UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
June 30, 2022
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to
Commission File Number:
001-38656
(Exact name of registrant as specified in its charter)
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( State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s telephone number, including area code:
405
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810-8600
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§
232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes
☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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☐
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Accelerated filer
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☐
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☒
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Smaller reporting company
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Emerging growth company
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐
No ☒
As of August 15, 2022, the registrant had
9,099,905
shares of common stock, par value $0.01, outstanding.
TABLE OF CONTENTS
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Page
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PART I.
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FINANCIAL INFORMATION
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Item 1.
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Financial Statements
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4
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5
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6
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7
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8
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Item 2.
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31
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Item 3.
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50
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Item 4.
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50
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PART II.
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OTHER INFORMATION
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51
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Item 1.
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51
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Item 1A.
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51
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Item 2.
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51
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51
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| Item 4. | 51 | |
| Item 5. | 51 | |
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Item 6.
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52
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52
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Forward-Looking Statements
This Form 10-Q contains forward-looking statements. These forward-looking statements reflect our current views
with respect to, among other things, future events and our financial performance. Any statements about our expectations, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance are not historical facts
and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimate,” “plans,”
“projects,” “continuing,” “ongoing,” “expects,” “intends” and similar words or phrases. Any or all of the forward-looking statements in (or conveyed orally regarding) this presentation may turn out to be inaccurate. The inclusion of or
reference to forward-looking information in this presentation should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. We have based these
forward-looking statements largely on its current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. Our actual
results could differ materially from those anticipated in such forward-looking statements as a result of risks, uncertainties and assumptions that are difficult to predict. Factors that could cause such differences are discussed in the section
titled “Risk Factors” in our most recent Annual Report on Form 10-K, and may be discussed from time to time in our other SEC filings, including our Quarterly Reports. If one or more events related to these or other risks or uncertainties
materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. You are cautioned not to place undue reliance on forward-looking statements. Further, any forward-looking
statement speaks only as of the date on which it is made and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the
occurrence of unanticipated events, except as may be required by law. All forward-looking statements herein are qualified by these cautionary statements.
Bank7 Corp.
Unaudited Condensed Consolidated
Balance Sheets
(Dollar amounts in thousands, except share data)
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Assets
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June 30, 2022
(unaudited)
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December 31, 2021
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Cash and due from banks
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$
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$
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Federal funds sold
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Cash and cash equivalents
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Interest-bearing time deposits in other banks
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Available-for-sale debt securities
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Loans, net of allowance for loan losses of $
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Loans held for sale
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Premises and equipment, net
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Nonmarketable equity securities
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Core deposit intangibles
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Goodwill
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Interest receivable and other assets
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Total assets
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$
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$
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Liabilities and Shareholders’ Equity
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Deposits
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Noninterest-bearing
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$
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$
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Interest-bearing
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Total deposits
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Income taxes payable
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Interest payable and other liabilities
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Total liabilities
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Shareholders’ equity
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Common stock, $
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Additional paid-in capital
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Retained earnings
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Accumulated other comprehensive income (loss)
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(
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) |
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|||||
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Total shareholders’ equity
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Total liabilities and shareholders’ equity
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$
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$
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See accompanying notes to Unaudited Condensed Consolidated Financial Statements
Bank7 Corp.
(Dollar amounts in thousands, except share data)
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Three months ended
June 30,
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Six
months ended
June 30,
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2022
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2021
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2022
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2021
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||||||||||||
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Interest Income
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Loans, including fees
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$
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$
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$
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$
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Interest-bearing time deposits in other banks
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Debt securities, taxable
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Debt securities, tax-exempt
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Other interest and dividend income
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Total interest income
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Interest Expense
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Deposits
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Total interest expense
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Net Interest Income
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Provision for Loan Losses
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Net Interest Income After Provision for Loan Losses
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Noninterest Income
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Secondary market income
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Gain (Loss) on sales, maturities, prepayments and calls of available-for-sale debt securities
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(
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Service charges on deposit accounts
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Other
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Total noninterest income
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Noninterest Expense
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Salaries and employee benefits
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Furniture and equipment
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Occupancy
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Data and item processing
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Accounting, marketing and legal fees
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Regulatory assessments
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Advertising and public relations
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Travel, lodging and entertainment
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Other
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Total noninterest expense
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Income Before Taxes
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Income tax expense
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Net Income
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$
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$
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$
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$
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Earnings per common share - basic
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$
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$
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$
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$
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Earnings per common share - diluted
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Weighted average common shares outstanding - basic
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Weighted average common shares outstanding - diluted
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Other Comprehensive Income
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Unrealized losses on securities, net of tax benefit of $
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$
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(
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$
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$
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(
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$
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Reclassification adjustment for realized (gain)loss included in net income, net of tax of $
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(
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Other comprehensive loss, net of tax benefit of $
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$
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(
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$
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$
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(
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$
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Comprehensive Income
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$
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$
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$
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$
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See accompanying notes to Unaudited Condensed Consolidated Financial Statements
Bank7 Corp.
(Dollar amounts in thousands, except per share data)
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Three Months Ended
June 30,
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Six
Months Ended
June 30,
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||||||||||||||
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2022
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2021
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2022
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2021
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Common Stock (Shares)
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||||||||||||||||
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Balance at beginning of period
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Exercise of employee stock options
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Shares issued for restricted stock units
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Balance at end of period
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Common Stock (Amount)
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Balance at beginning of period
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$
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$
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$
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$
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Shares issued for stock options
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Shares issued for restricted stock units
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Balance at end of period
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$
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$
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$
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$
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Additional Paid-in Capital
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||||||||||||||||
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Balance at beginning of period
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$
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$
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$
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$
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Stock-based compensation expense
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Balance at end of period
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$
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$
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$
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$
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||||||||
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Retained Earnings
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||||||||||||||||
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Balance at beginning of period
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$
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$
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$
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$
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||||||||
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Net income
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||||||||||||
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Cash dividends declared ($
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(
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)
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(
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)
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(
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)
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(
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)
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||||||||
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Balance at end of period
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$
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$
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$
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$
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||||||||
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Accumulated Other Comprehensive Income (Loss)
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||||||||||||||||
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Balance at beginning of period
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$
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(
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) |
$
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$
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$
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|||||||
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Net change due to unrealized loss
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(
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) |
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(
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) |
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||||||||||
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Balance at end of period
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$
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(
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) |
$
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$
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(
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) |
$
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||||||
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Total Shareholders’ equity
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$
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|
$
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|
$
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$
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|
||||||||
See accompanying notes to Unaudited Condensed Consolidated Financial Statements
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Six Months Ended
June 30,
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||||||||
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2022
|
2021
|
|||||||
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Operating Activities
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||||||||
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Net income
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$
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$
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Adjustments to reconcile net income to net cash provided by operating activities
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||||||||
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Depreciation and amortization
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Provision for loan losses
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Amortization of premiums and discounts on securities
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Gain on sales of loans
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(
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)
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(
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)
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Net loss on sale of available for sale debt securities
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Stock-based compensation expense
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(Gain) loss on sale of premises and equipment
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(
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(
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Cash receipts from the sale of loans originated for sale
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||||||
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Cash disbursements for loans originated for sale
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(
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)
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(
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)
|
||||
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Deferred income tax benefit
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(
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)
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(
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)
|
||||
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Changes in
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||||||||
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Interest receivable and other assets
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Interest payable and other liabilities
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Net cash provided by operating activities
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Investing Activities
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||||||||
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Maturities of interest-bearing time deposits in other banks
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Purchases of interest-bearing time deposits in other banks
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(
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) |
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|||||
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Proceeds from sale of available-for-sale debt securities
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Maturities, prepayments and calls of available-for-sale debt securities
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Purchases of available-for-sale debt securities
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(
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) |
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Net change in loans
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(
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)
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(
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)
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||||
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Purchases of premises and equipment
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(
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(
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)
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||||
| Proceeds from sale of premises and equipment |
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Change in nonmarketable equity securities
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(
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)
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Net cash used in investing activities
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(
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(
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Financing Activities
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||||||||
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Net change in deposits
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||||||
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Cash distributions
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(
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)
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(
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Net cash provided by financing activities
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||||||
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(Decrease) Increase in Cash and Cash Equivalents
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(
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)
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|||||
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Cash and Cash Equivalents, Beginning of Period
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||||||
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Cash and Cash Equivalents, End of Period
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$
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$
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||||
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Supplemental Disclosure of Cash Flows Information
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||||||||
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Interest paid
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$
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$
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||||
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Income taxes paid
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$ |
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$ |
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Dividends declared and not paid
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$
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$
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||||
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Measurement period goodwill adjustment
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$ |
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$ |
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See accompanying notes to Unaudited Condensed Consolidated Financial Statements
Nature of Operations
Bank7 Corp. (the “Company”), formerly
known as Haines Financial Corp, is a bank holding company whose principal activity is the ownership and management of its wholly owned subsidiary, Bank7 (the “Bank”). The Bank is primarily engaged in providing a full range of banking and
financial services to individual and corporate customers located in Oklahoma, Kansas, and Texas. The Bank is subject to competition from other financial institutions. The Company is subject to the regulation of certain federal agencies and
undergoes periodic examinations by those regulatory authorities.
Basis of Presentation
The accompanying unaudited interim consolidated financial statements contained
herein reflect all adjustments which are, in the opinion of management, necessary to provide a fair statement of the financial position, results of operations, and cash flows of the Company for the interim periods presented. All such adjustments
are of a normal and recurring nature. There have been no significant changes in the accounting policies of the Company since December 31, 2021, the date of the most recent annual report. The condensed consolidated balance sheet of the Company as
of December 31, 2021 has been derived from the audited consolidated balance sheet of the Company as of that date. Certain information and notes normally included in the Company’s annual financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. The information contained in the financial statements and footnotes included in Company’s annual report for the year ended December 31, 2021, should be referred to in connection with
these unaudited interim consolidated financial statements. Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company, the Bank and its subsidiary, 1039 NW 63rd, LLC, which holds real estate utilized by the Bank. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses, valuation of other real estate owned, other-than-temporary impairments, income taxes, goodwill and intangibles and fair values of financial instruments.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The ASU
requires lessees to recognize a lease liability and a right-of-use asset for all leases, excluding short-term leases, at the commencement date. The guidance in the ASU is effective for annual reporting periods beginning after December 15, 2021.
Additionally, a modified retrospective transition approach is required for a leases existing at the earliest comparative period presented. Management is in the process of planning implementation of this ASU; however, it is not expected to have a
significant impact on the Company’s financial condition, results of operation, or capital position, but will impact the presentation on the balance sheet of the Company’s current operating leases. The Company will adopt this ASU in the fourth
quarter of 2022.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses
(Topic 326). The ASU requires the replacement of the current incurred loss model with an expected loss model, referred to as the current expected credit loss (CECL) model. The guidance in the ASU is effective for reporting periods beginning after
December 15, 2022 with a cumulative-effect adjustment to retained earnings required for the first reporting period. Management is in the process of planning implementation and has established a committee to assist in implementation and
evaluation. The Company will adopt this ASU in the first quarter of 2023.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848)
which provides relief for companies preparing for discontinuation of interest rates such as the London Interbank Offered Rate (“LIBOR”). On March 5, 2021, the U.K. Financial Conduct Authority (“FCA”) announced that the majority of LIBOR rates
will no longer be published after December 31, 2021, although a number of key settings will continue until June 2023, to support the rundown of legacy contracts only. As a result, LIBOR should be discontinued as a reference rate. The main
provisions for contract modifications include optional relief by allowing the modification as a continuation of the existing contract without additional analysis and other optional expedients regarding embedded features. ASU 2020-04 was effective
upon issuance and generally can be applied through December 31, 2022. The adoption of ASU 2020-04 did not significantly impact the consolidated financial statements.
|
Note
2:
|
Recent Events, Including Mergers and
Acquisitions
|
Business Combinations
On December 9, 2021, the Company acquired
100
% of the
outstanding equity of Watonga Bancshares, Inc. (“Watonga”), the bank holding company for Cornerstone Bank, for $
29.3
million in cash.
Immediately following the acquisition, Watonga was dissolved and Cornerstone Bank merged with and into Bank7.
An updated preliminary summary of the fair value of assets acquired and liabilities assumed from Watonga are as follows:
|
Estimated Fair Value
|
||||
|
(in thousands)
|
||||
|
Assets Acquired
|
||||
|
Cash and cash equivalents
|
$
|
|
||
|
Available-for-sale debt securities
|
|
|||
|
Federal funds sold
|
|
|||
|
Loans
|
|
|||
|
Premises and equipment
|
|
|||
|
Core deposit intangible
|
|
|||
|
Prepaid expenses and other assets
|
|
|||
|
Total assets acquiried
|
$ |
|
||
|
Liabilities Assumed
|
||||
|
Deposits
|
$
|
|
||
|
Accounts payable and accrued expenses
|
|
|||
|
Total liabilities assumed
|
$ |
|
||
|
Net assets acquired
|
$
|
|
||
|
Consideration transferred
|
|
|||
|
Goodwill
|
$ |
|
||
Goodwill
decreased $
89
,000 and increased $
238
,000
for the three months and six months ended June 30, 2022, respectively, related to the resolution of contractual obligations and assessment of the fair value of premises and equipment.
