10-Q

---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                 to

Commission File Number: 001-38656

Bank7 Corp.

(Exact name of registrant as specified in its charter)

Oklahoma	20-0763496
( State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1039 N.W. 63^rd^ Street	73116-7361
---	---
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: 405-810-8600

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 Par Value Per Share	BSVN	NASDAQ Global Select Market System

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.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒  (Do not check if a smaller reporting company)	Smaller reporting company	☐
Emerging growth company	☒

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 14, 2020, the registrant had 9,226,252 shares of common stock, par value $0.01, outstanding.

---

---

TABLE OF CONTENTS

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Unaudited Consolidated Balance Sheets	3
	Unaudited Consolidated Statements of Income	4
	Unaudited Consolidated Statements of Shareholders’ Equity	5
	Unaudited Consolidated Statements of Cash Flows	6
	Notes to Unaudited Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50
Item 4.	Controls and Procedures	50
PART II.	OTHER INFORMATION	50
Item 1.	Legal Proceedings	50
Item 1A.	Risk Factors	51
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 6.	Exhibits	51
	Signatures	52

---

Table of Contents

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, including uncertainties related to the expected impact of the COVID-19 outbreak on our business operations, financial results and financial condition. 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.

---

Table of Contents

Item 1.	Financial Statements

Bank7 Corp.

Unaudited Condensed Consolidated Balance Sheets

(Dollar amounts in thousands)

Assets		December
			31, 2019
Cash and due from banks	127,780	$	117,128
Interest-bearing time deposits in other banks	27,865		30,147
Loans, net of allowance for loan losses of 9,878 and 7,846 at June 30, 2020 and December 31, 2019, respectively	828,065		699,458
Loans held for sale, at fair value	500		1,031
Premises and equipment, net	9,519		9,624
Nonmarketable equity securities	1,095		1,100
Goodwill and other intangibles, net	1,686		1,789
Interest receivable and other assets	7,575		6,115
Total assets	1,004,085	$	866,392
Liabilities and Shareholders’ Equity
Deposits
Noninterest-bearing	304,250	$	219,221
Interest-bearing	589,981		538,262
Total deposits	894,231		757,483
Income taxes payable	4,022		357
Interest payable and other liabilities	4,213		8,426
Total liabilities	902,466		766,266
Shareholders’ equity
Preferred stock, par value 0.01 per share, 1,000,000 shares authorized; none issued or outstanding	-		-
Common stock, non-voting, par value 0.01 per share, 20,000,000 shares authorized; none issued or outstanding	-		-
Common stock, 0.01 par value; 50,000,000 shares authorized; shares issued and outstanding: 9,226,252 and 10,057,506, at June 30, 2020 and December 31, 2019 respectively	92		101
Additional paid-in capital	92,762		92,391
Retained earnings	8,765		7,634
Total shareholders’ equity	101,619		100,126
Total liabilities and shareholders’ equity	1,004,085	$	866,392

All values are in US Dollars.

See Notes to Unaudited Condensed Consolidated Financial Statements

3

---

Table of Contents

Bank7 Corp.

Unaudited Condensed Consolidated Statements of Income

(Dollar amounts in thousands, except per share data)

	Three months ended<br><br> <br>June 30,				Six months ended<br><br> <br>June 30,
	2020		2019		2020		2019
Interest Income
Loans, including fees	$	13,385	$	12,101	$	26,491	$	23,723
Interest-bearing time deposits in other banks		133		497		295		914
Interest-bearing deposits in other banks		38		468		277		1,006
Total interest income		13,556		13,066		27,063		25,643
Interest Expense
Deposits		1,627		2,483		3,702		4,707
Total interest expense		1,627		2,483		3,702		4,707
Net Interest Income		11,929		10,583		23,361		20,936
Provision for Loan Losses		1,400		-		2,050		-
Net Interest Income After Provision for Loan Losses		10,529		10,583		21,311		20,936
Noninterest Income
Secondary market income		39		40		77		77
Service charges on deposit accounts		95		109		214		169
Other		167		146		340		272
Total noninterest income		301		295		631		518
Noninterest Expense
Salaries and employee benefits		2,597		2,365		5,071		4,536
Furniture and equipment		218		218		434		377
Occupancy		413		378		874		721
Data and item processing		269		276		545		538
Accounting, marketing and legal fees		77		142		203		289
Regulatory assessments		94		31		117		63
Advertising and public relations		29		92		298		278
Travel, lodging and entertainment		43		92		96		134
Other		383		454		838		867
Total noninterest expense		4,123		4,048		8,476		7,803
Income Before Taxes		6,707		6,830		13,466		13,651
Income tax expense		1,671		1,704		3,379		3,409
Net Income	$	5,036	$	5,126	$	10,087	$	10,242
Earnings per common share - basic	$	0.54	$	0.50	$	1.05	$	1.00
Earnings per common share - diluted		0.54		0.50		1.05		1.00
Weighted average common shares outstanding - basic		9,232,509		10,187,500		9,598,232		10,187,500
Weighted average common shares outstanding - diluted		9,232,509		10,192,649		9,598,232		10,187,500

See Notes to Unaudited Condensed Consolidated Financial Statements

4

---

Table of Contents

Bank7 Corp.

Unaudited Condensed Consolidated Statements of Shareholders’ Equity

(Dollar Amounts in thousands, except share data)

					Six Months Ended<br><br> <br>June 30,
			2019		2020			2019
Common Stock  (Shares)
Balance at beginning of period	9,264,412			10,187,500		10,057,506			10,187,500
Shares acquired and canceled	(38,160	)		-		(831,254	)		-
Balance at end of period	9,226,252			10,187,500		9,226,252			10,187,500
Common Stock (Amount)
Balance at beginning of period	93		$	102	$	101		$	102
Shares acquired and canceled	(1	)		-		(9	)		-
Balance at end of period	92		$	102	$	92		$	102
Additional Paid-in Capital
Balance at beginning of period	92,571		$	80,446	$	92,391		$	80,275
Stock-based compensation expense	191			158		371			329
Balance at end of period	92,762		$	80,604	$	92,762		$	80,604
Retained Earnings
Balance at beginning of period	4,952		$	13,205	$	7,634		$	8,089
Net income	5,036			5,126		10,087			10,242
Common stock acquired and canceled	(300	)		-		(7,107	)		-
Cash dividends declared (0.10 per share)	(923	)		-		(1,849	)		-
Balance at end of period	8,765		$	18,331	$	8,765		$	18,331
Total shareholders' equity	101,619		$	99,037	$	101,619		$	99,037

All values are in US Dollars.

See Notes to Unaudited Condensed Consolidated Financial Statements

5

---

Table of Contents

Bank7 Corp.

Unaudited Condensed Consolidated Statements of Cash Flows

(Dollar Amounts in thousands)

	For the Six Months Ended<br><br> <br>June 30,
	2020			2019
Operating Activities
Net income	$	10,087		$	10,242
Items not requiring (providing) cash
Depreciation and amortization		541			388
Provision for loan losses		2,050			-
Gain on sales of loans		(77	)		(77	)
Stock-based compensation expense		371			329
Cash receipts from the sale of loans originated for sale		3,951			4,590
Cash disbursements for loans originated for sale		(3,343	)		(4,009	)
Deferred income tax benefit		(307	)		(85	)
Changes in
Interest receivable and other assets		(1,153	)		719
Interest payable and other liabilities		3,558			(2,786	)
Net cash provided by operating activities		15,678			9,311
Investing Activities
Maturities of interest-bearing time deposits in other banks		16,709			10,120
Purchases of interest-bearing time deposits in other banks		(14,427	)		(10,993	)
Net change in loans		(130,657	)		(31,614	)
Purchases of premises and equipment		(333	)		(1,289	)
Change in nonmarketable equity securities		5			(14	)
Net cash used in investing activities		(128,703	)		(33,790	)
Financing Activities
Net change in deposits		136,748			20,152
Cash distributions		(5,955	)		-
Common stock acquired and canceled		(7,116	)		-
Net cash provided by financing activities		123,677			20,152
Increase (Decrease) in Cash and Due from Banks		10,652			(4,327	)
Cash and Due from Banks, Beginning of Period		117,128			128,090
Cash and Due from Banks, End of Period	$	127,780		$	123,763
Supplemental Disclosure of Cash Flows Information
Interest paid	$	3,914		$	4,561
Income taxes paid	$	-		$	3,868
Dividends declared and not paid	$	923		$	-
Foreclosed assets acquired in settlement of loans	$	-		$	78

See Notes to Unaudited Condensed Consolidated Financial Statements

6

---

Table of Contents

Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1:	Nature of Operations and Summary of Significant Accounting Policies

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, 2019, the date of the most recent annual report.  The condensed consolidated balance sheet of the Company as of December 31, 2019 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, 2019, 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.

Share Repurchase Program

During the six months ended June 30, 2020, 831,254 shares were repurchased under the Company’s share repurchase program at an average price of $8.56 per share and retired and returned to the status of authorized but unissued shares. There were no shares repurchased during the six months ended June 30, 2019.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company, the Bank and its subsidiary, 1039 NW 63^rd^, 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.

7

---

Table of Contents

Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

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.

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoffs are reported at their outstanding principal balances adjusted for unearned income, charge-offs, the allowance for loan losses, any unamortized deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans.

For loans amortized at cost, interest income is accrued based on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, as well as premiums and discounts, are deferred and amortized over the respective term of the loan.

The accrual of interest on loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Past-due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not collected for loans that are placed on nonaccrual or charged off are reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay and estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For those loans that are classified as impaired, an allowance is established when the discounted cash flows or collateral value or observable market price of the impaired loan is lower than the carrying value of that loan. The general component covers nonimpaired loans and is based on historical charge-off experience and expected loss given default derived from the Company’s internal risk rating process. Other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.

8

---

Table of Contents

Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral-dependent.

Groups of loans with similar risk characteristics are collectively evaluated for impairment based on the group’s historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans. Accordingly, the Company does not separately identify individual consumer loans for impairment measurements, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.

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 reporting periods beginning after December 15, 2019.  Additionally, a modified retrospective transition approach is required for a leases existing at the earliest comparative period presented.  Management is assessing the impact of this ASU; however, it is not expected to have a material 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 first quarter of 2021.

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 still assessing the impact of this ASU.  The Company will adopt this ASU in the first quarter of 2023.

