What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-03-25 compared with 2023-03-24 · 720 added, 327 removed, 938 unchanged (53% of the section changed)

Financial Statements and Supplementary Data

Consolidated Financial Statements Index

Financial Statements and

Supplementary Data

Financial Statements Index

Report of Independent Registered Public Accounting Firm (PCAOB ID:

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Shareholders, Board of Directors, and Audit Committee

Report of Independent Registered Public Accounting Firm

To the Shareholders, Board of Directors, and Audit Committee Bank7 Corp.

Oklahoma City, Oklahoma

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We have audited the accompanying consolidated balance sheets of Bank7 Corp.

(the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of

(“Company”) as of December 31, 2023 and 2022, 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, 2023, and the related notes (collectively referred to as the “financial statements”).

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the years in the three-year period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Notes 1 and 6 to the financial statements, the Company changed its method of accounting for loans and the allowance for credit losses in 2023 due

to the adoption of Accounting Standards Codification Topic 326, Financial Instruments – Credit Losses .

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.

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

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 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.

Accordingly, we

express no such opinion.

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.

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

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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.

(Formerly, BKD,LLP)

/s/ FORVIS, LLP

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

Shareholders, Board of Directors, and Audit Committee

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to

be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical

audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts

or disclosures to which they relate.

Allowance for Credit Losses – Loans

The Company adopted Topic 326 effective January 1, 2023.

The Company’s loan portfolio totaled $1.34 billion as of December 31, 2023 and the

allowance for credit losses – loans (“ACL") was $19.7 million.

As more fully described in Notes 1 and 6 to the financial statements, the ACL is a contra-asset valuation account, calculated in accordance with Topic 326, that is deducted from

the amortized cost basis of loans to present the net amount expected to be collected.

The amount of the ACL represents management’s best estimate of current expected credit losses on loans considering all available information from internal and

external sources, relevant to assessing exposure to credit loss over the contractual term of the loans.

Loans with similar risk characteristics are aggregated into homogenous segments for assessment.

Reserve factors are based on estimated

probability of default (“PD”) and loss given default (“LGD”) for substantially all segments.

The estimates include economic forecasts over the reasonable and supportable forecast period based on projected performance of economic variables

that have a statistical relationship.

Management qualitatively adjusts its model results for risk factors such as that were not considered within the modeling processes but were still relevant in

assessing the expected credit losses within the loan pools.

In some cases, management determined that an individual loan exhibited unique characteristics which differentiated the loan from other loans with the identified loan pools.

cases, the loans were evaluated for expected credit losses on an individual basis and excluded from the collective evaluation.

Auditing management’s estimate of the ACL involved a high degree of subjectivity due to the nature of the qualitative factor adjustments included in the ACL and

complexities of the PD and LGD model.

Management’s identification and measurement of the qualitative factor adjustments are highly judgmental and had a significant effect on the ACL.

The primary audit procedures we performed as of December 31, 2023 to address this critical matter included:

Obtained an understanding of the Company’s process for establishing the ACL

Evaluated and tested the design of internal controls over the reliability and accuracy of data used to calculate and estimate the components of the ACL

Loan data completeness and accuracy

Grouping of loans by segment

Model inputs including PD, LGD, and discounted cash flow

Model assumptions

Establishment of qualitative factors

Loan risk ratings

Tested the completeness and accuracy of the data utilized in the ACL

Tested the model’s mathematical accuracy

Evaluated the relevance and reliability of data and assumptions used in the estimate

Evaluated the qualitative and economic forecast adjustments to the historical loss rates, including assessing the basis for the adjustments and the

reasonableness of the significant assumptions

Evaluated credit quality trends in delinquencies, non-accruals, charge offs, and loan risk gradings

Tested the internal loan review function and evaluated the reasonableness of loan grades

Shareholders, Board of Directors, and Audit Committee

Evaluated the reasonableness of specific allocations associated with individually evaluated loans

Evaluated the overall reasonableness of the ACL and compared to trends identified within peer group

Evaluated the reasonableness of methodology utilized by a third party in determining loss driver economic performance variables

Evaluated the accuracy and completeness of Topic 326 disclosures in the financial statements

Other Assets – Oil and Gas Property

The value of the Oil and Gas Property was $13.5 million at December 31, 2023.

The asset is included in other assets on the consolidated balance

As more fully described in Note 1 to the financial statements, the Oil and Gas Property held by the Company is accounted for under the successful efforts method of accounting.

The fair value of proved properties (no unproved properties are held) are measured using valuation techniques that convert future cashflows to a single

discounted amount.

To estimate the value of reserves, management employs a specialist who makes significant estimates using significant inputs and assumptions including forecasting timing, volume of production, and corresponding rate of

production decline for producing properties.

Auditing management’s estimate of fair value of proved properties involved a high degree of subjectivity and complexity due to the nature of inputs and

The changes in certain inputs and assumptions which are subjective in nature could have a significant impact on depletion expense and the fair value of the Oil and Gas Property.

The primary audit procedures we performed as of December 31, 2023 to address this critical matter included:

Obtained an understanding of the Company’s process for preparing the oil and gas reserve estimates

Identified inputs and assumptions that were significant to the period end determination of proved reserve volumes and tested management’s process of

determining the significant inputs and assumptions, as follows:

Assessed the reasonableness of operating cost inputs by comparing the forecasted amount to current year actual costs

Assessed the reasonableness of forecasted capital expenditures by comparing to management’s planned future investment

Assessed the reasonableness of forecasted production estimates by (i) comparing forecasted production amounts to actual results and (ii) comparing

forecasted production amounts in the current year reserve report to the actual historical production amounts in the current year

Vouched the working and royalty interests used in the reserve report to underlying ownership records

Assessed the reasonableness of pricing inputs and market differentials by comparing to third-party sources and actual results in the current year

We have served as the Company’s auditor since 2013.

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Cash and due from banks

Federal funds sold

Cash and cash equivalents

Interest-bearing time deposits in other banks

Available-for-sale debt securities

Loans, net of allowance for loan losses of $ 14,734 and $ 10,316 at December 31, 2022 and December 31, 2021, respectively

Loans, net of allowance for credit losses of $ 19,691 and $ 14,734 at December 31, 2023 and December 31, 2022, respectively

Loans held for sale

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Retained earnings

Accumulated other comprehensive income (loss)

Accumulated other comprehensive loss

Total shareholders’ equity

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Net Interest Income

Provision for Loan Losses

Net Interest Income After Provision for Loan Losses

Provision for Credit Losses

Net Interest Income After Provision for Credit Losses

Noninterest Income

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Weighted average common shares outstanding - diluted

Other Comprehensive Income

Unrealized gains(losses) on securities, net of tax benefit of $ 2.8

million, $ 0 , and $ 0

for the years ended December 30, 2022 , 2021 , and 2020 , respectively

Other Comprehensive Income (Loss)

Unrealized gains (losses) on securities, net of (tax expense) tax benefit of ($ 1.0

million), $ 2.8 million, and $ 0 for the years ended December 31, 2023 , 2022 , and 2021 ,

Reclassification adjustment for realized loss included in net income net of tax of $ 4 ,

$ 31 , and $ 0

the years ended 2022 , 2021 ,

and 2020 , respectively

Other comprehensive (loss) income

for the years ended 2023 , 2022 , and 2021 , respectively

Other comprehensive

Comprehensive Income

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(Dollar amounts in thousands, except per share data)

Year Ended December 31,

Common Stock (Shares)

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Balance at beginning of period

Shares purchased and retired

Shares purchased and retired for restricted stock units

Exercise of stock options

Stock-based compensation expense

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Balance at beginning of period

Common stock acquired and canceled

Cash dividends declared ($ 0.52 , $ 0.45 , $ 0.41 per share)

December 31, 2022, 2021, and 2020, respectively

Cumulative effect of change in accounting principle, net of tax of $ 178 (Note 1)

Cash dividends declared ($ 0.74 , $ 0.52 , and $ 0.45 per share for

the years ended December 31, 2023, 2022, and 2021, respectively)

Balance at end of period

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Depreciation and amortization

Provision for loan losses

Provision for credit losses

Amortization of premiums and discounts on securities

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Investing Activities

Net cash received for acquisition, net of cash paid

Net cash (paid) received for acquisition

Maturities of interest-bearing time deposits in other banks

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Cash distributions

Net cash settlement of equity compensation

Shares purchased and retired for restricted stock units

Net settlement of stock options

Common stock issued for restricted stock units

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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.

