What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-05 compared with 2024-08-08 · 216 added, 186 removed, 446 unchanged (47% of the section changed)

Management’s Discussion and

Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included

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

Through our wholly-owned subsidiary, Bank7, we operate twelve locations in Oklahoma, the Dallas/Fort Worth, Texas metropolitan area

Through our wholly-owned subsidiary, Bank7, we operate twelve locations in Oklahoma, the Dallas/Fort Worth, Texas metropolitan

area and Kansas.

We are focused on serving business owners and entrepreneurs by delivering fast, consistent and well-designed loan and deposit products to meet their financing needs.

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As a bank holding company, we generate most of our revenue from interest income on loans and from short-term investments.

The primary source of funding for our

loans and short-term investments are deposits held by our subsidiary, Bank7.

We measure our performance by our return on average equity, earnings per share, capital ratios, efficiency ratio (calculated by dividing noninterest expense by the sum of

net interest income on a tax equivalent basis) and noninterest income.

The primary source of funding for

our loans and short-term investments are deposits held by our subsidiary, Bank7.

We measure our performance by our return on average equity, earnings per share, capital ratios, efficiency ratio (calculated by dividing noninterest expense by the

sum of net interest income on a tax equivalent basis) and noninterest income.

Q3 2024 Overview

We reported total loans of $1.35 billion as of June 30, 2024, an increase of $75.8 million, or 5.9%, from June 30, 2023.

Total deposits were $1.48 billion as of June 30, 2024, a decrease of $26.9 million, or 1.8%, as

compared to June 30, 2023.

Pre-tax net income was $15.3 million, an increase of $2.4 million, or 18.2%, for the three months ended June 30, 2024 as compared to pre-tax net income of $12.9 million for the same period in 2023.

income was $30.1 million, an increase of $4.7 million, or 18.4%, for the six months ended June 30, 2024 as compared to pre-tax net income of $25.5 million for the same period in 2023

Return on average assets and return on average equity was 2.74% and 25.02%, respectively for the three months ended June 30, 2024, as compared to 2.36% and 24.75%, respectively, for the same period in 2023.

average assets and return on average equity was 2.66% and 25.41%, respectively for the six months ended June 30, 2024, as compared to 2.39% and 25.42%, respectively, for the same period in 2023.

Our efficiency ratio for the three months ended June

30, 2024 was 37.72% as compared to 34.28% for the same period in 2023.

Our efficiency ratio for the six months ended June 30, 2024 was 37.63% as compared to 35.62% for the same period in 2023.

The provision for credit losses for the three months ended June 30, 2024 decreased $1.0 million, or 100.0%, as compared to the same period in 2023.

The provision for credit losses for the six months ended June 30, 2024 decreased $1.5 million or

100.0%, as compared to the same period in 2023.

The provision expense for the six months ended June 30, 2023 was related to loans and reflected loan growth in the first quarter of 2023, as well as the impact of updated economic assumptions.

We reported total loans of $1.44 billion as of September 30, 2024, an increase of $44.8 million, or 3.2%, from September 30, 2023.

Total deposits were $1.52 billion as of September 30, 2024, a decrease of $69.4

million, or 4.4%, as compared to September 30, 2023.

Pre-tax net income was $15.5 million, an increase of $5.3 million, or 51.9%, for the three months ended September 30, 2024 as compared to pre-tax net income of $10.2 million for the same period in 2023.

net income was $45.6 million, an increase of $10.0 million, or 28.0%, for the nine months ended September 30, 2024 as compared to pre-tax net income of $35.7 million for the same period in 2023.

Return on average assets and return on average equity was 2.73% and 23.67%, respectively for the three months ended September 30, 2024, as compared to 1.82% and 18.89%, respectively, for the same period in 2023.

Return on average assets and return on average equity was 2.68% and 24.79%, respectively for the nine months ended September 30, 2024, as compared to 2.19% and 23.29%, respectively, for the same period in 2023.

Our efficiency ratio for the three

months ended September 30, 2024 was 37.87% as compared to 33.61% for the same period in 2023.

Our efficiency ratio for the nine months ended September 30, 2024 was 37.58% as compared to 35.05% for the same period in 2023.

The provision for credit losses for the three months ended September 30, 2024 decreased $4.2 million, or 100.0%, as compared to the same period in 2023.