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350):  Simplifying the Test for Goodwill Impairment.  The ASU amends existing guidance to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test.  Under the new guidance, if a reporting unit’s carrying amount exceeds its fair value an entity will record an impairment charge based on that difference. The standard eliminates today’s requirement to calculate a goodwill impairment charge using Step 2, which requires an entity to calculate any impairment charge by comparing the implied fair value of goodwill with its carrying amount. Early adoption is permitted. ASU 2017-04 was adopted as of January 1, 2020, with no significant impacts on the Company’s financial statements.

9

---

Table of Contents

Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820). ASU 2018-13 removes, modifies and adds disclosure requirements on fair value measurements. ASU 2018-13 was adopted on January 1, 2020, and did not have a significant impact on the Company’s financial statements.

Legislative and Regulatory Developments

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law. It contains substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic. The goal of the CARES Act is to prevent a severe economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors. The CARES Act also includes a range of other provisions designed to support the U.S. economy and mitigate the impact of COVID-19 on financial institutions and their customers, including through the authorization of various programs and measures that the U.S. Department of the Treasury, the Small Business Administration, the Federal Reserve Board, and other federal banking agencies may or are required to implement. Further, in response to the COVID-19 outbreak, the Federal Reserve Board has implemented or announced a number of facilities to provide emergency liquidity to various segments of the U.S. economy and financial market.

The CARES Act created a $349 billion loan program called the Paycheck Protection Program (the “PPP”) for loans to small businesses for, among other things, payroll, group health care benefit costs and qualifying mortgage, rent and utility payments. PPP loans are fully guaranteed by the Small Business Administration (SBA). As of June 30, 2020, the Company had originated 328 PPP loans with balances totaling $64.0 million.

The extent to which the COVID-19 pandemic impacts the Company’s business, liquidity, asset valuations, results of operations, and financial condition, as well as its regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain, including the scope and duration of the pandemic and actions taken by governmental authorities and other third parties in response to the pandemic. Moreover, the effects of the COVID-19 pandemic may have a material adverse effect on all or a combination of valuation impairments on the Company's intangible assets, loans, or deferred tax assets.

Note 2:	Restriction on Cash and Due from Banks

The Company is required to maintain reserve funds in cash and/or on deposit with the Federal Reserve Bank.  The reserve required at June 30, 2020 was $0.

Note 3:	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.

10

---

Table of Contents

Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

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 dividend by the weighted average number of commons 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:

	For the three months ended<br><br> <br>June 30,				For the six months ended<br><br> <br>June 30,
	2020		2019		2020		2019
(Dollars in thousands, except per share amounts)
Numerator
Net income	$	5,036	$	5,126	$	10,087	$	10,242
Denominator
Weighted-average shares outstanding for basic earnings per share		9,232,509		10,187,500		9,598,232		10,187,500
Dilutive effect of stock compensation ^(1)^		-		5,149		-		-
Denominator for diluted earnings per share		9,232,509		10,192,649		9,598,232		10,187,500
Earnings per common share
Basic	$	0.54	$	0.50	$	1.05	$	1.00
Diluted	$	0.54	$	0.50	$	1.05	$	1.00

(1) Nonqualified stock options outstanding of 186,500 and 163,000, and restricted stock units of 135,000 and 130,000 as of June 30, 2020 and 2019, respectively, have not been included in diluted earnings per share for the six months ended June 30, 2020 and 2019, and nonqualified stock options of 186,500 as of June 30, 2020, and restricted stock units of 135,000 and 130,000 as of June 30, 2020 and 2019, respectively, have not been included in diluted earnings per share for the three months ended June 30, 2020 and 2019 because to do so would have been antidilutive for the periods presented.

11

---

Table of Contents

Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 4:	Loans and Allowance for Loan Losses

A summary of loans at June 30, 2020 and December 31, 2019, are as follows (dollars in thousands):

	June 30,<br><br> <br>2020			December 31,<br><br> <br>2019
Construction & development	$	92,380		$	70,628
1 - 4 family real estate		29,675			34,160
Commercial real estate - other		285,609			273,278
Total commercial real estate		407,664			378,066
Commercial & industrial		372,554			260,762
Agricultural		49,274			57,945
Consumer		10,713			11,895
Gross loans		840,205			708,668
Less allowance for loan losses		(9,878	)		(7,846	)
Less deferred loan fees		(2,262	)		(1,364	)
Net loans	$	828,065		$	699,458

Included in the commercial & industrial loan balance at June 30, 2020, are $64.0 million of loans that were originated under the SBA PPP program.

The following table presents, by portfolio segment, the activity in the allowance for loan losses for the three months ended June 30, 2020 and 2019 (dollars in thousands):

	Construction &<br><br> <br>Development		1 - 4 Family<br><br> <br>Commercial			Commercial<br><br> <br>Real Estate -<br><br> <br>Other		Commercial<br><br> <br>& Industrial			Agricultural		Consumer		Total
June 30, 2020
Balance, beginning of period	$	944	$	376		$	3,032	$	3,495		$	551	$	115	$	8,513
Charge-offs		-		-			-		(39	)		-		-		(39	)
Recoveries		-		-			-		4			-		-		4
Net recoveries		-		-			-		(35	)		-		-		(35	)
Provision (credit) for loan losses		142		(27	)		326		920			28		11		1,400
Balance, end of period	$	1,086	$	349		$	3,358	$	4,380		$	579	$	126	$	9,878
	Construction &<br><br> <br>Development			1 - 4 Family<br><br> <br>Commercial			Commercial<br><br> <br>Real Estate -<br><br> <br>Other		Commercial<br><br> <br>& Industrial		Agricultural			Consumer			Total
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
June 30, 2019
Balance, beginning of period	$	1,290		$	452		$	2,087	$	3,068	$	760		$	178		$	7,835
Charge-offs		-			-			-		-		(10	)		-			(10	)
Recoveries		-			1			-		7		3			-			11
Net recoveries		-			1			-		7		(7	)		-			1
Provision (credit) for loan losses		(259	)		(5	)		242		96		(58	)		(16	)		-
Balance, end of period	$	1,031		$	448		$	2,329	$	3,171	$	695		$	162		$	7,836

12

---

Table of Contents

Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

The following table presents, by portfolio segment, the activity in the allowance for loan losses for the six months ended June 30, 2020 and 2019 (dollars in thousands):

	Construction &<br><br> <br>Development		1 - 4 Family<br><br> <br>Real Estate			Commercial<br><br> <br>Real Estate -<br><br> <br>Other		Commercial<br><br> <br>& Industrial			Agricultural			Consumer			Total
June 30, 2020
Balance, beginning of period	$	782	$	378		$	3,025	$	2,887		$	642		$	132		$	7,846
Charge-offs		-		-			-		(39	)		-			-			(39	)
Recoveries		-		2			-		9			10			-			21
Net charge-offs		-		2			-		(30	)		10			-			(18	)
Provision (credit) for loan losses		304		(31	)		333		1,523			(73	)		(6	)		2,050
Balance, end of period	$	1,086	$	349		$	3,358	$	4,380		$	579		$	126		$	9,878
	Construction &<br><br> <br>Development			1 - 4 Family<br><br> <br>Real Estate		Commercial<br><br> <br>Real Estate -<br><br> <br>Other		Commercial<br><br> <br>& Industrial			Agricultural			Consumer			Total
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
June 30, 2019
Balance, beginning of period	$	1,136		$	433	$	2,035	$	3,231		$	818		$	179		$	7,832
Charge-offs		-			-		-		(4	)		(10	)		-			(14	)
Recoveries		-			2		-		13			3			-			18
Net recoveries		-			2		-		9			(7	)		-			4
Provision (credit) for loan losses		(105	)		13		294		(69	)		(116	)		(17	)		-
Balance, end of period	$	1,031		$	448	$	2,329	$	3,171		$	695		$	162		$	7,836

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, 2020 and December 31, 2019 (dollars in thousands):

	Construction &<br><br> <br>Development		1 - 4 Family<br><br> <br>Real Estate		Commercial<br><br> <br>Real Estate -<br><br> <br>Other		Commercial<br><br> <br>& Industrial		Agricultural		Consumer		Total
June 30, 2020
Allowance Balance
Ending balance Individually evaluated<br><br> <br>for impairment	$	-	$	130	$	26	$	-	$	169	$	-	$	325
Collectively evaluated for impairment		1,086		219		3,332		4,380		410		126		9,553
Total	$	1,086	$	349	$	3,358	$	4,380	$	579	$	126	$	9,878
Gross Loans
Ending balance Individually evaluated<br><br> <br>for impairment	$	-	$	1,143	$	3,609	$	7,739	$	3,785	$	-	$	16,276
Collectively evaluated for impairment		92,380		28,532		282,000		364,815		45,489		10,713		823,929
Total	$	92,380	$	29,675	$	285,609	$	372,554	$	49,274	$	10,713	$	840,205
December 31, 2019
Allowance Balance
Ending balance Individually evaluated<br><br> <br>for impairment	$	-	$	-	$	26	$	-	$	-	$	-	$	26
Collectively evaluated for impairment		782		378		2,999		2,887		642		132		7,820
Total	$	782	$	378	$	3,025	$	2,887	$	642	$	132	$	7,846
Gross Loans
Ending balance Individually evaluated<br><br> <br>for impairment	$	-	$	-	$	5,841	$	2,750	$	2,527	$	-	$	11,118
Collectively evaluated for impairment		70,628		34,160		267,437		258,012		55,418		11,895		697,550
Total	$	70,628	$	34,160	$	273,278	$	260,762	$	57,945	$	11,895	$	708,668

13

---

Table of Contents

Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

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 portfolio consists of residential and commercial properties.  Residential loans are generally secured by owner occupied 1–4 family residences.  Repayment of these loans is primarily dependent on the personal income and credit rating of the borrowers.  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 personal income.  Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.  Commercial real estate loans in this category 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 or income independent of the loan purpose.  Credit risk in these loans is driven by the creditworthiness of a borrower, property values, the local economy and other economic conditions impacting a borrower’s business or personal income.

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, cattle or poultry or the operation of a similar type of business on the secured property.  Sources of repayment for these loans generally include income generated from operations of a business on the property, rental income or sales of the 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.  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<br> 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<br> 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.
---	---

14

---

Table of Contents

Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

•	Grade 3 (Special Mention) – These loans must have observable weaknesses or evidence imprudent handling or structural issues. The weaknesses require close attention and the remediation of<br> 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<br> 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<br> 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, 2020.

