74 million we originated are included in the

calculation of our leverage ratio as of December 31, 2021 as we did not utilize the PPP Facility for funding purposes.

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

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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 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:

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a CET1 to risk-weighted assets of 4.5%;

Tier 1 capital to risk-weighted assets of at least 6.0%;

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

The calculation of all types of regulatory capital is subject to definitions,

deductions and adjustments specified in the regulations.

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.

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

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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.

As of December 31, 2021, the Company’s and the Bank’s capital ratios exceeded the minimum capital adequacy guideline percentage requirements

under the Basel III Capital Rules on a fully phased-in basis.

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.

At December 31,

2021, approximately $ 36.4 million of retained earnings was available for dividend declaration from the Bank without prior regulatory

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.

At December 31, 2021 and December 31, 2020, the Company had loans outstanding to executive officers, directors, significant shareholders and

their affiliates (related parties) approximating $ 0 and $ 0 , respectively.

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

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Year ended December 31, 2020

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.

The Bank leases office and retail banking space in Woodward, Oklahoma from Haines Realty Investments Company, LLC, a related party of the

Lease expense totaled $ 175,000 , $ 177,000 and $ 184,000 for the years ended December 31, 2021, 2020 and 2019, respectively.

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

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

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

Employees may contribute up to the maximum legal limit

with the Bank matching up to 5 % of the employee’s salary.

Employer contributions charged to expense for the years ended December 31,

2021, 2020 and 2019 totaled $ 267,000 , $ 230,000

and $ 223,000 , respectively.

Notes to Consolidated Financial Statements

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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.

2018 Equity Incentive Plan”) in September 2018 and amended the

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.

2018 Equity Incentive

Plan will terminate in September 2028, if not extended.

Compensation expense, net of settlement of shares for payroll withholding related to the Plan for the years ended December 31, 2021, 2020 and 2019 totaled $ 862,000 , $ 771,000 and $ 628,000 , respectively.

There were 615,873

shares available for future grants as of December 31, 2021.

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.

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.

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

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.

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

Remaining Contractual Term

Contractual Term

Twelve Months Ended December 31, 2021

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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.

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.

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:

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:

For the Year Ended

December 31, 2021

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Expected term

Weighted average grant date fair value

The following table summarizes share information about RSUs for the years ended December 31, 2021 and 2020:

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Shares granted

Shares settled

Shares vested

Shares forfeited

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Shares granted

Shares settled

Shares vested

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

As of December 31, 2021, there was approximately $ 2.9

million of unrecognized compensation expense related to 173 ,000 unvested RSUs and $ 591,000 of unrecognized compensation expense related to 264,000

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.

The stock option expense is expected to be recognized over a weighted average period of 2.48

years, and the RSU expense is expected to be recognized over a weighted average period of 3.04 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.

measurements must maximize the use of observable inputs and minimize the use of unobservable inputs.

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:

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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

or other inputs that are observable or can be corroborated

by observable market data for substantially the full term of the assets or liabilities

Notes to Consolidated Financial Statements

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Recurring Measurements

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

Assets and liabilities measured at fair value on a recurring basis include the following:

Available-for-sale securities:

Debt securities classified as available-for-sale, as discussed in Note 5, are reported at fair value utilizing Level 2 inputs.

For those debt securities classified as Level 2, the Company obtains fair value measurements from an

independent pricing service.

The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.

Treasury yield curve, live trading levels, trade execution data for similar securities,

market consensus prepayments speeds, credit information and the bond’s terms and conditions, among other things.

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):

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, 2021 and December 31, 2020 (dollars in thousands):

December 31, 2021

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Impaired loans (collateral- dependent)

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.

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.

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.

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.

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.

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

measurements.

December 31, 2021

Collateral-dependent impaired loans

Appraisals from comparable properties

Appraisals from

comparable properties

Estimated cost to sell

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Collateral-dependent impaired loans

Appraisals from comparable properties

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

The estimated fair values of the Company's financial instruments that are reported at amortized

cost in the Company's consolidated balance sheets, segregated by the level of valuation inputs within the fair value hierarchy utilized to measure fair value, are as follows :

Fair Value Measurements

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Cash and due from banks

Federal funds sold

Interest-bearing time deposits in other banks

Loans, net of allowance

Mortgage loans held for sale

Loans held for sale

Nonmarketable equity securities

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Loans, net of allowance

Mortgage loans held for sale

Loans held for sale

Nonmarketable equity securities

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Interest payable

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 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, Federal Funds Sold, Interest-Bearing Time Deposits in Other Banks, Nonmarketable Equity Securities,

Interest Receivable and Interest Payable

The carrying amount approximates fair value.

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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.

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.

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,

2021 or December 31, 2020.

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):

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, 2021 and December 31, 2020 (dollars in

Commitments to extend credit

Financial and performance standby letters of credit

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

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the

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.

Notes to Consolidated Financial Statements

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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

Estimates related to the

allowance for loan losses are reflected in Note 7 regarding loans.

As of December 31, 2021, hospitality loans were 19 %

of gross total loans with outstanding balances of $ 198.4 million and unfunded commitments of $ 41.5 million;

energy loans were 10 %

of gross total loans with outstanding balances of $ 98.5 million and unfunded commitments of $ 9.4 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.

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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):

Rental expense for these leases was $ 799,000 , $ 837,000 and $ 770,000 for the years ended December 31, 2021, 2020, and 2019 respectively.

Future minimum rental commitments of branch facilities and office equipment due under non-cancelable operating leases at December 31, 2021,

were as follows (dollars in thousands):

Notes to Consolidated Financial Statements

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Liabilities and Shareholders’ Equity

Dividends Payable

Other liabilities

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Notes to Consolidated Financial Statements

Condensed Statements of Income

Condensed Statements of Comprehensive Income

For the Years Ended December 31,

Dividends received from subsidiary bank

Interest expense

Dividends from subsidiary bank

Total expense

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Net Income Available to Common Shareholders

Other Comprehensive Income

Unrealized gains on

securities, net of tax benefit of $ 29,000

Reclassification adjustment for gains included in net income

Other comprehensive gain, net of tax benefit of $ 29,000

Comprehensive Income

Condensed Statements of Cash Flows

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Equity in undistributed net income

Dividends receivable from subsidiary bank

Stock-based compensation expense

Accounts payable and accrued expenses

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Financing Activities

Repayment of borrowed funds

Common stock acquired and canceled

Common stock issued, net of offering costs

Dividends paid

Net cash used in financing activities

Increase in Cash and Due from Banks

Increase (Decrease) in Cash and Due from Banks

Cash and Due from Banks, Beginning of Period

1 unchanged sentence

Supplemental Disclosure of Cash Flows Information

Interest paid

Dividends declared and not paid

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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:

The following tables summarize the unaudited condensed results of operations for each of the quarters during the fiscal years ended December

31, 2021 and 2020:

For the three months ended

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Noninterest expense

Income (loss) before income taxes

Income before income taxes

Income tax expense

Net income (loss)

(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.

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