Bank7 Corp. (BSVN) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Bank7 Corp.'s 10-K for fiscal year 2022. Filing date: 2023-03-24. Report date: 2022-12-31. Accession: 0001140361-23-013727.

This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.

Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high.

Company profile: BSVN · All MD&A years: index · Previous year: FY 2021 · Next year: FY 2023

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 our 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, 2022, we had total assets of $1.58 billion, total loans of $1.26 billion, total deposits of $1.43 billion and total shareholders’ equity of $144.1 million.

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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. These actions positively impacted growth in net interest income in 2022 but the higher rates could negatively impact loan customers in a slowing economy.

2022 Highlights

For the year ended December 31, 2022, we reported pre-tax net income of $39.3 million, an increase of $8.3 million, or 27.0% compared to pre-tax net income of $30.9 million for the year ended
December 31, 2021. The increase was primarily related to an increase in interest earning assets. For the year ended December 31, 2022, average loans totaled $1.14 billion, an increase of $237.6 million or 26.2%, from December 31, 2021.

Pre-tax return on average assets and return on average equity was 2.68% and 29.32%, respectively for the year ended December 31, 2022, as compared to 2.96% and 26.41%, respectively, for the
same period in 2021. Tax-adjusted return on average assets and return on average equity was 2.02% and 23.92%, respectively for the year ended December 31, 2022, as compared to 2.21% and 20.13%, respectively, for the same period in 2021. Our
efficiency ratio for the year ended December 31, 2022 was 39.29% as compared to 36.76% for the year ended December 31, 2021.

As of December 31, 2022, total loans were $1.27 billion, an increase of $242.1 million, or 23.5%, from December 31, 2021. Total deposits were $1.43 billion as of December 31, 2022, an increase
of $211.8 million, or 17.4%, from December 31, 2021.

Results of Operations

Years Ended December 31, 2022, December 31, 2021, and December 31, 2020

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.

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	Net Interest Margin
	For the Year Ended December 31,
	2022		2021			2020
	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	$	129,624		$	1,673		1.29	%	$	126,136		$	178		0.25	%	$	116,295	$	828	0.71	%
Debt securities, taxable		145,915			2,313		1.59			4,663			312		3.84			1,123		36	3.21
Debt securities, tax exempt(1)		21,635			360		1.66			1,852			31		1.62			-		-	-
Loans held for sale		586			-		-			318			-		-			244		-	-
Total loans(2)		1,143,380			74,403		6.51			905,804			55,768		6.16			823,228		52,450	6.37
Total interest-earning assets		1,441,140			78,749		5.46			1,038,773			56,289		5.42			940,890		53,314	5.67
Noninterest-earning assets		23,532								7,361								8,067
Total assets	$	1,464,672							$	1,046,134							$	948,957
Funding sources:
Interest-bearing liabilities:
Deposits:
Transaction accounts	$	724,617			7,842		1.08	%	$	430,268			1,396		0.32	%	$	377,519		2,729	0.72	%
Time deposits		165,735			1,480		0.89			205,437			1,657		0.81			207,442		3,424	1.65
Total interest-bearing deposits		890,352			9,322		1.05			635,705			3,053		0.48			584,961		6,153	1.05
Total interest-bearing liabilities		890,352			9,322		1.05			635,705			3,053		0.48			584,961		6,153	1.05
Noninterest-bearing liabilities:
Noninterest-bearing deposits		432,901								288,446								256,431
Other noninterest-bearing liabilities		7,520								4,930								5,206
Total noninterest-bearing liabilities		440,421								293,376								261,637
Shareholders’ equity		133,899								117,053								102,359
Total liabilities and shareholders’ equity	$	1,464,672							$	1,046,134							$	948,957
Net interest income				$	69,427							$	53,236						$	47,161
Net interest spread							4.42	%							4.94	%					4.61	%
Net interest margin							4.82	%							5.12	%					5.01	%

Column 1	Column 2	Column 3
	(1)	Taxable-equivalent yield of 2.20% as of December 31, 2022, applying a 24.5% effective tax rate

Column 1	Column 2	Column 3
	(2)	Average loan balances include monthly average nonaccrual loans of $8.8 million, $12.6 million and $11.3 million for the years ended December 31, 2022, 2021 and 2020, respectively.