The following table presents the credit risk profile of the Company’s loan portfolio based on internal rating category as of June 30, 2020 and December 31, 2019 (dollars in thousands):

	Construction &<br><br> <br>Development		1 - 4 Family<br><br> <br>Real Estate		Commercial<br><br> <br>Real Estate -<br><br> <br>Other		Commercial<br><br> <br>& Industrial		Agricultural		Consumer		Total
June 30, 2020
Grade
1 (Pass)	$	92,380	$	27,745	$	269,191	$	335,070	$	45,489	$	10,713	$	780,588
2 (Watch)		-		787		9,811		14,654		-		-		25,252
3 (Special Mention)		-		-		2,998		15,091		-		-		18,089
4 (Substandard)		-		1,143		3,609		7,739		3,785		-		16,276
Total	$	92,380	$	29,675	$	285,609	$	372,554	$	49,274	$	10,713	$	840,205
	Construction &<br><br> <br>Development		1 - 4 Family<br><br> <br>Real Estate		Commercial<br><br> <br>Real Estate -<br><br> <br>Other		Commercial<br><br> <br>& Industrial		Agricultural		Consumer		Total
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
December 31, 2019
Grade
1 (Pass)	$	70,628	$	33,622	$	267,437	$	241,176	$	53,290	$	11,895	$	678,048
2 (Watch)		-		538		-		5,312		-		-		5,850
3 (Special Mention)		-		-		-		11,524		2,128		-		13,652
4 (Substandard)		-		-		5,841		2,750		2,527		-		11,118
Total	$	70,628	$	34,160	$	273,278	$	260,762	$	57,945	$	11,895	$	708,668

15

---

Table of Contents

Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

            The following table presents the Company’s loan portfolio aging analysis of the recorded investment in loans as of June 30, 2020 and December 31, 2019 \(dollars in thousands\):

	Past Due												Total Loans
	30–59<br><br> <br>Days		60–89<br><br> <br>Days		Greater than<br><br> <br>90 Days		Total		Current		Total<br><br> <br>Loans		> 90 Days &<br><br> <br>Accruing
June 30, 2020
Construction & development	$	-	$	-	$	-	$	-	$	92,380	$	92,380	$	-
1 - 4 Family Real Estate		-		-		-		-		29,675		29,675		-
Commercial Real Estate - other		-		-		-		-		285,609		285,609		-
Commercial & industrial		329		6		-		335		372,219		372,554		-
Agricultural		57		-		-		57		49,217		49,274		-
Consumer		89		-		-		89		10,624		10,713		-
Total	$	475	$	6	$	-	$	481	$	839,724	$	840,205	$	-
December 31, 2019
Construction & development	$	-	$	-	$	-	$	-	$	70,628	$	70,628	$	-
1 - 4 Family Real Estate		-		-		-		-		34,160		34,160		-
Commercial Real Estate - other		-		-		-		-		273,278		273,278		-
Commercial & industrial		-		-		14		14		260,748		260,762		14
Agricultural		-		-		598		598		57,347		57,945		598
Consumer		90		-		-		90		11,805		11,895		-
Total	$	90	$	-	$	612	$	702	$	707,966	$	708,668	$	612

The following table presents impaired loans as of June 30, 2020 and December 31, 2019 (dollars in thousands):

	Unpaid<br><br> <br>Principal<br><br> <br>Balance		Recorded<br><br> <br>Investment<br><br> <br>with No<br><br> <br>Allowance		Recorded<br><br> <br>Investment<br><br> <br>with an<br><br> <br>Allowance		Total<br><br> <br>Recorded<br><br> <br>Investment		Related<br><br> <br>Allowance		Average<br><br> <br>Recorded<br><br> <br>Investment		Interest<br><br> <br>Income<br><br> <br>Recognized		Average<br><br> <br>Recorded<br><br> <br>Investment		Interest<br><br> <br>Income<br><br> <br>Recognized
											Three Months Ended<br><br> <br>June 30, 2020				Six Months Ended<br><br> <br>June 30, 2020
June 30, 2020
Construction & development	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
1 - 4 Family Real Estate		1,143		-		1,143		1,143		130		1,148		32		574		32
Commercial Real Estate - other		3,609		1,902		1,707		3,609		26		3,664		59		3,795		129
Commercial & industrial		7,739		7,739		-		7,739		-		8,170		139		6,131		321
Agricultural		3,002		873		2,129		3,002		169		2,635		3		2,741		41
Consumer		-		-		-		-		-		-		-		-		-
Total	$	15,493	$	10,514	$	4,979	$	15,493	$	325	$	15,617	$	233	$	13,241	$	523
December 31, 2019											Three Months Ended<br><br> June 30, 2019				Six Months Ended<br><br> <br>June 30, 2019
Construction & development	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
1 - 4 Family Real Estate		-		-		-		-		-		713		-		414		-
Commercial Real Estate - other		5,841		4,032		1,809		5,841		26		1,335		33		1,147		66
Commercial & industrial		2,750		2,750		-		2,750		-		5,290		55		5,940		178
Agricultural		2,527		1,744		-		1,744		-		2,548		48		2,190		105
Consumer		-		-		-		-		-		193		-		193		-
Total	$	11,118	$	8,526	$	1,809	$	10,335	$	26	$	10,079	$	136	$	9,884	$	349

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, 2020, the Company had $1,707,000 of commercial real estate loans and $786,000 of agricultural loans that were modified in troubled-debt restructurings and impaired and $1,758,000 of commercial real estate and $912,000 of agricultural loan modifications as of December 31, 2019.  There were no newly modified troubled-debt restructurings during the six months ended June 30, 2020.

16

---

Table of Contents

Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

There were no troubled-debt restructurings modified in the past six months that subsequently defaulted for the period ended June 30, 2020.

The following table represents information regarding nonperforming assets at June 30, 2020 and December 31, 2019 (dollars in thousands):

	As of
	June 30,<br><br> <br>2020		December 31,<br><br> <br>2019
Nonaccrual loans	$	7,127	$	1,809
Troubled-debt restructurings (1)		786		912
Accruing loans 90 or more days past due		-		612
Total nonperforming loans	$	7,913	$	3,333
(1)	$1.71 million and $1.81 million of TDRs as of June 30, 2020 and December 31, 2019, respectively, are included in the nonaccrual loans balance in the line above.
---	---

The CARES Act includes a provision that permits a financial institution to elect to suspend temporarily troubled debt restructuring accounting under ASC Subtopic 310-40 in certain circumstances (“section 4013”). To be eligible under section 4013, a loan modification must be (1) related to COVID-19; (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (A) 60 days after the date of termination of the National Emergency or (B) December 31, 2020. In response to this section of the CARES Act, the federal banking agencies issued a revised interagency statement on April 7, 2020 that, in consultation with the Financial Accounting Standards Board, confirmed that for loans not subject to section 4013, short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not troubled debt restructurings under ASC Subtopic 310-40. This includes short-term (e.g., up to six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. In the period ending June 30, 2020, 174 loans totaling $312.8 million were modified, related to COVID-19, which were not considered troubled debt restructurings.

Note 5:	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 to the existing stock repurchase program, for a total of 1,000,000 shares authorized under the program.  All shares repurchased under the RP have been retired and not held as treasury stock. The timing, price and amount of stock repurchases under the RP may be determined by management. At June 30, 2020, there were 168,746 shares remaining that could be repurchased under the Company’s Repurchase Program.  Stock repurchases under the 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:

17

---

Table of Contents

Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

	Six Months Ended<br><br> <br>June 30,				Three Months Ended<br><br> <br>June 30,
	2020		2019		2020		2019
Number of shares repurchased		831,254		-		38,160		-
Average price of shares repurchased	$	8.56	$	-	$	7.90	$	-
Shares remaining to be repurchased		168,746		-		168,746		-

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, 2020, 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, 2020, 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.  There are no conditions or events since that notification that management believes have changed the Bank’s category.

In April 2020, we began originating loans to qualified small businesses under the PPP administered by the SBA. Federal bank regulatory agencies have issued an interim final rule that permits banks to neutralize the regulatory capital effects of participating in the Paycheck Protection Program Lending Facility (the “PPP Facility”) and clarify that PPP loans have a zero percent risk weight under applicable risk-based capital rules. Specifically, a bank may exclude all PPP loans pledged as collateral to the PPP Facility from its average total consolidated assets for the purposes of calculating its leverage ratio, while PPP loans that are not pledged as collateral to the PPP Facility will be included. The PPP loans we originated in the second quarter of 2020 are included in the calculation of our leverage ratio as of June 30, 2020 as we did not utilize the PPP Facility for funding purposes.

18

---

Table of Contents

Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

The Company’s and Bank’s actual capital amounts and ratios are presented in the following table (dollars in thousands):

	Actual					Minimum<br><br> <br>Capital Requirements					With Capital<br><br> <br>Conservation Buffer					Minimum<br><br> <br>To Be Well Capitalized<br><br> <br>Under Prompt<br><br> <br>Corrective Action
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
As of June 30, 2020
Total capital to risk-weighted assets
Company	$	109,490		14.33	%	$	61,139		8.00	%	$	80,245		10.50	%		N/A		N/A
Bank	$	109,435		14.34	%	$	61,060		8.00	%	$	80,141		10.50	%	$	76,325		10.00	%
Tier I capital to risk-weighted assets
Company	$	99,933		13.08	%	$	45,854		6.00	%	$	64,960		8.50	%		N/A		N/A
Bank	$	99,891		13.09	%	$	45,795		6.00	%	$	64,876		8.50	%	$	61,060		8.00	%
CET I capital to risk-weighted assets
Company	$	99,933		13.08	%	$	34,391		4.50	%	$	53,497		7.00	%		N/A		N/A
Bank	$	99,891		13.09	%	$	34,346		4.50	%	$	53,427		7.00	%	$	49,611		6.50	%
Tier I capital to average assets
Company	$	99,933		10.31	%	$	38,787		4.00	%		N/A		N/A			N/A		N/A
Bank	$	99,891		10.30	%	$	38,801		4.00	%		N/A		N/A		$	48,502		5.00	%
As of December 31, 2019
Total capital to risk-weighted assets
Company	$	105,137		15.25	%	$	55,157		8.00	%	$	72,393		10.50	%		N/A		N/A
Bank	$	106,148		15.42	%	$	55,076		8.00	%	$	72,287		10.50	%	$	68,845		10.00	%
Tier I capital to risk-weighted assets
Company	$	97,291		14.11	%	$	41,368		6.00	%	$	58,604		8.500	%		N/A		N/A
Bank	$	98,302		14.28	%	$	41,307		6.00	%	$	58,518		8.500	%	$	55,076		8.00	%
CET I capital to risk-weighted assets
Company	$	97,291		14.11	%	$	31,026		4.50	%	$	48,262		7.000	%		N/A		N/A
Bank	$	98,302		14.28	%	$	30,980		4.50	%	$	48,192		7.000	%	$	44,749		6.50	%
Tier I capital to average assets
Company	$	97,291		11.53	%	$	33,833		4.00	%		N/A		N/A			N/A		N/A
Bank	$	98,302		11.65	%	$	33,793		4.00	%		N/A		N/A		$	42,241		5.00	%

In July 2013, the federal regulatory authorities issued a new capital rule based, in part, on revisions developed by the Basel Committee on Banking Supervision to the Basel capital framework (Basel III). The Bank became subject to the new rule effective January 1, 2015.  Generally, the new rule implements higher minimum capital requirements, revises the definition of regulatory capital components and related calculations, adds a new common equity tier 1 capital ratio, implements a new capital conservation buffer, increases the risk weighting for past due loans and provides a transition period for several aspects of the new rule.  In addition, banks with less than $250 billion in assets were given a one-time opt-out election under Basel III Capital Rules to filter from regulatory capital certain accumulated other comprehensive income (AOCI) components.  The Bank made the opt-out election and excludes the AOCI components from the capital ratio computations.

