Item 7. Management’s Discussion and Analysis
Item 7. 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 elsewhere in this report.
Unless the context indicates otherwise, references in this management’s discussion and analysis to “we”, “our”, and “us,” refer to Bank7 Corp. and its consolidated subsidiaries.
All references to “the Bank” refer to Bank7, our wholly owned subsidiary.
General
We are Bank7 Corp., a bank holding company headquartered in Oklahoma City, Oklahoma. Through our wholly-owned subsidiary, Bank7, we operate twelve full-service branches 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. We intend to grow organically by
selectively opening additional branches in our target markets and we will also pursue strategic acquisitions.
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 assets, return on average equity, earnings per share, capital ratios, and efficiency ratio, which is calculated by dividing noninterest expense by the
sum of net interest income on a tax equivalent basis and noninterest income.
As of December 31, 2024, we had total assets of $1.74 billion, total loans of $1.40 billion, total deposits of $1.52 billion and total shareholders’ equity of $213.2 million.
The U.S. economy experienced widespread volatility throughout 2020 and 2021 as a result of the COVID-19 pandemic and government responses to the pandemic. Economic
condition declined rapidly and significantly following the initial widespread U.S. outbreak in March and April of 2020. Federal stimulus was quickly passed in the form of the CARES Act and the economy rebounded significantly in the second half of
2020. In an emergency measure aimed at dampening the economic impact of COVID-19, the Federal Reserve lowered the target for the federal funds rate to a range of between zero to 0.25% effective on March 16, 2020 where it remained through the end
of 2020. This action by the Federal Reserve followed a prior reduction of the targeted federal funds rates to a range of 1.0% to 1.25% effective March 4, 2020. As the pandemic eased through 2021 and inflation increased, the Federal Reserve
aggressively raised the federal funds target rate to 4.25-4.50% by the end of 2022 and to 5.25%-5.50% by the end of 2023. In 2024, the Federal Reserve began to adjust monetary policy, ultimately lowering the federal funds rate three times,
ending the year with a target range of 4.25% to 4.5%. These monetary policy actions, along with the impact of the elevated interest rate environment experienced earlier in 2024, influenced our net interest income and credit quality throughout the
year.
2024 Overview
We reported total loans of $1.40 billion as of December 31, 2024, an increase of $36.5 million, or 2.7%, from December 31, 2023. Total deposits were $1.52 billion as of December 31, 2024, a decrease
of $75.9 million, or 4.8%, from December 31, 2023.
Pre-tax net income was $60.4 million, an increase of $23.1 million, or 62.1%, for the year ended December 31, 2024 as compared to pre-tax net income of $37.2 million for the same period in 2023.
Pre-tax return on average assets and return on average equity was 3.50% and 31.41%, respectively, for the year ended December 31, 2024, as compared to 2.21% and 23.47%, respectively, for the same
period in 2023. Tax-adjusted return on average assets and return on average equity was 2.65% and 23.78%, respectively, for the year ended December 31, 2024, as compared to 1.68% and 17.83%, respectively, for the same period in 2023. Our
efficiency ratio for the year ended December 31, 2024 was 37.90% as compared to 36.07% for the same period in 2023.
The provision for credit losses for the year ended December 31, 2024 decreased $21.1 million, or 100%, from $21.1 million compared to the same period in 2023. The
provision expense for the year ended December 31, 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
a charge-off of $16.5 million, increased nonaccrual loans by $18.4 million, and recorded an additional specific reserve to the allowance for credit losses and provision for loan losses of $2.0 million. See Note (6) of the financial statements
for further disclosure and discussion.
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Table of Contents
Results of Operations
Years Ended December 31, 2024, December 31, 2023, and December 31, 2022
Net Interest Income and Net Interest Margin
The following table presents, for the periods indicated, information about: (i) weighted average balances, the total dollar amount of interest income from interest-earning assets, and the resultant average yields; (ii)
average balances, the total dollar amount of interest expense on interest-bearing liabilities, and the resultant average rates; (iii) net interest income; and (iv) the net interest margin.
Net Interest Margin
For the Year Ended December 31,
2024
2023
2022
Average
Balance
Interest
Income/
Expense
Average
Yield/
Rate
Average
Balance
Interest
Income/
Expense
Average
Yield/
Rate
Average
Balance
Interest
Income/
Expense
Average
Yield/
Rate
(Dollars in thousands)
Interest-Earning Assets:
Short-term investments
$
184,328
$
9,320
5.04
%
$
174,600
$
8,580
4.91
%
$
129,624
$
1,673
1.29
%
Debt securities, taxable
90,184
2,531
2.80
152,094
2,791
1.84
145,915
2,313
1.59
Debt securities, tax exempt (1)
16,651
273
1.64
19,430
330
1.70
21,635
360
1.66
Loans held for sale
343
-
-
158
-
-
586
-
-
Total loans (2)
1,391,552
119,416
8.56
1,315,578
109,843
8.35
1,143,380
74,403
6.51
Total interest-earning assets
1,683,058
131,540
7.79
1,661,860
121,544
7.31
1,441,140
78,749
5.46
Noninterest-earning assets
39,555
25,943
23,532
Total assets
$
1,722,613
$
1,687,803
$
1,464,672
Funding sources:
Interest-bearing liabilities:
Deposits:
Transaction accounts
$
882,314
33,408
3.78
%
$
825,169
28,582
3.46
%
$
724,617
7,842
1.08
%
Time deposits
254,057
11,937
4.69
256,672
10,416
4.06
165,735
1,480
0.89
Total interest-bearing deposits
1,136,371
45,345
3.98
1,081,841
38,998
3.60
890,352
9,322
1.05
Total interest-bearing liabilities
1,136,371
45,345
3.98
1,081,841
38,998
3.60
890,352
9,322
1.05
Noninterest-bearing liabilities:
Noninterest-bearing deposits
381,660
433,603
432,901
Other noninterest-bearing liabilities
12,419
10,423
7,520
Total noninterest-bearing liabilities
394,079
444,026
440,421
Shareholders’ equity
192,163
161,936
133,899
Total liabilities and shareholders’ equity
$
1,722,613
$
1,687,803
$
1,464,672
Net interest income
$
86,195
$
82,546
$
69,427
Net interest spread
3.81
%
3.71
%
4.42
%
Net interest margin
5.11
%
4.97
%
4.82
%
(1)
Taxable-equivalent yield of 2.16% as of December 31, 2024, applying a 24.3% effective tax rate
(2)
Average loan balances include monthly average nonaccrual loans of $12.4 million, $18.8 million and $8.8 million for the years ended December 31, 2024, 2023 and 2022, respectively.