The provision for credit losses for the nine months ended

September 30, 2024 decreased $5.6 million or 100.0%, as compared to the same period in 2023.

The provision expense for the nine months ended September 30, 2023 was related to loan growth in the first quarter of 2023, the impact of updated

economic assumptions, and we had a single loan customer that filed for bankruptcy, and as a result, we recorded an additional allowance for credit losses of $3.0 million.

Results of Operations

Three Months Ended June 30, 2024 and June 30, 2023

Three Months Ended September 30, 2024 and September 30, 2023

Net Interest Income and Net Interest Margin.

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Net Interest Margin

For the Three Months Ended June 30,

For the Three Months Ended September 30,

(Dollars in thousands)

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Net interest margin

Taxable-equivalent yield of 2.19% as of June 30, 2024, applying a 24.5% effective tax rate

Average loan balances include monthly average nonaccrual loans of $11.8 million and $7.3 million as of June 30, 2024 and June 30, 2023, respectively, are included in loans.

For the second quarter of 2024 compared to the second quarter of 2023:

Taxable-equivalent yield of 2.13% as of September 30, 2024, applying a 24.0% effective tax rate

Average loan balances include monthly average nonaccrual loans of $7.4 million and $41.2 million as of September 30, 2024 and September 30, 2023, respectively, are included in loans.

For the third quarter of 2024 compared to the third quarter of 2023:

Interest income on total loans totaled $30.8 million, an increase of $1.9 million or 6.6%, due to an increase in average loans of $74.5 million, or 5.5%, and increased loan yields as discussed below;

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yield on taxable debt securities of 52 basis points;

Net interest margin for the second quarter of 2024 was 5.15% compared to 5.04% for the second quarter of 2023.

Net interest margin for the third quarter of 2024 was 5.02% compared to 4.87% for the third quarter of 2023.

Net Interest Margin

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

(Dollars in thousands)

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Net interest margin

Taxable-equivalent yield of 2.15% as of June 30, 2024, applying a 24.3% effective tax rate

Average loan balances include monthly average nonaccrual loans of $17.2 million and $7.3 million as of June 30, 2024 and June 30, 2023, respectively, are included in loans.

For the first six months of 2024 compared to the same period in 2023:

Taxable-equivalent yield of 2.15% as of September 30, 2024, applying a 24.2% effective tax rate

Average loan balances include monthly average nonaccrual loans of $13.9 million and $41.2 million as of September 30, 2024 and September 30, 2023, respectively, are included in loans.

For the first nine months of 2024 compared to the same period in 2023:

Interest income on total loans totaled $89.8 million, an increase of $8.7 million or 10.7%, due to an increase in average loans of $81.4 million, or 6.3%, and increased loan yields as discussed below;

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yield on taxable debt securities of 108 basis points;

Net interest margin for the second quarter of 2024 was 5.15% compared to 5.09% for the second quarter of 2023.

Increases and decreases in interest income and interest expense result from changes in average balances, or volume, of interest-earning assets and interest-bearing liabilities, as well as changes in average interest

Net interest margin for the first nine months of 2024 was 5.10% compared to 5.01% for the same period in 2023.

Cost of total interest-bearing deposits totaled 4.10%, an increase of 62 basis points which was attributable to higher interest rates on transaction accounts of 58 basis points and higher interest rates on time deposits accounts of 79

basis points.

interest rates.

The following tables set forth the effects of changing rates and volumes on our net interest income during the period shown.

Information is provided with respect to (i) effects on interest income attributable to changes in volume (change in

volume multiplied by prior rate) and (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume).

Information is provided with respect to (i) effects on interest income attributable to changes in volume

(change in volume multiplied by prior rate) and (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume).

Analysis of Changes in Interest Income and Expenses

For the Three Months Ended

June 30, 2024 vs 2023

September 30, 2024 vs 2023

Change due to:

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Analysis of Changes in Interest Income and Expenses

For the Six Months Ended

June 30, 2024 vs 2023

For the Nine Months Ended

September 30, 2024 vs 2023

Change due to:

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Our investment portfolio consists entirely of securities classified as available-for-sale.

As a result, the carrying values of our investment securities are adjusted for unrealized gain or loss, and any gain or loss

is reported on an after-tax basis as a component of other comprehensive income in shareholders’ equity.

