Item 2. Management’s Discussion and Analysis
ITEM 2. 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 Quarterly Report and in our Annual Report on Form 10-K for the year ended December 31, 2024.
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 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. We intend to grow organically by selectively opening additional
branches in our target markets and pursuing 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 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.
Q2 2025 Overview
We reported total loans of $1.50 billion as of June 30, 2025, an increase of $145.3 million, or 10.7%, from June 30, 2024. Total deposits were $1.59 billion as of June 30, 2025, an increase of $112.8 million, or
7.6%, as compared to June 30, 2024.
Pre-tax net income was $14.7 million, a decrease of $0.5 million, or 3.6%, for the three months ended June 30, 2025 as compared to pre-tax net income of $15.3 million for the same period in 2024. Pre-tax net income
was $28.4 million, a decrease of $1.7 million, or 5.7%, for the six months ended June 30, 2025 as compared to pre-tax net income of $30.1 million for the same period in 2024.
Return on average assets and return on average equity was 2.47% and 19.62%, respectively for the three months ended June 30, 2025, as compared to 2.74% and 25.02%, respectively, for the same period in 2024. Return on
average assets and return on average equity was 2.44% and 19.42%, respectively for the six months ended June 30, 2025, as compared to 2.66% and 25.41%, respectively, for the same period in 2024. Our efficiency ratio for the three months ended June
30, 2025 was 39.95% as compared to 37.72% for the same period in 2024. Our efficiency ratio for the six months ended June 30, 2025 was 39.44% as compared to 37.63% for the same period in 2024.
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Table of Contents
Results of Operations
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 Three Months Ended June 30,
2025
2024
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
$
247,652
$
2,475
4.01
%
$
173,502
$
2,488
5.75
%
Debt securities, taxable
47,285
278
2.36
106,457
951
3.58
Debt securities, tax exempt (1)
12,502
63
2.02
17,252
71
1.65
Loans held for sale
1,987
-
-
355
-
-
Total loans (2)
1,448,924
28,965
8.02
1,354,985
28,926
8.56
Total interest-earning assets
1,758,350
31,781
7.25
1,652,551
32,436
7.87
Noninterest-earning assets
43,048
38,722
Total assets
$
1,801,398
$
1,691,273
Funding sources:
Interest-bearing liabilities:
Deposits:
Transaction accounts
$
1,006,484
7,676
3.06
%
$
851,751
8,293
3.91
%
Time deposits
236,108
2,367
4.02
247,452
2,911
4.72
Total interest-bearing deposits
1,242,592
10,043
3.24
1,099,203
11,204
4.09
Total interest-bearing liabilities
$
1,242,592
10,043
3.24
$
1,099,203
11,204
4.09
Noninterest-bearing liabilities:
Noninterest-bearing deposits
$
321,351
$
394,010
Other noninterest-bearing liabilities
10,471
12,778
Total noninterest-bearing liabilities
331,822
406,788
Shareholders' equity
226,984
185,282
Total liabilities and shareholders' equity
$
1,801,398
$
1,691,273
Net interest income
$
21,738
$
21,232
Net interest spread
4.01
%
3.78
%
Net interest margin
4.96
%
5.15
%
(1)
Taxable-equivalent yield of 2.68% as of June 30, 2025, applying a 24.5% effective tax rate
(2)
Average loan balances include monthly average nonaccrual loans of $5.7 million and $11.8 million as of June 30, 2025 and June 30, 2024, respectively, are included in loans.
For the second quarter of 2025 compared to the second quarter of 2024:
-
Interest income on total loans totaled $29.0 million, an increase of $39,000 or 0.1%;
-
Yields on our interest-earning assets totaled 7.25%, a decrease of 62 basis points which was primarily attributable to lower loan yields of 54 basis points, and a decrease in yield on taxable debt securities of 122 basis points; and
-
Net interest margin was 4.96% compared to 5.15%.