As of the
acquisition date, the Company evaluated $
117.3
million of net loans ($
118.5
million gross loans less $
1.2
million discount)
purchased in conjunction with the acquisition of Watonga Bancshares, Inc. in accordance with the provisions of FASB ASC Topic 310-20,
Nonrefundable Fees and Other Cost
s
.
As of June 30, 2022, the net loan balance of the ASC Topic 310-20 purchased loans is $
82.2
million ($
83.1
million gross loans less $
891,000
discount). The fair value discount is being accreted into interest income over the weighted average life of the loans using a constant yield method.
The fair values of assets acquired and
liabilities assumed are preliminary and based on valuation estimates and assumptions. The accounting for business combinations require estimates and judgments regarding expectations of future cash flows of the acquired business, and the
allocations of those cash flows to identifiable tangible and intangible assets. The estimates and assumptions underlying the preliminary valuations are subject to collection of information necessary to complete the valuations (specifically
related to projected financial information) within the measurement periods, which are up to one year from the acquisition date. Although the Company does not currently expect material changes to the initial value of net assets acquired, the
Company continues to evaluate assumptions related to the valuation of the assets acquired and liabilities assumed. Any adjustments to our estimates of purchase price allocation will be made in the periods in which the adjustments are
determined, and the cumulative effect of such adjustments will be calculated as if the adjustments had been completed as of the acquisition date.
| Note 3: |
Restriction on Cash and Due from Banks
|
On March 26, 2020, the Federal
Reserve Board reduced reserve requirement ratios to zero percent, effectively eliminating reserve requirements for all depository institutions.
There was
no
reserve requirement
as of June 30, 2022.
| Note 4: |
Earnings per Share
|
Basic earnings per common share
represents the amount of earnings for the period available to each share of common stock outstanding during the reporting period. Basic EPS is computed based upon net income divided by the weighted average number of common shares outstanding
during the year.
Diluted EPS represents the amount of earnings for the period available to each share of common stock outstanding including common stock that would have been outstanding assuming the issuance of common shares for
all dilutive potential common shares outstanding during each reporting period. Diluted EPS is computed based upon net income divided by the weighted average number of common shares outstanding during each period, adjusted for the effect of
dilutive potential common shares, such as restricted stock awards and nonqualified stock options, calculated using the treasury stock method.
The following table shows the computation of basic and
diluted earnings per share:
|
As of and for the three months
ended June 30,
|
As of and for the six months
ended June 30,
|
|||||||||||||||
|
2022
|
2021
|
2022
|
2021
|
|||||||||||||
|
(Dollars in thousands, except per share amounts)
|
||||||||||||||||
|
Numerator
|
||||||||||||||||
|
Net income
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Denominator
|
||||||||||||||||
|
Weighted-average shares outstanding for basic earnings per share
|
|
|
|
|
||||||||||||
|
Dilutive effect of stock compensation
(1)
|
|
|
|
|
||||||||||||
|
Denominator for diluted earnings per share
|
|
|
|
|
||||||||||||
|
Earnings per common share
|
||||||||||||||||
|
Basic
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Diluted
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
(1)
The following have not been included in diluted earnings per share because to do so would have been antidilutive for the
periods presented: Nonqualified stock options outstanding of
24
and
265,750
for the three month periods ended June 30, 2022 and 2021, respectively, and
0
and
27,000
for the six month periods ended June 30, 2022 and 2021, respectively; Restricted stock units of
4
and
27,000
for the three
month periods ended June 30, 2022 and 2021, respectively, and
2
and
27,000
for the six month periods ended June 30, 2022 and 2021
, respectively
.
Note 5: Debt Securities
The following table summarizes the amortized cost and fair value of debt securities available-for-sale at June 30, 2022 and the corresponding
amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss):
|
(in thousands)
|
Amortized Cost
|
Gross Unrealized
Gains
|
Gross Unrealized
Losses
|
Fair Value
|
||||||||||||
|
Available-for-sale as of June 30, 2022
|
||||||||||||||||
|
U.S. Federal agencies
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||
|
Mortgage-backed securities
(1)(2)
|
|
|
(
|
)
|
|
|||||||||||
|
State and political subdivisions
|
|
|
(
|
)
|
|
|||||||||||
|
U.S. Treasuries
|
|
|
(
|
)
|
|
|||||||||||
|
Corporate debt securities
|
|
|
(
|
)
|
|
|||||||||||
|
Total available-for-sale
|
|
|
(
|
)
|
|
|||||||||||
|
Total debt securities
|
$ |
|
$ |
|
$ |
(
|
)
|
$ |
|
|||||||
|
(in thousands)
|
Amortized Cost
|
Gross Unrealized
Gains
|
Gross Unrealized
Losses
|
Fair Value
|
||||||||||||
|
Available-for-sale as of December 31, 2021
|
||||||||||||||||
|
U.S. Federal agencies
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Mortgage-backed securities
(1)
|
|
|
|
|
||||||||||||
|
State and political subdivisions
|
|
|
|
|
||||||||||||
|
U.S. Treasuries
|
|
|
(
|
)
|
|
|||||||||||
|
Corporate debt securities
|
|
|
|
|
||||||||||||
|
Total available-for-sale
|
|
|
(
|
)
|
|
|||||||||||
|
Total debt securities
|
$ |
|
$ |
|
$ |
(
|
)
|
$ |
|
|||||||
(1)
All of our mortgage-backed securities and collateralized mortgage obligations are issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored entities.
(2)
Included in mortgage-back securities is $
27.79
million of residential mortgaged-back securities and $
17.58
million of commerical mortgaged-back securities.
The amortized cost and estimated fair value of investment securities at June 30, 2022, by contractual maturity, are shown below. The expected
life of mortgage-backed securities will differ from contractual maturities because borrowers may have the right to call or prepay the underlying mortgage loans with or without call or prepayment penalties.
|
(in thousands)
|
Amortized Cost
|
Fair Value
|
||||||
|
Available-for-sale as of June 30, 2022
|
||||||||
|
Due in one year or less
|
$
|
|
$
|
|
||||
|
Due after one year through five years
|
|
|
||||||
|
Due after five years through ten years
|
|
|
||||||
|
Due after ten years
|
|
|
||||||
|
Mortgage-backed securities
(1)
|
|
|
||||||
|
Total available-for-sale
|
$ |
|
$ |
|
||||
|
(in thousands)
|
Amortized Cost
|
Fair Value
|
||||||
|
Available-for-sale as of December 31, 2021
|
||||||||
|
Due in one year or less
|
$
|
|
$
|
|
||||
|
Due after one year through five years
|
|
|
||||||
|
Due after five years through ten years
|
|
|
||||||
|
Due after ten years
|
|
|
||||||
|
Mortgage-backed securities
(1)
|
|
|
||||||
|
Total available-for-sale
|
$ |
|
$ |
|
||||
(1)
All of our mortgage-backed securities and collateralized mortgage obligations are issued and/or guaranteed by U.S. government agencies or U.S. government-sponsored entities.
There were
two
holdings of
securities of issuers in an amount greater than 10% of stockholders equity at June 30, 2022, one mortgage-backed security with a fair value of $
14.32
million, and one U.S. Treasury note with a fair value of $
97.41
million.
The following table presents a summary of realized gains and losses from the sale, maturity, prepayment and call of debt securities for the six
months ended June 30, 2022 and the three months ended June 30, 2022. Note, the Company did
no
t have available-for-sale debt securities
at June 30, 2021.
|
Six Months
Ended
June 30
,
|
Three Months
Ended
June 30
,
|
|||||||
|
(in thousands)
|
||||||||
|
Proceeds from sales, maturities, prepayments and calls
|
$
|
|
$
|
|
||||
|
Gross realized gains on sales, maturities, prepayments and calls
|
|
|
|
|||||
|
Gross realized losses on sales, maturities, prepayments and calls
|
(
|
) |
|
|
||||
|
Total realized (losses), net
|
$
|
(
|
) |
$
|
|
|
||
The following table details book value of pledged securities as of June 30, 2022:
|
June 30,
2022
|
December 31,
2021
|
|||||||
|
Book value of pledged securities
|
$
|
|
$
|
|
||||
The following table
details gross unrealized losses and fair values of investment securities aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position at June 30, 2022. As of June 30, 2022,
the Company had the ability and intent to hold the debt securities classified as available-for-sale for a period of time sufficient for a recovery of cost. The unrealized losses are due to increases in market interest rates over the yields
available at the time the underlying debt securities were purchased or acquired. The fair value of those debt securities having unrealized losses is expected to recover as the securities approach their maturity date or repricing date, or if
market yields for such investments decline. Management has no intent or requirement to sell before the recovery of the unrealized loss; therefore,
no
impairment loss was realized in the Company’s consolidated statements of comprehensive income.
|
Less than Twelve Months
|
Twelve Months or Longer
|
Total
|
||||||||||||||||||||||
|
Fair Value
|
Gross Unrealized
Losses
|
Fair Value
|
Gross Unrealized
Losses
|
Fair Value
|
Gross Unrealized
Losses
|
|||||||||||||||||||
|
(in thousands)
|
||||||||||||||||||||||||
|
Available-for-sale as of June 30, 2022
|
||||||||||||||||||||||||
|
U.S. Federal agencies
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
||||||||||
|
Mortgage-backed securities
|
|
(
|
)
|
|
|
|
(
|
)
|
||||||||||||||||
|
State and political subdivisions
(1)
|
|
(
|
)
|
|
|
|
(
|
)
|
||||||||||||||||
|
U.S. Treasuries
|
|
(
|
)
|
|
|
|
(
|
)
|
||||||||||||||||
|
Corporate debt securities
|
|
(
|
)
|
|
|
|
(
|
)
|
||||||||||||||||
|
Total available-for-sale
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
||||||||||
|
Less than Twelve Months
|
Twelve Months or Longer
|
Total
|
||||||||||||||||||||||
|
Fair Value
|
Gross Unrealized
Losses
|
Fair Value
|
Gross Unrealized
Losses
|
Fair Value
|
Gross Unrealized
Losses
|
|||||||||||||||||||
|
(in thousands)
|
||||||||||||||||||||||||
|
Available-for-sale as of December 31, 2021
|
||||||||||||||||||||||||
|
U.S. Federal agencies
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
Mortgage-backed securities
|
|
|
|
|
|
|
||||||||||||||||||
|
State and political subdivisions
(1)
|
|
|
|
|
|
|
||||||||||||||||||
|
U.S. Treasuries
|
|
(
|
)
|
|
|
|
(
|
)
|
||||||||||||||||
|
Corporate debt securities
|
|
|
|
|
|
|
||||||||||||||||||
|
Total available-for-sale
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
||||||||||
(1)
All of our state and political subdivisions securities are rate AA- or better.
| Note 6: |
Loans and Allowance for Loan Losses
|
A summary of loans at June 30, 2022 and December 31, 2021, are as follows
(dollars in thousands):
|
June 30,
2022
|
December 31,
2021
|
|||||||
|
Construction & development
|
$
|
|
$
|
|
||||
|
1 - 4 family real estate
|
|
|
||||||
|
Commercial real estate - other
|
|
|
||||||
|
Total commercial real estate
|
|
|
||||||
|
Commercial & industrial
|
|
|
||||||
|
Agricultural
|
|
|
||||||
|
Consumer
|
|
|
||||||
|
Gross loans
|
|
|
||||||
|
Less allowance for loan losses
|
(
|
)
|
(
|
)
|
||||
|
Less deferred loan fees
|
(
|
)
|
(
|
)
|
||||
|
Net loans
|
$
|
|
$
|
|
||||
Included in the
commercial & industrial loan balances are $
9.9
million and $
18.7
million of loans that were originated under the SBA PPP program as of June 30, 2022 and December 31, 2021, respectively.