For the year ended December 31, 2024 compared to the year ended December 31, 2023:
-
Total interest income on loans increased $9.6 million, or 8.7%, to $119.4 million, which was attributable to a $76.0 million increase in the average balance of loans to $1.39 billion during the year ended
2024 as compared with the average balance of loans of $1.32 billion for the year ended 2023, and increased loan yields as discussed below;
-
Yields on our interest-earning assets totaled 7.79%, an increase of 48 basis points which was attributable to higher loan rates of 21 basis points, an increase in yield on short term investments of 13 basis
points, and an increase in yield on taxable debt securities of 96 basis points; and
-
Net interest margin for the years ended 2024 and 2023 was 5.11% and 4.97%, respectively.
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Table of Contents
We experienced strong asset growth for the year ended December 31, 2023 compared to the year ended December 31, 2022:
-
Total interest income on loans increased $35.4 million, or 47.6%, to $109.8 million, which was attributable to a $172.2 million increase in the average balance of loans to $1.32 billion during the year
ended 2023 as compared with the average balance of $1.14 billion for the year ended 2022, and increased loan yields as discussed below;
-
Yields on our interest-earning assets totaled 7.31%, an increase of 185 basis points which was attributable to higher loan rates of 184 basis points, an increase in yield on short term investments of 362
basis points, and an increase in yield on taxable debt securities of 25 basis points; and
-
Net interest margin for the years ended 2023 and 2022 was 4.97% and 4.82%, respectively.
The FED influences the general market rates of interest, including the deposit and loan rates offered by many financial institutions. Our loan portfolio is significantly affected by changes in the
prime interest rate. For the three-year period between January 1, 2022 and December 31, 2024, the prime rate fluctuated between a high of 8.50%, and a low of 3.25%.
Interest income on short-term investments increased $740,000, or 8.6%, to $9.3 million for year ended December 31, 2024 compared to 2023, due to an increase in the average balances of $9.7 million,
or 5.6% and a yield increase of 13 basis points. Interest income on short-term investments increased $6.9 million, or 412.9%, to $8.6 million for year ended December 31, 2023 compared to 2022, due to an increase in the average balances of $45.0
million, or 34.7% and a yield increase of 362 basis points.
Interest expense on interest-bearing deposits totaled $45.3 million for the year ended December 31, 2024, compared to $39.0 million for 2023, an increase of $6.3 million, or 16.3%. The increase was
related to the cost of interest-bearing deposits increasing to 3.98% for the year ended December 31, 2024 from 3.60% for the year ended December 31, 2023. Interest expense on interest-bearing deposits totaled $39.0 million for the year ended
December 31, 2023, compared to $9.3 million for 2022, an increase of $29.7 million, or 318.3%. The increase was related to the cost of interest-bearing deposits increasing to 3.60% for the year ended December 31, 2023 from 1.05% for the year
ended December 31, 2022.
Net interest margin for the years ended December 31, 2024, 2023 and 2022 was 5.11%, 4.97% and 4.82%, respectively.
The following table sets 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).
Analysis of Changes in Interest Income and Expenses
For the Year Ended
For the Year Ended
December 31, 2024 vs 2023
December 31, 2023 vs 2022
Change due to:
Change due to:
Volume (1)
Rate (1)
Interest
Volume (1)
Rate (1)
Interest
Variance
Variance
(Dollars in thousands)
(Dollars in thousands)
Increase (decrease) in interest income:
Short-term investments
$
478
$
262
$
740
$
580
$
6,327
$
6,907
Debt securities
(1,186
)
869
(317
)
61
387
448
Total loans
6,344
3,229
9,573
11,210
24,230
35,440
Total increase (decrease) in interest income
5,636
4,360
9,996
11,851
30,944
42,795
Increase (decrease) in interest expense:
Deposits:
Transaction accounts
1,977
2,849
4,826
1,086
19,654
20,740
Time deposits
(106
)
1,627
1,521
809
8,127
8,936
Total interest-bearing deposits
1,871
4,476
6,347
1,895
27,781
29,676
Total increase (decrease) in interest expense
1,871
4,476
6,347
1,895
27,781
29,676
Increase (Decrease) in net interest income
$
3,765
$
(116
)
$
3,649
$
9,956
$
3,163
$
13,119
(1) Variances attributable to both volume and rate are allocated on a consistent basis between rate and volume based on the absolute value of the variances
in each category.
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Table of Contents
Weighted Average Yield of Debt Securities
The following table summarizes the maturity distribution schedule with corresponding weighted average taxable equivalent yields of the debt securities portfolio at December 31, 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 December 31, 2024
After One Year But
After Five Years But
Within One Year
Within Five Years
Within Ten Years
After Ten Years
Total
Amount
Yield *
Amount
Yield *
Amount
Yield *
Amount
Yield *
Amount
Yield *
Available-for-sale
(Dollars in thousands)
U.S. Federal agencies
$
-
0.00
%
$
64
2.78
%
$
-
0.00
%
$
-
0.00
%
$
64
2.78
%
Mortgage-backed securities
2,653
1.72
8,402
1.37
-
-
19,141
1.70
30,196
1.61
State and political subdivisions
2,028
1.09
11,564
1.47
6,134
1.70
-
-
19,726
1.51
U.S. Treasuries
-
-
3,687
1.05
1,639
1.12
-
-
5,326
1.08
Corporate debt securities
-
-
-
-
4,629
3.36
-
-
4,629
3.36
Total
$
4,681
1.44
%
$
23,717
1.37
%
$
12,402
2.26
%
$
19,141
1.70
%
$
59,941
1.68
%
Percentage of total
7.81
%
39.57
%
20.69
%
31.93
%
100.00
%
*Yield is on a taxable-equivalent basis using 21% tax rate
Provision for Credit Losses
For the year ended December 31, 2024 compared to the year ended December 31, 2023:
-
The provision for credit losses decreased from $21.1 million to $0; and
-
The allowance as a percentage of loans decreased by 16 basis points to 1.28%.
-
Decreases are related to the single loan customer discussed in the 2024 Overview.