The accompanying consolidated financial statements include the accounts of the Company, the Bank and its two subsidiaries, 1039 NW 63 rd , LLC, which holds real estate utilized by the Bank, and Giddings

Production, LLC, which is engaged in the production of oil, natural gas and natural liquid (“NGL”) reserves in Texas.

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

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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.

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.

Reclassifications

Certain reclassifications have been made to the 2022 and 2021 consolidated financial statements to conform to classification used for December 31, 2023.

These reclassifications had no impact on net

income, shareholders’ equity or cash flows as previously reported.

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 $ 267 ,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 $ 5.5 million and $ 3.2 million at December 31, 2022 and December 31, 2021 respectively, and have

original maturities generally ranging from one to five years .

Interest-bearing time deposits in other banks totaled $ 17.7 million and $ 5.5 million at December 31, 2023 and December 31, 2022

respectively, and have original maturities generally ranging from three months to five years .

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.

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

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.

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.

are included in noninterest income or expense and, when applicable, are reported as a reclassification adjustment in other comprehensive income.

They are included in

noninterest 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.

Allowance for Credit Losses – Investment Securities

On January 1, 2023, the Company was required to adopt a new credit loss methodology, the Current Expected Credit Losses (“CECL”)

See Note 1, Recent Accounting Pronouncements, for additional information regarding adoption.

Allowance for Credit Losses - AFS Securities - The Company evaluates its available-for-sale securities portfolio on a

quarterly basis for potential credit-related impairment.

The Company assesses potential credit impairment by comparing the fair value of a debt security to its amortized cost basis.

If the fair value of a debt security is greater than the

amortized cost basis, no impairment is recognized.

If the fair value is less than the amortized costs basis, the Company reviews the factors to determine if the impairment is credit-related or noncredit-related.

For debt securities the Company

intends to sell or is more likely than not required to sell, before the recovery of their amortized cost basis, the difference between fair value and amortized cost is impaired and is recognized through earnings.

For debt securities the Company

does not intend to sell or is not more likely than not required to sell, prior to expected recovery of amortized cost basis, the credit portion of the impairment is recognized through earnings, with a corresponding entry to an allowance for

credit losses, and the noncredit portion is recognized through accumulated other comprehensive loss.

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.

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.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost.

Amortized cost is the principal balance outstanding, net of purchase premiums and discounts.

Accrued interest receivable totaled $ 8.7 million and $ 7.2 million at December

31, 2023 and December 31, 2022, respectively, and was reported in interest receivable and other assets on the consolidated balance sheets.

The Company has made the accounting policy election to exclude accrued interest receivable on loans from the

estimate of credit losses.

Interest income is accrued on the unpaid principal balance using the simple-interest method on the daily balances of the principal amounts outstanding.

For loans amortized at cost, interest income is accrued based on the unpaid principal balance.

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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

The accrual of interest on loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection.

Past-due status is based on contractual terms of the loan.

In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

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.

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.

unrealized losses, if any, are recognized through a valuation allowance by charges to noninterest income.

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

of the loan and are recognized in noninterest income upon the sale of the loan.

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income.

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

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

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.

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.

Notes to Consolidated Financial Statements

The allowance consists of allocated and general components.

The allocated

component relates to loans that are classified as impaired.

For those loans that are classified as impaired, an allowance is established when the discounted cash flows or collateral value or observable market price of the impaired loan is lower

than the carrying value of that loan.

The general component covers nonimpaired loans and is based on historical charge-off experience and expected loss given default derived from the Company’s internal risk rating process.

Other adjustments may

be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the

scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.

Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting

scheduled principal and interest payments when due.

Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.

Management determines the significance of payment delays and payment

shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of

the shortfall in relation to the principal and interest owed.

Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective

interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral-dependent.

Groups of loans with similar risk characteristics are collectively evaluated for impairment based on the group’s historical loss experience

adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans.

Accordingly, the Company does not separately identify individual consumer loans for impairment measurements, unless such loans are the

subject of a restructuring agreement due to financial difficulties of the borrower.

Premises and Equipment

Allowance for Credit Losses

On January 1, 2023, the Company was required to adopt a new credit loss methodology, the Current Expected Credit Losses (“CECL”) methodology.

Note 1, Recent Accounting Pronouncements, for additional information regarding adoption.

The allowance for credit losses is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to

be collected on the loans.

The allowance for credit losses is adjusted by a credit loss provision which is reported in earnings, and reduced by the charge-off of loan amounts, net of recoveries.

Loans are charged off against the allowance when

management believes the uncollectibility of a loan balance is confirmed.

Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

Expected credit loss inherent in non-cancellable off-balance

sheet credit exposures is accounted for as a separate liability included in other liabilities.

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

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

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

significant revision as more information becomes available.

The methodology for estimating the amount of credit losses reported in the

allowance for credit losses has two basic components:

an asset-specific component involving loans that do not share risk characteristics and the measurement of expected credit losses for such individual loans;

and a pooled component for expected

credit losses for pools of loans that share similar risk characteristics.

Loans That Do Not Share

Risk Characteristics (Individually Analyzed)

Loans that do not share similar risk characteristics are evaluated on an individual basis.

Loans deemed to be collateral dependent have differing risk characteristics and are individually analyzed to estimate the expected credit loss.

A loan is collateral dependent when the borrower is experiencing financial difficulty and repayment of the loan is dependent on the operation or liquidation and sale of the underlying collateral.

For collateral dependent loans where foreclosure

is probable, the expected credit loss is measured based on the difference between the fair value of the collateral (less selling cost) and the amortized cost basis of the asset.

For collateral dependent loans where foreclosure is not probable,

the Company has elected the practical expedient allowed by ASC 326-20 to measure the expected credit loss under the same approach as those loans where foreclosure is probable.

For loans with balances greater than $ 250 ,000, the fair value of the collateral is obtained through independent appraisal of the underlying collateral.

For loans with balances less than

$ 250 ,000, the Company has made a policy election to measure expected loss for these individual loans utilizing loss rates for similar

Loans That Share Similar

Risk Characteristics (Pooled Loans)

The general steps in determining expected credit losses for the pooled loan component of the allowance are as follows:

Segment loans into pools according to similar risk characteristics;

Develop historical loss rates for each loan pool segment;

Incorporate the impact of forecasts;

Incorporate the impact of other qualitative factors;

Calculate and review pool specific allowance for credit loss estimate.

Notes to Consolidated Financial Statements

The weighted-average remaining maturity method (“WARM”) methodology is utilized

as the basis for the estimation of expected credit losses for consumer segment loans.

The WARM method uses a historical average annual charge-off rate.

This average annual charge-off rate contains loss content over a historical lookback period

and is used as a foundation for estimating the credit loss reserve for the remaining outstanding balances of loans in a segment at the balance sheet date.