The current (new) capital rule provides that, 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 common equity tier 1 capital above its minimum risk-based capital requirements.  The buffer is measured relative to risk-weighted assets.

As fully phased in, a banking organization with a buffer greater than 2.5% would not be subject to additional limits on dividend payments or discretionary bonus payments; however, a banking organization with a buffer less than 2.5% would be subject to increasingly stringent limitations as the buffer approaches zero.  The new rule also prohibits a banking organization from making dividend payments or discretionary bonus payments if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than 2.5% as of the beginning of that quarter. Eligible net income is defined as net income for the four calendar quarters preceding the current calendar quarter, net of any distributions and associated tax effects not already reflected in net income.  A summary of payout restrictions based on the capital conservation buffer is as follows:

19

---

Table of Contents

Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

Capital Conservation Buffer<br><br> <br>(as a % of risk-weighted assets)	Maximum Payout<br><br> <br>(as a % of eligible retained income)
Greater than 2.5%	No payout limitations applies
≤2.5% and >1.875%		60	%
≤1.875% and >1.25%		40	%
≤1.25% and >0.625%		20	%
≤0.625%		0	%

The Bank is subject to certain restrictions on the amount of dividends that it may declare without prior regulatory approval.  At June 30, 2020, approximately $29.5 million of retained earnings was available for dividend declaration from the Bank without prior regulatory approval.

Note 6:	Related-Party Transactions

At June 30, 2020 and December 31, 2019, the Company had loans outstanding to executive officers, directors, significant shareholders and their affiliates (related parties) approximating $0 and $1.1 million, respectively.  A summary of these loans is as follows (dollars in thousands):

	Balance<br><br> <br>Beginning of<br><br> <br>the Period		Additions		Collections/<br><br> <br>Terminations			Balance<br><br> <br>End of<br><br> <br>the Period
Six months ended June 30, 2020	$	1,055	$	-	$	(1,055	)	$	-
Year ended December 31, 2019	$	6,897	$	2,613	$	(8,455	)	$	1,055

In management’s opinion, such loans and other extensions of credit and deposits were made in the ordinary course of business and were made on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with other persons.  Further, in management’s opinion, these loans did not involve more than normal risk of collectability or present other unfavorable features.

The 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 $46,000 for the three months ended June 30, 2020 and 2019, and $92,000 for the six months ended June 30, 2020 and 2019.  In addition, payroll and office sharing arrangements were in place between the Company and certain of its affiliates.

20

---

Table of Contents

Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 7:	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 Bank matching up to 5% of the employee’s salary.  Employer contributions charged to expense for the three months ended June 30, 2020 and 2019 totaled $69,000 and $55,000, respectively. Employer contributions charged to expense for the six months ended June 30, 2020 and 2019 totaled $114,000 and $121,000, respectively.

Stock-Based Compensation

The Company adopted a nonqualified incentive stock option plan (the “Bank7 Corp. 2018 Equity Incentive Plan”) in September 2018. The Bank7 Corp. 2018 Equity Incentive Plan will terminate in September 2028, if not extended. Compensation expense related to the Plan for the three months ended June 30, 2020 and 2019 totaled $191,000 and $158,000, respectively. Employer contributions charged to expense for the six months ended June 30, 2020 and 2019 totaled $371,000 and $329,000, respectively.  There were 702,500 shares available for future grants as of June 30, 2020.

On September 5, 2019, our largest shareholders, the Haines Family Trusts, contributed approximately 6.5% of their shares (656,925 shares) to the Company.  Subsequently, the Company immediately issued those shares to certain executive officers, which was charged as compensation expense of $11.8 million, including payroll taxes, through the income statement of the Company. Additionally, at the discretion of the employees receiving shares to assist in paying tax withholdings, 149,425 shares were withheld and subsequently canceled, resulting in a charge to retained earnings of $2.6 million.

The Company grants to employees and directors restricted stock units (RSUs) which vest ratably over either three 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 Bank7 Corp. 2018 Equity Incentive Plan (dollar amounts in thousands, except per share data):

	Options			Wgtd. Avg. Exercise<br><br> <br>Price		Wgtd. Avg.<br><br> <br>Remaining<br><br> <br>Contractual Term		Aggregate<br><br> <br>Intrinsic<br><br> <br>Value
Six Months Ended June 30, 2020
Outstanding at December 31, 2019		163,000		$	18.75
Options Granted		26,500			18.49
Options Exercised		-			-
Options Forfeited		(3,000	)		17.42
Outstanding at June 30, 2020		186,500			18.73		8.45	$	0
Exercisable at June 30, 2020		40,000			18.77		8.28	$	0

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.

21

---

Table of Contents

Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

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:

	Six Months Ended
	June 30, 2020			June 30, 2019
Risk-free interest rate		1.71	%		2.48	%
Dividend yield		2.20	%		2.20	%
Stock price volatility		41.27	%		31.14	%
Expected term		7.51			7.01

The following table summarizes share information about RSUs for the six months ended June 30, 2020:

	Number of<br><br> <br>Shares		Wgtd. Avg. Grant<br><br> <br>Date Fair Value
Outstanding at December 31, 2019		104,000	$	19.09
Shares granted		31,000		18.49
Shares settled		-		-
Shares forfeited		-		-
End of the period balance		135,000	$	18.95

As of June 30, 2020, there was approximately $2.1 million of unrecognized compensation expense related to 135,000 unvested RSUs and $457,000 of unrecognized compensation expense related to 186,500 unvested and/or unexercised stock options.  The stock option expense is expected to be recognized over a weighted average period of 2.71 years, and the RSU expense is expected to be recognized over a weighted average period of 3.50 years.

Note 8:	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 hierarchy 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<br> 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

There were no assets measured at fair value on a recurring basis as of June 30, 2020 and December 31, 2019.

22

---

Table of Contents

Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

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, 2020 and December 31, 2019 (dollars in thousands):

	Fair Value		(Level 1)		(Level 2)		(Level 3)
June 30, 2020
Impaired loans (collateral-dependent)	$	4,654	$	-	$	-	$	4,654
December 31, 2019
Impaired loans (collateral-dependent)	$	1,783	$	-	$	-	$	1,783

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.

23

---

Table of Contents

Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

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<br><br> <br>Technique	Unobservable<br><br> <br>Inputs	Weighted-<br><br> <br>Average
June 30, 2020
Collateral-dependent impaired loans	$	4,654	Appraisals from comparable properties	Estimated cost to sell		3-5	%
December 31, 2019
Collateral-dependent impaired loans	$	1,783	Appraisals from comparable properties	Estimated cost to sell		3-5	%

The following tables presents estimated fair values of the Company’s financial instruments not     recorded at fair value at June 30, 2020 and December 31, 2019 (dollars in thousands):

	Carrying		Fair Value Measurements
	Amount		Level 1		Level 2		Level 3		Total
June 30, 2020
Financial Assets
Cash and due from banks	$	127,780	$	127,780	$	-	$	-	$	127,780
Interest-bearing time deposits in other banks	$	27,865	$	-	$	27,865	$	-	$	27,865
Loans, net of allowance	$	828,065	$	-	$	823,896	$	4,654	$	828,550
Mortgage loans held for sale	$	500	$	-	$	500	$	-	$	500
Nonmarketable equity securities	$	1,095	$	-	$	1,095	$	-	$	1,095
Interest receivable	$	5,267	$	-	$	5,267	$	-	$	5,267
Financial Liabilities
Deposits	$	894,231	$	-	$	892,882	$	-	$	892,882
Interest payable	$	423	$	-	$	423	$	-	$	423
December 31, 2019
Financial Assets
Cash and due from banks	$	117,128	$	117,128	$	-	$	-	$	117,128
Interest-bearing time deposits in other banks	$	30,147	$	-	$	30,147	$	-	$	30,147
Loans, net of allowance	$	699,458	$	-	$	698,672	$	1,809	$	700,481
Mortgage loans held for sale	$	1,031	$	-	$	1,031	$	-	$	1,031
Nonmarketable equity securities	$	1,100	$	-	$	1,100	$	-	$	1,100
Interest receivable	$	3,954	$	-	$	3,954	$	-	$	3,954
Financial Liabilities
Deposits	$	757,483	$	-	$	757,520	$	-	$	757,520
Interest payable	$	636	$	-	$	636	$	-	$	636

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:

24

---

Table of Contents

Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

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 fair value of loans 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, 2020 or December 31, 2019.

Note 9:	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, 2020 and December 31, 2019 (dollars in thousands):

	June 30,<br><br> <br>2020		December 31,<br><br> <br>2019
Commitments to extend credit	$	177,804	$	191,459
Financial and performance standby letters of credit		2,594		3,338
	$	180,398	$	194,797

25

---

Table of Contents

Bank7 Corp.

Notes to Unaudited Condensed Consolidated Financial Statements

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 10:	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 4 regarding loans.  Current vulnerabilities due to off-balance sheet credit risk are discussed in Note 9.

As of June 30, 2020, hospitality loans were 21% of gross total loans with outstanding balances of $179.8 million and unfunded commitments of $53.0 million; energy loans were 11% of gross total loans with outstanding balances of $90.2 million and unfunded commitments of $14.0 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, 2020, goodwill of $1.0 million was recorded on the consolidated balance sheet.