For the year ended December 31, 2023 compared to the year ended December 31, 2022:
-
The provision for credit losses increased from $4.5 million to $21.1 million; and
-
The allowance as a percentage of loans increased by 29 basis points to 1.44%.
-
Increases are related to the single loan customer discussed in the 2024 Overview.
Noninterest Income
The following table sets forth the major components of our noninterest income for the years ended December 31, 2024, 2023 and 2022:
For the Years Ended
For the Years Ended
December 31,
December 31,
2024
2023
$ Increase
% Increase
2023
2022
$ Increase
% Increase
(Decrease)
(Decrease)
(Decrease)
(Decrease)
(Dollars in thousands)
(Dollars in thousands)
Noninterest income:
Mortgage lending income
$
370
$
331
$
39
11.78
%
$
331
$
486
$
(155
)
-31.89
%
Gain (Loss) on sales, prepayments, and calls of available-for-sale debt securities
(6
)
(16
)
10
-62.50
%
(16
)
(127
)
111
-87.40
%
Service charges on deposit accounts
975
869
106
12.20
%
869
900
(31
)
-3.44
%
Other
9,915
8,058
1,857
23.05
%
8,058
1,680
6,378
379.64
%
Total noninterest income
$
11,254
$
9,242
$
2,012
21.77
%
$
9,242
$
2,939
$
6,303
214.46
%
For the year ended December 31, 2024 compared to the year ended December 31, 2023:
-
Other noninterest income was $9.9 million compared to $8.1 million, an increase of $1.9 million, or 23.1%. 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.
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Table of Contents
For the year ended December 31, 2023 compared to the year ended December 31, 2022:
-
Other noninterest income was $8.1 million compared to $1.7 million, an increase of $6.4 million, or 380%. 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
Noninterest expense for the year ended December 31, 2024 was $37.1 million compared to $33.4 million for the year ended December 31, 2023, an increase of $3.7 million or 11.0%. Noninterest expense
for the year ended December 31, 2023 was $33.4 million compared to $28.6 million for the year ended December 31, 2022, an increase of $4.8 million or 16.7%. The following table sets forth the major components of our noninterest expense for the
years ended December 31, 2024, 2023 and 2022:
For the Years Ended
For the Years Ended
December 31,
December 31,
2024
2023
$ Increase
% Increase
2023
2022
$ Increase
% Increase
(Decrease)
(Decrease)
(Decrease)
(Decrease)
(Dollars in thousands)
(Dollars in thousands)
Noninterest expense:
Salaries and employee benefits
$
20,783
$
17,385
$
3,398
19.55
%
$
17,385
$
17,040
$
345
2.02
%
Furniture and equipment
1,070
995
75
7.54
%
995
1,468
(473
)
-32.22
%
Occupancy
2,640
2,689
(49
)
-1.82
%
2,689
2,329
360
15.46
%
Data and item processing
1,897
1,730
167
9.65
%
1,730
2,068
(338
)
-16.34
%
Accounting, marketing, and legal fees
836
543
293
53.96
%
543
984
(441
)
-44.82
%
Regulatory assessments
1,196
1,537
(341
)
-22.19
%
1,537
1,344
193
14.36
%
Advertising and public relations
549
427
122
28.57
%
427
477
(50
)
-10.48
%
Travel, lodging and entertainment
431
374
57
15.24
%
374
363
11
3.03
%
Other expense
7,693
7,740
(47
)
-0.61
%
7,740
2,568
5,172
201.40
%
Total noninterest expense
$
37,095
$
33,420
$
3,675
11.00
%
$
33,420
$
28,641
$
4,779
16.69
%
For the year ended December 31, 2024 compared to the year ended December 31, 2023:
-
Salaries and employee benefits expense was $20.8 million compared to $17.4 million, an increase of $3.4 million, or 19.6%. The increase was primarily attributable to overall increases in compensation due to
the performance of the Company and to remain competitive.
For the year ended December 31, 2023 compared to the year ended December 31, 2022:
-
Other expense was $7.7 million compared to $2.6 million, an increase of $5.2 million, or 200%. The increase was primarily attributable to expenses related to the operation of oil and gas assets acquired
during the fourth quarter of 2023, see Note 2 of the financial statements.
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Table of Contents
Financial Condition
The following discussion of our financial condition compares December 31, 2024, 2023, and 2022.
Total Assets
Total assets decreased $31.9 million, or 1.8%, to $1.74 billion as of December 31, 2024, as compared to $1.77 billion as of December 31, 2023 and $1.58 billion as of December 31, 2022.
Loan Portfolio
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 condition. As of
December 31, 2024, 2023, and 2022, our gross loans were $1.40 billion, $1.36 billion and $1.27 billion, respectively.
The following table presents the balance and associated percentage of each major category in our loan portfolio as of December 31, 2024, December 31, 2023 and December 31, 2022:
As of December 31,
2024
2023
2022
Amount
% of Total
Amount
% of Total
Amount
% of Total
(Dollars in thousands)
Construction & development
$
167,685
12.0
%
$
137,206
10.1
%
$
163,203
12.8
%
1-4 family real estate
121,047
8.7
%
100,576
7.4
%
76,928
6.0
%
Commercial real estate - other
511,304
36.5
%
518,622
38.0
%
439,001
34.5
%
Total commercial real estate
800,036
57.2
%
756,404
55.5
%
679,132
53.3
%
Commercial & industrial
507,023
36.2
%
526,185
38.5
%
513,011
40.3
%
Agricultural
77,922
5.6
%
66,495
4.9
%
66,145
5.2
%
Consumer
14,312
1.0
%
14,517
1.1
%
14,949
1.2
%
Gross loans
1,399,293
100.0
%
1,363,601
100.0
%
1,273,237
100.0
%
Less: unearned income, net
(1,910
)
(2,762
)
(2,781
)
Total Loans, net of unearned income
1,397,383
1,360,839
1,270,456
Less: Allowance for credit losses
(17,918
)
(19,691
)
(14,734
)
Net loans
$
1,379,465
$
1,341,148
$
1,255,722
We have established internal concentration limits in the loan portfolio for CRE loans, hospitality loans, energy loans, and construction loans, among others. All loan types are within our
established limits. We use underwriting guidelines to assess each borrower’s historical cash flow to determine debt service, and we further stress test the debt service under higher interest rate scenarios. Financial and performance covenants are
used in commercial lending to allow us to react to a borrower’s deteriorating financial condition, should that occur. Discussion of credit risk as it relates to commercial lending, which is primarily comprised of hospitality and energy loans, is
discussed under Item 1A. Risk Factors.