The average annual charge-off rate is applied to the contractual term, further adjusted for

estimated prepayments, to determine the unadjusted historical charge-off rate.

The calculation of the unadjusted historical charge-off rate is then adjusted for current conditions and for reasonable and supportable forecast periods.

to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions,

such as changes in unemployment rates, property values, or other relevant factors.

These qualitative factors serve to compensate for additional areas of uncertainty inherent in the portfolio that are not reflected in our historic loss factors.

A discounted cash flow (“DCF”) methodology is utilized to calculate expected

cash flows for the life of each individual loan, with the exception of consumer segment loans.

The discounted present value of expected cash flow is then compared to the loan’s amortized cost basis to determine the credit loss estimate.

Individual loan results are aggregated at the pool level in determining total reserves for each loan pool.

The primary inputs used to calculate expected cash flows include historical

loss rates which reflect probability of default (“PD”) and loss given default (“LGD”), and prepayment rates.

The historical look-back period is a key factor in the calculation of the PD rate and is based on management’s assessment of current and

forecasted conditions and may vary by loan pool.

LGD rates generally reflect the historical average net loss rate by loan pool.

Expected cash flows are further adjusted to incorporate the impact of loan prepayments which will vary by loan segment

and interest rate conditions.

In general, prepayment rates are based on observed prepayment rates occurring in the loan portfolio and consideration of forecasted interest rates.

Forecast Factors

Adjustments are made to incorporate the impact of forecasted conditions.

Certain assumptions are also applied, including the length of the forecast and reversion periods.

The forecast period is the period within which management is able to make a reasonable and supportable assessment of future conditions.

reversion period is the period beyond which management believes it can develop a reasonable and supportable forecast, and bridges the gap between the forecast period and the use of historical default and loss rates.

The remainder period reflects

the remaining life of the loan.

The length of the forecast and reversion periods are periodically evaluated and based on management’s assessment of current and forecasted conditions and may vary by loan pool.

For purposes of developing a

reasonable and supportable assessment of future conditions, management utilizes established industry and economic data points and sources, with the forecasted unemployment rate being a significant factor.

PD rates for the forecast period will be

adjusted accordingly based on management’s assessment of future conditions.

PD rates for the remainder period will reflect the historical mean PD rate.

Reversion period PD rates reflect the difference between forecast and remainder period PD

rates closed using a straight-line adjustment over the reversion period.

Qualitative Factors

Loss rates are further adjusted to account for other risk factors that impact

loan defaults and losses.

These basis point adjustments are based on management’s assessment of trends and conditions that impact credit risk and resulting credit losses, more specifically internal and external factors that are independent of and

not reflected in the quantitative loss rate calculations.

Risk factors management considers in this assessment include trends in underwriting standards, nature/volume/terms of loan originations, past due loans, loan review systems, collateral

valuations, concentrations, legal/regulatory/political conditions, and the unforeseen impact of natural disasters.

Notes to Consolidated Financial Statements

Purchased Loans

When a loan portfolio is purchased, an allowance is established for those loans

considered purchased with more-than-insignificant credit deterioration (“PCD”), and those not considered purchased with more-than-insignificant credit deterioration (“non-PCD”).

The allowance established utilizes the same risk factors discussed

above for our non-acquired allowance.

The allowance established for non-PCD loans is recognized through provision expense upon acquisition, whereas the allowance established for loans considered PCD at acquisition is offset by an increase in the

basis of the acquired loans.

Any subsequent increases and decreases in the allowance related to acquired loans are recognized through provision expense, with future charge-offs recorded to the allowance.

Allowance for Credit Losses on Off-Balance

Sheet Credit Exposures

The Company estimates expected credit losses over the contractual period in

which it is exposed to credit risk through a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company.

The allowance for credit losses on off-balance sheet credit exposures is adjusted as a

provision for credit loss expense and is recorded in interest payable and other liabilities.

The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be

funded over its estimated life and applies the same estimated loss rate as determined for current outstanding loan balances by segment.

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.

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.

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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

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

Notes to Consolidated Financial Statements

Business Combinations

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

Asset Acquisition

The fair value of assets acquired is measured and recognized at the amount of monetary assets or liabilities exchanged, which

generally includes the transaction costs of the assets acquired.

No gain or loss is recognized unless the fair value of any noncash assets given as consideration differs from the assets carrying amounts on the acquiring entities books.

Goodwill and Intangible Assets

Intangible assets totaled $ 1.0

million and goodwill, net of accumulated amortization totaled $ 8.6 million for the year ended December 31, 2022, compared to

intangible assets of $ 1.6 million and goodwill, net of accumulated amortization of $ 8.5 million for the year ended December 31, 2021.

The decrease in intangible assets is due to amortization of core deposit intangibles and the increase in goodwill

recognized is due to the resolution of contractual obligations, assessment of fair value of premises and equipment, and tax provision adjustments that relate to the acquisition of Watonga Bancshares, Inc.

million and goodwill, net of accumulated amortization totaled $ 8.5 million for the year ended December 31, 2023, compared to intangible

assets of $ 1.3 million and goodwill, net of accumulated amortization of $ 8.6 million for the year ended December 31, 2022.

The decrease in intangible assets is due to amortization of core deposit intangibles and the decrease in goodwill recognized is tax

provision adjustments that relate to 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 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.

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

Notes to Consolidated Financial Statements

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.

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.

4 unchanged sentences

2023, 2022 and 2021, the Company recognized no interest and penalties.

The Company or one

of its subsidiaries file income tax returns in the U.S.

The Company or one of its subsidiaries file income tax returns in the U.S.

federal jurisdiction and various state jurisdictions.

We are no longer subject to U.S.

longer subject to U.S.

federal or state tax examinations for years before 2020.

Notes to Consolidated Financial Statements

Comprehensive Income

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

stockholders.

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.

Reclassifications

Certain reclassifications have been made to the 2021 consolidated financial statements to conform to the 2022 consolidated financial statement

presentation.

These reclassifications had no effect on net earnings.

The Company’s policy is to release material stranded tax

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

Revenue Recognition

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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

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Notes to Consolidated Financial Statements

Summary of Significant Accounting Policies--Specific to Production of Oil and Natural Gas Reserves Operations

Use of Estimates

Significant items subject to estimates and assumptions include, the proved oil, and natural gas and NGL reserves used in the

valuation of oil and gas properties, asset retirement obligations, fair value of derivatives and revenue accruals.

It is possible these estimates could be revised in the near term and these revisions could be material.

The Company’s estimates of oil, natural gas and NGL reserves are, by necessity, projections based on geologic and engineering

data, and there are uncertainties inherent in the interpretation of such data, as well as the projection of future rates of production.

Reserve engineering is a subjective process of estimating underground accumulations of oil, natural gas, and

NGL that are difficult to measure.

The accuracy of any reserve estimate is a function of the quality of available data, engineering and geological interpretation and judgment.

Estimates of economically recoverable oil, natural gas and NGL

reserves and future net cash flows necessarily depend upon a number of variable factors and assumptions, such as historical production from the area compared with production from other producing areas, the assumed effect of regulations by

governmental agencies, and assumptions governing future oil, natural gas, and NGL prices, future operating costs, severance taxes, and workover costs, all of which may in fact vary considerably from actual results.

For these reasons, estimates

of the economically recoverable quantities of expected oil, natural gas, and NGL attributable to any particular group of properties, classifications of such reserves based on risk of recovery, and estimates of the future net cash flows may vary

substantially.

Any significant variance in the assumptions could materially affect the estimated quantity of the reserves, which could affect the carrying value of the Company’s oil, natural gas, and NGL properties and/or the rate of depletion

related to the oil, natural gas, and NGL properties.