26

---

Table of Contents

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, 2019.

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 nine 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, 2020, we had total assets of $1.0 billion, total loans of $837.9 million, total deposits of $894.2 million and total shareholders’ equity of $101.6 million.

27

---

Table of Contents

GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures

Our accounting and reporting policies conform to GAAP and the prevailing practices in the banking industry. However, we also evaluate our performance based on certain additional financial measures that are non-GAAP financial measures.

The non-GAAP financial measures that we discuss in this Form 10-Q should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the manner in which we calculate the non-GAAP financial measures that we discuss in this Form 10-Q may differ from that of other companies reporting measures with similar names. It is important to understand how other banking organizations calculate their financial measures with names similar to the non-GAAP financial measures we have discussed in this communication when comparing such non-GAAP financial measures.

Exclusion of loan fee income. We calculate (1) yield on loans (excluding loan fee income) as interest income on loans less loan fee income divided by average total loans and (2) net interest margin (excluding loan fee income) as net interest income less loan fee income divided by average interest-earning assets. The most directly comparable GAAP financial measure for yield on loans (excluding loan fee income) is yield on loans and for net interest margin (excluding loan fee income) is net interest margin.  We believe that loan yields excluding loan fee income and net interest margin excluding loan fee income are measures that are important to many investors in the marketplace who are interested in changes from period to period in our loan yields and net interest margin exclusive of fluctuating levels of nonrecurring loan fee income. The following table reconciles, as of the dates set forth below, yield on loans (excluding loan fee income) to yield on loans and net interest margin (excluding loan fee income) to net interest margin:

	Three months ended<br><br> <br>June 30,						Six months ended<br><br> <br>June 30,
(Dollars in thousands, except per share data)	2020			2019			2020			2019
Loan interest income (excluding loan fees)
Total loan interest income, including loan fee income	$	13,385		$	12,101		$	26,491		$	23,723
Loan fee income		(1,632	)		(1,369	)		(2,892	)		(2,658	)
Loan interest income excluding loan fee income	$	11,753		$	10,732		$	23,599		$	21,065
Average total loans	$	826,111		$	613,892		$	786,943		$	600,224
Yield on loans (including loan fee income)		6.52	%		7.91	%		6.77	%		7.97	%
Yield on loans (excluding loan fee income)		5.72	%		7.01	%		6.03	%		7.08	%
Net interest margin (excluding loan fees)
Net interest income	$	11,929		$	10,583		$	23,361		$	20,936
Loan fee income		(1,632	)		(1,369	)		(2,892	)		(2,658	)
Net interest income excluding loan fees	$	10,297		$	9,214		$	20,469		$	18,278
Average earning assets	$	962,186		$	777,190		$	914,118		$	761,607
Net interest margin (including loan fee income)		4.99	%		5.46	%		5.14	%		5.54	%
Net interest margin (excluding loan fee income)		4.30	%		4.76	%		4.50	%		4.84	%

28

---

Table of Contents

Pre-tax, pre-provision net earnings is defined as income before taxes and provision for loan losses.  Disclosure of this measure enables you to compare our operations to those of other banking companies before consideration of taxes and provision expense, which some investors may consider to be a more appropriate comparison given recaptures from the allowance for loan losses. The most directly comparable GAAP financial measure for pre-tax, pre-provision net earnings is net income.

	Three months ended<br><br> <br>June 30,						Six months ended<br><br> <br>June 30,
(Dollars in thousands, except per share data)	2020			2019			2020			2019
Pre-tax, pre-provision net earnings
Net income before income taxes	$	6,707		$	6,830		$	13,466		$	13,651
Plus: Provision for loan losses		(1,400	)		-			(2,050	)		-
Pre-tax, pre-provision net earnings	$	8,107		$	6,830		$	15,516		$	13,651
Ratios
Net income (numerator)	$	5,036		$	5,126		$	10,087		$	10,242
Average assets (denominator)	$	971,373		$	786,773		$	923,087		$	770,621
Return on average assets		2.09	%		2.61	%		2.20	%		2.68	%
Average shareholders' equity (denominator)	$	99,469		$	96,044		$	100,593		$	93,443
Return on average shareholders' equity		20.36	%		21.41	%		20.17	%		22.10	%
Average tangible common equity (denominator)	$	97,760		$	94,128		$	98,858		$	91,498
Return on average tangible common equity		20.72	%		21.84	%		20.52	%		22.57	%
Per share data
Weighted average common shares outstanding basic (denominator)		9,232,509			10,187,500			9,598,232			10,187,500
Net income per common share--basic	$	0.54		$	0.50		$	1.05		$	1.00
Weighted average common shares outstanding diluted (denominator)		9,232,509			10,192,649			9,598,232			10,187,500
Net income per common share--diluted	$	0.54		$	0.50		$	1.05		$	1.00

Tangible Common Equity and Tangible Book Value Per Share. We calculate (1) tangible equity as total shareholders’ equity less goodwill and other intangibles; and (2) tangible book value per share as tangible equity divided by our shares outstanding at the end of the relevant period. The most directly comparable GAAP financial measure for tangible equity is total shareholders’ equity and for tangible book value per share is book value per share.

Tangible Shareholders’ Equity to Tangible Assets. We calculate (1) tangible assets as total assets less goodwill and other intangibles; and (2) tangible shareholders’ equity to tangible assets as tangible equity (as defined in the preceding paragraph) divided by tangible assets at the end of the relevant period. The most directly comparable GAAP financial measure for tangible assets is total assets and for tangible shareholders’ equity to tangible assets is total shareholders’ equity to total assets.

We believe that tangible book value per share and tangible shareholders’ equity to tangible assets are measures that are important to many investors in the marketplace who are interested in changes from period to period in our shareholders’ equity exclusive of changes in intangible assets. Intangible assets have the effect of increasing total shareholders’ equity while not increasing our tangible book value per share or tangible shareholders’ equity to tangible assets. The following table reconciles, as of the dates set forth below, total shareholders’ equity to tangible shareholders’ equity, total assets to tangible assets and presents tangible book value per share compared to book value per share and tangible shareholders’ equity to tangible assets to total shareholders’ equity to total assets:

29

---

Table of Contents

	June 30,
(Dollars in thousands, except per share data)	2020			2019
Tangible shareholders' equity
Total shareholders' equity	$	101,619		$	99,037
Less: Goodwill and other intangibles		(1,686	)		(1,892	)
Tangible shareholders' equity	$	99,933		$	97,145
Tangible assets
Total assets	$	1,004,085		$	798,448
Less: Goodwill and other intangibles		(1,686	)		(1,892	)
Tangible assets	$	1,002,399		$	796,556
Tangible shareholders' equity
Tangible shareholders' equity (numerator)	$	99,933		$	97,145
Tangible assets (denominator)	$	1,002,399		$	796,556
Tangible common equity to tangible assets		9.97	%		12.20	%
End of period common shares outstanding		9,226,252			10,187,500
Book value per share	$	11.01		$	9.72
Tangible book value per share	$	10.83		$	9.54
Total shareholders' equity to total assets		10.12	%		12.40	%

Results of Operations

Performance Summary. For the second quarter of 2020 we reported a pre-tax income of $6.7 million, compared to pre-tax income of $6.8 million for the second quarter of 2019. For the first six months of 2020 we reported pre-tax income of $13.5 million, compared to $13.7 million for the same period in 2019. For the second quarter of 2020, interest income increased by $490,000, or 3.8%, compared to the second quarter of 2019. For the first six months of 2020, interest income increased by $1.5 million or 5.5% compared to $25.6 million for the same period in 2019. For the second quarter of 2020, average total loans were $826.1 million with loan yields of 6.5% as compared to $613.9 million and loan yields of 7.9% for the second quarter of 2019. For the first six months of 2020, average total loans were $786.9 million with loan yields of 6.8% as compared to average total loans of $600.2 million and loan yields of 8.0% for the same period in 2019.

Pre-tax return on average assets was 2.78% for the second quarter of 2020, as compared to 3.48% for the same period in 2019.  The pre-tax return on average equity was 27.12% for the second quarter of 2020, as compared to 28.52% for the same period in 2019. Pre-tax return on average assets was 2.93% for the six months ended June 30, 2020, as compared to 3.57% for the same period in 2019.  The pre-tax return on average equity was 26.92% for the six months ended June 30, 2020, as compared to 29.46% for the same period in 2019.  The efficiency ratio was 33.7% for the three months ended June 30, 2020, as compared to 37.2% for the same period in 2019. The efficiency ratio was 35.3% for the six months ended June 30, 2020, as compared to 36.4% for the same period in 2019.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law. It contains substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic.  The CARES Act created a $349 billion loan program called the Paycheck Protection Program (the “PPP”) for loans to small businesses for, among other things, payroll, group health care benefit costs and qualifying mortgage, rent and utility payments. PPP loans are fully guaranteed by the Small Business Administration (SBA). As of June 30, 2020, we had originated 328 PPP loans with balances totaling $64.0 million.  We received $1.8 million in PPP origination fees during the period ended June 30, 2020, of which $906,000 was recognized in interest income and $863,000 was deferred.

COVID-19 Impact.  As discussed elsewhere in this report, we have been actively managing our response to the unfolding COVID-19 pandemic. We are especially mindful and grateful to our Bank7 teammates, and will continue to work together to support each other, our customers, and our communities.

30

---

Table of Contents

Further pandemic-induced economic downturns could result in increased deterioration in credit quality, past due loans, loan charge offs and collateral value declines, which could cause our results of operations and financial condition to be negatively impacted.

Net Interest Income and Net Interest Margin Including Loan Fee Income. Net interest income, representing interest income less interest expense, was the primary contributor to income and earnings for the periods shown. Interest income is generated from interest earned on loans, dividends, and interest earned on deposits at other institutions.  Interest expense is incurred on interest-bearing liabilities including deposits and other borrowings. Net interest income is evaluated by measuring (i) yield on loans and other interest-earning assets, (ii) the costs of deposits and other funding sources and (iii) net interest margin. Net interest margin is calculated as the annualized net interest income divided by average interest-earning assets.

Changes in market interest rates and interest rates earned on interest-earning assets or paid on interest-bearing liabilities, as well as the volume and types of interest-earning assets, interest-bearing and noninterest-bearing liabilities, are usually the largest drivers of periodic changes in net interest margin and net interest income.