28
Table of Contents
The following tables show the contractual maturities of our gross loans as of the periods below:
As of December 31, 2024
Due after One Year
Due after Five Years
Due in One Year or Less
Through Five Years
Through Fifteen Years
Due after Fifteen Years
Fixed
Adjustable
Fixed
Adjustable
Fixed
Adjustable
Fixed
Adjustable
Total
Rate
Rate
Rate
Rate
Rate
Rate
Rate
Rate
(Dollars in thousands)
Construction & development
$
9,378
$
76,709
$
2,050
$
78,786
$
-
$
564
$
198
$
-
$
167,685
1-4 family real estate
15,426
20,085
43,558
31,566
964
4,826
4,622
-
121,047
Commercial real estate - other
47,737
61,482
103,484
271,156
153
18,303
8,989
-
511,304
Total commercial real estate
72,541
158,276
149,092
381,508
1,117
23,693
13,809
-
800,036
Commercial & industrial
36,062
263,026
13,639
175,729
8,232
9,738
597
-
507,023
Agricultural
22,768
8,991
16,581
26,677
-
1,054
1,851
-
77,922
Consumer
1,661
4
5,641
170
602
3,570
2,664
-
14,312
Gross loans
$
133,032
$
430,297
$
184,953
$
584,084
$
9,951
$
38,055
$
18,921
$
-
$
1,399,293
As of December 31, 2023
Due after One Year
Due after Five Years
Due in One Year or Less
Through Five Years
Through Fifteen Years
Due after Fifteen Years
Fixed
Adjustable
Fixed
Adjustable
Fixed
Adjustable
Fixed
Adjustable
Total
Rate
Rate
Rate
Rate
Rate
Rate
Rate
Rate
(Dollars in thousands)
Construction & development
$
11,431
$
70,040
$
8,970
$
44,935
$
-
$
1,438
$
392
$
-
$
137,206
1-4 family real estate
13,628
13,015
41,602
21,451
26
5,443
5,411
-
100,576
Commercial real estate - other
50,251
65,120
152,250
219,260
129
21,283
10,329
-
518,622
Total commerical real estate
75,310
148,175
202,822
285,646
155
28,164
16,132
-
756,404
Commercial & industrial
20,389
263,564
41,520
186,776
3,276
10,041
619
-
526,185
Agricultural
13,250
22,615
13,935
13,032
-
810
2,853
-
66,495
Consumer
2,170
14
5,490
121
595
3,604
2,523
-
14,517
Gross loans
$
111,119
$
434,368
$
263,767
$
485,575
$
4,026
$
42,619
$
22,127
$
-
$
1,363,601
As of December 31, 2022
Due after One Year
Due after Five Years
Due in One Year or Less
Through Five Years
Through Fifteen Years
Due after Fifteen Years
Fixed
Adjustable
Fixed
Adjustable
Fixed
Adjustable
Fixed
Adjustable
Total
Rate
Rate
Rate
Rate
Rate
Rate
Rate
Rate
(Dollars in thousands)
Construction & development
$
11,749
$
81,002
$
7,556
$
57,439
$
-
$
1,160
$
-
$
4,297
$
163,203
1-4 family real estate
10,550
12,664
24,741
15,782
314
6,606
-
6,271
76,928
Commercial real estate - other
2,680
59,870
131,105
207,819
6,635
17,146
-
13,746
439,001
Total real estate
24,979
153,536
163,402
281,040
6,949
24,912
-
24,314
679,132
Commercial & industrial
43,823
234,573
60,275
159,571
3,745
10,390
-
634
513,011
Agricultural
1,798
17,514
8,767
33,270
469
980
140
3,207
66,145
Consumer
1,683
22
6,310
156
587
2,860
82
3,249
14,949
Gross loans
$
72,283
$
405,645
$
238,754
$
474,037
$
11,750
$
39,142
$
222
$
31,404
$
1,273,237
29
Table of Contents
Allowance for Credit Losses
The allowance is based on management’s estimate of probable losses in the loan portfolio. In the opinion of management, the allowance is adequate to absorb estimated losses in the portfolio as of
each balance sheet date. 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 reviews.
To determine the adequacy of the allowance, the loan portfolio is broken into segments based on loan type. Historical loss experience factors by segment, adjusted for changes in trends and
conditions, are used to determine an indicated allowance for each portfolio segment. These factors are evaluated and updated based on the composition of the specific loan segment. 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 segment evaluations, impaired 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 loan segment.
The allowance was $17.9 million at December 31, 2024, $19.7 million at December 31, 2023 and $14.7 million at December 31, 2022. See the 2024 Overview for the
discussion of the decrease in allowance in 2024.