The following table presents, by portfolio segment, the
activity in the allowance for loan losses for the three months ended June 30, 2022 and 2021 (dollars in thousands):
|
Construction &
Development
|
1 - 4 Family
Real Estate
|
Commercial
Real Estate -
Other
|
Commercial
& Industrial
|
Agricultural
|
Consumer
|
Total
|
||||||||||||||||||||||
|
June 30
,
2022
|
||||||||||||||||||||||||||||
|
Balance, beginning of period
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Charge-offs
|
|
|
|
|
|
|
(
|
)
|
(
|
)
|
||||||||||||||||||
|
Recoveries
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Net (charge-offs) recoveries
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
|
Provision (credit) for loan losses
|
|
|
|
|
(
|
)
|
|
(
|
)
|
(
|
)
|
|
||||||||||||||||
|
Balance, end of period
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Construction &
Development
|
1 - 4 Family
Real Estate
|
Commercial
Real Estate -
Other
|
Commercial
& Industrial
|
Agricultural
|
Consumer
|
Total
|
||||||||||||||||||||||
|
June 30
,
2021
|
||||||||||||||||||||||||||||
|
Balance, beginning of period
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Charge-offs
|
|
|
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||||||||
|
Recoveries
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Net (charge-offs) recoveries
|
|
|
|
|
|
(
|
)
|
|
||||||||||||||||||||
|
Provision (credit) for loan losses
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Balance, end of period
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
The following table presents, by portfolio segment, the activity in the allowance for loan losses for the six months ended June 30, 2022 and 2021
(dollars in thousands):
|
|
Construction &
Development
|
1 - 4 Family
Real Estate
|
Commercial
Real Estate -
Other
|
Commercial
& Industrial
|
Agricultural
|
Consumer
|
Total
|
|||||||||||||||||||||
|
June 30, 2022
|
||||||||||||||||||||||||||||
|
Balance, beginning of period
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Charge-offs
|
|
|
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||||||||
|
Recoveries
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Net (charge-offs) recoveries
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Provision (credit) for loan losses
|
|
|
(
|
)
|
|
(
|
)
|
(
|
)
|
|
||||||||||||||||||
|
Balance, end of period
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
|
Construction &
Development
|
1 - 4 Family
Real Estate
|
Commercial
Real Estate -
Other
|
Commercial
& Industrial
|
Agricultural
|
Consumer
|
Total
|
|||||||||||||||||||||
|
June 30, 2021
|
||||||||||||||||||||||||||||
|
Balance, beginning of period
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Charge-offs
|
|
|
|
|
|
|
(
|
)
|
(
|
)
|
||||||||||||||||||
|
Recoveries
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Net (charge-offs) recoveries
|
|
|
|
|
|
|
(
|
)
|
|
|
||||||||||||||||||
|
Provision (credit) for loan losses
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
|
Balance, end of period
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
The following table presents, by portfolio segment, the balance in allowance for loan losses and the gross loans based upon portfolio segment and impairment method as of June 30, 2022 and December 31, 2021 (dollars in thousands):
|
Construction &
Development
|
1 - 4 Family
Real Estate
|
Commercial
Real Estate -
Other
|
Commercial
& Industrial
|
Agricultural
|
Consumer
|
Total
|
||||||||||||||||||||||
|
June 30
,
2022
|
||||||||||||||||||||||||||||
|
Allowance Balance
|
||||||||||||||||||||||||||||
|
Ending balance Individually evaluated for impairment
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Collectively evaluated for impairment
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Gross Loans
|
||||||||||||||||||||||||||||
|
Ending balance Individually evaluated for impairment
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Collectively evaluated for impairment
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
December 31,
2021
|
||||||||||||||||||||||||||||
|
Allowance Balance
|
||||||||||||||||||||||||||||
|
Ending balance Individually evaluated for impairment
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Collectively evaluated for impairment
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Gross Loans
|
||||||||||||||||||||||||||||
|
Ending balance Individually evaluated for impairment
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Collectively evaluated for impairment
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
Internal Risk
Categories
Each loan segment is made up of loan categories possessing
similar risk characteristics.
Risk characteristics applicable to each segment of the loan
portfolio are described as follows:
Real
Estate
–
The real estate loan portfolio consists of loans made to finance both residential and commercial properties. Credit risk in these loans can be impacted by economic conditions within the Company’s market areas
that might impact either property values or a borrower’s ability to repay. Commercial real estate loans typically involve larger principal amounts and are repaid primarily from the cash flow of a borrower’s principal business operation, the
sale of the real estate, and in some cases from income that is independent from the real estate asset itself.
Commercial
& Industrial
– The commercial portfolio
includes loans to commercial customers for use in financing working capital needs, equipment purchases and expansions. The loans in this category are repaid primarily from the cash flow of a borrower’s principal business operation. Credit
risk in these loans is driven by creditworthiness of a borrower and the economic conditions that impact the cash flow stability from business operations.
Agricultural
–
Loans secured by
agricultural assets are generally made for the purpose of acquiring land devoted to crop production, and various animals that are eventually harvested and sold, and typically housed on the underlying secured property. Credit risk in these
loans may be impacted by crop and commodity prices, the creditworthiness of a borrower, and changes in economic conditions which might affect underlying property values and the local economies in the Company’s market areas.
Consumer
– The consumer loan portfolio consists of various term and
line of credit loans such as automobile loans and loans for other personal purposes. Residential loans in this category are generally secured by owner occupied 1–4 family residences. Repayment for these types of loans will come from a
borrower’s income sources that are typically independent of the loan purpose. Credit risk is driven by consumer economic factors, such as unemployment and general economic conditions in the Company’s market area and the creditworthiness of a
borrower.
Loan grades are
numbered 1 through 4. Grade 1 is considered satisfactory. The grades of 2 and 3, or Watch and Special Mention, respectively, represent loans of lower quality and are considered criticized. Grade of 4, or Substandard, refers to loans that are
classified.
| • |
Grade 1
(Pass)
– These loans generally conform to Bank policies, and are characterized by policy conforming advance rates on collateral, and have well-defined repayment sources. In addition, these
credits are extended to borrowers and/or guarantors with a strong balance sheet and either substantial liquidity or a reliable income history.
|
|
|
• |
Grade
2 (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 (CLC), or Credit Quality Committee (CQC) warrant a heightened sense and frequency of monitoring.
|
|
|
• |
Grade
3 (Special Mention)
– These loans must 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 a “2” or a “4” as this is viewed as a transitory loan grade.
|
|
|
• |
Grade
4 (Substandard)
–
These loans are not adequately protected by the sound worth and debt service capacity of the borrower, but may be well secured. They have defined weaknesses relative to cash flow, collateral, financial condition, or other factors that
might jeopardize repayment of all of the principal and interest on a timely basis. There is the possibility that a future loss will occur if weaknesses are not remediated.
|
The Company
evaluates the definitions of loan grades and the allowance for loan losses methodology on an ongoing basis. No changes were made to either during the period ended June 30, 2022.
The following table presents the credit risk profile of
the Company’s loan portfolio based on internal rating category as of June 30, 2022 and December 31, 2021 (dollars in thousands):
|
Construction &
Development
|
1 - 4 Family
Real Estate
|
Commercial
Real Estate -
Other
|
Commercial
& Industrial
|
Agricultural
|
Consumer
|
Total
|
||||||||||||||||||||||
|
June 30, 2022
|
||||||||||||||||||||||||||||
|
Grade
|
||||||||||||||||||||||||||||
|
1 (Pass)
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
2 (Watch)
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
3 (Special Mention)
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
4 (Substandard)
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
|
Construction &
Development
|
1 - 4 Family
Real Estate
|
Commercial
Real Estate -
Other
|
Commercial
& Industrial
|
Agricultural
|
Consumer
|
Total
|
|||||||||||||||||||||
|
December 31, 2021
|
||||||||||||||||||||||||||||
|
Grade
|
||||||||||||||||||||||||||||
|
1 (Pass)
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
2 (Watch)
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
3 (Special Mention)
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
4 (Substandard)
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
The following table presents the Company’s loan portfolio
aging analysis of the recorded investment in loans as of June 30, 2022 and December 31, 2021 (dollars in thousands):
|
|
Past Due
|
Total Loans
|
||||||||||||||||||||||||||
|
30–59
Days
|
60–89
Days
|
Greater than
90 Days
|
Total
|
Current
|
Total
Loans
|
> 90 Days &
Accruing
|
||||||||||||||||||||||
|
June 30
,
2022
|
||||||||||||||||||||||||||||
|
Construction & development
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
1 - 4 family real estate
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Commercial real estate - other
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Commercial & industrial
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Agricultural
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Consumer
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
December 31,
2021
|
||||||||||||||||||||||||||||
|
Construction & development
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
1 - 4 family real estate
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Commercial real estate - other
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Commercial & industrial
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Agricultural
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Consumer
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
The following table presents impaired loans as of June
30, 2022 and December 31, 2021 (dollars in thousands):
|
Unpaid
Principal
Balance
|
Recorded
Investment
with No
Allowance
|
Recorded
Investment
with an
Allowance
|
Total
Recorded
Investment
|
Related
Allowance
|
Average
Recorded
Investment
|
Interest
Income
Recognized
|
Average
Recorded
Investment
|
Interest
Income
Recognized
|
||||||||||||||||||||||||||||
|
Three Months Ended June 30,
2022
|
Six Months Ended June 30,
2022
|
|||||||||||||||||||||||||||||||||||
|
June 30
,
2022
|
||||||||||||||||||||||||||||||||||||
|
Construction & development
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$ |
|
$ |
|
||||||||||||||||||
|
1 - 4 Family Real Estate
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Commercial Real Estate - other
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Commercial & industrial
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Agricultural
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Consumer
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$ |
|
$
|
|
|
|||||||||||||||||
|
December 31,
2021
|
Three Months Ended June 30,
2021
|
Six Months Ended June 30,
2021
|
||||||||||||||||||||||||||||||||||
|
Construction & development
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$ |
|
$ |
|
||||||||||||||||||
|
1 - 4 Family Real Estate
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Commercial Real Estate - other
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Commercial & industrial
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Agricultural
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||
|
Consumer
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$ |
|
$ |
|
||||||||||||||||||
Impaired loans include nonperforming
loans and also include loans modified in troubled-debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. These concessions could include a reduction in interest rate on the loan, payment
extensions, forgiveness of principal, forbearance or other actions intended to maximize collection.
Included in certain loan categories in
the impaired loans are troubled debt restructurings that were classified as impaired. At June 30, 2022, the Company had $
1.3
million
of commercial real estate loans, compared to $
1.4
million of commercial real estate loans that were classified as troubled-debt
restructurings and impaired as of December 31, 2021. There were
no
newly modified troubled-debt restructurings during the
six months ended June 30, 2022.
There were
no
troubled-debt restructurings modified in the past six months that subsequently defaulted for the period ended June 30, 2022.
The following table represents information regarding nonperforming assets at
June 30, 2022 and December 31, 2021 (dollars in thousands):
|
Construction &
Development
|
1 - 4 Family
Real Estate
|
Commercial
Real Estate -
Other
|
Commercial
& Industrial
|
Agricultural
|
Consumer
|
Total
|
||||||||||||||||||||||
|
June 30
,
2022
|
||||||||||||||||||||||||||||
|
Nonaccrual loans
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Troubled-debt restructurings (1)
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Accruing loans 90 or more days past due
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Total nonperforming loans
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Construction &
Development
|
1 - 4 Family
Real Estate
|
Commercial
Real Estate -
Other
|
Commercial
& Industrial
|
Agricultural
|
Consumer
|
Total
|
||||||||||||||||||||||
|
December 31,
2021
|
||||||||||||||||||||||||||||
|
Nonaccrual loans
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Troubled-debt restructurings (1)
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Accruing loans 90 or more days past due
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Total nonperforming loans
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
(1)
|
|
| Note 7: |
Shareholders’ Equity
|
On September 5, 2019, the Company
adopted a Repurchase Plan (the “RP”). The RP initially authorized the repurchase of up to
500,000
shares of the Company’s common
stock. On March 13, 2020, the Company’s Board of Directors approved a
500,000
share expansion, and on November 2, 2020, approved a
750,000
share
expansion to the RP, for a total
of
1,750,000
shares
authorized under the RP. All shares repurchased under the RP have been retired and not held
as treasury stock. The RP expired on September 5, 2021. On October 28, 2021, the Company adopted a new Repurchase Plan (the “New RP”) that authorizes the repurchase of up to
750,000
shares of the Company’s stock. Stock repurchases under the New RP will take place pursuant to a Rule 10b5-1 Plan with pricing and purchasing parameters established by
management
.
A summary of the activity under the RP is as follows:
|
Six Months Ended
June 30,
|
Three Months Ended
June 30,
|
|||||||||||||||
|
2022
|
2021
|
2022
|
2021
|
|||||||||||||
| Number of shares repurchased |
|
|
|
|
||||||||||||
|
Average price of shares repurchased
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
| Shares remaining to be repurchased |
|
|
|
|
||||||||||||
The Company and
Bank are subject to risk-based capital guidelines issued by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital
guidelines that involve quantitative measures of assets, liabilities and certain off-balance-sheet items as calculated under GAAP, regulatory reporting requirements and regulatory capital standards. The Company’s and Bank’s capital amounts and
classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Furthermore, the Company’s and the Bank’s regulators could require adjustments to regulatory capital not reflected
in these financial statements.
Quantitative
measures established by regulation to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios (set forth in the following table) of total, Tier I, and Common Equity capital (as defined in the regulations) to
risk-weighted assets (as defined) and of Tier I capital (as defined) to average assets (as defined). Management believes, as of June 30, 2022, that the Company and Bank meet all capital adequacy requirements to which it is subject and maintains
capital conservation buffers that allow the Company and Bank to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to certain executive officers.
As of June 30,
2022, the most recent notification from the Federal Deposit Insurance Corporation (FDIC) categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must
maintain capital ratios as set forth in the table below. There are no conditions or events since that notification that management believes have changed the Bank’s category.