Accounts Receivable

The Company’s oil and gas related accounts receivable primarily consists of oil, natural gas and NGL receivables and joint

interest billings to our partners for their share of expenses on projects for which we are the operator.

These balances are generated when estimating and accruing for expected oil, natural gas and NGL sales, upon receipt of oil, natural gas and

NGL sales and when our cost is cutback to our joint interest partners.

The oil and gas related accounts receivable balance is included in “Interest receivable and other assets” on the consolidated balances sheets.

Additionally, due to the creditworthiness of our purchasers, we do not have any allowance for doubtful accounts recorded and do

not expect to write off any portion of our oil and gas related accounts receivable.

Accounts Payable

The Company’s oil and gas related accounts payable balance primarily consists of trade payables owed to vendors that

provide services and equipment for the wells and assets that we operate.

The oil and gas related accounts payable balance is included in “Interest payable and other liabilities” on the consolidated balances sheets.

Revenue Recognition

recognize revenue from the sale of oil, natural gas and NGLs in the period that the performance obligations are satisfied in accordance with ASC 606.

Our performance obligations are primarily comprised of the delivery of oil, natural gas or

NGLs at a delivery point (pipeline, railcar or truck).

Each barrel of oil, MMBtu of natural gas or other unit of measure is separately identifiable and represents a distinct performance obligation to which the transaction price is allocated.

The transaction price used to recognize revenue is a function of the contract billing terms.

Revenue is invoiced, if required, by calendar month based on volumes at contractually based rates with payment typically received within 30 days of the end of the production month.

Performance obligations are satisfied at a point in time once control of the product has been

transferred to the customer through monthly delivery of oil, natural gas and NGLs.

Revenue from the sale of oil, natural gas and NGLs is included in “Other” noninterest income on the consolidated statements of comprehensive income, and taxes

assessed by governmental authorities on oil, natural gas and NGL sales are included in “Other” noninterest expense on the consolidated statements of comprehensive income.

Notes to Consolidated Financial Statements

Oil and Gas Property (Successful Efforts Method of Accounting)

The Company uses the successful efforts method of accounting for its oil and gas production activities.

Costs incurred by the Company related to the acquisition of oil and gas properties and the cost of

drilling development wells are capitalized.

Costs incurred to maintain wells and related equipment, delay rentals, lease and well operating costs are charged to expense as incurred.

Gains and losses arising from sales of production are

generally included in the consolidated statements of comprehensive income.

Capitalized acquisition costs attributable to proved oil and gas properties are depleted by formation or field using the unit-of-production method based on proved reserves.

Capitalized development costs, including asset retirement obligations,

are amortized by producing unit, based on proved developed producing reserves.

Depletion, depreciation, and amortization expense related to proved oil and gas properties was $ 3.6 million for the year ended December 31, 2023, and is included in “Other” noninterest expense on the consolidated statements of comprehensive income.

Capitalized costs are evaluated for impairment in accordance with FASB ASC Topic 360, Accounting for the Impairment or Disposal of Long-Lived Assets (ASC Topic 360), whenever events or changes in circumstances indicate that an asset’s carrying

amount may not be recoverable.

fair values of proved properties are measured using valuation techniques consistent with the income approach, converting future cash flows to a single discounted amount.

Significant inputs used to determine the fair values of proved properties

include estimates of:

(i) reserves;

(ii) future operating;

(iii) future commodity prices;

and (iv) a market-based weighted average cost of capital rate.

The underlying commodity prices embedded in the Company’s estimated cash flows are the

product of a process that begins with applicable forward curve pricing, adjusted for estimated location and quality differentials, as well as other factors that Company management believes will impact realizable prices.

determine if a depletable unit is impaired, the carrying value of the depletable unit is compared to the undiscounted future net cash flows by applying management’s estimates of future oil and gas prices to the estimated future production of

oil and gas reserves over the economic life of the property and deducting future costs.

Future net cash flows are based upon third party reservoir engineers’ estimates of proved reserves and internal management estimates for probable and

possible reserves.

For a property determined to be impaired, an impairment loss equal to the difference between the carrying value and the estimated fair value of the impaired property will be recognized.

Fair value, on a depletable unit basis,

is estimated to be the present value of the aforementioned expected future net cash flows.

Each part of this calculation is subject to a large degree of judgment, including the determination of the depletable units’ estimated reserves, future

net cash flows and fair value.

No impairment expense recorded for the year ended December 31, 2023.

There were no costs of unproved properties at December 31, 2023, and during the year ended December 31, 2023, the Company recognized no abandonment expense.

Notes to Consolidated Financial Statements

Asset Retirement Obligation

Company follows the provisions of ASC 410, Asset Retirement Obligations, which requires recognition of liabilities for retirement obligations associated with tangible long-lived assets, such as producing well sites when there is a legal

obligation associated with the retirement of such assets and the amount can be reasonably estimated.

The initial measurement of an asset retirement obligation is recorded as a liability at its fair value, with an offsetting asset retirement

cost recorded as an increase to the associated property and equipment on the consolidated balance sheet.

When the assumptions used to estimate a recorded asset retirement obligation change, a revision is recorded to both the asset retirement

obligation and the asset retirement cost.

The asset retirement cost is depreciated using a systematic and rational method similar to that used for the associated property and equipment.

The Company’s asset retirement obligations relate to the

plugging, dismantlement, removal, site reclamation and similar activities of its oil and natural gas properties.

The asset retirement obligation balance is included in “interest payable and other liabilities” on the consolidated of balance

Fair Value Measurements

derivatives are recognized on the consolidated balance sheet and are measured at fair value using mark-to-market accounting.

During 2023, the Company entered into a certain oil derivative position.

The Company primarily utilizes oil swap contracts to (i) reduce the effect of

price volatility on the commodities the Company produces and sells or consumes, and (ii) reduce commodity price risk associated with certain capital projects.

By using derivative financial instruments to economically hedge exposures to changes in commodity prices, the Company exposes itself to credit risk

and market risk.

Credit risk is the failure of the counterparty to perform under the terms of the derivative contract.

When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk.

Company is not required to post any collateral.

The Company does not receive collateral from its counterparties.

The Company does not apply hedge accounting to any of its derivative instruments as defined under accounting guidance.

The Company nets derivative assets and liabilities by commodity where legal right to such netting exists.

Therefore, the Company’s derivatives are

presented on a net basis on the consolidated balance sheets in “Interest receivable and other assets” or “Interest payable and other liabilities”.

Unrealized and realized gains or losses are recognized in “Other” noninterest income on the

consolidated statements of comprehensive income.

As of December 31, 2023, the Company has a single contract for oil swaps that settle monthly from January to December 2024.

The total notional barrels

under this contract are 63,000 barrels at a fixed swap price of $ 73.25 per barrel.

The estimated fair value of this contract utilizing future price estimates is $ 0.1 million and are included in “Interest receivable and other assets” on the consolidated balance sheets.

For the year ended December 31, 2023, the Company recognized an unrealized gain

of $ 0.1 million.

Notes to Consolidated Financial Statements

Recent Accounting Pronouncements

Standards Adopted During Current Period:

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 annual reporting periods beginning after December 15, 2021.

Additionally, a modified retrospective approach is required for

leases existing at the earliest comparative period presented.

The Company adopted this new standard on January 1, 2022, using a modified retrospective transition approach and recognized right-of-use lease assets and related lease liabilities

totaling $ 2.2 and $ 2.2

million, respectively.

The Company elected to apply certain practical adoption expedients provided under the updates whereby it did not reassess initial direct costs for any existing leases.

No cumulative-effect adjustment was recognized as the amount was not material, and the impact on our results of operations and cash flows was

also not material.

No prior periods were adjusted.