As a result, the carrying values of our investment securities are adjusted for unrealized gain or loss, and any gain or

loss is reported on an after-tax basis as a component of other comprehensive income in shareholders’ equity.

We evaluate our available-for-sale securities portfolio on a quarterly basis for potential credit-related losses.

We assess potential credit losses by comparing the fair value of a debt security to its amortized cost

We assess potential credit losses by comparing the fair value of a debt security to its amortized

If the fair value of a debt security is greater than the amortized cost basis, no allowance for credit losses is recognized.

If the fair value is less than the amortized cost basis, we review the factors to determine if the impairment is

credit-related or noncredit-related.

For debt securities we intend to sell or are 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 we do not intend to sell or are 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 income.

The following table summarizes the maturity distribution schedule with corresponding weighted average taxable equivalent yields of the debt securities portfolio at June 30,

If the fair value is less than the amortized cost basis, we review the factors to determine if the

impairment is credit-related or noncredit-related.

For debt securities we intend to sell or are 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.

earnings, with a corresponding entry to an allowance for credit losses, and the noncredit portion is recognized through accumulated other comprehensive income.

The following table summarizes the maturity distribution schedule with corresponding weighted average taxable equivalent yields of the debt securities portfolio at

September 30, 2024.

The following table presents securities at their expected maturities, which may differ from contractual maturities.

The Company manages its debt securities portfolio for liquidity, as a tool to execute its asset/liability management strategy,

and for pledging requirements for public funds:

As of June 30, 2024

Within One Year

The Company manages its debt securities portfolio for liquidity, as a tool to execute its asset/liability

management strategy, and for pledging requirements for public funds:

As of September 30, 2024

After One Year But

Within Five Years

After Five Years But

Within One Year

Within Five Years

Within Ten Years

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Percentage of total

*Yield is on a taxable-equivalent basis using 21% tax rate

*Yield is on taxable-equivalent basis using 21% tax rate

Provision for Credit Losses

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delinquencies, management’s assessment of the quality of the loan portfolio, and the valuation of problems and the general economic conditions in our market areas.

For the three months ended June 30, 2024 compared to the three months ended June 30, 2023:

For the three months ended September 30, 2024 compared to the three months ended September 30, 2023:

The provision for credit losses decreased from $4.2 million to $0;

The allowance as a percentage of gross loans increased by 3 basis points to 1.31%.

For the six months ended June 30, 2024 compared to the six months ended June 30, 2023:

The allowance as a percentage of gross loans decreased by 24 basis points to 1.24%.

For the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023:

The provision for credit losses decreased from $5.6 million to $0;

The allowance as a percentage of gross loans increased by 3 basis points to 1.31%.

The allowance as a percentage of gross loans decreased by 24 basis points to 1.24%.

Noninterest Income

The following table sets forth the major components of our noninterest income for the three months ended June 30, 2024 and 2023:

The following table sets forth the major components of our noninterest income for the three months ended September 30, 2024 and 2023:

For the Three Months Ended

September 30,

(Dollars in thousands)

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Total noninterest income

Noninterest income for the three months ended June 30, 2024 was $3.2 million compared to $794,000 for the same period in 2023, an increase of $2.4 million, or 298.61%.

The increase was primarily attributable to

income related to the operation of oil and gas assets acquired during the fourth quarter of 2023, see Note 2 of the financial statements.

For the Six Months Ended

Noninterest income for the three months ended September 30, 2024 was $3.7 million compared to $1.0 million for the same period in 2023, an increase of $2.7 million, or 265.1%.

The increase was primarily

attributable to income related to the operation of oil and gas assets acquired during the fourth quarter of 2023, see Note 2 of the financial statements.

The following table sets forth the major components of our noninterest income for the nine months ended September 30, 2024 and 2023:

For the Nine Months Ended

September 30,

(Dollars in thousands)

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Total noninterest income

Noninterest income for the six months ended June 30, 2024 was $5.2 million compared to $1.5 million for the same period in 2023, an increase of $3.7 million, or 252.93%.

The increase was primarily attributable to

income related to the operation of oil and gas assets acquired during the fourth quarter of 2023, see Note 2 of the financial statements.

Noninterest income for the nine months ended September 30, 2024 was $8.9 million compared to $2.5 million for the same period in 2023, an increase of $6.4 million, or 258.1%.

The increase was primarily attributable

to income related to the operation of oil and gas assets acquired during the fourth quarter of 2023, see Note 2 of the financial statements.