We continued to experience strong asset growth for the year ended December 31, 2022 compared to the year ended December 31, 2021:

Column 1	Column 2	Column 3
	-	Total interest income on loans increased $18.6 million, or 33.4%, to $74.4 million, which was attributable to a $237.6 million increase in the average balance of loans to $1.14 billion during the year ended 2022 as compared with the average balance of $905.8 million for the year ended 2021;

Column 1	Column 2	Column 3
	-	Yields on our interest-earning assets totaled 5.46%, an increase of 4 basis points which was attributable to higher loan rates of 35 basis points, an increase in yield on short term investments of 104 basis points, and a decrease in yield on taxable debt securities of 225 basis points; and

Column 1	Column 2	Column 3
	-	Net interest margin for the years ended 2022 and 2021 was 4.82% and 5.12%, respectively.

For the year ended December 31, 2021 compared to the year ended December 31, 2020:

Column 1	Column 2	Column 3
	-	Total interest income on loans increased $3.3 million, or 6.3%, to $55.8 million, which was attributable to a $82.6 million increase in the average balance of loans to $905.8 million during the year ended 2021 as compared with the average balance of $823.2 million for the year ended 2020;

Column 1	Column 2	Column 3
	-	Loan fees totaled $7.8 million, an increase of $2.8 million or 54.7%. $949,000 of the increase was due to PPP fee income recognized;

Column 1	Column 2	Column 3
	-	Yields on our interest-earning assets totaled 5.42%, a decrease of 25 basis points which was attributable to lower loan rates and a decrease in yield on short term investments of 46 basis points, both were primarily impacted by the aforementioned changes in market interest rates related to the pandemic; and

Column 1	Column 2	Column 3
	-	Net interest margin for the years ended 2021 and 2020 was 5.12% and 5.01%, respectively.

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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, 2020 and December 31, 2022, the prime rate fluctuated between a high of 7.50%, and a low of 3.25%.

Interest income on short-term investments increased $1.5 million, or 839.9%, to $1.7 million for year ended December 31, 2022 compared to 2021, due to an increase in the average balances of
$3.5 million, or 2.8% and a yield increase of 104 basis points. Interest income on short-term investments decreased $515,000, or 62.2%, to $313,000 for year ended December 31, 2021
compared to 2020, due to yield decrease of 46 basis points.

Interest expense on interest-bearing deposits totaled $9.3 million for the year ended December 31, 2022, compared to $3.1 million for 2021, an increase of $6.2 million, or 205.3%. The increase
was related to the cost of interest-bearing deposits increasing to 1.05% for the year ended December 31, 2022 from 0.48% for the year ended December 31, 2021. Interest expense on interest-bearing deposits totaled $3.1 million for the year ended
December 31, 2021, compared to $6.2 million for 2020, a decrease of $3.1 million, or 50.4%. The decrease was related to the cost of interest-bearing deposits decreasing to 0.48% for the year ended December 31, 2021 from 1.05% for the year ended
December 31, 2020, which was related to the aforementioned changes in market interest rates related to the pandemic.

Net interest margin for the years ended December 31, 2022, 2021 and 2020 was 4.82%, 5.12% and 5.01%, 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 December 31, 2022 vs 2021			For the Year Ended December 31, 2021 vs 2020
	Change due to:						Change due to:
	Volume(1)			Rate(1)			Interest Variance		Volume(1)		Rate(1)			Interest Variance
	(Dollars in thousands)						(Dollars in thousands)
Increase (decrease) in interest income:
Short-term investments	$	10			$	1,485		$	1,495		$	70			$	(585	)	$	(515	)
Debt securities		7,633				(5,303	)		2,330			354				(211	)		143
Total loans		14,635				4,000			18,635			5,260				(1,943	)		3,317
Total increase (decrease) in interest income		22,278				182			22,460			5,684				(2,739	)		2,945
Increase (decrease) in interest expense:
Deposits:
Transaction accounts		942				5,504			6,446			380				(1,713	)		(1,333	)
Time deposits		(322	)			145			(177	)		(33	)			(1,734	)		(1,767	)
Total interest-bearing deposits		620				5,649			6,269			347				(3,447	)		(3,100	)
Total increase (decrease) in interest expense		620				5,649			6,269			347				(3,447	)		(3,100	)
Increase (Decrease) in net interest income	$	21,657			$	(5,466	)	$	16,191		$	5,337			$	708		$	6,045