See Note (19) for the financial position impact and additional disclosures.

In March 2022, the FASB issued ASU No.

2022-02, “Financial

Instruments – Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures.” On January 1, 2023, the Company adopted ASU 2022-02, which eliminates the accounting guidance for troubled debt restructurings in Accounting

Standards Codification (“ASC”) 310-40, “Receivables -Troubled Debt Restructurings by Creditors” for entities that have adopted the current expected credit loss model introduced by ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326),

Measurement of Credit Losses on Financial Instruments.” ASU 2022-02 also requires that public business entities disclose current-period gross charge-offs by year of origination for financing receivables and net investments in leases within the

scope of Subtopic 326-20, “Financial Instruments—Credit Losses—Measured at Amortized Cost.

In June 2016, the FASB issued ASU No.

2016-13, “Financial

Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.” On January 1, 2023 the Company adopted ASU 2016-13, which replaces the incurred loss methodology with an expected loss methodology that is referred

to as the current expected credit loss (“CECL”) methodology.

The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt

It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a

lessor in accordance with Topic 842 on leases.

In addition, Accounting Standards Codification (“ASC”) 326 made changes to the accounting for purchased loans and securities with credit deterioration and available-for-sale debt securities.

The Company adopted ASC 326 using the modified retrospective

method for all financial assets measured at amortized cost and off-balance sheet credit exposures.

Operating results for periods from January 1, 2023 are presented in accordance with ASC 326 while prior period amounts continue to be reported in

accordance with previously applicable standards and the accounting policies described in our 2022 Form 10-K.

The Company recorded a net decrease to retained earnings of $ 572 ,000, gross of $ 750 ,000 net of tax of $ 178 ,000, as of January 1, 2023 for the cumulative effect of adopting ASC 326, and the impact on our results of operations and cash flows was not

The Company has not recorded an allowance for credit losses against its available-for-sale securities, as the credit risk is not material.

The following table illustrates the impact of ASC 326 on the allowance for credit losses on the Company’s loans as of January 1, 2023 (dollars in thousands).

January 1, 2023

Under ASC 326

Impact of ASC

Construction & development

1 - 4 family real estate

Commercial real estate - other

Total commercial real estate

Commercial & industrial

Allowance for credit losses on loans

Allowance for credit losses on off-balance sheet credit exposures (unfunded

commitments), see Note (6) and Note (17)

Notes to Consolidated Financial Statements

Standards Not Yet Adopted:

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326).

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.

The ASU requires a financial asset measured at amortized cost basis to be presented at the net

amount expected to be collected.

The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the

collectability of the reported amount.

The ASU requires enhanced disclosures related to the significant estimates and judgements used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s

In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.

The ASU will be effective for the Company on January 1, 2023.

believes under current assumptions the adoption will result in an immaterial change in our allowance for loan loss.

The Company is currently finalizing the execution of its implementation controls and processes, the ultimate impact of the

adoption of the ASU as of January 1, 2023 could differ from its current assumptions.

Furthermore, the ASU will necessitate that the Company establish an allowance for expected credit losses for certain debt securities and other financial

The Company expects to adopt the standard in the first quarter of 2023.

In December 2023, the FASB issued ASU No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures (“ASU

2023-09”), primarily focused on income tax disclosures regarding effective tax rates and cash income taxes paid.

ASU 2023-09 requires public business entities, on an annual basis, to disclose specific categories in the rate reconciliation and

provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income by the applicable

statutory income tax rate).

ASU 2023-09 is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company will complete an evaluation of the impact this

standard will have on its results of operations, financial position or disclosures.

In November 2023, the FASB issued ASU No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment

Disclosures (“ASU 2023-07”), which expands reportable segment disclosure requirements through enhanced disclosures about significant segment expenses.

The amendments in this update introduce a new requirement to disclose significant segment

expenses regularly provided to the chief operating decision maker, extend certain annual disclosures to interim periods, clarify that single reportable segment entities must apply Topic 280 in its entirety, permit more than one measure of segment

profit or loss to be reported under certain conditions and require disclosure of the title and position of the chief operating decision maker.

ASU 2023-07 is effective for public business entities for fiscal years beginning after December 15,

2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

The adoption of ASU 2023-07 is not expected to have a material impact on the Company’s operations, financial position or disclosures.

Legislative and Regulatory Developments

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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, 2022, the Company had two PPP loans with balances totaling $ 2.6

million, and 43 PPP loans with balances totaling $ 18.7 million as of December 31, 2021.

The Company recognized $ 219 ,000 in fee income during the

year ended December 31, 2022, with $ 50,000 remaining to be recognized, as compared to $ 2.3 million recognized and $ 269,000 to be recognized as of

December 31, 2021.

As of December 31, 2023, the Company had one PPP loan with balances totaling $ 2.0

million, and two PPP loans with balances totaling $ 2.6 million as of December 31, 2022.

The Company recognized $ 50 ,000 in fee

income during the year ended December 31, 2023, with $ 0 remaining to be recognized, as compared to $ 219 ,000 recognized and $ 50 ,000 to be

recognized as of December 31, 2022.

Company evaluated subsequent events through the date the consolidated financial statements were issued.

There were no subsequent events requiring recognition or disclosure.

Notes to Consolidated Financial Statements

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

(in thousands)

Estimated Fair Value

(in thousands)

Assets Acquired

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Consideration transferred

Goodwill increased $ 124 ,000

for the twelve months ended December 31, 2022, respectively, related to the resolution of contractual obligations, assessment of the fair value of premises and equipment, and tax provision adjustments.

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 date.

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.

Goodwill decreased $ 146 ,000

for the year ended December 31, 2023 related to tax provision adjustments.

As of the acquisition

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is $ 48.4 million.

million gross loans less $ 743,000 discount).

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

life of the loans using a constant yield method.

Upon acquisition, the fair values of assets

acquired and liabilities assumed were preliminary and based on valuation estimates and assumptions.

The 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 were 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.

Adjustments to our estimates of purchase price allocation were made in the periods in which the

adjustments were determined, and the cumulative effect of such adjustments were calculated as if the adjustments had been completed as of the acquisition date.

As we are now outside of the measurement periods, no further adjustments will be

Notes to Consolidated Financial Statements

Summary of Unaudited Pro Forma Information

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Actual from Acquisition

December 31, 2021

Pro-Forma for Year Ended December 31,

December 31, 2021

Net interest income

1 unchanged sentence

Pro-forma earnings per share:

Subsequent Events

The Company evaluated subsequent events through the date the consolidated financial statements were issued.

There were no

subsequent events requiring recognition or disclosure.

On October 31, 2023, the Company entered into an asset purchase and sale agreement, effective September 1, 2023 , to acquire proven oil and natural gas properties from HB2 Origination, LLC, which consisted of nine wells in formations in four

counties in Texas for $ 15.4 million in cash.

On November 17, 2023, the transaction closed for a total purchase price of $ 15.1 million, after closing adjustments.

As a part of the purchase, the Company assumed asset retirement obligations of $ 0.4 million that were included in “interest payable and other liabilities” on the consolidated balance sheets as of December 31, 2023.

The acquisition

was considered an asset acquisition and did not meet the definition of a business under ASC 805, Business Combinations.

Additionally, transaction costs of $ 1.4

million were capitalized into oil and gas properties related to this acquisition.

The purchase price and related asset retirement obligations were allocated based on the relative fair values of the assets acquired and $ 1.7 million was allocated to proved leasehold costs while the remaining $ 15.4 million was allocated to “interest receivable and other assets” on the consolidated balance sheets.