Noninterest Expense

The following table sets forth the major components of our noninterest expense for the three months ended June 30, 2024 and 2023:

The following table sets forth the major components of our noninterest expense for the three months ended September 30, 2024 and 2023:

For the Three Months Ended

September 30,

(Dollars in thousands)

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Total noninterest expense

Noninterest expense for the three months ended June 30, 2024 was $9.1 million compared to $7.4 million for the same period in 2023, an increase of $1.8 million, or 23.9%.

The increase was primarily attributable to

expense related to the operation of oil and gas assets acquired during the fourth quarter of 2023, see Note 2 of the financial statements.

For the Six Months Ended

Noninterest expense for the three months ended September 30, 2024 was $9.4 million compared to $7.4 million for the same period in 2023, an increase of $2.0 million, or 27.2%.

The increase was primarily

attributable to expense related to the operation of oil and gas assets acquired during the fourth quarter of 2023, see Note 2 of the financial statements.

The following table sets forth the major components of our noninterest expense for the nine months ended September 30, 2024 and 2023:

For the Nine Months Ended

September 30,

(Dollars in thousands)

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Total noninterest expense

Noninterest expense for the six months ended June 30, 2024 was $18.3 million compared to $15.0 million for the same period in 2023, an increase of $3.3 million, or 21.6%.

The increase was primarily attributable to

expense related to the operation of oil and gas assets acquired during the fourth quarter of 2023, see Note 2 of the financial statements.

Noninterest expense for the nine months ended September 30, 2024 was $27.7 million compared to $22.4 million for the same period in 2023, an increase of $5.3 million, or 23.5%.

The increase was primarily

attributable to expense related to the operation of oil and gas assets acquired during the fourth quarter of 2023, see Note 2 of the financial statements.

Financial Condition

The following discussion of our financial condition compares June 30, 2024 and December 31, 2023.

Total assets decreased $88.8 million, or 5.0%, to $1.68 billion as of June 30, 2024, compared to $1.77 billion as of December 31, 2023.

The following discussion of our financial condition compares September 30, 2024 and December 31, 2023.

Total assets decreased $31.2 million, or 1.8%, to $1.74 billion as of September 30, 2024, compared to $1.77 billion as of December 31, 2023.

Loan Portfolio

The following table presents the balance and associated percentage of each major category in our loan portfolio as of June 30, 2024 and December 31, 2023:

As of June 30,

The following table presents the balance and associated percentage of each major category in our loan portfolio as of September 30, 2024 and December 31, 2023:

As of September 30,

As of December 31,

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Our loans represent the largest portion of our earning assets.

The quality and diversification of the loan portfolio is an important consideration when reviewing our financial

As of June 30, 2024 and December 31, 2023, our gross loans were $1.35 billion and $1.36 billion, respectively.

The quality and diversification of the loan portfolio is an important consideration when reviewing our

financial condition.

As of September 30, 2024, and December 31, 2023, our gross loans were $1.44 billion and $1.36 billion, respectively.

We have established internal concentration limits in the loan portfolio for Commercial Real Estate (CRE) loans, hospitality loans, energy loans, and construction loans, among others.

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established limits.

We use underwriting guidelines to assess each borrower’s historical cash flow to determine debt service capabilities, and we further stress test the customer’s debt service capability under higher interest rate scenarios as well

as other underlying macro-economic factors.

well as other underlying macro-economic factors.

Financial and performance covenants are used in commercial lending to allow us to react to a borrower’s deteriorating financial condition, should that occur.

The following tables show the contractual maturities of our gross loans as of the periods below:

As of June 30, 2024

Due in One Year or Less

As of September 30, 2024

Due after One Year

Through Five Years

Due after Five Years

Due in One Year or Less

Through Five Years

Through Fifteen Years

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As of December 31, 2023

Due in One Year or Less

Due after One Year

Through Five Years

Due after Five Years

Due in One Year or Less

Through Five Years

Through Fifteen Years

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While management uses available information to analyze losses on loans, future additions to the allowance may be necessary based on changes in economic conditions.

In addition, various regulatory agencies, as an integral part of

their examination process, periodically review the Company’s allowance.

In analyzing the adequacy of the allowance, a comprehensive loan grading system to determine risk potential in loans is utilized together with the results of internal credit

In addition, various regulatory agencies, as an integral part

of their examination process, periodically review the Company’s allowance.