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Table of Contents
Net Interest Margin
For the Six Months Ended June, 30
2025
2024
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
$
242,876
$
5,243
4.35
%
$
174,787
$
4,573
5.25
%
Debt securities, taxable
47,957
561
2.36
129,963
1,963
3.03
Debt securities, tax exempt (1)
12,508
126
2.03
17,761
144
1.63
Loans held for sale
1,287
-
-
297
-
-
Total loans (2)
1,423,776
56,293
7.97
1,362,339
59,043
8.69
Total interest-earning assets
1,728,404
62,223
7.26
1,685,147
65,723
7.82
Noninterest-earning assets
41,511
39,246
Total assets
$
1,769,915
$
1,724,393
Funding sources:
Interest-bearing liabilities:
Deposits:
Transaction accounts
$
981,833
14,794
3.04
%
$
848,764
16,489
3.90
%
Time deposits
236,216
4,849
4.14
256,212
5,992
4.69
Total interest-bearing deposits
1,218,049
19,643
3.25
1,104,976
22,481
4.08
Total interest-bearing liabilities
1,218,049
19,643
3.25
1,104,976
22,481
4.08
Noninterest-bearing liabilities:
Noninterest-bearing deposits
318,952
426,696
Other noninterest-bearing liabilities
10,228
12,218
Total noninterest-bearing liabilities
329,180
438,914
Shareholders' equity
222,686
180,503
Total liabilities and shareholders' equity
$
1,769,915
$
1,724,393
Net interest income
$
42,580
$
43,242
Net interest spread
4.01
%
3.74
%
Net interest margin
4.97
%
5.15
%
(1)
Taxable-equivalent yield of 2.69% as of June 30, 2025, applying a 24.6% effective tax rate.
(2)
Average loan balances include monthly average nonaccrual loans of $6.2 million and $17.2 million as of June 30, 2025 and June 30, 2024, respectively, are included in loans.
For the first six months of 2025 compared to the same period in 2024:
-
Interest income on total loans totaled $56.3 million, a decrease of $2.8 million or 4.7%, due to decreased loan yields as discussed below;
-
Yields on our interest-earning assets totaled 7.26%, a decrease of 56 basis points which was primarily attributable to lower loan yields of 72 basis points, and a decrease in yield on taxable debt securities of 67 basis points; and
-
Net interest margin was 4.97% compared to 5.15%.
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Table of Contents
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
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).
Analysis of Changes in Interest Income and Expenses
For the Three Months Ended
June 30, 2025 vs 2024
Change due to:
Volume (1)
Rate (1)
Interest
Variance
(Dollars in thousands)
Increase (decrease) in interest income:
Short-term investments
$
1,063
$
(1,076
)
$
(13
)
Debt securities
(548
)
(133
)
(681
)
Total loans
2,005
(1,966
)
39
Total increase (decrease) in interest income
2,520
(3,175
)
(655
)
Increase (decrease) in interest expense:
Deposits:
Transaction accounts
1,508
(2,125
)
(617
)
Time deposits
(133
)
(411
)
(544
)
Total interest-bearing deposits
1,375
(2,536
)
(1,161
)
Total increase (decrease) in interest expense
1,375
(2,536
)
(1,161
)
Increase (Decrease) in net interest income
$
1,145
$
(639
)
$
506
Analysis of Changes in Interest Income and Expenses
For the Six Months Ended
June 30, 2025 vs 2024
Change due to:
Volume (1)
Rate (1)
Interest
Variance
(Dollars in thousands)
Increase (decrease) in interest income:
Short-term investments
$
1,773
$
(1,103
)
$
670
Debt securities
(1,274
)
(146
)
(1,420
)
Total loans
2,647
(5,397
)
(2,750
)
Total increase (decrease) in interest income
3,146
(6,646
)
(3,500
)
Increase (decrease) in interest expense:
Deposits:
Transaction accounts
2,574
(4,269
)
(1,695
)
Time deposits
(465
)
(678
)
(1,143
)
Total interest-bearing deposits
2,109
(4,947
)
(2,838
)
Total increase (decrease) in interest expense
2,109
(4,947
)
(2,838
)
Increase (Decrease) in net interest income
$
1,037
$
(1,699
)
$
(662
)
(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
Securities
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.