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 With Loan Fee Income
	For the Three Months Ended June 30,
	2020							2019
	Average<br><br> <br>Balance		Interest<br><br> <br>Income/<br><br> <br>Expense		Average<br><br> <br>Yield/<br><br> <br>Rate			Average<br><br> <br>Balance		Interest<br><br> <br>Income/<br><br> <br>Expense		Average<br><br> <br>Yield/<br><br> <br>Rate
	(Dollars in thousands)
Interest-earning assets:
Short-term investments^(1)^	$	134,764	$	156		0.47	%	$	162,056	$	941		2.33	%
Investment securities^(2)^		1,089		15		5.54			1,063		24		9.06
Loans held for sale		222		—		0.00			179		—		0.00
Total loans^(3)^		826,111		13,385		6.52			613,892		12,101		7.91
Total interest-earning assets		962,186		13,556		5.67			777,190		13,066		6.74
Noninterest-earning assets		9,187							9,583
Total assets	$	971,373						$	786,773
Funding sources:
Interest-bearing liabilities:
Deposits:
Transaction accounts	$	373,812		704		0.76	%	$	294,926		1,388		1.89	%
Time deposits		219,990		923		1.69			205,978		1,095		2.13
Total interest-bearing deposits		593,802		1,627		1.10			500,904		2,483		1.99
Total interest-bearing liabilities		593,802		1,627		1.10			500,904		2,483		1.99
Noninterest-bearing liabilities:
Noninterest-bearing deposits		272,373							185,715
Other noninterest-bearing liabilities		5,729							4,110
Total noninterest-bearing liabilities		278,102							189,825
Shareholders’ equity		99,469							96,044
Total liabilities and shareholders’ equity	$	971,373						$	786,773
Net interest income including loan fee income			$	11,929						$	10,583
Net interest spread including loan fee income^(4)^						4.56	%						4.75	%
Net interest margin including loan fee income						4.99	%						5.46	%

31

---

Table of Contents

(1)	Includes income and average balances for fed funds sold, interest-earning deposits in banks and other miscellaneous interest-earning assets.
(2)	Includes income and average balances for FHLB and FRB stock.
---	---
(3)	Non-accrual loans are included in loans.
---	---
(4)	Net interest spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.
---	---

For the second quarter of 2020 compared to the second quarter of 2019:

-	Interest income on short term investments totaled $156,000 as compared to $941,000, a decrease of $785,000 or 83.4% which was attributable to a $27.3 million decrease, or 16.8%, in average balances of<br> interest bearing deposits at other financial institutions and a decrease in yield of 186 basis points, or 80.0%.
-	Total interest income on loans, including loan fee income, increased $1.3 million or 10.6% to $13.4 million which was attributable to a $212.2 million increase in average total loans to $826.1 million, as<br> compared with average loans of $613.9 million for the second quarter of 2019, and PPP loan fees recognized of $906,000.
---	---
-	Loan fees totaled $1.6 million, an increase of $263,000 or 19.2%, most of which was attributable to PPP loan fees recognized of $906,000.
---	---
-	Yield on our interest earning assets totaled 5.67%, a decrease of 107 basis points or 15.9%, compared to yield on our interest earning assets of 6.74% for the second quarter of 2019; and
---	---
-	Net interest margin for the second quarter of 2020 was 4.99% compared to 5.46% for the second quarter of 2019.
---	---
	Net Interest Margin With Loan Fee Income
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
	For the Six Months Ended June 30,
	2020							2019
	Average<br><br> <br>Balance		Interest<br><br> <br>Income/<br><br> <br>Expense		Average<br><br> <br>Yield/<br><br> <br>Rate			Average<br><br> <br>Balance		Interest<br><br> <br>Income/<br><br> <br>Expense		Average<br><br> <br>Yield/<br><br> <br>Rate
	(Dollars in thousands)
Interest-earning assets:
Short-term investments^(1)^	$	125,906	$	554		0.88	%	$	160,129	$	1,896		2.39	%
Investment securities^(2)^		1,095		18		3.31			1,059		24		4.57
Loans held for sale		174		—		0.00			195		—		0.00
Total loans^(3)^		786,943		26,491		6.77			600,224		23,723		7.97
Total interest-earning assets		914,118		27,063		5.95			761,607		25,643		6.79
Noninterest-earning assets		8,969							9,014
Total assets	$	923,087						$	770,621
Funding sources:
Interest-bearing liabilities:
Deposits:
Transaction accounts	$	358,167		1,714		0.96	%	$	290,204		2,687		1.87	%
Time deposits		212,537		1,988		1.88			199,276		2,020		2.04
Total interest-bearing deposits		570,704		3,702		1.30			489,480		4,707		1.94
Total interest-bearing liabilities		570,704		3,702		1.30			489,480		4,707		1.94
Noninterest-bearing liabilities:
Noninterest-bearing deposits		246,630							182,760
Other noninterest-bearing liabilities		5,160							4,938
Total noninterest-bearing liabilities		251,790							187,698
Shareholders’ equity		100,593							93,443
Total liabilities and shareholders’ equity	$	923,087						$	770,621
Net interest income including loan fee income			$	23,361						$	20,936
Net interest spread including loan fee income^(4)^						4.65	%						4.85	%
Net interest margin including loan fee income						5.14	%						5.54	%

32

---

Table of Contents

(1)	Includes income and average balances for fed funds sold, interest-earning deposits in banks and other miscellaneous interest-earning assets.
(2)	Includes income and average balances for FHLB and FRB stock.
---	---
(3)	Non-accrual loans are included in loans.
---	---
(4)	Net interest spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.
---	---

For the first six months of 2020 compared to the same period in 2019:

-	Interest income on short term investments totaled $554,000 as compared to $1.9 million, a decrease of $1.3 million or 70.8% which was attributable to a $34.2 million decrease, or 21.4%, in average balances of<br> interest bearing deposits at other financial institutions and a decrease in yield of 151 basis points, or 63.2%.
-	Total interest income on loans, including loan fee income, increased $2.8 million or 11.7% to $26.5 million which was attributable to a $186.7 million increase in average total loans to $786.9 million, as<br> compared with average total loans of $600.2 million for the second quarter of 2019.
---	---
-	Loan fees totaled $2.9 million, an increase of $234,000 or 8.8%.
---	---
-	Yield on our interest earning assets totaled 5.95%, a decrease of 84 basis points or 12.4%, compared to yield on our interest earning assets of 6.79% for the same period in 2019; and
---	---
-	Net interest margin for the first six months of 2020 was 5.14% compared to 5.54% for the same period in 2019.
---	---

Net Interest Income and Net Interest Margin Excluding Loan Fee Income. Due to fluctuating levels of nonrecurring loan fee income, we have illustrated our net interest margin below, excluding loan fee income.  Net interest income, representing interest income less interest expense, was the primary contributor to income and earnings for the periods shown below. Interest income is generated from interest earned on loans, dividends, and interest earned on deposits at other institutions.  Interest expense is incurred on interest-bearing liabilities including deposits and other borrowings. Net interest income is evaluated by measuring (i) the yield on loans and other interest-earning assets, (ii) the costs of deposits and other funding sources and (iii) net interest margin. Net interest margin is calculated as the annualized net interest income divided by average interest-earning assets.

Changes in market interest rates on interest-earning assets, or paid by us on interest-bearing liabilities, as well as the volume and types of interest-earning assets, interest-bearing and noninterest-bearing liabilities, are usually the largest drivers of periodic changes in net interest margin and net interest income.

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.

33

---

Table of Contents

	Net Interest Margin Excluding Loan Fee Income
	For the Three Months Ended June 30,
	2020							2019
	Average<br><br> <br>Balance		Interest<br><br> <br>Income/<br><br> <br>Expense		Average<br><br> <br>Yield/<br><br> <br>Rate			Average<br><br> <br>Balance		Interest<br><br> <br>Income/<br><br> <br>Expense		Average<br><br> <br>Yield/<br><br> <br>Rate
	(Dollars in thousands)
Interest-earning assets:
Short-term investments^(1)^	$	134,764	$	156		0.47	%	$	162,056	$	941		2.33	%
Investment securities^(2)^		1,089		15		5.54			1,063		24		9.06
Loans held for sale		222		—		0.00			179		—		0.00
Total loans^(3)^		826,111		11,753		5.72			613,892		10,732		7.01
Total interest-earning assets		962,186		11,924		4.98			777,190		11,697		6.04
Noninterest-earning assets		9,187							9,583
Total assets	$	971,373						$	786,773
Funding sources:
Interest-bearing liabilities:
Deposits:
Transaction accounts	$	373,812		704		0.76	%	$	294,926		1,388		1.89	%
Time deposits		219,990		923		1.69			205,978		1,095		2.13
Total interest-bearing deposits		593,802		1,627		1.10			500,904		2,483		1.99
Total interest-bearing liabilities		593,802		1,627		1.10			500,904		2,483		1.99
Noninterest-bearing liabilities:
Noninterest-bearing deposits		272,373							185,715
Other noninterest-bearing liabilities		5,729							4,110
Total noninterest-bearing liabilities		278,102							189,825
Shareholders’ equity		99,469							96,044
Total liabilities and shareholders’ equity	$	971,373						$	786,773
Net interest income excluding loan fee income			$	10,297						$	9,214
Net interest spread excluding loan fee income^(4)^						3.88	%						4.05	%
Net interest margin excluding loan fee income						4.30	%						4.76	%
(1)	Includes income and average balances for fed funds sold, interest-earning deposits in banks and other miscellaneous interest-earning assets.
---	---
(2)	Includes income and average balances for FHLB and FRB stock.
---	---
(3)	Non-accrual loans are included in loans.
---	---
(4)	Net interest spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.
---	---

For the second quarter of 2020 compared to the second quarter of 2019:

-	Interest income on short term investments totaled $156,000 as compared to $941,000, a decrease of $785,000 or 83.4% which was attributable to a $27.3 million decrease, or 16.8%, in average balances of<br> interest bearing deposits at other financial institutions and a decrease in yield of 186 basis points, or 80.0%.
-	Total interest income on loans, excluding loan fee income, increased $1.0 million or 9.5% to $11.8 million which was attributable to a $212.2 million increase in average total loans to $826.1 million as<br> compared with average total loans of $613.9 million for the second quarter of 2019.
---	---
-	Yield on interest-earning assets, excluding loan fee income, totaled 4.98%, a decrease of 106 basis points or 17.5%, compared to yield on interest-earning assets excluding fee income of 6.04% for the second<br> quarter of 2019, and
---	---
-	Net interest margin, excluding loan fee income, totaled 4.30%, a decrease of 46 basis points or 9.7%, compared to net interest margin excluding loan fee income of 4.76% for the second quarter of 2019.
---	---