In analyzing the adequacy of the allowance, a comprehensive loan grading system to determine risk potential in loans is utilized together with the results of internal

credit reviews.

To determine the adequacy of the allowance, the loan portfolio is broken into segments based on loan type.

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of bankruptcies, criticized and classified loan trends, expected losses on real estate secured loans, new credit products and policies, economic conditions, concentrations of credit risk and the experience and abilities of our lending personnel.

The allowance was $17.8 million at June 30, 2024, compared to $19.7 million at December 31, 2023.

The allowance was $17.9 million at September 30, 2024, compared to $19.7 million at December 31, 2023.

The following table provides an analysis of the activity in our allowance for the periods indicated:

For the Six Months Ended

For the Nine Months Ended

September 30,

(Dollars in thousands)

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category, for the periods indicated:

As of June 30,

As of September 30,

As of December 31,

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only to the extent that cash is received and the loan’s principal balance is deemed collectible.

Loans are restored to accrual status when loans become well-secured and management believes full collectability of principal and interest is probable.

Loans are restored to accrual status when loans become well-secured and management believes full collectability of principal and interest is

Real estate we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as other real estate owned, or OREO, until sold, and is initially recorded at fair value less costs to sell when

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The following table presents information regarding nonperforming assets as of the dates indicated.

As of June 30,

As of December

September 30, 2024

December 31, 2023

(Dollars in thousands)

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Ratio of nonperforming assets to total assets

(1) Includes $1.12 million of loans modified to borrowers experiencing financial difficulty, see Note 6 of the financial statements.

Included in the nonaccrual loans balance are $0 and $10.12 million of loans modified to borrows experiencing financial difficulty as of September 30, 2024 and December 31, 2023, respectively.

See Note 6 of the financial statements.

The following tables present an aging analysis of loans as of the dates indicated.

As of June 30, 2024

due and accruing

Total past due

As of September 30, 2024

Loans 30-59 days past due

Loans 60-89 days past due

Loans 90+ days past due

Loans 90+ days past due and accruing

Total past due loans

(Dollars in thousands)

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1-4 family real estate

Commercial real estate

Commercial real estate - other

Commercial & industrial

As of December 31, 2023

Loans 30-59 days past

Loans 60-89 days past

Loans 90+ days past

Loans 30-59 days past due

Loans 60-89 days past due

Loans 90+ days past due

Loans 90+ days past due and accruing

Total Past Due Loans

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1-4 family real estate

Commercial real estate

Commercial real estate - other

Commercial & industrial

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These loans generally conform to Bank policies, are characterized by policy-conforming advance rates on collateral, and have well-defined repayment sources.

these credits are extended to borrowers and guarantors with a strong balance sheet and either substantial liquidity or a reliable income history.

addition, these credits are extended to borrowers and guarantors with a strong balance sheet and either substantial liquidity or a reliable income history.

These loans are still considered “Pass” credits;

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These loans have observable weaknesses or evidence of imprudent handling or structural issues.

The weaknesses require close attention, and the remediation of

those weaknesses is necessary.

The weaknesses require close attention, and the remediation

of those weaknesses is necessary.

No risk of probable loss exists.

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These loans are not adequately protected by the sound worth and debt service capacity of the borrower, but may be well-secured.

The loans have defined weaknesses

relative to cash flow, collateral, financial condition or other factors that might jeopardize repayment of all of the principal and interest on a timely basis.

There is the possibility that a future loss will occur if weaknesses are not remediated.

The loans have defined

weaknesses relative to cash flow, collateral, financial condition or other factors that might jeopardize repayment of all of the principal and interest on a timely basis.

There is the possibility that a future loss will occur if weaknesses are

not remediated.

Outstanding loan balances categorized by internal risk grades as of the periods indicated are summarized as follows:

As of June 30, 2024

As of September 30, 2024

(Dollars in thousands)

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We gather deposits primarily through our twelve branch locations and online through our website.

We offer a variety of deposit products including demand deposit accounts and interest-bearing products, such as savings

accounts and certificates of deposit.

We put continued effort into gathering noninterest-bearing demand deposit accounts through loan production cross-selling, customer referrals, marketing efforts and various involvement with community networks.