As of December 31, 2023, the Company had oil and gas assets and related receivables of $ 16.8 million included in “interest receivable and other assets” on the consolidated balance sheets, assets retirement obligations and oil and gas

related liabilities of $ 1.3 million included in “interest payable and other liabilities” on the consolidated balance sheets, oil and gas

related revenues of $ 6.0 million included in “Other” noninterest income on the consolidated statements of comprehensive income, and oil

and gas related expenses of $ 4.8 million included in “Other” noninterest expense on the consolidated statements of comprehensive income.

Notes to Consolidated Financial Statements

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Earnings per common share

The following have not been included in diluted earnings per share because to do so would have been antidilutive for the periods presented:

Nonqualified stock

options outstanding of 5,000 , 264,000 , and 185,250 as of December 31, 2022, 2021, and 2020,

respectively;

The following have not been included in diluted earnings per share because to do so would have been antidilutive for the periods

Nonqualified stock options outstanding of 5,000 , 5,000 , and 264,000 as of December 31, 2023,

2022, and 2021, respectively;

Restricted stock units outstanding of 156,186 , 0 , and 0 as of December 31, 2023, 2022, and

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Total debt securities

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

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.

(2) Included in mortgage-backed securities is

$ 27.90 million of residential mortgage-backed securities and $ 15.05 million of commerical mortgage-backed securities.

in amortized cost of mortgage-backed securities is $ 24.80 million and $ 27.90 million of residential mortgage-backed securities and $ 13.67 million and $ 15.05 million of commercial mortgage-backed securities as of December 31,

2023 and December 31, 2022, respectively .

Notes to Consolidated Financial Statements

19 unchanged sentences

Total available-for-sale

There were no holdings of securities of any issuer in

an amount greater than 10% of stockholders equity at December 31, 2022.

The following table presents a summary of realized gains and losses from the sale, prepayment and call of debt securities for the twelve months ended December 31,

2022 and December 31, 2021.

December 31, 2022

There was one holding of securities of issuers in an

amount greater than 10% of stockholders equity at December 31, 2023, a

Treasury note with a fair value of $ 99.32 million .

The following table presents a summary of realized gains and losses from the sale, prepayment and call of debt securities for the year ended December 31, 2023 and

December 31, 2022.

(in thousands)

Proceeds from sales, prepayments and calls

Proceeds from sales, maturities, prepayments and calls

Gross realized gains on sales, prepayments and calls

2 unchanged sentences

The following table details book value of pledged securities as of December 31, 2023:

Year Ended December 31,

(in thousands)

35 unchanged sentences

Total available-for-sale

(1) Of our state and political subdivisions securities $ 25.02 million are rate BBB+ or better and $ 3.34 million are not rated.

Of our state and political subdivision securities , $ 22.84 million and $ 25.02 million are rated BBB+ or better and $ 3.02 million and $ 3.34

million are not rated as of December 31, 2023 and December 31, 2022, respectively .

Notes to Consolidated Financial Statements

6 unchanged sentences

Commercial & industrial

Less allowance for loan losses

Less allowance for credit losses

Less deferred loan fees

Included in the

commercial & industrial loan balance at December 31, 2022 and December 31, 2021, are $ 2.6 million and $ 18.7 million of loans that were originated under the SBA PPP program, respectively.

commercial & industrial loan balances are $ 2.0 million and $ 2.6 million of loans that were originated under the SBA PPP program as of December 31, 2023 and December 31, 2022, respectively.

Notes to Consolidated Financial Statements

On January 1,

2023, the Company adopted ASU 2016-13, which replaces the incurred loss methodology for determining its provision for credit losses and allowance for credit losses with an expected loss methodology that is referred to as the CECL model.

Note (1) for additional information regarding the factors that influenced the Company’s current estimate of expected credit losses.

Upon adoption, the allowance for credit losses was increased by $ 250 ,000 and $ 500 ,000 for loans and unfunded commitments,

respectively, with no impact to the consolidated statement of income.

Subsequent to the adoption of ASU 2016-13, the Company recorded a $ 21.2

million and ($ 36 ,000) provision for credit losses related to loans and unfunded commitments, respectively, for the twelve months

of 2023 utilizing the newly adopted CECL methodology.

The following table presents, by portfolio segment, the

activity in the allowance for loan losses for the years ended December 31, 2022, 2021, and 2020 (dollars in thousands):

activity in the allowance for credit losses for the years ended December 31, 2023 and 2022 (dollars in thousands):

Construction &

2 unchanged sentences

Balance, beginning of period

Impact of CECL adoption

Net (charge-offs) recoveries

Provision (credit) for loan losses

Provision (credit) for credit losses

Balance, end of period

Construction &

Real Estate -

December 31, 2021

Unfunded Commitments

Balance, beginning of period

Net (charge-offs) recoveries

Provision (credit) for loan losses

Impact of CECL adoption

Provision (credit) for credit losses

Balance, end of period

Total Allowance for Credit Losses

Total Provision for Credit Losses

Construction &

3 unchanged sentences

Net (charge-offs) recoveries

Provision (credit) for loan losses

Provision (credit) for credit losses

Balance, end of period

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, 2022 and December 31, 2021 (dollars in thousands):

Construction &

Real Estate -

December 31, 2022

Allowance Balance

Ending balance

Individually evaluated for impairment

Collectively evaluated for impairment

Ending balance

Individually evaluated for impairment

Collectively evaluated for impairment

December 31, 2021

Allowance Balance

Ending balance

Individually evaluated for impairment

Collectively evaluated for impairment

Ending balance

Individually evaluated for impairment

Collectively evaluated for impairment

Notes to Consolidated Financial Statements

Internal Risk Categories

52 unchanged sentences

Notes to Consolidated Financial Statements

The following table presents the credit risk profile of

the Company’s loan portfolio based on internal rating category as of December 31, 2022 and December 31, 2021 (dollars in thousands):

Construction &

Real Estate -

December 31, 2022

The following table presents the amortized cost of the Company’s loan portfolio with the gross charge-offs for the twelve months ended by year of origination based on

internal rating category as of December 31, 2023 (dollars in

As of December 31, 2023

Construction & development

3 (Special Mention)

4 (Substandard)

Total construction & development

Current-period gross charge-offs

1 - 4 family real estate

3 (Special Mention)

4 (Substandard)

Total 1 - 4 family real estate

Current-period gross charge-offs

Commercial real estate - other

3 (Special Mention)

4 (Substandard)

Total Commercial real estate - other

Current-period gross charge-offs

Commercial and industrial

3 (Special Mention)

4 (Substandard)

Total Commercial and industrial

Current-period gross charge-offs

3 (Special Mention)

4 (Substandard)

Total agriculural

Current-period gross charge-offs

3 (Special Mention)

4 (Substandard)

Total consumer

Current-period gross charge-offs

Total loans held for investment

Total current-period gross charge-offs

Notes to Consolidated Financial Statements

The following table presents the credit risk profile of

the Company’s loan portfolio based on internal rating category, prior to the adoption of ASU 2016-13, as of December 31, 2022 (dollars in thousands):

Construction &

3 unchanged sentences

4 (Substandard)

Notes to Consolidated Financial Statements

Aged Analysis of Past Due Loans

The following table presents the Company’s loan portfolio aging analysis of the recorded investment in loans as of December 31, 2023 and December 31, 2022 (dollars in thousands):

4 unchanged sentences

Commercial & industrial (1)

(1) The $ 9.92

million that is greater than 90 days past due consists of a single loan that is well collateralized and for which collection is being diligently pursued.

December 31, 2022

3 unchanged sentences

Commercial & industrial (1)

The following table presents impaired loans as of December 31, 2022 and December 31, 2021 (dollars in thousands):

The $ 9.95 m illi on

and $ 9.92 million that is greater than 90 days past due as of December 31, 2023 and December 31, 2022, respectively, primarily consists of a single borrower that is well collateralized and for which collection is being diligently pursued .