The Company’s and Bank’s actual capital amounts and
ratios are presented in the following table (dollars in thousands):
|
Actual
|
Minimum
Capital Requirements
|
With Capital
Conservation Buffer
|
Minimum
To Be Well Capitalized
Under Prompt
Corrective Action
|
|||||||||||||||||||||||||||||
|
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
|||||||||||||||||||||||||
|
As of
June 30
,
2022
|
||||||||||||||||||||||||||||||||
|
Total capital to risk-weighted assets
|
||||||||||||||||||||||||||||||||
|
Company
|
$
|
|
|
%
|
$
|
|
|
%
|
$
|
|
|
%
|
N/A
|
N/A
|
||||||||||||||||||
|
Bank
|
|
|
%
|
|
|
%
|
|
|
%
|
$
|
|
|
%
|
|||||||||||||||||||
|
Tier I capital to risk-weighted assets
|
||||||||||||||||||||||||||||||||
|
Company
|
|
|
%
|
|
|
%
|
|
|
%
|
N/A
|
N/A
|
|||||||||||||||||||||
|
Bank
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
||||||||||||||||||||
|
CET I capital to risk-weighted assets
|
||||||||||||||||||||||||||||||||
|
Company
|
|
|
%
|
|
|
%
|
|
|
%
|
N/A
|
N/A
|
|||||||||||||||||||||
|
Bank
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
||||||||||||||||||||
|
Tier I capital to average assets
|
||||||||||||||||||||||||||||||||
|
Company
|
|
|
%
|
|
|
%
|
N/A
|
N/A
|
N/A
|
N/A
|
||||||||||||||||||||||
|
Bank
|
|
|
%
|
|
|
%
|
N/A
|
N/A
|
|
|
%
|
|||||||||||||||||||||
|
As of December 31,
2021
|
||||||||||||||||||||||||||||||||
|
Total capital to risk-weighted assets
|
||||||||||||||||||||||||||||||||
|
Company
|
$
|
|
|
%
|
$
|
|
|
%
|
$
|
|
|
%
|
N/A
|
N/A
|
||||||||||||||||||
|
Bank
|
|
|
%
|
|
|
%
|
|
|
%
|
$
|
|
|
%
|
|||||||||||||||||||
|
Tier I capital to risk-weighted assets
|
||||||||||||||||||||||||||||||||
|
Company
|
|
|
%
|
|
|
%
|
|
|
%
|
N/A
|
N/A
|
|||||||||||||||||||||
|
Bank
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
||||||||||||||||||||
|
CET I capital to risk-weighted assets
|
||||||||||||||||||||||||||||||||
|
Company
|
|
|
%
|
|
|
%
|
|
|
%
|
N/A
|
N/A
|
|||||||||||||||||||||
|
Bank
|
|
|
%
|
|
|
%
|
|
|
%
|
|
|
%
|
||||||||||||||||||||
|
Tier I capital to average assets
|
||||||||||||||||||||||||||||||||
|
Company
|
|
|
%
|
|
|
%
|
N/A
|
N/A
|
N/A
|
N/A
|
||||||||||||||||||||||
|
Bank
|
|
|
%
|
|
|
%
|
N/A
|
N/A
|
|
|
%
|
|||||||||||||||||||||
The federal banking
agencies require that banking organizations meet several risk-based capital adequacy requirements. The current risk-based capital standards applicable to the Company and the Bank are based on the Basel III Capital Rules established by the Basel
Committee on Banking Supervision (the “Basel Committee”). The Basel Committee is a committee of central banks and bank supervisors/regulators from the major industrialized countries that develops broad policy guidelines for use by each
country’s supervisors in determining the supervisory policies they apply. The requirements are intended to ensure that banking organizations have adequate capital given the risk levels of assets and off-balance sheet financial instruments.
The Basel III
Capital Rules require the Bank and the Company to comply with four minimum capital standards: a Tier 1 leverage ratio of at least 4.0%; a CET1 to risk-weighted assets of 4.5%; a Tier 1 capital to risk-weighted assets of at least 6.0%; and a
total capital to risk-weighted assets of at least 8.0%. The calculation of all types of regulatory capital is subject to definitions, deductions and adjustments specified in the regulations.
The Basel III
Capital Rules also require a “capital conservation buffer” of 2.5% above the regulatory minimum risk-based capital requirements. The capital conservation buffer is designed to absorb losses during periods of economic stress and effectively
increases the minimum required risk-weighted capital ratios. Banking institutions with a ratio of CET1 to risk-weighted assets below the effective minimum (4.5% plus the capital conservation buffer) are subject to limitations on certain
activities, including payment of dividends, share repurchases and discretionary bonuses to executive officers based on the amount of the shortfall.
As of June 30,
2022, the Company’s and the Bank’s capital ratios exceeded the minimum capital adequacy guideline percentage requirements under the Basel III Capital Rules on a fully phased-in basis.
The Bank is subject
to certain restrictions on the amount of dividends that it may declare without prior regulatory approval. At June 30, 2022, approximately $
47.4
million of retained earnings was available for dividend declaration from the Bank without prior regulatory approval.
|
Note 8:
|
Related-Party Transactions
|
At June 30, 2022 and December 31, 2021, the Company had
no
loans outstanding to executive officers, directors, significant shareholders and their affiliates (related parties).
T
he Bank
leases office and retail banking space in Woodward, Oklahoma from Haines Realty Investments Company, LLC, a related party of the Company. Lease expense totaled $
39,000
and $
46,000
for the three months ended June 30, 2022 and 2021, respectively and $
77,000
and $
92,000
for the six months
ended June 30, 2022 and 2021, respectively. In addition, payroll and office sharing arrangements were in place between the Company and certain of its affiliates.
|
Note 9:
|
Employee Benefits
|
401(k) Savings Plan
The Company has a retirement savings
401(k) plan covering substantially all employees. Employees may contribute up to the maximum legal limit with the Company matching up to
5
%
of the employee’s salary. Employer contributions charged to expense for the three months ended June 30, 2022 and 2021 totaled $
113,000
and
$
75,000
, respectively. Employer contributions charged to expense for the six months ended June 30, 2022 and 2021 totaled $
208,000
and $
140,000
, respectively.
Stock-Based
Compensation
The Company adopted a nonqualified
incentive stock option plan (the “Incentive Plan”) in September 2018. The Incentive Plan will terminate in September 2028, if not extended. Compensation expense related to the Incentive Plan for the three months ended June 30, 2022 and 2021
totaled $
706,000
and $
171,000
,
respectively. Compensation expense related to the Incentive Plan for the six months ended June 30, 2022 and 2021 totaled $
992,000
and $
473,000
, respectively. There were
706,587
shares available for future grants as of June 30, 2022.
The Company grants to employees and
directors restricted stock units (RSUs) which vest ratably over
,
or
five years
and stock options which vest ratably over
four years
. All RSUs and stock options are granted at the fair value of the common stock at the time of the award. The RSUs are
considered fixed awards as the number of shares and fair value are known at the date of grant and the fair value at the grant date is amortized over the vesting and/or service period.
The Company uses newly issued shares for
granting RSUs and stock options.
The following table is a summary of the stock option
activity under the Incentive Plan (dollar amounts in thousands, except per share data):
|
Options
|
Wgtd. Avg. Exercise
Price
|
Wgtd. Avg.
Remaining
Contractual Term
|
Aggregate
Intrinsic
Value
|
|||||||||||||
|
Six Months Ended June 30, 2022
|
||||||||||||||||
|
Outstanding at December 31, 2021
|
|
$
|
|
|||||||||||||
|
Options Granted
|
|
|
||||||||||||||
|
Options Exercised
|
|
|
||||||||||||||
|
Options Forfeited
|
|
|
|
|||||||||||||
|
Outstanding at June 30, 2022
|
|
|
|
$
|
|
|||||||||||
|
Exercisable at June 30, 2022
|
|
|
|
|
$
|
|
||||||||||
The fair value of
each option grant is estimated on the date of grant using the Black-Scholes option-pricing model and is based on certain assumptions including risk-free rate of return, dividend yield, stock price volatility and the expected term. The fair value
of each option is expensed over its vesting period.
The following table shows the assumptions used for
computing stock-based compensation expense under the fair value method on options granted during the period presented. There were no grants for the six months ended June 30, 2022.
|
For the Six Months Ended
June 30, 2021
|
||||
|
Risk-free interest rate
|
|
%
|
||
|
Dividend yield
|
|
%
|
||
|
Stock price volatility
|
|
%
|
||
|
Expected term
|
|
|||
The following table summarizes share information about RSUs
for the six months ended June 30, 2022 and 2021:
|
|
Number of
Shares
|
Wgtd. Avg. Grant
Date Fair Value
|
||||||
|
Six Months Ended June 30, 2022
|
||||||||
|
Outstanding at December 31, 2021
|
|
$
|
|
|||||
|
Shares granted
|
|
|
||||||
|
Shares vested
|
(
|
)
|
|
|||||
|
Shares forfeited
|
|
|
||||||
|
End of the period balance
|
|
$
|
|
|||||
|
Number of
Shares
|
Wgtd. Avg. Grant
Date Fair Value
|
|||||||
|
Six Months Ended June 30, 2021
|
||||||||
|
Outstanding at December 31, 2020
|
|
$
|
|
|||||
|
Shares granted
|
|
|
||||||
|
Shares vested
|
(
|
)
|
|
|||||
|
Shares forfeited
|
|
|
||||||
|
End of the period balance
|
|
$
|
|
|||||
As of June 30, 2022,
there was approximately $
2.3
million of unrecognized compensation expense related to
157,909
unvested RSUs and $
438,000
of unrecognized compensation
expense related to
249,188
unvested and/or unexercised stock options. The stock option expense is expected to be recognized over a
weighted average period of
2.19
years, and the RSU expense is expected to be recognized over a weighted average period of
2.66
years.
As of June 30, 2021, there was approximately $
1.9
million of unrecognized compensation expense related to
135,618
unvested RSUs and $
756,000
of unrecognized compensation expense related to
265,750
unvested and/or unexercised stock options. The stock option expense is expected to be recognized over a weighted average period of
2.88
years, and the RSU expense is expected to be recognized over a weighted average period of
2.76
years.
| Note 10: |
Disclosures About Fair Value of Assets and Liabilities
|
Fair value is the price that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable
inputs. There is a h
ierarchy of three
levels of inputs that may be used to measure fair value:
|
|
Level 1 |
Quoted prices
in active markets for identical assets or liabilities
|
|
|
Level 2 |
Observable
inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities
|
|
|
Level 3 |
Unobservable
inputs supported by little or no market activity and significant to the fair value of the assets or liabilities
|
Recurring Measurements
Assets and liabilities measured at fair value on a recurring basis include the following:
Available-for-sale debt securities:
Debt securities classified as available-for-sale, as discussed in Note 5, are reported at fair value utilizing Level 2 inputs. For those debt
securities classified as Level 2, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U. S.
Treasury yield curve, live trading levels, trade execution data for similar securities, market consensus prepayments speeds, credit information and the security’s terms and conditions, among other things.
Nonrecurring
Measurements
The following table presents the fair value measurement of
assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at June 30, 2022 and December 31, 2021 (dollars in thousands):
|
Fair Value
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
|||||||||||||
|
June 30
,
2022
|
||||||||||||||||
|
Impaired loans (collateral- dependent)
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
December 31,
2021
|
||||||||||||||||
|
Impaired loans (collateral- dependent)
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Following is a
description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets pursuant to
the valuation hierarchy. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.
Collateral-Dependent
Impaired Loans, Net of Allowance for Loan Losses
The estimated fair
value of collateral-dependent impaired loans is based on fair value, less estimated cost to sell. Collateral-dependent impaired loans are classified within Level 3 of the fair value hierarchy.
The Company considers
evaluation analysis as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. Values of the collateral underlying collateral-dependent loans are obtained when
the loan is determined to be collateral-dependent and subsequently as deemed necessary by executive management and loan administration. Values are reviewed for accuracy and consistency by executive management and loan administration. The ultimate
collateral values are reduced by discounts to consider lack of marketability and estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral.