(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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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, 2022. 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, 2022
	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	$	11			2.62	%	$	176			1.83	%		$	955		1	%	$	-			0	%	$	1,142		1.21	%
Mortgage-backed securities		500			1.17			9,599			0.96				3,541		1.30			24,434			1.66			38,074		1.45
State and political subdivisions		2,104			1.61			15,070			1.24				10,650		1.44			531			1.48			28,356		1.35
U.S. Treasuries		-			-			98,168			1.18				2,492		1.11			-			-			100,660		1.18
Corporate debt securities		-			-			-			-				4,934		3.36			-			-			4,933		3.36
Total	$	2,615			1.53	%	$	123,014			1.17	%		$	22,571		1.78	%	$	24,965			1.66	%	$	173,165		1.34	%
Percentage of total		1.51	%					71.04	%						13.03	%				14.42	%					100.00	%

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

Provision for Loan Losses

For the year ended December 31, 2022 compared to the year ended December 31, 2021:

Column 1	Column 2	Column 3
	-	The provision for loan losses increased from $4.2 million to $4.5 million; and

Column 1	Column 2	Column 3
	-	The allowance as a percentage of loans increased by 16 basis points to 1.16%.

For the year ended December 31, 2021 compared to the year ended December 31, 2020:

Column 1	Column 2	Column 3
	-	The provision for loan losses decreased from $5.4 million to $4.2 million; and

Column 1	Column 2	Column 3
	-	The allowance as a percentage of loans decreased by 15 basis points to 1.00%.

Noninterest Income

The following table sets forth the major components of our noninterest income for the years ended December 31, 2022, 2021 and 2020:

	For the Years Ended			For the Years Ended
	December 31,			December 31,
	2022			2021			$ Increase (Decrease)		% Increase (Decrease)		2021			2020			$ Increase (Decrease)		% Increase (Decrease)
	(Dollars in thousands)			(Dollars in thousands)
Noninterest income:
Mortgage lending income	$	486			$	435		$	51			11.72	%		$	435		$	175	$	260	148.57	%
Gain (Loss) on sales of available-for-sale debt securities		(127	)			-			(127	)		-100.00	%			-
Service charges on deposit accounts		900				550			350			63.64	%			550			442		108	24.43	%
Other income and fees		1,680				1,265			415			32.81	%			1,265			1,048		217	20.71	%
Total noninterest income	$	2,939			$	2,250		$	689			30.62	%		$	2,250		$	1,665	$	585	35.14	%

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Noninterest Expense

Noninterest expense for the year ended December 31, 2022 was $28.6 million compared to $20.4 million for the year ended December 31, 2021, an increase of $8.2 million or 40.4%. Noninterest
expense for the year ended December 31, 2021 was $20.4 million compared to $17.6 million for the year ended December 31, 2020, an increase of $2.8 million or 15.9%. The following table sets forth the major components of our noninterest expense
for the years ended December 31, 2022, 2021 and 2020:

	For the Years Ended		For the Years Ended
	December 31,		December 31,
	2022		2021			$ Increase (Decrease)		% Increase (Decrease)		2021			2020			$ Increase (Decrease)		% Increase (Decrease)
	(Dollars in thousands)		(Dollars in thousands)
Noninterest expense:
Salaries and employee benefits	$	17,040		$	11,983		$	5,057			42.20	%		$	11,983		$	10,130	$	1,853		18.29	%
Furniture and equipment		1,468			883			585			66.25	%			883			868		15		1.73	%
Occupancy		2,329			1,899			430			22.64	%			1,899			1,957		(58	)	-2.96	%
Data and item processing		2,068			1,237			831			67.18	%			1,237			1,091		146		13.38	%
Accounting, marketing, and legal fees		984			800			184			23.00	%			800			536		264		49.25	%
Regulatory assessments		1,344			604			740			122.52	%			604			506		98		19.37	%
Advertising and public relations		477			282			195			69.15	%			282			400		(118	)	-29.50	%
Travel, lodging and entertainment		363			409			(46	)		-11.25	%			409			241		168		69.71	%
Other expense		2,568			2,300			268			11.65	%			2,300			1,863		437		23.46	%
Total noninterest expense	$	28,641		$	20,397		$	8,244			40.42	%		$	20,397		$	17,592	$	2,805		15.94	%

For the year ended December 31, 2022 compared to the year ended December 31, 2021:

Column 1	Column 2	Column 3
	-	Salaries and employee benefits expense was $17.0 million compared to $12.0 million, an increase of $5.1 million, or 42.2%. The increase was attributable to overall increases in compensation to remain competitive, and due to our acquisition of Cornerstone Bank in late 2021, which increased employee headcount.

For the year ended December 31, 2021 compared to the year ended December 31, 2020:

Column 1	Column 2	Column 3
	-	Salaries and employee benefits expense was $12.0 million compared to $10.1 million, an increase of $1.9 million, or 18.3%. The increase was attributable to overall increases in compensation to remain competitive, and partially due to our acquisition of Cornerstone Bank in late 2021, which increased employee headcount.