34

---

Table of Contents

	Net Interest Margin Excluding Loan Fee Income
	For the Six Months Ended June 30,
	2020							2019
	Average<br><br> <br>Balance		Interest<br><br> <br>Income/<br><br> <br>Expense		Average<br><br> <br>Yield/<br><br> <br>Rate			Average<br><br> <br>Balance		Interest<br><br> <br>Income/<br><br> <br>Expense		Average<br><br> <br>Yield/<br><br> <br>Rate
	(Dollars in thousands)
Interest-earning assets:
Short-term investments^(1)^	$	125,906	$	554		0.88	%	$	160,129	$	1,896		2.39	%
Investment securities^(2)^		1,095		18		3.31			1,059		24		4.57
Loans held for sale		174		—		0.00			195		—		0.00
Total loans^(3)^		786,943		23,599		6.03			600,224		21,065		7.08
Total interest-earning assets		914,118		24,171		5.32			761,607		22,985		6.09
Noninterest-earning assets		8,969							9,014
Total assets	$	923,087						$	770,621
Funding sources:
Interest-bearing liabilities:
Deposits:
Transaction accounts	$	358,167		1,714		0.96	%	$	290,204		2,687		1.87	%
Time deposits		212,537		1,988		1.88			199,276		2,020		2.04
Total interest-bearing deposits		570,704		3,702		1.30			489,480		4,707		1.94
Total interest-bearing liabilities		570,704		3,702		1.30			489,480		4,707		1.94
Noninterest-bearing liabilities:
Noninterest-bearing deposits		246,630							182,760
Other noninterest-bearing liabilities		5,160							4,938
Total noninterest-bearing liabilities		251,790							187,698
Shareholders’ equity		100,593							93,443
Total liabilities and shareholders’ equity	$	923,087						$	770,621
Net interest income excluding loan fee income			$	20,469						$	18,278
Net interest spread excluding loan fee income^(4)^						4.01	%						4.15	%
Net interest margin excluding loan fee income						4.50	%						4.84	%
(1)	Includes income and average balances for fed funds sold, interest-earning deposits in banks and other miscellaneous interest-earning assets.
---	---
(2)	Includes income and average balances for FHLB and FRB stock.
---	---
(3)	Non-accrual loans are included in loans.
---	---
(4)	Net interest spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.
---	---

For the first six months of 2020 compared to the same period in 2019:

-	Interest income on short term investments totaled $554,000 as compared to $1.9 million, a decrease of $1.3 million or 70.8% which was attributable to a $34.2 million decrease, or 21.4%, in average balances of<br> interest bearing deposits at other financial institutions and a decrease in yield of 151 basis points, or 63.2%.
-	Total interest income on loans, excluding loan fee income, increased $2.5 million or 12.0% to $23.6 million which was attributable to a $186.7 million increase in average total loans to $786.9 million as<br> compared with the average total loans of $600.2 million for the second quarter of 2019.
---	---
-	Yield on interest-earning assets, excluding loan fee income, totaled 5.32%, a decrease of 77 basis points or 12.6%, compared to yield on interest-earning assets excluding fee income of 6.09% for the same<br> period in 2019; and
---	---
-	Net interest margin, excluding loan fee income, for the first six months of 2020 was 4.50% compared to 4.84% for the same period in 2019.
---	---

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).

35

---

Table of Contents

	Analysis of Changes in Interest Income and<br><br> <br>Expenses Including Loan Fee Income
	For the Three Months Ended<br><br> <br>June 30, 2020 over 2019
	Change due to:
	Volume^(1)^			Rate^(1)^			Interest<br><br> <br>Variance
	(Dollars in thousands)
Increase (decrease) in interest income:
Short-term investments	$	(158	)	$	(627	)	$	(785	)
Investment securities		1			(10	)		(9	)
Total loans		4,172			(2,888	)		1,284
Total increase in interest income		4,014			(3,524	)		490
Increase (decrease) in interest expense:
Deposits
Transaction accounts		370			(1,054	)		(684	)
Time deposits		74			(246	)		(172	)
Total interest-bearing deposits		445			(1,301	)		(856	)
Total increase in interest expense		445			(1,301	)		(856	)
Increase (Decrease) in net interest income	$	3,570		$	(2,224	)	$	1,346
	Analysis of Changes in Interest Income and<br><br> <br>Expenses Including Loan Fee Income
---	---	---	---	---	---	---	---	---	---
	For the Six Months Ended<br><br> <br>June 30, 2020 over 2019
	Change due to:
	Volume^(1)^			Rate^(1)^			Interest<br><br> <br>Variance
	(Dollars in thousands)
Increase (decrease) in interest income:
Short-term investments	$	(1,643	)	$	301		$	(1,342	)
Investment securities		3			(9	)		(6	)
Total loans		29,927			(27,159	)		2,768
Total increase in interest income		28,287			(26,867	)		1,420
Increase (decrease) in interest expense:
Deposits
Transaction accounts		2,552			(3,525	)		(973	)
Time deposits		545			(577	)		(32	)
Total interest-bearing deposits		3,097			(4,102	)		(1,005	)
Total increase in interest expense		3,097			(4,102	)		(1,005	)
Increase (Decrease) in net interest income	$	25,190		$	(22,765	)	$	2,425
(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.
---	---

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. 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.

36

---

Table of Contents

The allowance as a percentage of loans was 1.18% at June 30, 2020 as compared to 1.11% at December 31, 2019. The increase was primarily due to provision expense of $2.05 million during the six months ended June 30, 2020.

Noninterest Income

Noninterest income for the three months ended June 30, 2020 was $301,000 compared to $295,000 for the same period in 2019, an increase of $6,000, or 2.0%.  The following table sets forth the major components of our noninterest income for the three months ended June 30, 2020 and 2019:

	For the Three Months Ended<br><br> <br>June 30,
	2020		2019		Increase<br> (Decrease)		% Increase<br><br> <br>(Decrease)
	(Dollars in thousands)
Noninterest income:
Service charges on deposit accounts	$	39	$	40		)		-2.50	%
Secondary market income		95		109		)		-12.84
Other income and fees		167		146				14.38
Total noninterest income	$	301	$	295				2.03	%

All values are in US Dollars.

Noninterest income for the six months ended June 30, 2020 was $631,000 compared to $518,000 for the same period in 2019, an increase of $113,000 or 21.8%.  The following table sets forth the major components of our noninterest income for the six months ended June 30, 2020 and 2019:

	For the Six Months Ended<br><br> <br>June 30,
	2020		2019		Increase<br> (Decrease)	% Increase<br><br> <br>(Decrease)
	(Dollars in thousands)
Noninterest income:
Service charges on deposit accounts	$	77	$	77			0.00	%
Secondary market income		214		169			26.63
Other income and fees		340		272			25.00
Total noninterest income	$	631	$	518			21.81	%

All values are in US Dollars.

Noninterest Expense

Noninterest expense for the three months ended June 30, 2020 was $4.1 million compared to $4.0 million for the same period in 2019, an increase of $75,000, or 1.9%. The following table sets forth the major components of our noninterest expense for the three months ended June 30, 2020 and 2019:

	For the Three Months Ended<br><br> <br>June 30,
	2020		2019		Increase<br> (Decrease)		% Increase<br><br> <br>(Decrease)
	(Dollars in thousands)
Noninterest expense:
Salaries and employee benefits	$	2,597	$	2,365				9.81	%
Furniture and equipment		218		218				0.00
Occupancy		413		378				9.26
Data and item processing		269		276		)		(2.54	)
Accounting, marketing, and legal fees		77		142		)		(45.77	)
Regulatory assessments		94		31				203.23
Advertising and public relations		29		92		)		(68.48	)
Travel, lodging and entertainment		43		92		)		(53.26	)
Other expense		383		454		)		(15.64	)
Total noninterest expense	$	4,123	$	4,048				1.85	%

All values are in US Dollars.

37

---

Table of Contents

Salaries and employee benefits totaled $2.6 million for the second quarter of 2020 compared to $2.4 million for the same period in 2019, an increase of $232,000 or 9.8%.  This increase related to additional personnel costs associated with two new branches.

Noninterest expense for the six months ended June 30, 2020 was $8.5 million compared to $7.8 million for the same period in 2019, an increase of $673,000, or 8.6%. The following table sets forth the major components of our noninterest expense for the six months ended June 30, 2020 and 2019:

	For the Six Months Ended<br><br> <br>June 30,
	2020		2019		Increase<br> (Decrease)		% Increase<br><br> <br>(Decrease)
	(Dollars in thousands)
Noninterest expense:
Salaries and employee benefits	$	5,071	$	4,536				11.79	%
Furniture and equipment		434		377				15.12
Occupancy		874		721				21.22
Data and item processing		545		538				1.30
Accounting, marketing, and legal fees		203		289		)		(29.76	)
Regulatory assessments		117		63				85.71
Advertising and public relations		298		278				7.19
Travel, lodging and entertainment		96		134		)		(28.36	)
Other expense		838		867		)		(3.34	)
Total noninterest expense	$	8,476	$	7,803				8.62	%

All values are in US Dollars.

Salaries and employee benefits totaled $5.1 million for the six months ended June 30, 2020 compared to $4.5 million for the same period in 2019, an increase of $535,000 or 11.8%.  This increase related to additional personnel costs associated with two new branches.

Financial Condition

The following discussion of our financial condition compares June 30, 2020 and December 31, 2019.

Total Assets

Total assets increased $137.7 million, or 15.9%, to $1.0 billion as of June 30, 2020, as compared to $866.4 million as of December 31, 2019. 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, our expansion into the Tulsa market and the addition of PPP loans.

Loan Portfolio

Our loans represent the largest portion of our earning assets. The quality and diversification of the loan portfolio is an important consideration when reviewing our financial condition. As of June 30, 2020 and December 31, 2019, our gross loans were $840.2 million and $708.7 million, respectively.  Included in the commercial & industrial loan balance at June 30, 2020, are $64.0 million of loans that were originated under the SBA PPP program.