The $ 80 ,000 that is greater than 90 days past due as of December 31, 2023, consists of a single borrower that is well secured and for which

collection is being diligently pursued.

Notes to Consolidated Financial Statements

Nonaccrual Loans

The following table presents information regarding nonaccrual loans as of December 31 , 2023 (dollars in thousand s):

December 31, 2023

3 unchanged sentences

Commercial & industrial

The following table presents impaired loans, prior to the adoption of ASU 2016-13, as of December 31, 2022 (dollars in thousands):

December 31, 2022

4 unchanged sentences

Notes to Consolidated Financial Statements

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.

certain loan categories in the impaired loans are troubled debt restructurings that were classified as impaired.

At December 31, 2022, the Company had $ 1.2 million of commercial real estate loans, compared to $ 1.4 million of

commercial real estate loans that were classified as troubled-debt restructurings and impaired as of December 31, 2021.

There were no

newly modified troubled-debt restructurings during the year ended December 31, 2022.

There were no troubled-debt restructurings modified in the past twelve months that subsequently defaulted for the year ended December 31, 2022.

The following table represents information regarding nonperforming assets at December 31, 2022 and December 31, 2021 (dollars in thousands):

Construction &

Real Estate -

Collateral Dependent Loans

A loan is considered collateral-dependent when the

borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral.

During the nine months ended December 31, 2023, no material amount of interest income was

recognized on collateral-dependent loans subsequent to their classification as collateral-dependent.

At a minimum, the estimated value of the collateral for loan equals the current book value.

The following table summarizes collateral-dependent

gross loans held for investment by collateral type and the related specific allocation as follows (dollars in thousands):

Collateral Type

December 31, 2023

Nonaccrual loans

Construction & development

1 - 4 Family Real Estate

Commercial Real Estate - other

Commercial & industrial

Loan Modifications to Troubled Borrowers

As part of the Company’s ongoing risk management

practices, the Company attempts to work with borrowers when necessary to extend or modify loan terms to better align with their current ability to repay.

Modifications could include extension of the maturity date, reductions of the interest

rate, reduction or forgiveness of accrued interest, or principal forgiveness.

Combinations of these modifications may also be made for individual loans.

Extensions and modifications to loans are made in accordance with internal policies and

guidelines which conform to regulatory guidance.

Principal reductions may be made in limited circumstances, typically for specific commercial loan workouts, and in the event of borrower bankruptcy.

Each occurrence is unique to the borrower

and is evaluated separately.

Troubled loans are considered those in which the

borrower is experiencing financial difficulty.

The assessment of whether a borrower is experiencing financial difficulty can be subjective in nature and management’s judgment may be required in making this determination.

The Company may

determine that a borrower is experiencing financial difficulty if the borrower is currently in default on any of its debt, or if it is probable that a borrower may default in the foreseeable future absent a modification.

Many aspects of a

borrower’s financial situation are assessed when determining whether they are experiencing financial difficulty.

Notes to Consolidated Financial Statements

Modifications to Borrowers Experiencing Financial

The following tables present the amortized cost basis

at the end of the reporting period of loans modified to borrowers experiencing financial difficulty, disaggregated by class of financing receivable and type of modification made, as well as the financial effect of the modifications made as

of December 31, 2023:

Term Extension and Payment Deferral

Amortized Cost Basis

% of Total Class

Financial Effect

December 31, 2023

Construction & development

1 - 4 Family Real Estate

Commercial Real Estate - other

Commercial & industrial

Extended the maturity of loan by four months , and payment of principal and interest

deferred until the sale of collateral

The Company closely monitors the performance of the

loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts.

The following table depicts the performance of loans

that have been modified in the last 12 months:

30-89 Days Past Due

90+ Days Past Due

December 31, 2023

Construction & development

1 - 4 Family Real Estate

Commercial Real Estate - other

Commercial & industrial

Notes to Consolidated Financial Statements

Troubled Debt Restructurings

Accruing loans 90 or more days past due

Total nonperforming loans

(Prior to the adoption of ASU 2022-02)

Impaired loans included nonperforming loans and also included loans modified in troubled-debt restructurings where concessions had 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

certain loan categories in the impaired loans were troubled debt restructurings that were classified as impaired.

At December 31, 2022, the Company had $ 1.2 million of commercial real estate loans.

There were no newly

modified troubled-debt restructurings during the year ended December 31, 2022.

December 31, 2022, there were no troubled-debt restructurings modified and subsequently defaulted for the year ended December

The following table represents information regarding nonperforming assets at December 31, 2022 (dollars in thousands):

Construction &

5 unchanged sentences

Total nonperforming loans

(1) $ 1.2 million of TDRs as of December 31, 2022 and $ 1.4

million as of December 31, 2021, are included in the nonaccrual loans balance.

(1) $ 1.2 million of TDRs as of December 31, 2022, are included in the nonaccrual loans balance.

Notes to Consolidated Financial Statements

7 unchanged sentences

The following is a summary of goodwill and intangible assets (dollars in thousands):

Gross Carrying Amount

Accumulated Amortization

1 unchanged sentence

Core deposit intangibles

Gross Carrying Amount

Accumulated Amortization

10 unchanged sentences

Interest-Bearing Deposits

Interest-bearing time deposits in denominations of $250,000 or more were $ 42.6 million and $ 45.9 million at December 31, 2022 and 2021, respectively.

The aggregate amount of interest-bearing time deposits in denominations that meet or exceed the insured limit were $ 88.1 million and $ 42.6 million at

December 31, 2023 and 2022, respectively.

At December 31, 2023, the scheduled maturities of interest-bearing time deposits were as follows (dollars in thousands):

As of December 31, 2022, 2021, and 2020 brokered deposits were $ 261.3 million, $ 273.8 million, and $ 427.0 million , respectively, of

these $ 261.3 million, $ 273.8

million, and $ 427.0 million , respectively, were reciprocal deposits .

The (benefit)/provision for

income taxes for the years ended December 31, 2022, 2021 and 2020 consists of the following (dollars in thousands):

(benefit)/provision for income taxes for the years ended December 31, 2023, 2022 and 2021 consists of the following (dollars in thousands):

Year Ended December 31,

12 unchanged sentences

Provision for income taxes

Deferred tax assets

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

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

Year Ended December 31,

14 unchanged sentences

Right of Use Asset

Net unrealized gains on securities available for sale

Total deferred tax liabilities

14 unchanged sentences

which the change in judgment occurs.

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

For the Year Ended December 31,

Balance at beginning of year

Additions for positions taken in prior years

Reductions for positions taken in prior years

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, 2022, 2021, and 2020.

There were no uncertain tax positions as of December 31, 2023 and 2022, and there were no interest or penalties related to uncertain tax positions reflected in the consolidated statements of income for the years ended December 31,

2023, 2022, and 2021.

Notes to Consolidated Financial Statements

3 unchanged sentences

Outstanding letters of credit to secure these public funds at December 31, 2023 and 2022 were $ 400,000 and $ 800,000 , respectively.

Loans with a collateral value of

approximately $ 130.0 million and $ 78.7

million were used to secure the letters of credit at December 31, 2022 and 2021, respectively.

Loans with a collateral

value of approximately $ 159.6 million and $ 130.0 million were used to secure the letters of credit at December 31, 2023 and 2022, respectively.

Advances and Borrowings

The Bank has a blanket floating lien security agreement with a maximum borrowing capacity of $ 129.2 million at December 31, 2022, 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 $ 159.2 million and $ 129.2 million at December 31, 2023

December 31, 2022, respectively, 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, 2023 or 2022.