Financial Condition

The following discussion of our financial condition compares December 31, 2022, 2021, and 2020.

Total Assets

Total assets increased $233.6 million, or 17.3%, to $1.58 billion as of December 31, 2022, as compared to $1.35 billion as of December 31, 2021 and $1.02 billion as of December 31, 2020.

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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, 2022, 2021 and 2020, our gross loans were $1.27 billion, $1.03 billion and $839.1 million, respectively.

The following table presents the balance and associated percentage of each major category in our loan portfolio as of December 31, 2022, December 31, 2021 and December 31, 2020:

	As of December 31,
	2022			2021		2020
	Amount			% of Total		Amount		% of Total		Amount			% of Total
	(Dollars in thousands)
Construction & development	$	163,203			12.8	%	$	169,322			16.4	%		$	107,855		12.8	%
1-4 family real estate		76,928			6.0	%		62,971			6.1	%			29,079		3.5	%
Commercial real estate - other		439,001			34.5	%		339,655			32.9	%			290,489		34.6	%
Total commercial real estate		679,132			53.3	%		571,948			55.5	%			427,423		50.9	%
Commercial & industrial		513,011			40.3	%		361,974			35.1	%			351,248		41.9	%
Agricultural		66,145			5.2	%		73,010			7.1	%			50,519		6.0	%
Consumer		14,949			1.2	%		24,046			2.3	%			9,898		1.2	%
Gross loans		1,273,237			100.0	%		1,030,978			100.0	%			839,088		100.0	%
Less: unearned income, net		(2,781	)					(2,577	)						(2,475	)
Total Loans, net of unearned income		1,270,456						1,028,401							836,613
Less: Allowance for loan losses		(14,734	)					(10,316	)						(9,639	)
Net loans	$	1,255,722					$	1,018,085						$	826,974

During the second quarter of 2020, we began originating loans to qualified small businesses under the PPP administered by the SBA under the provisions of the CARES Act. Included in our
commercial & industrial balance at December 31, 2022 and 2021, are $2.6 million and $18.7 million of PPP loans, respectively.

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.

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

	As of December 31, 2022
	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	$	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 commercial 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

	As of December 31, 2021
	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	$	7,283		$	71,551		$	10,148	$	74,052		$	-		$	2,243	$	-	$	4,045	$	169,322
1-4 family real estate		3,259			21,322			11,979		11,674			926			7,375		-		6,436		62,971
Commercial real estate - other		5,156			97,309			59,227		143,906			413			19,230		-		14,414		339,655
Total commerical real estate		15,698			190,182			81,354		229,632			1,339			28,848		-		24,895		571,948
Commercial & industrial		24,249			142,553			16,346		145,654			20,474			12,047		-		651		361,974
Agricultural		2,529			17,441			5,156		39,305			623			1,587		-		6,369		73,010
Consumer		4,870			29			10,825		172			1,554			2,458		84		4,054		24,046
Gross loans	$	47,346		$	350,205		$	113,681	$	414,763		$	23,990		$	44,940	$	84	$	35,969	$	1,030,978

	As of December 31, 2020
	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	$	14		$	47,649		$	885	$	58,387		$	-		$	920	$	-	$	-	$	107,855
1-4 family real estate		273			13,394			4,712		9,959			39			702		-		-		29,079
Commercial real estate - other		2,377			55,307			45,880		180,721			294			4,288		-		1,622		290,489
Total real estate		2,664			116,350			51,477		249,067			333			5,910		-		1,622		427,423
Commercial & industrial		16,914			194,520			39,593		93,707			11			6,503		-		-		351,248
Agricultural		5,141			27,215			2,534		14,420			60			541		-		608		50,519
Consumer		1,544			150			6,570		65			1,057			425		87		-		9,898
Gross loans	$	26,263		$	338,235		$	100,174	$	357,259		$	1,461		$	13,379	$	87	$	2,230	$	839,088

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Allowance for Loan and Lease 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. 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 $14.7 million at December 31, 2022, $10.3 million at December 31, 2021 and $9.6 million at December 31, 2020. The increasing trend was related to loan growth.