The following table provides an analysis of the activity in our allowance for the periods indicated:
For the Year Ended
December 31,
2024
2023
2022
(Dollars in thousands)
Balance at beginning of the period
$
19,691
$
14,734
$
10,316
Impact of CECL adoption
-
250
-
Provision for credit losses for loans
-
21,181
4,468
Charge-offs:
Construction & development
-
-
-
1-4 family real estate
-
-
-
Commercial real estate - other
(275
)
-
-
Commercial & industrial
(2,000
)
(16,500
)
(2
)
Agricultural
-
(7
)
(50
)
Consumer
-
(17
)
(22
)
Total charge-offs
(2,275
)
(16,524
)
(74
)
Recoveries:
Construction & development
-
-
-
1-4 family real estate
-
-
-
Commercial real estate - other
-
-
-
Commercial & industrial
495
40
10
Agricultural
7
2
4
Consumer
-
8
10
Total recoveries
502
50
24
Net recoveries (charge-offs)
(1,773
)
(16,474
)
(50
)
Balance at end of the period
$
17,918
$
19,691
$
14,734
Net recoveries (charge-offs) to average loans
-0.13
%
1.25
%
0.00
%
30
Table of Contents
While the entire allowance is available to absorb losses from any and all loans, the following table represents management’s allocation of the allowance by loan category, and the percentage
of allowance in each category, for the periods indicated:
As of December 31,
2024
2023
2022
Amount
Percent
Amount
Percent
Amount
Percent
(Dollars in thousands)
Construction & development
$
1,223
6.8
%
$
1,417
7.2
%
$
1,889
12.8
%
1-4 family real estate
1,313
7.3
%
1,271
6.5
%
890
6.0
%
Commercial real estate - other
6,992
39.0
%
6,889
35.0
%
5,080
34.5
%
Commercial & industrial
6,797
38.0
%
9,237
46.8
%
5,937
40.3
%
Agricultural
1,106
6.2
%
628
3.2
%
765
5.2
%
Consumer
487
2.7
%
249
1.3
%
173
1.2
%
Total
$
17,918
100.0
%
$
19,691
100.0
%
$
14,734
100.0
%
31
Table of Contents
Nonperforming Assets
Loans are considered delinquent when principal or interest payments are past due 30 days or more. Delinquent loans may remain on accrual status between 30 days and 90 days past due. Loans on
which the accrual of interest has been discontinued are designated as nonaccrual loans. Typically, the accrual of interest on loans is discontinued when principal or interest payments are past due 90 days or when, in the opinion of management,
there is a reasonable doubt as to collectability of the obligation. When loans are placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income. Income on a nonaccrual loan is
subsequently recognized 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 evaluated for expected credit losses over their contractual term, reflecting management’s current estimate. Loans placed on nonaccrual status and loan modifications granted to
borrowers experiencing financial difficulty are considered to have elevated credit risk and are carefully considered within our current expected credit loss methodology. Income from loans placed on nonaccrual status continues to be recognized
to the extent cash is received and when the collectability of the loan’s principal balance is reasonably assured. Depending on a particular loan’s risk characteristics, we estimate expected credit losses using methods such as present value of
expected future cash flows discounted at the loan’s effective interest rate, observable market prices for similar assets if available, or the fair value of collateral less estimated costs to sell for collateral-dependent loans. A loan is
considered collateral-dependent when the expected source of repayment is primarily the liquidation of the collateral. Fair value, where utilized, is determined by independent appraisals, typically on an annual basis. Between appraisal periods,
the estimated fair value may be adjusted based on specific events, such as identified deterioration of collateral quality through our credit risk monitoring, or discussions with the borrower indicating the appraised value may no longer reflect
current market conditions. The estimated credit losses are recognized as an allowance for credit losses, which is a valuation account. Changes in the allowance for credit losses, whether increases or decreases, are recorded in current period
earnings as provision for credit losses.
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 acquired, establishing a new cost basis.
Nonperforming loans include nonaccrual loans and loans past due 90 days or more and still accruing interest. Nonperforming assets consist of nonperforming loans plus OREO. Loans accounted for
on a nonaccrual basis were $7.2 million as of December 31, 2024, $18.9 million as of December 31, 2023 and $8.0 million as of December 31, 2022. OREO was $321,000, $0, and $0 as of December 31, 2024, December 31, 2023, and December 31, 2022,
respectively.
The following table presents information regarding nonperforming assets as of the dates indicated.
As of December 31,
2024
2023
2022
(Dollars in thousands)
Nonaccrual loans (1)
$
7,170
$
18,941
$
8,039
Accruing loans 90 or more days past due
-
10,026
9,941
Total nonperforming assets
$
7,170
$
28,967
$
17,980
Ratio of nonperforming loans to total loans
0.51
%
2.13
%
1.42
%
Ratio of nonaccrual loans to total loans
0.51
%
1.39
%
0.63
%
Ratio of allowance for credit losses to total loans
1.28
%
1.45
%
1.16
%
Ratio of allowance for credit losses to nonaccrual loans
249.90
%
103.96
%
183.28
%
Ratio of nonperforming assets to total assets
0.41
%
1.64
%
1.13
%
(1) Included in the nonaccrual loans balance are $0 and $10.12 million of loans modified to borrowers experiencing financial difficulty as of December 31,
2024 and December 31, 2023, respectively. See Note 6 of the financial statements.
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Table of Contents
The following tables present an aging analysis of loans as of the dates indicated.
As of December 31, 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
Current
Gross loans
(Dollars in thousands)
Construction & development
$
-
$
-
$
-
$
-
$
-
$
167,685
$
167,685
1-4 family real estate
-
-
-
-
-
121,047
121,047
Commercial real estate - other
103
-
3,426
-
3,529
507,775
511,304
Commercial & industrial
403
5
-
-
408
506,615
507,023
Agricultural
-
-
-
-
-
77,922
77,922
Consumer
97
-
-
-
97
14,215
14,312
Total
$
603
$
5
$
3,426
$
-
$
4,034
$
1,395,259
$
1,399,293
As of December 31, 2023
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
Current
Gross loans
(Dollars in thousands)
Construction & development
$
-
$
-
$
-
$
-
$
-
$
137,206
$
137,206
1-4 family real estate
-
-
-
-
-
100,576
100,576
Commercial real estate - other
-
-
-
-
-
518,622
518,622
Commercial & industrial
472
10,969
9,946
9,946
21,387
504,798
526,185
Agricultural
-
-
-
-
-
66,495
66,495
Consumer
-
27
80
80
107
14,410
14,517
Total
$
472
$
10,996
$
10,026
$
10,026
$
21,494
$
1,342,107
$
1,363,601
As of December 31, 2022
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
Current
Gross loans
(Dollars in thousands)
Construction & development
$
-
$
-
$
-
$
-
$
-
$
163,203
$
163,203
1-4 family commerical
-
-
-
-
-
76,928
76,928
Commercial real estate - other
-
617
-
-
617
438,384
439,001
Commercial & industrial
21
-
9,923
9,923
9,944
503,067
513,011
Agricultural
4
-
-
-
4
66,141
66,145
Consumer
291
82
22
18
395
14,554
14,949
Total
$
316
$
699
$
9,945
$
9,941
$
10,960
$
1,262,277
$
1,273,237
In addition to the past due and nonaccrual criteria, the Company also evaluates loans according to its internal risk grading system. Loans are segregated between pass, watch, special mention,
and substandard categories. The definitions of those categories are as follows:
Pass : These loans generally conform to Bank policies, are characterized by policy-conforming advance rates on collateral, and have well-defined repayment
sources. In addition, these credits are extended to borrowers and guarantors with a strong balance sheet and either substantial liquidity or a reliable income history.