Unobservable (Level 3) Inputs
The following table presents quantitative information about
unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements.
|
Fair Value
|
Valuation
Technique
|
Unobservable
Inputs
|
Weighted-
Average
|
|||||||
|
June 30, 2022
|
||||||||||
|
Collateral-dependent impaired loans
|
$
|
|
Appraisals from comparable properties
|
Estimated cost to sell
|
|
%
|
||||
|
December 31, 2021
|
||||||||||
|
Collateral-dependent impaired loans
|
$
|
|
Appraisals from comparable properties
|
Estimated cost to sell
|
|
%
|
||||
The following table presents estimated fair values of the
Company’s financial instruments not recorded at fair value at June 30, 2022 and December 31, 2021 (dollars in thousands):
|
|
Carrying |
Fair Value Measurements
|
||||||||||||||||||
|
|
Amount
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||||
|
June 30, 2022
|
||||||||||||||||||||
|
Financial Assets
|
||||||||||||||||||||
|
Cash and due from banks
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Federal funds sold
|
|
|
|
|
|
|||||||||||||||
|
Interest-bearing time deposits in other banks
|
|
|
|
|
|
|||||||||||||||
|
Loans, net of allowance
|
|
|
|
|
|
|||||||||||||||
|
Loans held for sale
|
|
|
|
|
|
|||||||||||||||
|
Nonmarketable equity securities
|
|
|
|
|
|
|||||||||||||||
|
Interest receivable
|
|
|
|
|
|
|||||||||||||||
|
Financial Liabilities
|
||||||||||||||||||||
|
Deposits
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Interest payable
|
|
|
|
|
|
|||||||||||||||
|
December 31, 2021
|
||||||||||||||||||||
|
Financial Assets
|
||||||||||||||||||||
|
Cash and due from banks
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Federal funds sold
|
|
|
|
|
|
|
||||||||||||||
|
Interest-bearing time deposits in other banks
|
|
|
|
|
|
|||||||||||||||
|
Loans, net of allowance
|
|
|
|
|
|
|||||||||||||||
|
Loans held for sale
|
|
|
|
|
|
|||||||||||||||
|
Nonmarketable equity securities
|
|
|
|
|
|
|||||||||||||||
|
Interest receivable
|
|
|
|
|
|
|||||||||||||||
|
Financial Liabilities
|
||||||||||||||||||||
|
Deposits
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Interest payable
|
|
|
|
|
|
|||||||||||||||
The following
methods were used to estimate the fair value of all other financial instruments recognized in the accompanying consolidated balance sheets at amounts other than fair value:
Cash and Due from
Banks, Interest-Bearing Time Deposits in Other Banks, Nonmarketable Equity Securities, Interest Receivable and Interest Payable
The carrying amount approximates fair
value.
Loans and Mortgage
Loans Held for Sale
The Company
determines fair value of loans by using exit market assumptions including factors such as liquidity, credit quality and risk of nonperformance. The fair value is estimated by discounting the future cash flows using the market rates at which
similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans with similar characteristics were aggregated for purposes of the calculations.
Deposits
Deposits include demand deposits, savings accounts, NOW
accounts and certain money market deposits. The carrying amount approximates fair value. The fair value of fixed-maturity time deposits is estimated using a discounted cash flow calculation that applies the rates currently offered for deposits of
similar remaining maturities.
Commitments to Extend
Credit, Lines of Credit and Standby Letters of Credit
The fair values of unfunded commitments are estimated using
the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. The fair values of standby letters of credit and lines of credit are
based on fees currently charged for similar agreements or on the estimated cost to terminate or otherwise settle the obligations with the counterparties at the reporting date. The estimated fair values of the Company’s commitments to extend
credit, lines of credit and standby letters of credit were not material at June 30, 2022 and December 31, 2021.
| Note 11: |
Financial Instruments with Off-Balance Sheet Risk
|
The Company is a party to financial instruments with off-balance
sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the accompanying consolidated balance sheets.
The following summarizes those financial instruments with contract amounts representing credit risk
as of June 30, 2022 and December 31, 2021 (dollars in thousands):
|
June 30,
2022
|
December 31,
2021
|
|||||||
|
(Dollars in thousands)
|
||||||||
|
Commitments to extend credit
|
$
|
|
$
|
|
||||
|
Financial and performance standby letters of credit
|
|
|
||||||
|
$
|
|
$
|
|
|||||
Commitments to extend
credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Each instrument generally has fixed expiration dates or other termination clauses. Since many of the instruments are
expected to expire without being drawn upon, total commitments to extend credit amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary, by the Company upon extension of credit is based on management’s credit evaluation of the customer. Standby letters of credit are irrevocable conditional commitments issued by the Company to guarantee the
performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.
| Note 12: |
Significant Estimates and Concentrations
|
GAAP requires disclosure of certain
significant estimates and current vulnerabilities due to certain concentrations. Estimates related to the allowance for loan losses are reflected in
Note 6
regarding loans. Current vulnerabilities due
to off-balance sheet credit risk are discussed in
Note 11
.
As of June 30, 2022, hospitality loans
were
17
% of gross total loans with outstanding balances of $
200.3
million and unfunded commitments of $
28.2
million;
energy loans were
11
% of gross total loans with outstanding balances of $
131.6
million and unfunded commitments of $
37.3
million.
The Company evaluates goodwill for
potential goodwill impairment on an annual basis or more often based on consideration if any impairment indicators have occurred. A prolonged strain on the U.S. economy impacting the Company could result in goodwill being partially or fully
impaired. At June 30, 2022, goodwill of $
8.7
million was recorded on the consolidated balance sheet.
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, 2021.
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 assets, 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.
As of June 30, 2022, we had total assets of $1.5 billion, gross loans of $1.2 billion, total deposits of $1.3 billion and total shareholders’ equity of
$131.5 million.
Results of Operations
Performance Summary.
For the second quarter of 2022, we reported a pre-tax income of $9.3 million, compared to pre-tax income of $8.1 million for the second quarter of 2021.
For the first six months of 2022, we reported a pre-tax income of $17.5 million, compared to pre-tax income of $14.9 million for the same period in 2021. For the second quarter of 2022, interest income increased by $2.2 million, or 15.5%,
compared to the second quarter of 2021. For the first six months of 2022, interest income increased by $4.0 million, or 14.4%, compared to the same period in 2021. For the second quarter of 2022, average total loans were $1.1 billion with loan
yields of 5.80% as compared to average total loans of $889.3 million with loan yields of 6.48% for the second quarter of 2021. For the first six months of 2022, average total loans were $1.0 billion with loan yields of 5.80% as compared to
average total loans of $868.5 million with loan yields of 6.37% for the same period in 2021.
Our provision for loan losses for the second quarter of 2022 was $219,000, compared to $1.3 million for the second period of 2021. Our provision for loan losses for the first six months of 2022 was $495,000, compared
to $2.6 million for the same period in 2021.
Return on average equity was 21.67% for the second quarter of 2022, as compared to 21.61% for the second quarter of 2021. Return on average equity was 20.52% for first six months of 2022, as compared to 20.34% for
the same period in 2021.
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 Including Loan Fee Income
|
|||||||||||||||||||||||
|
|
For the Three Months Ended June 30,
|
|||||||||||||||||||||||
|
|
2022
|
2021
|
||||||||||||||||||||||
|
|
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
(1)
|
$
|
130,961
|
$
|
263
|
0.81
|
%
|
$
|
128,643
|
$
|
64
|
0.20
|
%
|
||||||||||||
|
Investment securities, taxable-equivalent
(2)
|
174,583
|
571
|
1.31
|
1,187
|
16
|
5.41
|
||||||||||||||||||
|
Investment securities, tax exempt
|
22,244
|
85
|
1.53
|
-
|
-
|
-
|
||||||||||||||||||
|
Loans held for sale
|
279
|
-
|
-
|
557
|
-
|
-
|
||||||||||||||||||
|
Total loans
(3)
|
1,090,053
|
15,754
|
5.80
|
889,278
|
14,357
|
6.48
|
||||||||||||||||||
|
Total interest-earning assets
|
1,418,120
|
16,673
|
4.72
|
1,019,665
|
14,437
|
5.68
|
||||||||||||||||||
|
Noninterest-earning assets
|
25,341
|
5,086
|
||||||||||||||||||||||
|
Total assets
|
$
|
1,443,461
|
$
|
1,024,751
|
||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Funding sources:
|
||||||||||||||||||||||||
|
Interest-bearing liabilities:
|
||||||||||||||||||||||||
|
Deposits:
|
||||||||||||||||||||||||
|
Transaction accounts
|
$
|
693,619
|
555
|
0.32
|
%
|
$
|
399,293
|
329
|
0.33
|
%
|
||||||||||||||
|
Time deposits
|
183,494
|
323
|
0.71
|
212,212
|
443
|
0.84
|
||||||||||||||||||
|
Total interest-bearing deposits
|
877,113
|
878
|
0.40
|
611,505
|
772
|
0.51
|
||||||||||||||||||
|
Total interest-bearing liabilities
|
877,113
|
878
|
0.40
|
611,505
|
772
|
0.51
|
||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Noninterest-bearing liabilities:
|
||||||||||||||||||||||||
|
Noninterest-bearing deposits
|
$
|
429,388
|
293,867
|
|||||||||||||||||||||
|
Other noninterest-bearing liabilities
|
6,925
|
6,047
|
||||||||||||||||||||||
|
Total noninterest-bearing liabilities
|
436,313
|
299,914
|
||||||||||||||||||||||
|
Shareholders' equity
|
130,035
|
113,332
|
||||||||||||||||||||||
|
Total liabilities and shareholders' equity
|
$
|
1,443,461
|
$
|
1,024,751
|
||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Net interest income including loan fee income
|
$
|
15,795
|
$
|
13,665
|
||||||||||||||||||||
|
Net interest spread including loan fee
income (4) |
4.32
|
%
|
5.17
|
%
|
||||||||||||||||||||
|
Net interest margin including loan fee income
|
4.47
|
%
|
5.38
|
%
|
||||||||||||||||||||
| (1) |
Taxable-equivalent yield of 2.03% as of June 30, 2022, applying a 24.5% effective tax rate
|
| (2) |
Non-accrual loans of $9.5 million and $12.2 million as of June 30, 2022 and June 30, 2021, respectively, are included in loans.
|
For the second quarter of 2022 compared to the second quarter of 2021:
|
|
- |
Interest income on debt securities totaled $656,000 an increase of $643,000 or 4,946%, as a result of debt securities acquired in December 2021 and purchased during the first quarter of 2022;
|
|
|
- |
Interest income on total loans totaled $15.8 million, an increase of $1.4 million or 9.7%, due to an increase in average loans of $200.8 million, or 22.6%, partially offset by of a 68 basis points or 10.5%
decrease in loan yields;
|
|
|
- |
Loan fees totaled $1.5 million, a decrease of $1.0 million or 40.8%, related to nonrecurring PPP loan fee income decreasing and
|
|
|
- |
Net interest margin for the second quarter of 2022 was 4.47% compared to 5.38% for the second quarter of 2021.
|
|
|
Net Interest Margin Including Loan Fee Income
|
|||||||||||||||||||||||
|
|
For the Six Months Ended June 30,
|
|||||||||||||||||||||||
|
|
2022
|
2021
|
||||||||||||||||||||||
|
|
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
(1)
|
$
|
159,157
|
$
|
348
|
0.44
|
%
|
$
|
127,203
|
$
|
157
|
0.25
|
%
|
||||||||||||
|
Investment securities, taxable-equivalent
(2)
|
132,086
|
935
|
1.43
|
1,180
|
17
|
2.91
|
||||||||||||||||||
|
Investment securities, tax exempt
|
22,487
|
183
|
1.64
|
-
|
-
|
-
|
||||||||||||||||||
|
Loans held for sale
|
383
|
-
|
-
|
445
|
-
|
-
|
||||||||||||||||||
|
Total loans
(3)
|
1,047,220
|
30,131
|
5.80
|
868,526
|
27,450
|
6.37
|
||||||||||||||||||
|
Total interest-earning assets
|
1,361,333
|
31,597
|
4.68
|
997,354
|
27,624
|
5.59
|
||||||||||||||||||
|
Noninterest-earning assets
|
24,506
|
6,090
|
||||||||||||||||||||||
|
Total assets
|
$
|
1,385,839
|
$
|
1,003,444
|
||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Funding sources:
|
||||||||||||||||||||||||
|
Interest-bearing liabilities:
|
||||||||||||||||||||||||
|
Deposits:
|
||||||||||||||||||||||||
|
Transaction accounts
|
$
|
667,159
|
1,012
|
0.31
|
%
|
$
|
412,070
|
691
|
0.34
|
%
|
||||||||||||||
|
Time deposits
|
176,587
|
583
|
0.67
|
208,903
|
956
|
0.92
|
||||||||||||||||||
|
Total interest-bearing deposits
|
843,746
|
1,595
|
0.38
|
620,973
|
1,647
|
0.53
|
||||||||||||||||||
|
Total interest-bearing liabilities
|
843,746
|
1,595
|
0.38
|
620,973
|
1,647
|
0.53
|
||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Noninterest-bearing liabilities:
|
||||||||||||||||||||||||
|
Noninterest-bearing deposits
|
$
|
405,674
|
266,237
|
|||||||||||||||||||||
|
Other noninterest-bearing liabilities
|
6,615
|
5,126
|
||||||||||||||||||||||
|
Total noninterest-bearing liabilities
|
412,289
|
271,363
|
||||||||||||||||||||||
|
Shareholders' equity
|
129,804
|
111,108
|
||||||||||||||||||||||
|
Total liabilities and shareholders' equity
|
$
|
1,385,839
|
$
|
1,003,444
|
||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Net interest income including loan fee income
|
$
|
30,002
|
$
|
25,977
|
||||||||||||||||||||
|
Net interest spread including loan fee
income (4) |
4.30
|
%
|
5.05
|
%
|
||||||||||||||||||||
|
Net interest margin including loan fee income
|
4.44
|
%
|
5.25
|
%
|
||||||||||||||||||||
| (1) |
Taxable-equivalent yield of 2.17% as of June 30, 2022, applying a 24.5% effective tax rate
|
| (2) |
Non-accrual loans of $9.5 million and $12.2 million as of June 30, 2022 and June 30, 2021, respectively, are included in loans.