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

	For the Year Ended December 31,
	2022			2021			2020
	(Dollars in thousands)
Balance at beginning of the period	$	10,316			$	9,639		$	7,846
Provision for loan losses		4,468				4,175			5,350
Charge-offs:
Construction & development		-				-			-
1-4 family real estate		-				-			-
Commercial real estate - other		-				-			-
Commercial & industrial		(2	)			(3,750	)		(3,289	)
Agricultural		(50	)			-			(300	)
Consumer		(22	)			(68	)		(1	)
Total charge-offs		(74	)			(3,818	)		(3,590	)
Recoveries:
Construction & development		-				-			-
1-4 family real estate		-				-			2
Commercial real estate - other		-				-			-
Commercial & industrial		10				16			18
Agricultural		4				300			10
Consumer		10				4			3
Total recoveries		24				320			33
Net recoveries (charge-offs)		(50	)			(3,498	)		(3,557	)
Balance at end of the period	$	14,734			$	10,316		$	9,639
Net recoveries (charge-offs) to average loans		0.00	%			0.39	%		0.43	%

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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,
	2022		2021		2020
	Amount		Percent		Amount		Percent	Amount			Percent
	(Dollars in thousands)
Construction & development	$	1,889		12.8	%	$	1,695		16.4	%		$	1,239	12.8	%
1-4 family real estate		890		6.0	%		630		6.1	%			334	3.5	%
Commercial real estate - Other		5,080		34.5	%		3,399		32.9	%			3,337	34.6	%
Commercial & industrial		5,937		40.3	%		3,621		35.2	%			4,035	41.9	%
Agricultural		765		5.2	%		730		7.1	%			580	6.0	%
Consumer		173		1.2	%		241		2.3	%			114	1.2	%
Total	$	14,734		100.0	%	$	10,316		100.0	%		$	9,639	100.0	%

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.

A loan is considered impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans include loans on
nonaccrual status and loans modified in a troubled debt restructuring, or TDR. Income from a loan on nonaccrual status is recognized to the extent cash is received and when the loan’s principal balance is deemed collectible. Depending on a
particular loan’s circumstances, we measure impairment of a loan based upon either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the
collateral less estimated costs to sell if the loan is collateral dependent. A loan is considered collateral dependent when repayment of the loan is based solely on the liquidation of the collateral. Fair value, where possible, is determined by
independent appraisals, typically on an annual basis. Between appraisal periods, the fair value may be adjusted based on specific events, such as if deterioration of quality of the collateral comes to our attention as part of our problem loan
monitoring process, or if discussions with the borrower lead us to believe the last appraised value no longer reflects the actual market for the collateral. The impairment amount on a collateral dependent loan is charged off to the allowance if
deemed not collectible and the impairment amount on a loan that is not collateral dependent is set up as a specific reserve.

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In cases where a borrower experiences financial difficulties and we make certain concessionary modifications to contractual terms, the loan is classified as a TDR. Included in certain loan
categories of impaired loans are TDRs on which we have granted certain material concessions to the borrower as a result of the borrower experiencing financial difficulties. The concessions granted by us may include, but are not limited to: (1) a
modification in which the maturity date, timing of payments or frequency of payments is modified, (2) an interest rate lower than the current market rate for new loans with similar risk, or (3) a combination of the first two concessions.

If a borrower on a restructured accruing loan has demonstrated performance under the previous terms, is not experiencing financial difficulty and shows the capacity to continue to perform under
the restructured terms, the loan will remain on accrual status. Otherwise, the loan will be placed on nonaccrual status until the borrower demonstrates a sustained period of performance, which generally requires six consecutive months of
payments. Loans identified as TDRs are evaluated for impairment using the present value of the expected cash flows or the estimated fair value of the collateral, if the loan is collateral dependent. The fair value is determined, when possible, by
an appraisal of the property less estimated costs related to liquidation of the collateral. The appraisal amount may also be adjusted for current market conditions. Adjustments to reflect the present value of the expected cash flows or the
estimated fair value of collateral dependent loans are a component in determining an appropriate allowance, and as such, may result in increases or decreases to the provision for loan losses in current and future earnings.

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, loans past due 90 days or more and still accruing interest and loans modified under TDRs that are not performing in accordance with their modified
terms. Nonperforming assets consist of nonperforming loans plus OREO. Loans accounted for on a nonaccrual basis were $8.0 million as of December 31, 2022, $9.9 million as of December 31, 2021 and $14.6 million as of December 31, 2020. OREO was $0
as of December 31, 2022, December 31, 2021 and December 31, 2020.