Shareholders’ Equity

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

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

On March 13, 2020, the Company’s Board of Directors approved a 500,000 share expansion, and on November 2, 2020, approved a 750,000 share expansion to the RP, for a total of 1,750,000 shares authorized under the RP.

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

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

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

parameters established by management.

The RP expired on October 28, 2023.

There were no share repurchases under this plan.

October 30, 2023, 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 management.

There were no repurchases as of December 31, 2023.

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

Year Ended December 31,

Number of shares repurchased

70 unchanged sentences

their affiliates (related parties) approximating $ 203,000 and $ 132,000 , respectively.

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 $ 155,000 , $ 175,000 and $ 177,000 for the years ended December 31, 2022, 2021 and 2020,

respectively.

The Bank leases office and retail banking space in Oklahoma City and Woodward, Oklahoma from Central Park on Lincoln, LLC and Haines Realty

Investments Company, LLC, respectively, both related parties of the Company.

Lease expense totaled $ 251,000 , $ 155,000 and $ 175,000 for the years

ended December 31, 2023, 2022 and 2021, respectively.

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

18 unchanged sentences

shares available for future grants as of December 31, 2023.

The Company grants to employees and directors restricted stock units (RSUs) which vest ratably over either three or five years and stock

options which vest ratably over four years .

All RSUs and stock options are granted at the fair value of the common stock at the

time of the award.

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

The Company grants to employees and directors restricted stock units (RSUs) which vest ratably over one , three , four , five , or eight years and stock options which vest ratably over four years .

All RSUs and stock options are granted at the fair value of the common stock at the time of the award.

The RSUs are considered fixed awards as the number of shares and fair value are known at the date of grant and the fair value at the grant

date is amortized over the vesting and/or service period.

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

Notes to Consolidated Financial Statements

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

21 unchanged sentences

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:

For the Year Ended

computing stock-based compensation expense under the fair value method on options granted during the year ended December 31, 2022, there were no

options granted during the year ended December 2023:

Risk-free interest rate

2 unchanged sentences

Expected term

Notes to Consolidated Financial Statements

The following table summarizes share information about RSUs for the years ended December 31, 2023 and 2022:

Number of Shares

Year Ended December 31, 2023

4 unchanged sentences

End of the period balance

Number of Shares

Year Ended December 31, 2022

7 unchanged sentences

unvested and/or unexercised stock options.

The stock option expense is expected to be recognized over a weighted average period of 2.05

years, and the RSU expense is expected to be recognized over a weighted average period of 2.32 years.

The RSU expense is expected to be recognized over a weighted average period of 3.85

years, the stock option expense is expected to be recognized over a weighted average period of 1.29 years.

Notes to Consolidated Financial Statements

23 unchanged sentences

Impaired loans (collateral- dependent)

Asset retirement obligations

December 31, 2022

Impaired loans (collateral- dependent)

Notes to Consolidated Financial Statements

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and

2 unchanged sentences

the reported fair value is described below.

Notes to Consolidated Financial Statements

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

14 unchanged sentences

Collateral-dependent impaired loans

Appraisals from comparable properties

Estimated cash to be received pending resolution

of bankruptcy proceedings

Estimated cost to sell

Asset retirement obligaions

Expected present value

Plugging and abandonment expense

December 31, 2022

Collateral-dependent impaired loans

Appraisals from comparable properties

Appraisals from comparable assets

Estimated cost to sell

Notes to Consolidated Financial Statements

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 :

following table presents estimated fair values of the Company’s financial instruments not recorded at fair value at December 31, 2023 and December 31, 2022 (dollars in thousands):

Fair Value Measurements

6 unchanged sentences

Nonmarketable equity securities

Interest receivable

Interest receivable and other assets

Financial Liabilities

Interest payable

Interest payable and other liabilities

December 31, 2022

1 unchanged sentence

Cash and due from banks

Federal funds sold

Interest-bearing time deposits in other banks

Loans, net of allowance

Loans held for sale

Nonmarketable equity securities

22 unchanged sentences

31, 2023 or December 31, 2022.

Interest Receivable and Other Assets

Interest receivable and other assets

include prepaid expenses, right-of-use lease assets, interest receivable on loans, deferred tax assets, and oil and gas related assets.

For prepaid expense, right-of-use lease assets, deferred tax assets, and interest receivable on loans the

carrying amount approximates fair value.

For the determination of fair value of oil and gas assets, see discussion in Note 1, Summary of Significant Accounting Policies--Specific to Production of Oil and Natural Gas Reserves Operations.

Interest Payable and Other Liabilities

Interest payable

and other liabilities include unfunded commitment liabilities, lease liabilities, interest payable on deposits,dividends payable, other accrued liabilities, and oil and gas related liabilities.

For unfunded commitment liabilities, lease

liabilities, interest payable on deposits, dividends payable, and other accrued liabilities carrying amount approximates fair value.For the determination of fair value of oil and gas liabilities, see discussion in Note 1, Summary of Significant Accounting Policies--Specific to Production of Oil and Natural Gas Reserves Operations .

Notes to Consolidated Financial Statements

18 unchanged sentences

essentially the same as that involved in extending loan facilities to customers.

On January 1, 2023, the Company adopted ASU 2016-13, see Note (1) and Note (6).

Upon adoption, the Company estimated an allowance for credit

losses on off-balance sheet credit exposures, which resulted in recording a reserve for unfunded loan commitments of $ 500 ,000.

reserve for unfunded loan commitments totaled $ 464 ,000 and $ 0 at December 31, 2023 and December 31, 2022, respectively.

Significant Estimates and Concentrations

29 unchanged sentences

Notes to Consolidated Financial Statements

Parent-only Financial Statements (dollars in thousands)

Asset Retirement Obligation

Asset retirement obligations (“ARO”) relate to our obligation for the plugging and abandonment of oil and natural gas properties.

The ARO is recorded at

fair value and accretion expense, recognized over the life of the property, increases the liability to its expected settlement value.

Accretion expense is included within “Other” noninterest expense of the consolidated statements of comprehensive

income and consolidated statements of cash flows.

If the fair value of the estimated ARO changes, an adjustment is recorded for both the ARO and the asset retirement cost.

following table is a reconciliation of changes in the Company’s asset retirement obligations for the periods ended December 31, 2023:

Asset retirement obligations as of January 1, 2023

Liability additions

Accretion expense

Asset retirement obligations as of December 31, 2023

The fair value of the ARO is measured using expected future cash outflows discounted at the Company’s credit-adjusted risk-free interest rate.

value, to the extent possible, includes a market risk premium for unforeseeable circumstances.

Inherent in the fair value calculation of the ARO are numerous assumptions and judgments including the ultimate settlement amounts, inflation factors,

credit adjusted discount rates, timing of settlement, and changes in the legal, regulatory, environmental, and political environments.

To the extent future revisions to these assumptions impact the fair value of the existing ARO liability, a

corresponding adjustment is made to the oil and gas property balance.

General Litigation

The Company is involved in the later stages of a process related to a loan customer that filed for bankruptcy in the third quarter of 2023.

that process, one of the parties involved has also filed a separate lawsuit that is also being adjudicated by the bankruptcy court.

of December 31, 2023, the Company has recorded a specific reserve related to the loans with this customer, included in the allowance for credit losses.

As of the date of the financial statements, management believes the specific reserve for these

loans is sufficient to cover the remaining costs related to the bankruptcy process and related litigation.

Notes to Consolidated Financial Statements

Parent-only Financial Statements

Condensed Balance Sheets

15 unchanged sentences

Income before Taxes

Income tax expense

Net Income Available to Common Shareholders

22 unchanged sentences

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