|
For the first six months of 2022 compared to the same period in 2021:
|
|
- |
Interest income on debt securities totaled $1.1 million and increase of $1.1 million or 6,582%, a result of debt securities acquired in December 2021 and purchased during the first six months of 2022;
|
|
|
- |
Interest income on total loans totaled $30.1 million, an increase of $2.7 million or 9.8%, due to an increase in average loans of $179 million, or 20.6%, and in spite of a 57 basis points or 8.9% decrease in
loan yields;
|
|
|
- |
Loan fees totaled $3.1 million, a decrease of $1.4 million or 30.7%, related to nonrecurring PPP loan fee income decreasing and
|
|
|
- |
Net interest margin for the first six months of 2022 was 4.44% compared to 5.25% for the same period in 2021.
|
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, 2022 vs 2021
|
|||||||||||
|
|
Change due to:
|
Interest
Variance
|
||||||||||
|
|
Volume
(1)
|
Rate
(1)
|
||||||||||
|
(in thousands)
|
(Dollars in thousands)
|
|||||||||||
|
Increase (decrease) in interest income:
|
||||||||||||
|
Short-term investments
|
$
|
5
|
$
|
194
|
$
|
199
|
||||||
|
Debt securities
|
10,584
|
(9,944
|
)
|
640
|
||||||||
|
Total loans
|
13,010
|
(11,613
|
)
|
1,397
|
||||||||
|
Total increase (decrease) in interest income
|
23,599
|
(21,363
|
)
|
2,236
|
||||||||
|
|
||||||||||||
|
Increase (decrease) in interest expense:
|
||||||||||||
|
Deposits:
|
||||||||||||
|
Transaction accounts
|
971
|
(745
|
)
|
226
|
||||||||
|
Time deposits
|
(241
|
)
|
121
|
(120
|
)
|
|||||||
|
Total interest-bearing deposits
|
730
|
(624
|
)
|
106
|
||||||||
|
Total increase (decrease) in interest expense
|
730
|
(624
|
)
|
106
|
||||||||
|
|
||||||||||||
|
Increase (Decrease) in net interest income
|
$
|
22,869
|
$
|
(20,739
|
)
|
$
|
2,130
|
|||||
|
|
Analysis of Changes in Interest Income and Expenses
|
|||||||||||
|
|
For the Six Months Ended
June 30, 2022 vs 2021
|
|||||||||||
|
|
Change due to:
|
Interest
Variance
|
||||||||||
|
|
Volume
(1)
|
Rate
(1)
|
||||||||||
|
|
(Dollars in thousands)
|
|||||||||||
|
Increase (decrease) in interest income:
|
||||||||||||
|
Short-term investments
|
$
|
40
|
$
|
151
|
$
|
191
|
||||||
|
Debt securities
|
2,214
|
(1,113
|
)
|
1,101
|
||||||||
|
Total loans
|
5,645
|
(2,964
|
)
|
2,681
|
||||||||
|
Total increase (decrease) in interest income
|
7,899
|
(3,926
|
)
|
3,973
|
||||||||
|
|
||||||||||||
|
Increase (decrease) in interest expense:
|
||||||||||||
|
Deposits:
|
||||||||||||
|
Transaction accounts
|
430
|
(109
|
)
|
321
|
||||||||
|
Time deposits
|
(147
|
)
|
(226
|
)
|
(373
|
)
|
||||||
|
Total interest-bearing deposits
|
283
|
(335
|
)
|
(52
|
)
|
|||||||
|
Total increase (decrease) in interest expense
|
283
|
(335
|
)
|
(52
|
)
|
|||||||
|
|
||||||||||||
|
Increase (Decrease) in net interest income
|
$
|
7,615
|
$
|
(3,590
|
)
|
$
|
4,025
|
|||||
|
(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.
|
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 June 30,
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 June 30, 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
|
$
|
41
|
4.13
|
%
|
$
|
199
|
4.17
|
%
|
$
|
-
|
0
|
%
|
$
|
-
|
0
|
%
|
$
|
240
|
4.16
|
%
|
||||||||||||||||||||
|
Mortgage-backed securities
|
1,751
|
1.05
|
9,947
|
2.04
|
5,881
|
1.79
|
27,795
|
2.53
|
45,374
|
2.27
|
||||||||||||||||||||||||||||||
|
State and political subdivisions
|
3,419
|
1.85
|
14,666
|
1.98
|
12,558
|
2.40
|
704
|
2.36
|
31,347
|
2.14
|
||||||||||||||||||||||||||||||
|
U.S. Treasuries
|
-
|
-
|
98,340
|
1.73
|
4,437
|
1.76
|
-
|
-
|
102,777
|
1.73
|
||||||||||||||||||||||||||||||
|
Corporate debt securities
|
-
|
-
|
-
|
-
|
5,310
|
5.38
|
-
|
-
|
5,310
|
5.38
|
||||||||||||||||||||||||||||||
|
Total
|
$
|
5,211
|
1.59
|
%
|
$
|
123,152
|
1.79
|
%
|
$
|
28,186
|
2.74
|
%
|
$
|
28,499
|
2.53
|
%
|
$
|
185,048
|
2.04
|
%
|
||||||||||||||||||||
|
Percentage of total
|
2.82
|
%
|
66.54
|
%
|
15.23
|
%
|
15.40
|
%
|
100.00
|
%
|
||||||||||||||||||||||||||||||
| * |
Yield is on a taxable-equivalent basis using 21% tax rate
|
Provision for Loan Losses
Credit risk is inherent in the business of making loans. We establish an Allowance for loan losses (“Allowance”) through charges to earnings, which are shown in the statements of income as the provision for loan
losses. Specifically identifiable and quantifiable known losses are charged off against the Allowance. The provision for loan losses is determined by conducting a quarterly evaluation of the adequacy of our Allowance and applying the shortfall or
excess, if any, to the current quarter’s expense. Any shortfall between the liquidation value of the underlying collateral and the recorded investment value of the loan is considered the required specific reserve amount. See the discussion under
“—Critical Accounting Policies and Estimates—Allowance for Loan and Lease Losses.” This has the effect of creating variability in the amount and frequency of charges to our earnings. The provision for loan 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, the valuation of problem loans and the
general economic conditions in our market areas.
The Allowance as a percentage of loans was 0.94% at June 30, 2022 and 1.00% at December 31, 2021.
Noninterest Income
Noninterest income for the three months ended June 30, 2022 was $692,000 compared to $579,000 for the same period in 2021, an increase of $113,000, or 19.5%. The following table sets forth the major components of our
noninterest income for the three months ended June 30, 2022 and 2021:
|
For the Three Months Ended
|
||||||||||||||||||||
|
June 30,
|
||||||||||||||||||||
|
2022
|
2021
|
$ Increase
(Decrease)
|
% Increase
(Decrease)
|
|||||||||||||||||
|
(Dollars in thousands)
|
||||||||||||||||||||
|
Noninterest income:
|
||||||||||||||||||||
|
Secondary market income
|
$
|
95
|
$
|
78
|
$
|
17
|
21.79
|
%
|
||||||||||||
|
Gain (Loss) on sales of available-for-sale debt securities
|
|
10
|
-
|
10
|
100.00
|
%
|
||||||||||||||
|
Service charges on deposit accounts
|
219
|
119
|
100
|
84.03
|
%
|
|||||||||||||||
|
Other income and fees
|
368
|
382
|
(14
|
)
|
-3.66
|
%
|
||||||||||||||
|
Total noninterest income
|
$
|
692
|
$
|
579
|
$
|
113
|
19.52
|
%
|
||||||||||||
Secondary market income totaled $95,000 for the second quarter of 2022, compared to $78,000 for the same period in 2021, an increase of $17,000, or 21.8%. The increase was attributable to an
increase in mortgage lending activity. Service charges on deposit accounts totaled $219,000 for the second quarter of 2022, an increase of $100,000 or 84.0% compared to the second quarter of 2021. The increase is due to an overall increase in
deposit activity due to the acquisition of Watonga in December 2021.
Noninterest income for the six months ended June 30, 2022 was $1.4 million compared to $916,000 for the same period in 2021, an increase of $451,000, or 49.2%. The following table sets forth the major components of
our noninterest income for the six months ended June 30, 2022 and 2021:
|
For the Six Months Ended
|
||||||||||||||||
|
June 30,
|
||||||||||||||||
|
2022
|
2021
|
$ Increase
(Decrease)
|
% Increase
(Decrease)
|
|||||||||||||
|
(Dollars in thousands)
|
||||||||||||||||
|
Noninterest income:
|
||||||||||||||||
|
Secondary market income
|
$
|
261
|
$
|
92
|
$
|
169
|
183.70
|
%
|
||||||||
|
Gain (Loss) on sales of available-for-sale debt securities
|
(117
|
)
|
-
|
(117
|
)
|
-100.00
|
||||||||||
|
Service charges on deposit accounts
|
468
|
239
|
229
|
95.82
|
%
|
|||||||||||
|
Other income and fees
|
755
|
585
|
170
|
29.06
|
%
|
|||||||||||
|
Total noninterest income
|
$
|
1,367
|
$
|
916
|
$
|
451
|
49.24
|
%
|
||||||||
Secondary market income totaled $261,000 for the first six months of 2022, compared to $92,000 for the same period in 2021, an increase of $169,000, or 183.7%. The increase was attributable to an
increase in mortgage lending activity. Service charges on deposit accounts totaled $468,000 for the first six months of 2022, an increase of $229,000 or 95.8% compared to the same period in 2021. The increase is due to an overall increase in
deposit activity due to the acquisition of Watonga in December 2021. Other income and fees totaled $755,000 for the first six months of 2022, an increase of $170,000 or 29.1% compared to the same period in 2021. The increase is due to an overall
increase in other income due to the acquisition of Watonga in December 2021.
Noninterest Expense
Noninterest expense for the three months ended June 30, 2022 was $7.0 million compared to $4.9 million for the same period in 2021, an increase of $2.1 million, or 42.8%. The following table sets forth the major
components of our noninterest expense for the three months ended June 30, 2022 and 2021:
|
|
For the Three Months Ended
|
|||||||||||||||
|
|
June 30,
|
|||||||||||||||
|
|
2022
|
2021
|
$ Increase
(Decrease)
|
% Increase
(Decrease)
|
||||||||||||
|
|
(Dollars in thousands)
|
|||||||||||||||
|
Noninterest expense:
|
||||||||||||||||
|
Salaries and employee benefits
|
$
|
4,126
|
$
|
2,949
|
$
|
1,177
|
39.91
|
%
|
||||||||
|
Furniture and equipment
|
386
|
231
|
155
|
67.10
|
%
|
|||||||||||
|
Occupancy
|
571
|
458
|
113
|
24.67
|
%
|
|||||||||||
|
Data and item processing
|
559
|
286
|
273
|
95.45
|
%
|
|||||||||||
|
Accounting, marketing, and legal fees
|
209
|
149
|
60
|
40.27
|
%
|
|||||||||||
|
Regulatory assessments
|
226
|
161
|
65
|
40.37
|
%
|
|||||||||||
|
Advertising and public relations
|
121
|
71
|
50
|
70.42
|
%
|
|||||||||||
|
Travel, lodging and entertainment
|
74
|
118
|
(44
|
)
|
-37.29
|
%
|
||||||||||
|
Other expense
|
691
|
452
|
239
|
52.88
|
%
|
|||||||||||
|
Total noninterest expense
|
$
|
6,963
|
$
|
4,875
|
$
|
2,088
|
42.83
|
%
|
||||||||
Salaries and employee benefits totaled $4.1 million for the second quarter of 2022 compared to $2.9 million for the same period in 2021, an increase of $1.2 million or 39.9%. This increase was attributable to an
increase in employee base due to bank-wide organic growth and the acquisition of Watonga in December 2021.