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

	As of December 31,
	2022			2021			2020
	(Dollars in thousands)
Nonaccrual loans	$	8,039			$	9,885		$	14,575
Troubled-debt restructurings (1)		-				-			-
Accruing loans 90 or more days past due		9,941				496			1,960
Total nonperforming loans		17,980				10,381			16,535
Other real estate owned		-				-			-
Total nonperforming assets	$	17,980			$	10,381		$	16,535
Ratio of nonperforming loans to total loans		1.42	%			1.01	%		1.98	%
Ratio of nonaccrual loans to total loans		0.63	%			0.96	%		1.74	%
Ratio of allowance for loan losses to total loans		1.16	%			1.00	%		1.15	%
Ratio of allowance for loan losses to nonaccrual loans		183.28	%			104.36	%		66.13	%
Ratio of nonperforming assets to total assets		1.13	%			0.77	%		1.63	%

(1) $1.2 million, $1.4 million and $12.98 million of TDRs as of December 31, 2022, 2021 and 2020, respectively.

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

	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			Total loans
	(Dollars in thousands)
Construction & development	$	-		$	-		$	-	$	-		$	-		$	163,203	$	163,203
1-4 family real estate		-			-			-		-			-			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

	As of December 31, 2021
	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			Total loans
	(Dollars in thousands)
Construction & development	$	-		$	-		$	-	$	-		$	-		$	169,322	$	169,322
1-4 family real estate		-			-			-		-			-			62,971		62,971
Commercial real estate - other		-			174			-		-			174			339,481		339,655
Commercial & industrial		-			19			501		401			520			361,454		361,974
Agricultural		-			-			77		77			77			72,933		73,010
Consumer		48			15			18		18			81			23,965		24,046
Total	$	48		$	208		$	596	$	496		$	852		$	1,030,126	$	1,030,978

	As of December 31, 2020
	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			Total loans
	(Dollars in thousands)
Construction & development	$	714		$	-		$	-	$	-		$	714		$	107,141	$	107,855
1-4 family commerical		-			-			-		-			-			29,079		29,079
Commercial real estate - Other		1,444			-			1,960		1,960			3,404			287,085		290,489
Commercial & industrial		-			-			-		-			-			351,248		351,248
Agricultural		-			-			-		-			-			50,519		50,519
Consumer		193			-			-		-			193			9,705		9,898
Total	$	2,351		$	-		$	1,960	$	1,960		$	4,311		$	834,777	$	839,088

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 CQC 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.

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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 $21.0 million as of December 31, 2022, a decrease of $3.7 million compared to December 31, 2021. Substandard loans totaled $24.7 million as of December 31, 2021, an
increase of $1.6 million compared to December 31, 2020. The total net decrease in 2022 as compared to 2021, is comprised of a net increase in commercial and industrial substandard loans primarily related to an increase in two relationships
comprised of four notes totaling $16.4 million with a $133,306 specific reserve and a decrease in one relationship comprised of one note totaling $2.1 million with no specific reserve, and a net decrease in commercial real estate substandard
loans primarily related to two relationships comprised of one note each totaling $13.8 million with no specific reserves.

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

	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

	As of December 31, 2021
	Pass		Watch			Special mention		Substandard	Total
	(Dollars in thousands)
Construction & development	$	169,322		$	-		$	-	$	-	$	169,322
1-4 family real estate		62,971			-			-		-		62,971
Commercial real estate - Other		282,268			14,976			27,112		15,299		339,655
Commercial & industrial		341,661			4,658			6,300		9,355		361,974
Agricultural		72,295			255			460		-		73,010
Consumer		24,000			-			-		46		24,046
Total	$	952,517		$	19,889		$	33,872	$	24,700	$	1,030,978

	As of December 31, 2020
	Pass		Watch			Special mention		Substandard	Total
	(Dollars in thousands)
Construction & development	$	107,855		$	-		$	-	$	-	$	107,855
1-4 family real estate		28,711			368			-		-		29,079
Commercial real estate - Other		248,194			24,155			10,086		8,054		290,489
Commercial & industrial		328,656			7,691			300		14,601		351,248
Agricultural		50,051			-			-		468		50,519
Consumer		9,898			-			-		-		9,898
Total	$	773,365		$	32,214		$	10,386	$	23,123	$	839,088

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Troubled Debt Restructurings

TDRs are defined as those loans in which a bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise
consider. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due from the borrower in accordance with original contractual terms of the loan. Loans
with insignificant delays or insignificant short-falls in the amount of payments expected to be collected are not considered to be impaired. Loans defined as individually impaired, based on applicable accounting guidance, include larger balance
nonperforming loans and TDRs.