Watch : These loans are still considered “Pass” credits; however, various factors such as industry stress, material changes in cash flow or financial
conditions, or deficiencies in loan documentation, or other risk issues determined by the lending officer, Commercial Loan Committee or Credit Quality Committee warrant a heightened sense and frequency of monitoring.
Special mention : These loans have observable weaknesses or evidence imprudent handling or structural issues. The weaknesses require close attention, and
the remediation of those weaknesses is necessary. No risk of probable loss exists. Credits in this category are expected to quickly migrate to “Watch” or “Substandard” as this is viewed as a transitory loan grade.
33
Table of Contents
Substandard : 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.
Substandard loans totaled $15.2 million as of December 31, 2024, a decrease of $15.9 million compared to December 31, 2023. Substandard loans totaled $31.1 million as of December 31, 2023, an
increase of $10.1 million compared to December 31, 2022. The total net decrease in substandard loans in 2024 as compared to 2023, is comprised of a net decrease in commercial and industrial substandard loans primarily related to a decrease in
one relationship comprised of three notes totaling $18.4 million with a $2.0 million specific reserve, and a net increase in commercial real estate primarily related to two relationships comprised of one note totaling $3.0 million with a $0.2
million specific reserve, and one note totaling $1.45 million with no specific reserve.
Outstanding loan balances categorized by internal risk grades as of the periods indicated are summarized as follows:
As of December 31, 2024
Pass
Watch
Special
mention
Substandard
Total
(Dollars in thousands)
Construction & development
$
165,863
$
-
$
1,259
$
563
$
167,685
1-4 family real estate
121,047
-
-
-
121,047
Commercial real estate - other
498,835
-
7,493
4,976
511,304
Commercial & industrial
493,512
-
3,817
9,694
507,023
Agricultural
74,896
-
3,026
-
77,922
Consumer
14,312
-
-
-
14,312
Total
$
1,368,465
$
-
$
15,595
$
15,233
$
1,399,293
As of December 31, 2023
Pass
Watch
Special
mention
Substandard
Total
(Dollars in thousands)
Construction & development
$
136,417
$
-
$
789
$
-
$
137,206
1-4 family real estate
100,576
-
-
-
100,576
Commercial real estate - other
502,795
-
15,701
126
518,622
Commercial & industrial
485,433
4,094
5,767
30,891
526,185
Agricultural
66,495
-
-
-
66,495
Consumer
14,437
-
-
80
14,517
Total
$
1,306,153
$
4,094
$
22,257
$
31,097
$
1,363,601
As of December 31, 2022
Pass
Watch
Special
mention
Substandard
Total
(Dollars in thousands)
Construction & development
$
163,203
$
-
$
-
$
-
$
163,203
1-4 family real estate
76,928
-
-
-
76,928
Commercial real estate - other
397,295
14,976
24,747
1,983
439,001
Commercial & industrial
493,412
-
584
19,015
513,011
Agricultural
65,857
288
-
-
66,145
Consumer
14,927
-
-
22
14,949
Total
$
1,211,622
$
15,264
$
25,331
$
21,020
$
1,273,237
34
Table of Contents
Deposits
We gather deposits primarily through our twelve branch locations and online though 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. Some of our interest-bearing deposits were obtained through brokered transactions. We participate in the CDARS program, where customer funds are placed into multiple certificates of deposit, each in an
amount under the standard FDIC insurance maximum of $250,000, and placed at a network of banks across the United States. We also participate in the One-Way Buy Insured Cash Sweep service and similar services, which provide for one-way buy
transactions among banks for the purpose of purchasing cost-effective floating-rate funding without collateralization or stock purchase requirements.
As of December 31, 2024, 2023, and 2022 brokered deposits were $336.7 million, $273.5 million, and $249.9 million, 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 $354.2 million and $448.7 million at December 31, 2024 and December 31, 2023, respectively, as calculated per regulatory
guidance. This was approximately 23.4% and 28.2% of deposits at December 31, 2024 and December 31, 2023, respectively.
Total deposits as of December 31, 2024, 2023, and 2022 were $1.52 billion, $1.59 billion and $1.43 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 December 31,
2024
2023
2022
Amount
Percentage of
Total
Amount
Percentage of
Total
Amount
Percentage of
Total
(Dollars in thousands)
Noninterest-bearing demand
$
313,258
20.7
%
$
482,349
30.4
%
$
441,509
30.9
%
Interest-bearing transaction deposits
889,679
58.70
%
702,150
44.10
%
669,852
46.80
%
Savings deposits
73,379
4.80
%
150,116
9.40
%
136,537
9.50
%
Time deposits (less than $250,000)
146,814
9.70
%
168,690
10.60
%
140,929
9.80
%
Time deposits ($250,000 or more)
92,341
6.10
%
88,086
5.50
%
42,573
3.00
%
Total interest-bearing deposits
1,202,213
79.3
%
1,109,042
69.6
%
989,891
69.1
%
Total deposits
$
1,515,471
100.0
%
$
1,591,391
100.0
%
$
1,431,400
100.0
%
The following table summarizes our average deposit balances and weighted average rates for the years ended December 31, 2024, 2023, and 2022:
For the Year Ended December 31,
2024
2023
2022
Average
Balance
Weighted
Average Rate
Average
Balance
Weighted
Average Rate
Average
Balance
Weighted
Average Rate
(Dollars in thousands)
Noninterest-bearing demand
$
381,660
0.00
%
$
433,603
0.00
%
$
432,901
0.00
%
Interest-bearing transaction deposits
776,141
3.81
%
705,891
3.42
%
613,799
1.11
%
Savings deposits
106,173
3.63
%
119,278
3.74
%
110,818
0.92
%
Time deposits
254,057
4.69
%
256,672
4.06
%
165,735
0.89
%
Total interest-bearing deposits
1,136,371
3.98
%
1,081,841
3.60
%
890,352
1.05
%
Total deposits
$
1,518,031
2.99
%
$
1,515,444
2.57
%
$
1,323,253
0.70
%
35
Table of Contents
The following tables set forth the maturity of time deposits as of the dates indicated below:
As of December 31, 2024 Maturity Within:
Three Months
Three to Six
Months
Six to 12
Months
After 12
Months
Total
(Dollars in thousands)
Time deposits (less than $250,000)
$
62,577
$
38,514
$
41,345
$
4,378
$
146,814
Time deposits ($250,000 or more)
45,667
25,552
18,055
3,067
92,341
Total time deposits
$
108,244
$
64,066
$
59,400
$
7,445
$
239,155
As of December 31, 2023 Maturity Within:
Three Months
Three to Six
Months
Six to 12
Months
After 12
Months
Total
(Dollars in thousands)
Time deposits (less than $250,000)
$
52,423
$
55,570
$
50,047
$
10,650
$
168,690
Time deposits ($250,000 or more)
30,807
18,472
17,492
21,315
88,086
Total time deposits
$
83,230
$
74,042
$
67,539
$
31,965
$
256,776
Liquidity
Liquidity refers to the measure of 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.