Noninterest expense for the six months ended June 30, 2022 was $13.4 million compared to $9.4 million for the same period in 2021, an increase of $4.0 million, or 42.1%. The following table sets forth the major
components of our noninterest expense for the six months ended June 30, 2022 and 2021:
|
|
For the Six Months Ended
|
|||||||||||||||
|
|
June 30,
|
|||||||||||||||
|
|
2022
|
2021
|
$ Increase
(Decrease)
|
% Increase
(Decrease)
|
||||||||||||
|
|
(Dollars in thousands)
|
|||||||||||||||
|
Noninterest expense:
|
||||||||||||||||
|
Salaries and employee benefits
|
$
|
8,152
|
$
|
5,739
|
$
|
2,413
|
42.05
|
%
|
||||||||
|
Furniture and equipment
|
744
|
433
|
311
|
71.82
|
%
|
|||||||||||
|
Occupancy
|
1,122
|
930
|
192
|
20.65
|
%
|
|||||||||||
|
Data and item processing
|
946
|
565
|
381
|
67.43
|
%
|
|||||||||||
|
Accounting, marketing, and legal fees
|
442
|
297
|
145
|
48.82
|
%
|
|||||||||||
|
Regulatory assessments
|
422
|
302
|
120
|
39.74
|
%
|
|||||||||||
|
Advertising and public relations
|
231
|
105
|
126
|
120.00
|
%
|
|||||||||||
|
Travel, lodging and entertainment
|
122
|
207
|
(85
|
)
|
-41.06
|
%
|
||||||||||
|
Other expense
|
1,202
|
841
|
361
|
42.93
|
%
|
|||||||||||
|
Total noninterest expense
|
$
|
13,383
|
$
|
9,419
|
$
|
3,964
|
42.09
|
%
|
||||||||
Salaries and employee benefits totaled $8.2 million for the first six months of 2022 compared to $5.7 million for the same period in 2021, an increase of $2.4 million or 42.1%. This increase was attributable to an
increase in employee base due to bank-wide organic growth and the acquisition of Watonga in December 2021.
Financial Condition
The following discussion of our financial condition compares June 30, 2022 and December 31, 2021.
Total Assets
Total assets increased $137.9 million, or 10.2%, to $1.5 billion as of June 30, 2022, compared to $1.4 billion as of December 31, 2021. The increasing trend in total assets is primarily attributable to strong
organic loan and deposit growth within the Oklahoma City and Dallas/Fort Worth metropolitan areas.
Loan Portfolio
The following table presents the balance and associated percentage of each major category in our loan portfolio as of June 30, 2022 and December 31, 2021:
|
|
As of June 30,
|
As of December 31,
|
||||||||||||||
|
|
2022
|
2021
|
||||||||||||||
|
|
Amount
|
% of Total
|
Amount
|
% of Total
|
||||||||||||
|
|
(Dollars in thousands)
|
|||||||||||||||
|
Construction & development
|
$
|
191,291
|
16.6
|
%
|
$
|
169,322
|
16.4
|
%
|
||||||||
|
1-4 family real estate
|
69,267
|
6.0
|
%
|
62,971
|
6.1
|
%
|
||||||||||
|
Commercial real estate - other
|
343,489
|
29.7
|
%
|
339,655
|
33.0
|
%
|
||||||||||
|
Total commercial real estate
|
604,047
|
52.3
|
%
|
571,948
|
55.5
|
%
|
||||||||||
|
|
||||||||||||||||
|
Commercial & industrial
|
475,197
|
41.1
|
%
|
361,974
|
35.1
|
%
|
||||||||||
|
Agricultural
|
59,644
|
5.2
|
%
|
73,010
|
7.1
|
%
|
||||||||||
|
Consumer
|
16,557
|
1.4
|
%
|
24,046
|
2.3
|
%
|
||||||||||
|
Gross loans
|
1,155,445
|
100.0
|
%
|
1,030,978
|
100.0
|
%
|
||||||||||
|
Less: unearned income, net
|
(3,129
|
)
|
(2,577
|
)
|
||||||||||||
|
Total Loans, net of unearned income
|
1,152,316
|
1,028,401
|
||||||||||||||
|
Less: Allowance for loan losses
|
(10,819
|
)
|
(10,316
|
)
|
||||||||||||
|
Net loans
|
$
|
1,141,497
|
$
|
1,018,085
|
||||||||||||
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, 2022 and
December 31, 2021, our gross loans were $1.2 billion and $1.0 billion, respectively. Included in the commercial & industrial loan balances at June 30, 2022 and December 31, 2021, respectively, are $9.9 million and $18.7 million of loans that
were originated under the SBA PPP program.
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.
The following tables show the contractual maturities of our gross loans as of the periods below:
|
|
As of June 30, 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
|
$
|
7,313
|
$
|
59,911
|
$
|
18,469
|
$
|
97,519
|
$
|
-
|
$
|
3,090
|
$
|
-
|
$
|
4,989
|
$
|
191,291
|
||||||||||||||||||
|
1-4 family real estate
|
11,985
|
10,407
|
14,572
|
19,543
|
327
|
5,981
|
-
|
6,452
|
69,267
|
|||||||||||||||||||||||||||
|
Commercial real estate - other
|
5,425
|
51,366
|
86,964
|
169,734
|
339
|
16,913
|
-
|
12,748
|
343,489
|
|||||||||||||||||||||||||||
|
Total commercial real estate
|
24,723
|
121,684
|
120,005
|
286,796
|
666
|
25,984
|
-
|
24,189
|
604,047
|
|||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Commercial & industrial
|
47,144
|
162,403
|
51,069
|
197,825
|
5,312
|
10,801
|
-
|
643
|
475,197
|
|||||||||||||||||||||||||||
|
Agricultural
|
604
|
13,516
|
5,333
|
34,835
|
496
|
1,312
|
45
|
3,503
|
59,644
|
|||||||||||||||||||||||||||
|
Consumer
|
1,649
|
36
|
7,373
|
115
|
842
|
2,594
|
83
|
3,865
|
16,557
|
|||||||||||||||||||||||||||
|
Gross loans
|
$
|
74,120
|
$
|
297,639
|
$
|
183,780
|
$
|
519,571
|
$
|
7,316
|
$
|
40,691
|
$
|
128
|
$
|
32,200
|
$
|
1,155,445
|
||||||||||||||||||
|
|
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
|
||||||||||||||||||
Allowance for Loan and Lease 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 $10.8 million at June 30, 2022, compared to $10.3 million at December 31, 2021.
The following table provides an analysis of the activity in our allowance for the periods indicated:
|
|
For the Six Months Ended June 30,
|
|||||||
|
|
2022
|
2021
|
||||||
|
|
(Dollars in thousands)
|
|||||||
|
Balance at beginning of the period
|
$
|
10,316
|
$
|
9,639
|
||||
|
Provision for loan losses
|
495
|
2,575
|
||||||
|
Charge-offs:
|
||||||||
|
Construction & development
|
-
|
-
|
||||||
|
1-4 family real estate
|
-
|
-
|
||||||
|
Commercial real estate - other
|
-
|
-
|
||||||
|
Commercial & industrial
|
-
|
-
|
||||||
|
Agricultural
|
-
|
-
|
||||||
|
Consumer
|
(6
|
)
|
(61
|
)
|
||||
|
Total charge-offs
|
(6
|
)
|
(61
|
)
|
||||
|
Recoveries:
|
||||||||
|
Construction & development
|
-
|
-
|
||||||
|
1-4 family real estate
|
-
|
-
|
||||||
|
Commercial real estate - other
|
-
|
-
|
||||||
|
Commercial & industrial
|
-
|
14
|
||||||
|
Agricultural
|
-
|
138
|
||||||
|
Consumer
|
14
|
1
|
||||||
|
Total recoveries
|
14
|
153
|
||||||
|
Net recoveries (charge-offs)
|
8
|
92
|
||||||
|
Balance at end of the period
|
$
|
10,819
|
$
|
12,306
|
||||
|
Net recoveries (charge-offs) to average loans
|
0.00
|
%
|
-0.01
|
%
|
||||
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,
|
||||||||||||||
|
|
2022
|
2021
|
||||||||||||||
|
|
Amount
|
Percent
|
Amount
|
Percent
|
||||||||||||
|
|
(Dollars in thousands)
|
|||||||||||||||
|
Construction & development
|
$
|
1,792
|
16.6
|
%
|
$
|
1,695
|
16.4
|
%
|
||||||||
|
1-4 family real estate
|
649
|
6.0
|
%
|
630
|
6.1
|
%
|
||||||||||
|
Commercial real estate - Other
|
3,216
|
29.7
|
%
|
3,399
|
33.0
|
%
|
||||||||||
|
Commercial & industrial
|
4,449
|
41.1
|
%
|
3,621
|
35.1
|
%
|
||||||||||
|
Agricultural
|
558
|
5.2
|
%
|
730
|
7.1
|
%
|
||||||||||
|
Consumer
|
155
|
1.4
|
%
|
241
|
2.3
|
%
|
||||||||||
|
Total
|
$
|
10,819
|
100.0
|
%
|
$
|
10,316
|
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 (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.
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 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 TDR 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.
The following table presents information regarding nonperforming assets as of the dates indicated.
|
As of
June 30,
|
As of
December 31,
|
|||||||
|
2022
|
2021
|
|||||||
|
(Dollars in thousands)
|
||||||||
|
Nonaccrual loans
|
$
|
9,473
|
$
|
9,885
|
||||
|
Troubled-debt restructurings (1)
|
-
|
-
|
||||||
|
Accruing loans 90 or more days past due
|
69
|
496
|
||||||
|
Total nonperforming loans
|
9,542
|
10,381
|
||||||
|
Other real estate owned
|
-
|
-
|
||||||
|
Total nonperforming assets
|
$
|
9,542
|
$
|
10,381
|
||||
|
Ratio of nonperforming loans to total loans
|
0.83
|
%
|
1.01
|
%
|
||||
|
Ratio of nonaccrual loans to total loans
|
0.82
|
%
|
0.96
|
%
|
||||
|
Ratio of allowance for loan losses to total loans
|
0.94
|
%
|
1.00
|
%
|
||||
|
Ratio of allowance for loan losses to nonaccrual loans
|
114.21
|
%
|
104.36
|
%
|
||||
|
Ratio of nonperforming assets to total assets
|
0.64
|
%
|
0.77
|
%
|
||||
|
(1)
|
$1.3 million of TDRs as of June 30, 2022 and $1.4 million as of December 31, 2021 are included in the nonaccrual loans balance in the line above
|
The following tables present an aging analysis of loans as of the dates indicated.
|
|
As of June 30, 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
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
191,291
|
$
|
191,291
|
||||||||||||||
|
1-4 family real estate
|
26
|
-
|
-
|
-
|
26
|
69,241
|
69,267
|
|||||||||||||||||||||
|
Commercial real estate - other
|
-
|
24
|
162
|
-
|
186
|
343,303
|
343,489
|
|||||||||||||||||||||
|
Commercial & industrial
|
9,919
|
31
|
75
|
-
|
10,025
|
465,172
|
475,197
|
|||||||||||||||||||||
|
Agricultural
|
-
|
-
|
55
|
55
|
55
|
59,589
|
59,644
|
|||||||||||||||||||||
|
Consumer
|
336
|
1
|
14
|
14
|
351
|
16,206
|
16,557
|
|||||||||||||||||||||
|
Total
|
$
|
10,281
|
$
|
56
|
$
|
306
|
$
|
69
|
$
|
10,643
|
$
|
1,144,802
|
$
|
1,155,445
|
||||||||||||||
|
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
|
||||||||||||||
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, 2022
|
||||||||||||||||||||
|
Pass
|
Watch
|
Special
mention
|
Substandard
|
Total
|
||||||||||||||||
|
(Dollars in thousands)
|
||||||||||||||||||||
|
Construction & development
|
$
|
191,291
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
191,291
|
||||||||||
|
1-4 family real estate
|
69,267
|
-
|
-
|
-
|
69,267
|
|||||||||||||||
|
Commercial real estate - Other
|
296,788
|
15,000
|
16,845
|
14,856
|
343,489
|
|||||||||||||||
|
Commercial & industrial
|
464,572
|
1,752
|
1,879
|
6,994
|
475,197
|
|||||||||||||||
|
Agricultural
|
59,275
|
225
|
144
|
-
|
59,644
|
|||||||||||||||
|
Consumer
|
16,533
|
-
|
-
|
24
|
16,557
|
|||||||||||||||
|
Total
|
$
|
1,097,726
|
$
|
16,977
|
$
|
18,868
|
$
|
21,874
|
$
|
1,155,445
|
||||||||||
|
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
|
||||||||||
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 impaired, based on applicable accounting guidance.
The following table presents loans restructured as TDRs as of June 30, 2022 and December 31, 2021:
|
As of June 30, 2022
|
||||||||||||||||
|
Number of Contracts
|
Pre-Modification Outstanding Recorded Investment
|
Post-
Modification Outstanding Recorded Investment
|
Specific
Reserves
Allocated
|
|||||||||||||
|
(Dollars in thousands)
|
||||||||||||||||
|
Commercial real estate
|
1
|
$
|
1,300
|
$
|
1,300
|
-
|
||||||||||
|
Total
|
1
|
$
|
1,300
|
$
|
1,300
|
$
|
-
|
|||||||||
|
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
|
$
|
-
|
|||||||||
There were no payment defaults with respect to loans modified as TDRs as of June 30, 2022 and December 31, 2021. Impairment analyses are prepared on TDRs in conjunction with the normal allowance process. There were
no TDRs restructured during the six months ended June 30, 2022 and TDR’s restructured during the twelve months ended December 31, 2021 required no specific reserves.