The CARES Act includes a provision that permits a financial institution to elect to suspend temporarily troubled debt restructuring accounting under ASC Subtopic 310-40 in certain circumstances
(“section 4013”). To be eligible under section 4013, a loan modification must be (1) related to COVID-19; (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the
earlier of (A) 60 days after the date of termination of the National Emergency or (B) January 1, 2022. In response to this section of the CARES Act, the federal banking agencies issued a revised interagency statement on April 7, 2020 that, in
consultation with the Financial Accounting Standards Board, confirmed that for loans not subject to section 4013, short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are
not troubled debt restructurings under ASC Subtopic 310-40. As of December 31, 2022, one loan totaling $2.6 million was modified, related to COVID-19, which was not considered a troubled debt restructuring.

The following table presents loans restructured as TDRs as of December 31, 2022, December 31, 2021 and December 31, 2020.

	As of December 31, 2022
	Number of Contracts		Pre-Modification Outstanding Recorded Investment			Post-Modification Outstanding Recorded Investment		Specific Reserves Allocated
	(Dollars in thousands)
Commercial real estate		1		$	1,198		$	1,198	$	-
Total		1		$	1,198		$	1,198	$	-

	As of December 31, 2021
	Number of Contracts		Pre-Modification Outstanding Recorded Investment			Post-Modification Outstanding Recorded Investment		Specific Reserves Allocated
	(Dollars in thousands)
Commercial real estate		1		$	1,402		$	1,402	$	-
Total		1		$	1,402		$	1,402	$	-

	As of December 31, 2020
	Number of Contracts		Pre-Modification Outstanding Recorded Investment			Post-Modification Outstanding Recorded Investment		Specific reserves allocated
	(Dollars in thousands)
Commercial & industrial		1		$	10,886		$	10,886	$	-
Agricultural		1			469			469		-
Commercial real estate		1			1,622			1,622		-
Total		3		$	12,977		$	12,977	$	-

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There were no payment defaults with respect to loans modified as TDRs as of December 31, 2022, 2021, and 2020.

Impairment analyses are prepared on TDRs in conjunction with the normal allowance process. TDRs restructured during the years ended December 31, 2022, 2021, and 2020 required $0, $0 and $0 in
specific reserves, respectively.

The following table presents total TDRs, both in accrual and nonaccrual status as of the periods indicated:

	As of December 31
	2022		2021			2020
	Number of contracts		Amount			Number of contracts	Amount	Number of contracts		Amount
	(Dollars in thousands)
Accrual		-		$	-		-	$	-		-	$	-
Nonaccrual		1			1,198		1		1,402		3		12,977
Total		1		$	1,198		1	$	1,402		3	$	12,977

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.

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

Total deposits as of December 31, 2022, 2021, and 2020 were $1.43 billion, $1.22 billion and $905.5 million, respectively. The increase was primarily due to acquired deposits and organic
deposit growth. 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
	2022		2021		2020
	Amount		Percentage of Total		Amount		Percentage of Total	Amount			Percentage of Total
	(Dollars in thousands)
Noninterest-bearing demand	$	439,409		30.8	%	$	366,705		30.1	%		$	246,569	27.2	%
Interest-bearing transaction deposits		669,852		46.7	%		583,389		47.9	%			392,784	43.4	%
Savings deposits		136,537		9.6	%		89,778		7.4	%			54,008	6.0	%
Time deposits ($250,000 or less)		140,929		9.9	%		132,690		10.9	%			135,811	15.0	%
Time deposits (more than $250,000)		42,573		3.0	%		44,909		3.7	%			76,342	8.4	%
Total interest-bearing deposits		989,891		69.2	%		850,766		69.9	%			658,945	72.8	%
Total deposits	$	1,429,300		100.0	%	$	1,217,471		100.0	%		$	905,514	100.0	%

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The following table summarizes our average deposit balances and weighted average rates for the years ended December 31, 2022, 2021, and 2020:

	For the Year Ended December 31,
	2022		2021		2020
	Average Balance		Weighted Average Rate		Average Balance		Weighted Average Rate	Average Balance			Weighted Average Rate
	(Dollars in thousands)
Non interest-bearing demand	$	432,901		0.00	%	$	288,446		0.00	%		$	256,431	0.00	%
Interest-bearing transaction deposits		613,798		1.11	%		375,048		0.34	%			318,713	1.50	%
Savings deposits		110,818		0.92	%		55,220		0.23	%			58,806	0.56	%
Time deposits		165,735		0.89	%		205,437		0.81	%			207,442	1.65	%
Total interest-bearing deposits		890,351		1.05	%		635,705		0.48	%			584,961	1.05	%
Total deposits	$	1,323,252		0.70	%	$	924,151		0.33	%		$	841,392	0.73	%