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
basis. 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,
2025. 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, 2025
Within One Year
After One Year But
Within Five Years
After Five Years But
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
$
5
0.00
%
$
37
3.29
%
$
-
0.00
%
$
-
0.00
%
$
42
2.42
%
Mortgage-backed securities
916
1.81
8,019
1.37
-
-
18,308
1.68
27,243
1.60
State and political subdivisions
2,505
1.56
10,816
1.48
6,281
1.70
-
-
19,602
1.56
U.S. treasuries
-
-
3,791
1.05
1,715
1.12
-
-
5,506
1.08
Corporate debt securities
-
-
-
-
4,777
3.36
-
-
4,777
3.36
Total
$
3,426
1.62
%
$
22,663
1.37
%
$
12,773
2.26
%
$
18,308
1.68
%
$
57,170
1.69
%
Percentage of total
5.99
%
39.65
%
22.34
%
32.02
%
100.00
%
*Yield is on a taxable-equivalent basis using 21% tax rate
Provision for Credit Losses
Credit risk is inherent in the business of making loans. We establish an Allowance for credit losses (“Allowance”) through charges to earnings, which are shown in the statements of comprehensive
income as the provision for credit losses. The provision for credit losses and level of Allowance for each period are dependent upon many factors, including loan growth, net charge-offs, changes in the composition of the loan portfolio,
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, 2025 compared to the three months ended June 30, 2024:
-
There was no provision for credit losses; and
-
The allowance as a percentage of total loans decreased by 9 basis points to 1.22%.
For the six months ended June 30, 2025 compared to the six months ended June 30, 2024:
-
There was no provision for credit losses; and
-
The allowance as a percentage of total loans decreased by 9 basis points to 1.22%.
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Table of Contents
Noninterest Income
The following tables set forth the major components of our noninterest income for the periods indicated:
For the Three Months Ended
June 30,
2025
2024
$ Increase
(Decrease)
% Increase
(Decrease)
(Dollars in thousands)
Noninterest income:
Mortgage lending income
$
520
$
78
$
442
566.67
%
Service charges on deposit accounts
232
260
(28
)
-10.77
%
Other income and fees
1,949
2,827
(878
)
-31.06
%
Total noninterest income
$
2,701
$
3,165
$
(464
)
-14.66
%
Noninterest income for the three months ended June 30, 2025 was $2.7 million compared to $3.2 million for the same period in 2024, a decrease of $464,000, or 14.7%. The decrease was primarily attributable to income
related to operations of oil and gas assets, see Note 2 of the financial statements.
For the Six Months Ended
June 30,
2025
2024
$ Increase
(Decrease)
% Increase
(Decrease)
(Dollars in thousands)
Noninterest income:
Mortgage lending income
$
610
$
129
$
481
372.87
%
Service charges on deposit accounts
450
509
(59
)
-11.59
%
Other income and fees
3,396
4,536
(1,140
)
-25.13
%
Total noninterest income
$
4,456
$
5,174
$
(718
)
-13.88
%
Noninterest income for the six months ended June 30, 2025 was $4.5 million compared to $5.2 million for the same period in 2024, a decrease of $718,000, or 13.9%. The decrease was primarily attributable to income
related to operations of oil and gas assets, see Note 2 of the financial statements.
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Table of Contents
Noninterest Expense
The following tables set forth the major components of our noninterest expense for the periods indicated:
For the Three Months Ended
June 30,
2025
2024
$ Increase
(Decrease)
% Increase
(Decrease)
(Dollars in thousands)
Noninterest expense:
Salaries and employee benefits
$
5,721
$
5,118
$
603
11.78
%
Furniture and equipment
361
324
37
11.42
%
Occupancy
630
613
17
2.77
%
Data and item processing
590
481
109
22.66
%
Accounting, marketing, and legal fees
158
264
(106
)
-40.15
%
Regulatory assessments
213
336
(123
)
-36.61
%
Advertising and public relations
223
83
140
168.67
%
Travel, lodging and entertainment
121
131
(10
)
-7.63
%
Other expense
1,715
1,792
(77
)
-4.30
%
Total noninterest expense
$
9,732
$
9,142
$
590
6.45
%
Noninterest expense for the three months ended June 30, 2025 was $9.7 million compared to $9.1 million for the same period in 2024, an increase of $590,000, or 6.5%.
For the Six Months Ended
June 30,
2025
2024
$ Increase
(Decrease)
% Increase
(Decrease)
(Dollars in thousands)
Noninterest expense:
Salaries and employee benefits
$
11,000
$
10,407
$
593
5.70
%
Furniture and equipment
612
554
58
10.47
%
Occupancy
1,222
1,273
(51
)
-4.01
%
Data and item processing
1,100
939
161
17.15
%
Accounting, marketing, and legal fees
263
364
(101
)
-27.75
%
Regulatory assessments
297
723
(426
)
-58.92
%
Advertising and public relations
417
229
188
82.10
%
Travel, lodging and entertainment
177
183
(6
)
-3.28
%
Other expense
3,528
3,606
(78
)
-2.16
%
Total noninterest expense
$
18,616
$
18,278
$
338
1.85
%
Noninterest expense for the six months ended June 30, 2025 was $18.6 million compared to $18.3 million for the same period in 2024, an increase of $338,000, or 1.9%.