Our liquidity position is supported by management of liquid assets and access to alternative sources of funds. Our liquid assets include cash, interest-bearing deposits in correspondent banks and
fed funds sold. Other available sources of liquidity include wholesale deposits and borrowings from correspondent banks and FHLB advances.
Our short-term and long-term liquidity requirements are primarily met through cash flow from operations, redeployment of prepaying and maturing balances in our loan portfolios, and increases in
customer deposits. Other alternative sources of 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 December 31, 2024, we had no unsecured fed funds lines with correspondent depository institutions with no amounts advanced. In addition, based on the values of loans pledged as collateral,
we had borrowing availability with the FHLB of $190.9 million as of December 31, 2024 and $159.2 million as of December 31, 2023, and we had access to approximately $336.1 million in liquidity with the Federal Reserve Bank as of December 31,
2024 and $0 as of December 31, 2023.
36
Table of Contents
Capital Requirements
The Bank is subject to various regulatory capital requirements administered by the federal and state banking regulators. Failure to meet regulatory capital requirements may result in certain
mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for “prompt corrective
action” (described below), the Bank must meet specific 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. Qualitative measures established by regulation to ensure capital adequacy required the Bank to
maintain minimum amounts and ratios of Common Equity Tier 1, or CET1, capital, Tier 1 capital and total capital to risk-weighted assets and of Tier 1 capital to average consolidated assets, referred to as the “leverage ratio.” For further
information, see “Supervision and Regulation – Regulatory Capital Requirements” and “Supervision and Regulation – Prompt Corrective Action Framework.”
In the wake of the global financial crisis of 2008 and 2009, the role of capital has become fundamentally more important, as banking regulators have concluded that the amount and quality of
capital held by banking organizations was insufficient to absorb losses during periods of severely distressed economic conditions. The Dodd-Frank Act and banking regulations promulgated by the U.S. federal banking regulators to implement Basel
III have established strengthened capital standards for banks and bank holding companies and require more capital to be held in the form of common stock. In addition, the Basel III regulations implement a concept known as the “capital
conservation buffer.” In general, banks, bank holding companies with more than $3.0 billion in assets and bank holding companies with publicly-traded equity are required to hold a buffer of CET1 capital equal to 2.5% of risk-weighted assets
over each minimum capital ratio in order to avoid being subject to limits on capital distributions (e.g., dividends, stock buybacks, etc.) and certain discretionary bonus payments to executive officers.
As of December 31, 2024, the FDIC categorized the Bank as “well-capitalized” under the prompt corrective action framework. There have been no conditions or events since December 31, 2024 that
management believes would change this classification.
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The table below also summarizes the capital requirements applicable to the Bank in order to be considered “well-capitalized” from a regulatory perspective, as well as the Bank’s capital ratios as
of December 31, 2024, 2023, and 2022. The Bank exceeded all regulatory capital requirements under Basel III and the Bank was considered to be “well-capitalized” as of the dates reflected in the tables below.
Actual
With Capital
Conservation Buffer
Minimum to be “Well-
Capitalized” Under Prompt
Corrective Action
Amount
Ratio
Amount
Ratio
Amount
Ratio
(Dollars in thousands)
As of December 31, 2024
Total capital (to risk-weighted assets)
Company
$
227,229
15.21
%
$
156,830
10.50
%
N/A
N/A
Bank
227,189
15.22
%
156,723
10.50
%
$
149,260
10.00
%
Tier 1 capital (to risk-weighted assets)
Company
208,847
13.98
%
126,957
8.50
%
N/A
N/A
Bank
208,807
13.99
%
126,871
8.50
%
119,408
8.00
%
CET 1 capital (to risk-weighted assets)
Company
208,847
13.98
%
104,553
7.00
%
N/A
N/A
Bank
208,807
13.99
%
104,482
7.00
%
97,019
6.50
%
Tier 1 capital (to average assets)
Company
208,847
12.19
%
N/A
N/A
N/A
N/A
Bank
208,807
12.18
%
N/A
N/A
85,698
5.00
%
Actual
With Capital
Conservation Buffer
Minimum to be “Well-
Capitalized” Under Prompt
Corrective Action
Amount
Ratio
Amount
Ratio
Amount
Ratio
(Dollars in thousands)
As of December 31, 2023
Total capital (to risk-weighted assets)
Company
$
185,171
12.74
%
$
152,579
10.50
%
N/A
N/A
Bank
185,118
12.75
%
152,472
10.50
%
$
145,211
10.00
%
Tier 1 capital (to risk-weighted assets)
Company
166,982
11.49
%
123,516
8.50
%
N/A
N/A
Bank
166,942
11.50
%
123,429
8.50
%
116,169
8.00
%
CET 1 capital (to risk-weighted assets)
Company
166,982
11.49
%
101,719
7.00
%
N/A
N/A
Bank
166,942
11.50
%
101,648
7.00
%
94,387
6.50
%
Tier 1 capital (to average assets)
Company
166,982
9.50
%
N/A
N/A
N/A
N/A
Bank
166,942
9.50
%
N/A
N/A
87,897
5.00
%
Actual
With Capital
Conservation Buffer
Minimum to be “Well-
Capitalized” Under Prompt
Corrective Action
Amount
Ratio
Amount
Ratio
Amount
Ratio
(Dollars in thousands)
As of December 31, 2022
Total capital (to risk-weighted assets)
Bank7 Corp.
$
158,158
12.41
%
$
133,862
10.50
%
N/A
N/A
Bank
158,158
12.42
%
133,756
10.50
%
$
127,387
10.00
%
Tier 1 capital (to risk-weighted assets)
Bank7 Corp.