We offer a variety of deposit products including demand deposit accounts and interest-bearing products, such as

savings accounts and certificates of deposit.

We put continued effort into gathering noninterest-bearing demand deposit accounts through loan production cross-selling, customer referrals, marketing efforts and various involvement with community

Some of our interest-bearing deposits are obtained through brokered transactions.

We participate in the CDARS and ICS programs, where customer funds are placed into multiple deposit accounts, each in an amount under the standard FDIC insurance

maximum of $250,000, and placed at a network of banks across the United States.

Total deposits as of June 30, 2024 and December 31, 2023 were $1.48 billion and $1.59 billion, respectively.

The following table sets forth deposit balances by certain categories as of the dates indicated and the

percentage of each deposit category to total deposits.

As of June 30,

We participate in the CDARS and ICS programs, where customer funds are placed into multiple deposit accounts, each in an amount under the standard FDIC

insurance maximum of $250,000, and placed at a network of banks across the United States.

Total deposits as of September 30, 2024 and December 31, 2023 were $1.52 billion and $1.59 billion, respectively.

Uninsured deposits are defined as the portion of deposit accounts in U.S.

offices that exceed the FDIC insurance limit and amounts in any other uninsured investment or deposit account that are classified as

deposits and are not subject to any federal or state deposit insurance regimes.

Total uninsured deposits were $344.6 million and $448.7 million at September 30, 2024 and December 31, 2023, respectively, as calculated per regulatory guidance.

was approximately 22.6% and 28.2% of deposits at September 30, 2024 and December 31, 2023, respectively.

The following table sets forth deposit balances by certain categories as of the dates indicated and the percentage of each deposit category to total deposits.

As of September 30,

As of December 31,

Percentage of

Percentage of Total

(Dollars in thousands)

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The following tables set forth the maturity of time deposits as of the dates indicated below:

As of June 30, 2024 Maturity Within:

As of September 30, 2024 Maturity Within:

Three to Six Months

Six to 12 Months

After 12 Months

(Dollars in thousands)

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As of December 31, 2023 Maturity Within:

Three to Six Months

Six to 12 Months

After 12 Months

(Dollars in thousands)

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Liquidity refers to our ability to meet the cash flow requirements of depositors and borrowers, while at the same time meeting our operating, capital and strategic cash flow needs, all at a reasonable cost.

We continuously monitor our liquidity

position to ensure that assets and liabilities are managed in a manner that will meet all short-term and long-term cash requirements.

We manage our liquidity position to meet the daily cash flow needs of customers, while maintaining an appropriate

balance between assets and liabilities to meet the return on investment objectives of our shareholders.

We continuously monitor our

liquidity position to ensure that assets and liabilities are managed in a manner that will meet all short-term and long-term cash requirements.

We manage our liquidity position to meet the daily cash flow needs of customers, while maintaining an

appropriate balance between assets and liabilities to meet the return on investment objectives of our shareholders.

Our liquidity position is supported by the management of liquid assets and access to alternative sources of funds.

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funds will supplement these primary sources to the extent necessary to meet additional liquidity requirements on either a short-term or long-term basis.

As of June 30, 2024, we had no unsecured fed funds lines with correspondent depository institutions, with no corresponding amounts advanced.

In addition, based on the values of loans pledged as collateral, we had borrowing availability with the

FHLB of $187.0 million as of June 30, 2024 and $159.2 million as of December 31, 2023.

As of September 30, 2024, we had no unsecured fed funds lines with correspondent depository institutions, with no corresponding amounts advanced.

In addition, based on the values of loans pledged as collateral, we had borrowing availability

with the FHLB of $192.0 million as of September 30, 2024 and $159.2 million as of December 31, 2023, and we had access to approximately $367.7 million in liquidity with the Federal Reserve Bank as of September 30, 2024 and $0 as of December 31,

Capital Requirements

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capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting policies.

The capital amounts and classifications are subject to qualitative judgments by

the federal banking regulators about components, risk weightings and other factors.

The capital amounts and classifications are subject to qualitative judgments

by the federal banking regulators about components, risk weightings and other factors.

Qualitative measures established by regulation to ensure capital adequacy require us to maintain minimum amounts and ratios of Common Equity Tier 1 (“CET1”)

capital, Tier 1 capital, total capital to risk-weighted assets, and Tier 1 capital to average consolidated assets, referred to as the “leverage ratio.”