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Table of Contents
Financial Condition
The following discussion of our financial condition compares June 30, 2025 and December 31, 2024.
Total Assets
Total assets increased $96.6 million, or 5.6%, to $1.84 billion as of June 30, 2025, compared to $1.74 billion as of December 31, 2024.
Loan Portfolio
The following table presents the balance and associated percentage of each major category in our loan portfolio as of June 30, 2025 and December 31, 2024:
As of June 30,
As of December 31,
2025
2024
Amount
% of Total
Amount
% of Total
(Dollars in thousands)
Construction & development
$
192,910
12.9
%
$
167,685
12.0
%
1-4 family real estate
125,637
8.4
%
121,047
8.7
%
Commercial real estate - other
554,902
36.9
%
511,304
36.5
%
Total commercial real estate
873,449
58.2
%
800,036
57.2
%
Commercial & industrial
534,950
35.7
%
507,023
36.2
%
Agricultural
78,126
5.2
%
77,922
5.6
%
Consumer
13,534
0.9
%
14,312
1.0
%
Gross loans
1,500,059
100.0
%
1,399,293
100.0
%
Less: unearned income, net
(2,703
)
(1,910
)
Total Loans, net of unearned income
1,497,356
1,397,383
Less: Allowance for credit losses
(18,222
)
(17,918
)
Net loans
$
1,479,134
$
1,379,465
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 June 30, 2025, and December 31, 2024, our gross loans were $1.50 billion and $1.40 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. All loan types are within our
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. Financial and performance covenants are used in commercial lending to allow us to react to a borrower’s deteriorating financial condition, should that occur.
41
Table of Contents
The following tables show the contractual maturities of our gross loans as of the periods below:
As of June 30, 2025
Due in One Year or Less
Due after One Year
Through Five Years
Due after Five Years
Through Fifteen Years
Due after Fifteen Years
Fixed
Rate
Adjustable
Rate
Fixed
Rate
Adjustable
Rate
Fixed
Rate
Adjustable
Rate
Fixed
Rate
Adjustable
Rate
Total
(Dollars in thousands)
Construction & development
$
2,232
$
87,300
$
1,954
$
100,614
$
-
$
419
$
391
$
-
$
192,910
1-4 family real estate
14,381
27,609
29,272
45,280
827
4,621
3,647
-
125,637
Commercial real estate - other
43,227
30,863
99,148
334,375
18,167
21,359
7,763
-
554,902
Total commercial real estate
59,840
145,772
130,374
480,269
18,994
26,399
11,801
-
873,449
Commercial & industrial
60,811
276,354
15,335
173,858
144
7,865
583
-
534,950
Agricultural
17,847
12,020
14,248
30,951
-
1,223
1,837
-
78,126
Consumer
1,963
-
4,875
167
623
3,626
2,280
-
13,534
Gross loans
$
140,461
$
434,146
$
164,832
$
685,245
$
19,761
$
39,113
$
16,501
$
-
$
1,500,059
As of December 31, 2024
Due in One Year or Less
Due after One Year
Through Five Years
Due after Five Years
Through Fifteen Years
Due after Fifteen Years
Fixed
Rate
Adjustable
Rate
Fixed
Rate
Adjustable
Rate
Fixed
Rate
Adjustable
Rate
Fixed
Rate
Adjustable
Rate
Total
(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
Allowance for Credit Losses
The allowance is based on management’s estimate of potential 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. 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.
The allowance was $18.2 million at June 30, 2025, compared to $17.9 million at December 31, 2024.