143,424
11.25
%
108,365
8.50
%
N/A
N/A
Bank
143,424
11.26
%
108,279
8.50
%
101,909
8.00
%
CET 1 capital (to risk-weighted assets)
Bank7 Corp.
143,424
11.25
%
89,241
7.00
%
N/A
N/A
Bank
143,424
11.26
%
89,171
7.00
%
82,801
6.50
%
Tier 1 capital (to average assets)
Bank7 Corp.
143,424
9.19
%
N/A
N/A
N/A
N/A
Bank
143,424
9.18
%
N/A
N/A
78,111
5.00
%
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Shareholders’ equity provides a source of permanent funding, allows for future growth and provides a cushion to withstand unforeseen adverse developments. Total shareholders’ equity increased to
$213.2 million as of December 31, 2024, compared to $170.3 million as of December 31, 2023 and $144.1 million as of December 31, 2022. The increases were driven by retained capital from net income during the periods.
Contractual Obligations
The following tables contain supplemental information regarding our total contractual obligations as of December 31, 2024 and December 31, 2023:
Payments Due as of December 31, 2024
Within One
Year
One to Three
Years
Three to Five
Years
After Five
Years
Total
(Dollars in thousands)
Deposits without a stated maturity
$
1,276,316
$
-
$
-
$
-
$
1,276,316
Time deposits
231,710
6,746
699
-
239,155
Operating lease commitments
646
516
236
476
1,874
Total contractual obligations
$
1,508,672
$
7,262
$
935
$
476
$
1,517,345
Payments Due as of December 31, 2023
Within One
Year
One to Three
Years
Three to Five
Years
After Five
Years
Total
(Dollars in thousands)
Deposits without a stated maturity
$
1,334,615
$
-
$
-
$
-
$
1,334,615
Time deposits
224,811
31,345
620
-
256,776
Operating lease commitments
553
627
308
850
2,338
Total contractual obligations
$
1,559,979
$
31,972
$
928
$
850
$
1,593,729
We believe that we will be able to meet our contractual obligations as they come due through the maintenance of adequate cash levels. We expect to maintain adequate cash levels through
profitability, loan repayment and maturity activity and continued deposit gathering activities. We have in place various borrowing mechanisms for both short-term and long-term liquidity needs.
Off-Balance Sheet Arrangements
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. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheet. The contractual or notional amounts
of those instruments reflect the extent of involvement we have in particular classes of financial instruments. To control this credit risk, the Company uses the same underwriting standards as it uses for loans recorded on the balance sheet.
Loan commitments are agreements to lend to a customer, as long as there is no violation of any condition established in the contract. Standby letters of credit are conditional commitments issued
by the Bank to guarantee the performance of the customer to a third party. They are intended to be disbursed, subject to certain conditions, upon request of the borrower.
The following table summarizes commitments as of the dates presented.
As of December 31,
2024
2023
2022
(Dollars in thousands)
Commitments to extend credit
$
272,261
$
256,888
$
198,027
Standby letters of credit
11,333
4,247
1,043
Total
$
283,594
$
261,135
$
199,070
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Critical Accounting Policies and Estimates
Our accounting and reporting policies conform to GAAP and conform to general practices within the industry in which we operate. To prepare financial statements in conformity with GAAP, management
makes estimates, assumptions and judgments based on available information. 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.
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. Additional
information about these policies can be found in Note 1 of the Company’s consolidated financial statements included in the Annual Report on the Form 10-K.
Allowance for Credit Losses
The allowance is based on management’s estimate of probable losses inherent in the loan portfolio. In the opinion of management, the allowance is adequate to absorb estimated losses in the
portfolio as of each balance sheet date. While management uses available information to analyze losses on loans, future additions to the allowance may be necessary based on changes in economic conditions and changes in the composition of the
loan portfolio. In 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.
To estimate the allowance for credit losses, the loan portfolio is segmented based on shared risk characteristics, primarily by loan type. Historical credit loss experience for each segment,
adjusted for relevant current conditions and reasonable and supportable forecasts, is a significant input in determining the expected credit losses for each portfolio segment under the current expected credit loss methodology. These historical
loss factors and adjustments are regularly evaluated and updated based on the evolving composition of each loan segment. Other considerations in our current expected credit loss estimation process include current volumes and trends of
delinquencies, nonaccrual loans, levels of bankruptcies, trends in criticized and classified loans, expected losses on real estate secured loans, impact of new credit products and policies, current and forecasted economic conditions,
concentrations of credit risk, and the experience and abilities of our lending personnel in the current environment. In addition to these segment-level estimations, loans with larger balances or unique risk profiles may be further analyzed
based on specific facts and circumstances to refine the overall expected credit loss estimate. This individual analysis helps ensure the allowance for credit losses appropriately reflects the expected losses inherent in the portfolio.
Adjustments to the segment-level or portfolio-level expected credit loss estimates may be necessary when specific loan characteristics warrant a different loss expectation than indicated by the segment risk factors.
Goodwill and Intangibles
Intangible assets totaled $878,000 and goodwill, net of accumulated amortization totaled $8.5 million for the year ended December 31, 2024, compared to intangible assets of $1.0 million and goodwill, net of
accumulated amortization of $8.5 million for the year ended 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. Subsequent increases in goodwill value are not recognized in the accompanying consolidated financial statements.
Other intangible assets consist of core deposit intangible assets and are amortized on a straight-line basis based on an estimated useful life of 10 years. Such assets are periodically evaluated as to the
recoverability of their carrying values.
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Income Taxes
The Company files a consolidated income tax return. Deferred taxes are recognized under the balance sheet method based upon the future tax consequences of temporary differences between the
carrying amounts and tax basis of assets and liabilities, using the tax rates expected to apply to taxable income in the periods when the related temporary differences are expected to be realized.
The amount of accrued current and deferred income taxes is based on estimates of taxes due or receivable from taxing authorities either currently or in the future. Changes in these accruals are
reported as tax expense, and involve estimates of the various components included in determining taxable income, tax credits, other taxes and temporary differences. Changes periodically occur in the estimates due to changes in tax rates, tax
laws and regulations and implementation of new tax planning strategies. The process of determining the accruals for income taxes necessarily involves the exercise of considerable judgment and consideration of numerous subjective factors.
Management performs an analysis of the Company’s tax positions annually and believes it is more likely than not that all of its tax positions will be utilized in future years.
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. 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. 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.
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. 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.
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. 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.
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