As of June 30, 2024, the Bank was in compliance with all applicable regulatory requirements and categorized as “well-capitalized” under the prompt corrective action frame work.

There have been no

conditions or events since June 30, 2024 that management believes would change this classification.

The table below presents our applicable capital requirements, as well as our capital ratios as of June 30, 2024 and December 31, 2023.

exceeded all regulatory capital requirements and the Bank was considered to be “well-capitalized” as of the dates reflected in the tables below.

As of September 30, 2024, the Bank was in compliance with all applicable regulatory requirements and categorized as “well-capitalized” under the prompt corrective action frame work.

been no conditions or events since September 30, 2024 that management believes would change this classification.

The table below presents our applicable capital requirements, as well as our capital ratios as of September 30, 2024 and December 31,

The Company exceeded all regulatory capital requirements and the Bank was considered to be “well-capitalized” as of the dates reflected in the tables below.

Basel III Capital Rules

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organization must hold a capital conservation buffer composed of CET1 capital above its minimum risk-based capital requirements.

As of June 30, 2024, the Company and the Bank met all capital adequacy requirements under the Basel III Capital Rules.

As of September 30, 2024, the Company and the Bank met all capital adequacy requirements under the Basel III Capital

Conservation Buffer

3 unchanged sentences

(Dollars in thousands)

As of June 30, 2024

As of September 30, 2024

Total capital (to risk-weighted assets)

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Total shareholders’ equity increased

$20.5 million as of June 30, 2024 to $190.8 million, compared to $170.3 million as of December 31, 2023.

$33.8 million as of September 30, 2024 to $204.2 million, compared to $170.3 million as of December 31, 2023.

Contractual Obligations

The following tables contain supplemental information regarding our total contractual obligations as of June 30, 2024, and December 31, 2023:

Payments Due as of June 30, 2024

The following tables contain supplemental information regarding our total contractual obligations as of September 30, 2024, and December 31, 2023:

Payments Due as of September 30, 2024

Within One Year

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We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers.

These financial instruments include commitments to extend credit and

standby letters of credit.

These financial instruments include commitments to extend credit

and standby letters of credit.

Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheet.

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

Commitments generally have fixed expiration dates or other termination

clauses and may require payment of a fee.

Commitments generally have fixed expiration dates or other

termination clauses and may require payment of a fee.

Since many of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements.

2 unchanged sentences

The amount of collateral obtained, if we deemed necessary upon extension of credit, is based on management’s credit evaluation of the counterparty.

The Company also estimates a reserve for potential losses

associated with off-balance sheet commitments and letters of credit.

It is included in other liabilities in the Company’s consolidated statements of condition, with any related provisions to the reserve included in non-interest expense in the

consolidated statement of income.

The Company also estimates a reserve for potential

losses associated with off-balance sheet commitments and letters of credit.

It is included in other liabilities in the Company’s consolidated statements of condition, with any related provisions to the reserve included in non-interest expense in

the consolidated statement of income.

In determining the reserve for unfunded lending commitments, a process similar to the one used for the allowance is employed.

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The following table summarizes commitments as of the dates presented.

September 30,

(Dollars in thousands)

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These estimates, assumptions and judgments affect the amounts reported in the financial statements and accompanying notes.

These estimates, assumptions and judgments are based on information

available as of the date of the financial statements and, as this information changes, actual results could differ from the estimates, assumptions and judgments reflected in the financial statement.

In particular, management has identified several

accounting policies that, due to the estimates, assumptions and judgments inherent in those policies, are critical in understanding our financial statements.

These estimates, assumptions and judgments are based on

information available as of the date of the financial statements and, as this information changes, actual results could differ from the estimates, assumptions and judgments reflected in the financial statement.

In particular, management has

identified several accounting policies that, due to the estimates, assumptions and judgments inherent in those policies, are critical in understanding our financial statements.

The following is a discussion of the critical accounting policies and significant estimates that we believe require us to make the most complex or subjective decisions or assessments.

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addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance.

In analyzing the adequacy of the allowance, a comprehensive loan grading system to determine risk potential in loans

is utilized together with the results of internal credit reviews.

In analyzing the adequacy of the allowance, a comprehensive loan grading system to determine risk potential in

loans is utilized together with the results of internal credit reviews.

To determine the adequacy of the allowance, the loan portfolio is broken into pools based on loan type and risk characteristics.