The following table presents total TDRs, both in accrual and nonaccrual status as of the periods indicated:
|
As of June 30, 2022
|
As of December 31, 2021
|
|||||||||||||||
|
Number of contracts
|
Amount
|
Number of contracts
|
Amount
|
|||||||||||||
|
(Dollars in thousands)
|
||||||||||||||||
|
Accrual
|
-
|
$
|
-
|
-
|
$
|
-
|
||||||||||
|
Nonaccrual
|
1
|
1,300
|
1
|
1,402
|
||||||||||||
|
Total
|
1
|
$
|
1,300
|
1
|
$
|
1,402
|
||||||||||
Deposits
We gather deposits primarily through our nine 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, 2022 and December 31, 2021 were $1.3 billion and $1.2 billion, respectively. The following table sets forth deposit balances by certain categories as of the dates indicated and the percentage of each deposit
category to total deposits.
|
June 30, 2022
|
December 31, 2021
|
|||||||||||||||
|
Amount
|
Percentage of Total
|
Amount
|
Percentage of Total
|
|||||||||||||
|
(Dollars in thousands)
|
||||||||||||||||
|
Noninterest-bearing demand
|
$
|
447,077
|
33.2
|
%
|
$
|
366,705
|
30.1
|
%
|
||||||||
|
Interest-bearing transaction deposits
|
624,163
|
46.4
|
%
|
583,389
|
47.9
|
%
|
||||||||||
|
Savings deposits
|
89,623
|
6.7
|
%
|
89,778
|
7.4
|
%
|
||||||||||
|
Time deposits ($250,000 or less)
|
144,713
|
10.7
|
%
|
132,690
|
10.9
|
%
|
||||||||||
|
Time deposits (more than $250,000)
|
40,715
|
3.0
|
%
|
44,909
|
3.7
|
%
|
||||||||||
|
Total interest-bearing deposits
|
899,214
|
66.8
|
%
|
850,766
|
69.9
|
%
|
||||||||||
|
Total deposits
|
$
|
1,346,291
|
100.0
|
%
|
$
|
1,217,471
|
100.0
|
%
|
||||||||
The following table summarizes our average deposit balances and weighted average rates for the six month period ending June 30, 2022 and year ended December 31, 2021:
|
For the Six Months Ended June 30,
|
For the Year Ended December 31,
|
|||||||||||||||
|
2022
|
2021
|
|||||||||||||||
|
Average
Balance |
Weighted
Average Rate
|
Average
Balance |
Weighted
Average Rate
|
|||||||||||||
|
(Dollars in thousands)
|
||||||||||||||||
|
Non interest-bearing demand
|
$
|
405,674
|
0.00
|
%
|
$
|
288,446
|
0.00
|
%
|
||||||||
|
Interest-bearing transaction deposits
|
573,021
|
0.32
|
%
|
375,048
|
0.34
|
%
|
||||||||||
|
Savings deposits
|
94,139
|
0.19
|
%
|
55,220
|
0.23
|
%
|
||||||||||
|
Time deposits
|
176,587
|
0.67
|
%
|
205,437
|
0.81
|
%
|
||||||||||
|
Total interest-bearing deposits
|
843,747
|
0.38
|
%
|
635,705
|
0.48
|
%
|
||||||||||
|
Total deposits
|
$
|
1,249,421
|
0.26
|
%
|
$
|
924,151
|
0.33
|
%
|
||||||||
The following tables set forth the maturity of time deposits as of the dates indicated below:
|
As of June 30, 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)
|
$
|
68,547
|
$
|
21,315
|
$
|
35,524
|
$
|
19,327
|
$
|
144,713
|
||||||||||
|
Time deposits (more than $250,000)
|
6,369
|
13,308
|
15,579
|
5,459
|
40,715
|
|||||||||||||||
|
Total time deposits
|
$
|
74,916
|
$
|
34,623
|
$
|
51,103
|
$
|
24,786
|
$
|
185,428
|
||||||||||
|
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 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, 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 $90.2 million as of June 30, 2022 and $78.1 million as of December 31, 2021.
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 Common
Equity Tier 1 (“CET1”) capital, Tier 1 capital, total capital to risk-weighted assets, and Tier 1 capital to average consolidated assets, referred to as the “leverage ratio.”
As of June 30, 2022, 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, 2022 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, 2022 and
December 31, 2021. 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, 2022, the Company and the Bank met all capital adequacy requirements under the Basel III Capital
Rules.
|
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, 2022
|
||||||||||||||||||||||||
|
Total capital (to risk-weighted assets)
|
||||||||||||||||||||||||
|
Company
|
$
|
139,886
|
12.14
|
%
|
$
|
121,012
|
10.50
|
%
|
N/A
|
N/A
|
||||||||||||||
|
Bank
|
139,853
|
12.15
|
%
|
120,906
|
10.50
|
%
|
$
|
115,149
|
10.00
|
%
|
||||||||||||||
|
Tier 1 capital (to risk-weighted assets)
|
||||||||||||||||||||||||
|
Company
|
129,067
|
11.20
|
%
|
97,962
|
8.50
|
%
|
N/A
|
N/A
|
||||||||||||||||
|
Bank
|
129,034
|
11.21
|
%
|
97,876
|
8.50
|
%
|
92,119
|
8.00
|
%
|
|||||||||||||||
|
CET 1 capital (to risk-weighted assets)
|
||||||||||||||||||||||||
|
Company
|
129,067
|
11.20
|
%
|
80,675
|
7.00
|
%
|
N/A
|
N/A
|
||||||||||||||||
|
Bank
|
129,034
|
11.21
|
%
|
80,604
|
7.00
|
%
|
74,847
|
6.50
|
%
|
|||||||||||||||
|
Tier 1 capital (to average assets)
|
||||||||||||||||||||||||
|
Company
|
129,067
|
8.97
|
%
|
N/A
|
N/A
|
N/A
|
N/A
|
|||||||||||||||||
|
Bank
|
129,034
|
8.97
|
%
|
N/A
|
N/A
|
71,925
|
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
|
%
|
||||||||||||||||
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
$4.1 million as of June 30, 2022 to $131.5 million, compared to $127.4 million as of December 31, 2021.
Contractual Obligations
The following tables contain supplemental information regarding our total contractual obligations as of June 30, 2022, and December 31, 2021:
|
Payments Due as of June 30, 2022
|
||||||||||||||||||||
|
Within One
Year
|
One to Three Years
|
Three to Five Years
|
After Five
Years
|
Total
|
||||||||||||||||
|
(Dollars in thousands)
|
||||||||||||||||||||
|
Deposits without a stated maturity
|
$
|
1,160,863
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
1,160,863
|
||||||||||
|
Time deposits
|
160,642
|
22,852
|
1,934
|
-
|
185,428
|
|||||||||||||||
|
Operating lease commitments
|
611
|
575
|
142
|
-
|
1,328
|
|||||||||||||||
|
Total contractual obligations
|
$
|
1,322,116
|
$
|
23,427
|
$
|
2,076
|
$
|
-
|
$
|
1,347,619
|
||||||||||
|
Payments Due as of December 31, 2021
|
||||||||||||||||||||
|
Within One
Year
|
One to Three Years
|
Three to Five Years
|
After Five
Years
|
Total
|
||||||||||||||||
|
(Dollars in thousands)
|
||||||||||||||||||||
|
Deposits without a stated maturity
|
$
|
1,039,872
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
1,039,872
|
||||||||||
|
Time deposits
|
135,788
|
39,904
|
1,907
|
-
|
177,599
|
|||||||||||||||
|
Operating lease commitments
|
611
|
782
|
241
|
-
|
1,634
|
|||||||||||||||
|
Total contractual obligations
|
$
|
1,176,271
|
$
|
40,686
|
$
|
2,148
|
$
|
-
|
$
|
1,219,105
|
||||||||||
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.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. We evaluate each customer’s
creditworthiness on a case-by-case basis. The amount of collateral obtained, if we deemed necessary upon extension of credit, is based on management’s credit evaluation of the counterparty. The Company also estimates a reserve for potential
losses associated with off-balance sheet commitments and letters of credit. It is included in other liabilities in the Company’s consolidated statements of condition, with any related provisions to the reserve included in non-interest expense in
the consolidated statement of income.
In determining the reserve for unfunded lending commitments, a process similar to the one used for the allowance is employed. Based on historical experience, loss factors, adjusted for expected funding, are applied
to the Company’s off-balance sheet commitments and letters of credit to estimate the potential for losses.
Standby letters of credit are conditional commitments issued by the Company 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
June 30,
|
As of
December 31,
|
|||||||
|
2022
|
2021
|
|||||||
|
(Dollars in thousands)
|
||||||||
|
Commitments to extend credit
|
$
|
233,951
|
$
|
200,393
|
||||
|
Standby letters of credit
|
2,276
|
5,809
|
||||||
|
Total
|
$
|
236,227
|
$
|
206,202
|
||||
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 Form 10-Q, 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 our unaudited condensed consolidated financial statements as of June 30, 2022.
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.
To determine the adequacy of the allowance, the loan portfolio is broken into segments based on loan type and risk characteristics. 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.
Goodwill and Intangibles
Intangible assets totaled $1.5 million and goodwill, net of accumulated amortization, totaled $8.7 million for the six months ended June 30, 2022, compared to intangible assets of $1.6 million
and goodwill 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.
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.
Quantitative and Qualitative Disclosures about Market Risk
There have been no significant changes in our disclosures regarding market risk since December 31, 2021, the date of our most recent annual report to shareholders.
Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness as of June 30, 2022 of our disclosure controls and procedures, as
defined Rules 13a-15(e) and 15d-15(e) under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management was required to apply judgment in evaluating its controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of the end of the fiscal quarter covered by this Form 10-Q.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the six months ended June 30, 2022 that
has materially affected, or is reasonably likely to materially affect, such controls.
PART II
ITEM 1.
From time to time, we are a party to legal actions that are routine and incidental to our business. Given the nature, scope and complexity of the extensive legal and regulatory landscape applicable to our business,
including laws and regulations governing consumer protections, fair lending, fair labor, privacy, information security and anti-money laundering and anti-terrorism laws, we, like all banking organizations, are subject to heightened legal and
regulatory compliance and litigation risk. However, based upon available information and in consultation with legal counsel, management is of the opinion that no proceedings exist, either individually or in the aggregate, which, if determined
adversely, would have a material adverse effect on our financial statements.
ITEM 1A.
There were no material changes from the risks disclosed in the Risk Factors section of our Annual Report on Form 10-K for the year ended December, 31, 2021.
ITEM 2.
On September 5, 2019, the Company’s Board of Directors approved a stock repurchase plan authorizing the repurchase of up to 500,000 shares of the Company’s common stock. On March 13, 2020, the Company’s Board of
Directors approved a 500,000 share expansion and on November 2, 2020, approved a 750,000 share expansion to the existing stock repurchase plan, for a total of 1,750,000 shares authorized under the plan. The September 2019 repurchase plan expired
on September 5, 2021. On October 28, 2021, the Company’s Board of Directors approved a new repurchase plan that authorizes up to 750,000 shares of the Company’s common stock. Stock repurchases under the new repurchase plan will take place
pursuant to a Rule 10b5-1 Plan with pricing and purchasing parameters established by management. The Company may repurchase shares of common stock on the open market or through privately negotiated transactions at times and prices considered
appropriate, at the discretion of the Company, and subject to its assessment of alternative uses of capital, stock trading price, general market conditions and regulatory factors. The stock repurchase plans do not obligate the Company to acquire
any specific number of shares and will continue in effect until terminated by the Board of Directors of the Company. Shares of common stock repurchased under these plans will be retired subsequent to acquisition. During the six months ended June
30, 2022, there were no shares purchased under the Company’s repurchase plan.
Defaults Upon Senior Securities
None
Mine Safety Disclosures
None
Other Information
None
ITEM 6.
|
Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
101.INS
|
XBRL Instance Document.
|
|
101.SCH
|
XBRL Taxonomy Extension Schema Document.
|
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document.
|
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document.
|
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document.
|
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document.
|
|
*
|
This exhibit is furnished herewith and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be
incorporated by reference into any filing under the Securities Act or the Exchange Act.
|
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
BANK7 CORP.
|
|||
|
DATED:
|
August 15, 2022
|
By:
|
/s/ Thomas L. Travis |
|
Thomas L. Travis
|
|||
|
President and Chief Executive Officer
|
|||
|
DATED:
|
August 15, 2022
|
By:
|
/s/ Kelly J. Harris |
|
Kelly J. Harris
|
|||
|
Executive Vice President and Chief Financial Officer
|
|||
52
TABLE OF CONTENTS
Note 1: Nature Of Operations and Summary Of Significant Accounting PoliciesNote 2: Recent Events, Including Mergers and AcquisitionsNote 3: Restriction on Cash and Due From BanksNote 4: Earnings Per ShareNote 5: Debt SecuritiesNote 6: Loans and Allowance For Loan LossesNote 7: Shareholders EquityNote 8: Related-party TransactionsNote 9: Employee BenefitsNote 10: Disclosures About Fair Value Of Assets and LiabilitiesNote 11: Financial Instruments with Off-balance Sheet RiskNote 12: Significant Estimates and ConcentrationsPart II