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The following table provides an analysis of the activity in our allowance for the periods indicated:
For the Six Months Ended
June 30,
2025
2024
(Dollars in thousands)
Balance at beginning of the period
$
17,918
$
19,691
Provision for credit losses for loans
-
-
Charge-offs:
Construction & development
-
-
1-4 family real estate
-
-
Commercial real estate - other
(197
)
-
Commercial & industrial
-
(2,000
)
Agricultural
-
-
Consumer
(3
)
-
Total charge-offs
(200
)
(2,000
)
Recoveries:
Construction & development
-
-
1-4 family real estate
-
-
Commercial real estate - other
17
-
Commercial & industrial
480
78
Agricultural
4
3
Consumer
3
-
Total recoveries
504
81
Net recoveries (charge-offs)
304
(1,919
)
Balance at end of the period
$
18,222
$
17,772
Net recoveries (charge-offs) to average loans
0.04
%
-0.28
%
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 June 30,
As of December 31,
2025
2024
Amount
Percent
Amount
Percent
(Dollars in thousands)
Construction & development
$
1,276
7.0
%
$
1,223
6.8
%
1-4 family real estate
1,099
6.0
%
1,313
7.3
%
Commercial real estate - other
7,403
40.6
%
6,992
39.0
%
Commercial & industrial
7,011
38.6
%
6,797
38.0
%
Agricultural
951
5.2
%
1,106
6.2
%
Consumer
482
2.6
%
487
2.7
%
Total
$
18,222
100.0
%
$
17,918
100.0
%
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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.
The following table presents information regarding nonperforming assets as of the dates indicated.
As of
June 30,
2025
As of
December 31, 2024
(Dollars in thousands)
Nonaccrual loans (1)
$
5,463
$
7,170
Accruing loans 90 or more days past due
6
-
Total nonperforming assets
$
5,469
$
7,170
Ratio of nonperforming loans to total loans
0.37
%
0.51
%
Ratio of nonaccrual loans to total loans
0.36
%
0.51
%
Ratio of allowance for credit losses to total loans
1.22
%
1.28
%
Ratio of allowance for credit losses to nonaccrual loans
333.55
%
249.90
%
Ratio of nonperforming assets to total assets
0.30
%
0.41
%
(1) There are no loans modified to borrowers experiencing financial difficulty included in nonaccrual loans as of June 30, 2025 and December 31, 2024, respectively.
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Table of Contents
The following tables present an aging analysis of loans as of the dates indicated.
As of June 30, 2025
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
$
104
$
-
$
-
$
-
$
104
$
192,806
$
192,910
1-4 family real estate
-
-
-
-
-
125,637
125,637
Commercial real estate - other
91
-
-
-
91
554,811
554,902
Commercial & industrial
-
1,815
3,487
-
5,302
529,648
534,950
Agricultural
-
-
-
-
-
78,126
78,126
Consumer
-
-
6
6
6
13,528
13,534
Total
$
195
$
1,815
$
3,493
$
6
$
5,503
$
1,494,556
$
1,500,059
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
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In addition to the past due and nonaccrual criteria, we also evaluate loans according to our 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 of imprudent handling or structural issues. The weaknesses require close attention, and the remediation of
those weaknesses is necessary. No risk of probable loss exists. Credits in this category are expected to quickly migrate to “Watch” or “Substandard” as this is viewed as a transitory loan grade.
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.
Outstanding loan balances categorized by internal risk grades as of the periods indicated are summarized as follows:
As of June 30, 2025
Pass
Watch
Special
mention
Substandard
Total
(Dollars in thousands)
Construction & development
$
191,024
$
-
$
1,323
$
563
$
192,910
1-4 family real estate
125,637
-
-
-
125,637
Commercial real estate - other
545,914
-
7,468
1,520
554,902
Commercial & industrial
509,062
-
19,238
6,650
534,950
Agricultural
75,147
-
2,979
-
78,126
Consumer
13,534
-
-
-
13,534
Total
$
1,460,318
$
-
$
31,008
$
8,733
$
1,500,059
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
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Table of Contents
Deposits
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.
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, 2025 and December 31, 2024 were $1.59 billion and $1.52 billion, respectively.