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Other considerations include volumes and trends of delinquencies,

nonaccrual loans, levels of bankruptcies, criticized and classified loan trends, expected losses on real estate secured loans, new credit products and policies, economic conditions, concentrations of credit risk and the experience and abilities of

our lending personnel.

In addition to the pool evaluations, classified loans with a balance of $250,000 or more are individually evaluated based on facts and circumstances of the loan to determine if a specific allowance amount may be necessary.

Specific allowances may also be established for loans whose outstanding balances are below the $250,000 threshold when it is determined that the risk associated with the loan differs significantly from the risk factor amounts established for its

of our lending personnel.

established for its loan pool.

Goodwill and Intangibles

Intangible assets totaled $938,000 and goodwill, net of accumulated amortization, totaled $8.5 million as of June 30, 2024, compared to intangible assets of $1.0 million and goodwill of $8.5 million

as of December 31, 2023.

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.

Intangible assets totaled $907,000 and goodwill, net of accumulated amortization, totaled $8.5 million as of September 30, 2024, compared to intangible assets of $1.0 million and goodwill of $8.5

million as of December 31, 2023.

Goodwill resulting from a business combination represents the excess of the fair value of the consideration transferred over the fair value of the net assets acquired and liabilities assumed as of

the acquisition date.

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

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

written down to its implied fair value.

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

goodwill is written down to its implied fair value.

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

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Fair Value of Financial Instruments

ASC Topic 820, Fair Value Measurement, defines fair value as the price that would be received to sell a financial asset or paid to transfer a financial liability in an orderly transaction between market participants

at the measurement date.

participants at the measurement date.

The degree of management judgment involved in determining the fair value of assets and liabilities is dependent upon the availability of quoted market prices or observable market parameters.

For financial instruments that

trade actively and have quoted market prices or observable market parameters, there is minimal subjectivity involved in measuring fair value.

When observable market prices and parameters are not available, management judgment is necessary to

estimate fair value.

For financial

instruments that trade actively and have quoted market prices or observable market parameters, there is minimal subjectivity involved in measuring fair value.

When observable market prices and parameters are not available, management judgment is

necessary to estimate fair value.

In addition, changes in market conditions may reduce the availability of quoted prices or the observable date.

Debt securities that are being held for indefinite periods of time and are not intended to sell, are classified as available for sale and are stated at estimated fair value.

Unrealized gains or losses on debt

securities available for sale are reported as a component of stockholders’ equity and comprehensive income, net of income tax.

Debt securities that are being held for indefinite periods of time and are not intended to sell, are

classified as available for sale and are stated at estimated fair value.

Unrealized gains or losses on debt securities available for sale are reported as a component of stockholders’ equity and comprehensive income, net of income tax.

The Company reviews its portfolio of debt securities in an unrealized loss position at least quarterly.

The Company first assesses whether it intends to sell, or it is more-likely-than-not that it will be required to

sell, the securities before recovery of the amortized cost basis.

The Company first assesses whether it intends to sell, or it is more-likely-than-not that it will be required

to sell, the securities before recovery of the amortized cost basis.

If either of these criteria is met, the securities amortized cost basis is written down to fair value as a current period expense.

If either of the above criteria is not met, the

Company evaluates whether the decline in fair value is the result of credit losses or other factors.

In making this assessment, the Company considers, among other things, the period of time the security has been in an unrealized loss position, and

performance of any underlying collateral and adverse conditions specifically related to the security.

If either of the above criteria is not met,

the Company evaluates whether the decline in fair value is the result of credit losses or other factors.

In making this assessment, the Company considers, among other things, the period of time the security has been in an unrealized loss

position, and performance of any underlying collateral and adverse conditions specifically related to the security.

The estimates of fair values of debt securities and other financial instruments are based on a variety of factors.

In some cases, fair values represent quoted market prices for identical or comparable instruments.

other cases, fair values have been estimated based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates reflecting varying degrees of risk.

Accordingly, the fair values may not represent actual

values of the financial instruments that could have been realized as of year-end or that will be realized in the future.

In other cases, fair values have been estimated based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates reflecting varying degrees of risk.

Accordingly, the fair values may not represent

actual values of the financial instruments that could have been realized as of year-end or that will be realized in the future.

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-Q

Item 2. Management’s Discussion and Analysis