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

	As of December 31, 2022 Maturity Within:
	Three Months		Three to Six Months			Six to 12 Months		After 12 Months	Total
	(Dollars in thousands)
Time deposits ($250,000 or less)	$	58,184		$	25,333		$	38,844	$	18,568	$	140,929
Time deposits (more than $250,000)		12,292			5,579			17,001		7,701		42,573
Total time deposits	$	70,476		$	30,912		$	55,845	$	26,269	$	183,502

	As of December 31, 2021 Maturity Within:
	Three Months		Three to Six Months			Six to 12 Months		After 12 Months	Total
	(Dollars in thousands)
Time deposits ($250,000 or less)	$	32,680		$	37,016		$	31,197	$	31,797	$	132,690
Time deposits (more than $250,000)		18,234			5,932			10,729		10,014		44,909
Total time deposits	$	50,914		$	42,948		$	41,926	$	41,811	$	177,599

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, 2022, 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 $129.2 million as of December 31, 2022 and $78.1 million as of December 31, 2021.

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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, 2022, the FDIC categorized the Bank as “well-capitalized” under the prompt corrective action framework. There have been no conditions or events since December 31, 2022 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, 2022, 2021, and 2020. 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, 2022
Total capital (to risk-weighted assets)
Company	$	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)
Company		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)
Company		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)
Company		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	%

	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, 2021
Total capital (to risk-weighted assets)
Company	$	127,946		12.54	%	$	107,126		10.50	%			N/A	N/A
Bank		127,844		12.54	%		107,020		10.50	%		$	101,924	10.00	%
Tier 1 capital (to risk-weighted assets)
Company		117,631		11.53	%		86,721		8.50	%			N/A	N/A
Bank		117,528		11.53	%		86,635		8.50	%			81,539	8.00	%
CET 1 capital (to risk-weighted assets)
Company		117,631		11.53	%		71,417		7.00	%			N/A	N/A
Bank		117,528		11.53	%		71,347		7.00	%			66,250	6.50	%
Tier 1 capital (to average assets)
Company		117,631		10.56	%		N/A		N/A				N/A	N/A
Bank		117,528		10.55	%		N/A		N/A				55,714	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, 2020:
Total capital (to risk-weighted assets)
Bank7 Corp.	$	115,375		14.73	%	$	82,216		10.50	%			N/A	N/A
Bank		115,335		14.75	%		82,114		10.50	%		$	78,204	10.00	%
Tier 1 capital (to risk-weighted assets)
Bank7 Corp.		105,736		13.50	%		66,556		8.50	%			N/A	N/A
Bank		105,696		13.51	%		66,473		8.50	%			62,563	8.00	%
CET 1 capital (to risk-weighted assets)
Bank7 Corp.		105,736		13.50	%		54,811		7.00	%			N/A	N/A
Bank		105,696		13.51	%		54,743		7.00	%			50,832	6.50	%
Tier 1 capital (to average assets)
Bank7 Corp.		105,736		10.78	%		N/A		N/A				N/A	N/A
Bank		105,696		10.78	%		N/A		N/A				49,041	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 $144.1 million as of December 31, 2022, compared to $127.4 million as of December 31, 2021 and $107.3 million as of December 31, 2020. 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, 2022:

	Payments Due as of December 31, 2022
	Within One Year		One to Three Years			Three to Five Years		After Five Years	Total
	(Dollars in thousands)
Deposits without a stated maturity	$	1,245,798		$	-		$	-	$	-	$	1,245,798
Time deposits		157,233			26,002			267		-		183,502
Operating lease commitments		532			815			453		530		2,330
Total contractual obligations	$	1,403,563		$	26,817		$	720	$	530	$	1,431,630

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,
	2022		2021			2020
	(Dollars in thousands)
Commitments to extend credit	$	198,027		$	200,393		$	206,520
Standby letters of credit		1,043			5,809			2,366
Total	$	199,070		$	206,202		$	208,886

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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 JOBS Act permits us an extended transition period for complying with new or revised accounting standards affecting public companies. We have elected to take advantage of this extended
transition period, which means that the financial statements included in this report, as well as any financial statements that we file in the future, will not be subject to all new or revised accounting standards generally applicable to public
companies for the transition period for so long as we remain an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period under the JOBS Act.

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 Loan and Lease 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.

Goodwill and Intangibles

Intangible assets totaled $1.3 million and goodwill, net of accumulated amortization totaled $8.6 million for the year ended December 31, 2022, compared to intangible assets of $1.6 million and
goodwill, net of accumulated amortization of $8.5 million for the year ended December 31, 2021.

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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