As of June 30, 2025, and December 31, 2024, brokered deposits were $371.5 million and $336.7 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 $380.3 million and $354.2 million at June 30, 2025 and December 31, 2024, respectively, as calculated per regulatory guidance. These amounts were
approximately 24.0% and 23.4% of deposits at June 30, 2025 and December 31, 2024, 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,
As of December 31,
2025
2024
Amount
Percentage of
Total
Amount
Percentage of
Total
(Dollars in thousands)
Noninterest-bearing demand
$
315,824
19.81
%
$
313,258
20.70
%
Interest-bearing transaction deposits
968,314
60.74
%
889,679
58.70
%
Savings deposits
80,109
5.03
%
73,379
4.80
%
Time deposits (less than $250,000)
134,226
8.42
%
146,814
9.70
%
Time deposits ($250,000 or more)
95,665
6.00
%
92,341
6.10
%
Total interest-bearing deposits
1,278,314
80.19
%
1,202,213
79.30
%
Total deposits
$
1,594,138
100.00
%
$
1,515,471
100.00
%
The following tables set forth the maturity of time deposits as of the dates indicated below:
As of June 30, 2025 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)
$
43,334
$
40,729
$
44,669
$
5,494
$
134,226
Time deposits ($250,000 or more)
19,624
25,369
31,202
19,470
95,665
Total time deposits
$
62,958
$
66,098
$
75,871
$
24,964
$
229,891
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
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Table of Contents
Liquidity
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.
Our liquidity position is supported by the 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 June 30, 2025, 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 $223.5 million as of June 30, 2025 and $190.9 million as of December 31, 2024, and we had access to approximately $296.3 million in liquidity with the Federal Reserve Bank as of June 30, 2025 and $336.1 million as of December 31, 2024.
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), We 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 require us to maintain minimum amounts and ratios of 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, 2025, 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, 2025 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, 2025 and December 31, 2024. 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
Under the Basel III Capital Rules, in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, a banking
organization must hold a capital conservation buffer composed of CET1 capital above its minimum risk-based capital requirements. As of June 30, 2025, the Company and the Bank met all capital adequacy requirements under the Basel III Capital Rules.
48
Table of Contents
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 June 30, 2025
Total capital (to risk-weighted assets)
Company
$
242,263
15.05
%
$
169,006
10.50
%
N/A
N/A
Bank
242,222
15.06
%
168,900
10.50
%
$
160,857
10.00
%
Tier 1 capital (to risk-weighted assets)
Company
223,577
13.89
%
136,815
8.50
%
N/A
N/A
Bank
223,536
13.90
%
136,729
8.50
%
128,686
8.00
%
CET 1 capital (to risk-weighted assets)
Company
223,577
13.89
%
112,671
7.00
%
N/A
N/A
Bank
223,536
13.90
%
112,600
7.00
%
104,557
6.50
%
Tier 1 capital (to average assets)
Company
223,577
12.49
%
N/A
N/A
N/A
N/A
Bank
223,536
12.49
%
N/A
N/A
89,469
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, 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
%
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
$18.7 million as of June 30, 2025 to $231.9 million, compared to $213.2 million as of December 31, 2024.
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Table of Contents
Contractual Obligations
The following tables contain supplemental information regarding our total contractual obligations as of June 30, 2025, and December 31, 2024:
Payments Due as of June 30, 2025
Within One
Year
One to Three
Years
Three to Five
Years
After Five
Years
Total
(Dollars in thousands)
Deposits without a stated maturity
$
1,364,247
$
-
$
-
$
-
$
1,364,247
Time deposits
204,928
24,457
506
-
229,891
Operating lease commitments
415
956
462
431
2,264
Total contractual obligations
$
1,569,590
$
25,413
$
968
$
431
$
1,596,402
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
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.
June 30,
2025
December 31, 2024
(Dollars in thousands)
Commitments to extend credit
$
263,846
$
272,261
Standby letters of credit
16,940
11,333
Total
$
280,786
$
283,594
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Table of Contents
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.
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 determine the adequacy of the allowance, the loan portfolio is broken into pools based on loan type and risk characteristics. Historical loss experience factors by pool, adjusted for changes in trends and
conditions, are used to determine an indicated allowance for each portfolio pool. These factors are evaluated and updated based on the composition of the specific loan pool. 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
loan pool.
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Table of Contents
Goodwill and Intangibles
Intangible assets totaled $815,000 and goodwill, net of accumulated amortization, totaled $11.2 million as of June 30, 2025, compared to intangible assets of $878,000 and goodwill of $8.5 million as
of December 31, 2024.
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.
Income Taxes
We file 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 our tax positions annually and believes it is more likely than not that all of its tax positions will be utilized in future years.
The Company’s effective tax rate was 24.5% for the second quarter of 2025, which was consistent with the rate of 24.6% for the same period in 2024. Our effective tax rate differs from the U.S. federal statutory rate
of 21% primarily due to the effect of state income taxes, tax-exempt income earned on certain loans and investments, and nondeductible expenses.
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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