38

---

Table of Contents

The following table presents the balance and associated percentage of each major category in our loan portfolio as of June 30, 2020, and December 31, 2019:

	As of June 30,						As of December 31,
	2020						2019
	Amount			% of Total			Amount			% of Total
	(Dollars in thousands)
Construction & development	$	92,380			11.0	%	$	70,628			10.0	%
1-4 family real estate		29,675			3.5			34,160			4.8
Commercial real estate – other		285,609			34.0			273,278			38.5
Total commercial real estate		407,664			48.5			378,066			53.3
Commercial & industrial		372,554			44.3			260,762			36.8
Agricultural		49,274			5.9			57,945			8.2
Consumer		10,713			1.3			11,895			1.7
Gross loans		840,205			100.0	%		708,668			100.0	%
Less unearned income, net		(2,262	)					(1,364	)
Total loans		837,943						707,304
Allowance for loan and lease losses		(9,878	)					(7,846	)
Net loans	$	828,065					$	699,458

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, 2020
	Due in One Year or Less				Due after One Year<br><br> <br>Through Five Years				Due after Five Years
	Fixed<br><br> <br>Rate		Adjustable<br><br> <br>Rate		Fixed<br><br> <br>Rate		Adjustable<br><br> <br>Rate		Fixed<br><br> <br>Rate		Adjustable<br><br> <br>Rate		Total
	(Dollars in thousands)
Construction & development	$	-	$	46,469	$	887	$	44,581	$	—	$	443	$	92,380
1-4 family commercial		265		13,947		4,313		10,410		41		699		29,675
Commercial real estate – other		33		51,301		39,420		188,124		1,969		4,762		285,609
Total commercial real estate		298		111,717		44,620		243,115		2,010		5,904		407,664
Commercial & industrial		29,158		183,966		33,220		119,550		12		6,648		372,554
Agricultural		5,134		30,418		2,941		9,945		64		772		49,274
Consumer		1,937		155		7,136		81		977		427		10,713
Gross loans	$	36,527	$	326,256	$	87,917	$	372,691	$	3,063	$	13,751	$	840,205

39

---

Table of Contents

	As of December 31, 2019
	Due in One Year or Less				Due after One Year<br><br> <br>Through Five Years				Due after Five Years
	Fixed<br><br> <br>Rate		Adjustable<br><br> <br>Rate		Fixed<br><br> <br>Rate		Adjustable<br><br> <br>Rate		Fixed<br><br> <br>Rate		Adjustable<br><br> <br>Rate		Total
	(Dollars in thousands)
Construction & development	$	—	$	31,860	$	833	$	37,483	$	—	$	452	$	70,628
1-4 family real estate		282		9,598		3,843		19,676		43		718		34,160
Commercial real estate - other		1,849		23.533		23,194		219,390		335		4,977		273,278
Total real estate		2,131		64,991		27,870		276,549		378		6,147		378,066
Commercial & industrial		11,677		176,329		9,973		54,233		12		8,538		260,762
Agricultural		3,947		34,875		2,786		13,055		1,319		1,963		57,945
Consumer		2,042		—		4,824		159		4,047		823		11,895
Gross loans	$	19,797	$	276,195	$	45,453	$	343,996	$	5,756	$	17,471	$	708,668

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 $9.9 million at June 30, 2020, compared to $7.8 million at December 31, 2019.

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

	For the Six Months Ended
	June 30,<br><br> <br>2020			December 31,<br><br> <br>2019
	(Dollars in thousands)
Balance at beginning of the period	$	7,846		$	7,832
Provision for loan losses		2,050			—
Charge-offs:
Construction & development		—			—
1-4 family commercial		—			(2	)
Commercial real estate – other		—			—
Commercial & industrial		(39	)		(4	)
Agricultural		—			(11	)
Consumer		—			(1	)
Total charge-offs		(39	)		(18	)
Recoveries:
Construction & development		—			—
1-4 family commercial		2			5
Commercial real estate – other		—			—
Commercial & industrial		9			24
Agricultural		10			3
Consumer		—			—
Total recoveries		21			32
Net recoveries (charge-offs)		(18	)		14
Balance at end of the period	$	9,878		$	7,846

40

---

Table of Contents

While the entire allowance is available to absorb losses from any and all loans, the following table represents management’s allocation of the allowance by loan category, and the percentage of allowance in each category, for the periods indicated:

	As of June 30,					As of December 31,
	2020					2019
	Amount		Percent			Amount		Percent
	(Dollars in thousands)
Construction & development	$	1,086		10.99	%	$	782		9.97	%
1-4 family commercial		349		3.53			378		4.82
Commercial real estate - other		3,358		34.00			3,025		38.55
Commercial & industrial		4,380		44.34			2,887		36.80
Agricultural		579		5.86			642		8.18
Consumer		126		1.28			132		1.68
Total	$	9,878		100.0	%	$	7,846		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 borrower on a restructured 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.

41

---

Table of Contents

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<br><br> <br>June 30,			As of<br><br> <br>December 31,
	2020			2019
	(Dollars in thousands)
Nonaccrual loans	$	7,127		$	1,809
Troubled debt restructurings ^(1)^		786			912
Accruing loans 90 or more days past due		—			612
Total nonperforming loans		7,913			3,333
Other real estate owned		—			—
Total nonperforming assets	$	7,913		$	3,333
Ratio of nonperforming loans to total loans		0.94	%		0.47	%
Ratio of nonperforming assets to total assets		0.79	%		0.38	%
(1)	$1.71 million and $1.81 million of TDRs as of June 30, 2020 and December 31, 2019, respectively, 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, 2020
	Loans<br><br> <br>30-59 days<br><br> <br>past due		Loans<br><br> <br>60-89 days<br><br> <br>past due		Loans<br><br> <br>90+ days<br><br> <br>past due		Total<br><br> <br>Loans 90+<br><br> <br>days and<br><br> <br>accruing		Total past<br><br> <br>due<br><br> <br>Loans		Current		Gross<br><br> <br>Loans
	(Dollars in thousands)
Construction & development	$	—	$	—	$	—	$	—	$	—	$	92,380	$	92,380
1-4 family commercial		—		—		—		—		—		29,675		29,675
Commercial real estate - other		—		—		—		—		—		285,609		285,609
Commercial & industrial		329		6		—		—		335		372,219		372,554
Agricultural		57		—		—		—		57		49,217		49,274
Consumer		89		—		—		—		89		10,624		10,713
Total	$	475	$	6	$	—	$	—	$	481	$	839,724	$	840,205
	As of December 31, 2019
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
	Loans<br><br> <br>30-59 days<br><br> <br>past due		Loans<br><br> <br>60-89 days<br><br> <br>past due		Loans<br><br> <br>90+ days<br><br> <br>past due		Total<br><br> <br>Loans 90+<br><br> <br>days and<br><br> <br>accruing		Total past<br><br> <br>due<br><br> <br>Loans		Current		Gross<br><br> <br>Loans
	(Dollars in thousands)
Construction & development	$	—	$	—	$	—	$	—	$	—	$	70,628	$	70,628
1-4 family commercial		—		—		—		—		—		34,160		34,160
Commercial real estate – other		—		—		—		—		—		273,278		273,278
Commercial & industrial		—		—		14		14		14		260,748		260,762
Agricultural		—		—		598		598		598		57,347		57,945
Consumer		90		—		—		—		90		11,805		11,895
Total	$	90	$	—	$	612	$	612	$	702	$	707,966	$	708,668

42

---

Table of Contents

In addition to the past due and nonaccrual criteria, we also evaluates 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.

Substandard loans totaled $15.5 million as of June 30, 2020, an increase of $4.4 million compared to December 31, 2019. The increase primarily related to one commercial real estate relationship totaling $1.1 million, one agricultural relationship totaling $2.1 million, and two commercial & industrial relationships comprised of one note each, totaling $7.5 million with no specific reserves.

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

	As of June 30, 2020
	Pass		Watch		Special mention		Substandard		Total
	(Dollars in thousands)
Construction & development	$	92,380	$	—	$	—	$	—	$	92,380
1-4 family commercial		27,745		787		—		1,143		29,675
Commercial real estate – other		269,191		9,811		2,998		3,609		285,609
Commercial & industrial		335,070		14,654		15,091		7,739		372,554
Agricultural		45,489		—		—		3,785		49,274
Consumer		10,713		—		—		—		10,713
Total	$	780,588	$	25,252	$	18,089	$	16,276	$	840,205
	As of December 31, 2019
---	---	---	---	---	---	---	---	---	---	---
	Pass		Watch		Special mention		Substandard		Total
	(Dollars in thousands)
Construction & development	$	70,628	$	—	$	—	$	—	$	70,628
1-4 family commercial		33,622		538		—		—		34,160
Commercial real estate – other		267,437		—		—		5,841		273,278
Commercial & industrial		241,176		5,312		11,524		2,750		260,762
Agricultural		53,290		—		2,128		2,527		57,945
Consumer		11,895		—		—		—		11,895
Total	$	678,048	$	5,850	$	13,652	$	11,118	$	708,668

43

---

Table of Contents

Troubled Debt Restructurings

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

The following table presents loans restructured as TDRs as of June 30, 2020 and December 31, 2019.

	As of June 30, 2020
	Number of<br><br> <br>Contracts		Pre-Modification<br><br> <br>Outstanding<br><br> <br>Recorded Investment		Post-Modification<br><br> <br>Outstanding<br><br> <br>Recorded Investment		Specific Reserves<br><br> <br>Allocated
	(Dollars in thousands)
Commercial real estate – other		1	$	1,707	$	1,707	$	26
Agricultural		2		786		786		—
Total		3	$	2,493	$	2,493	$	26
	As of December 31, 2019
---	---	---	---	---	---	---	---	---
	(Dollars in thousands)
Commercial & industrial		1	$	1,809	$	1,809	$	26
Agricultural		2		912		912		—
Total		3	$	2,721	$	2,721	$	26

There were no payment defaults with respect to loans modified as TDRs as of June 30, 2020 and December 31, 2019.

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, 2020 and TDR’s restructured during the twelve months ended December 31, 2019 required $26,000 in specific reserves. There were no charge-offs on TDRs for the six months ended June 30, 2020 or the twelve months ended December 31, 2019.

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

	As of June 30, 2020				As of December 31, 2019
	Number of<br><br> <br>Contracts		Amount		Number of<br><br> <br>Contracts		Amount
			(Dollars in thousands)
Accrual		2	$	786		2	$	912
Nonaccrual		1		1,707		1		1,809
Total		3	$	2,493		3	$	2,721

The CARES Act includes a provision that permits a financial institution to elect to suspend temporarily troubled debt restructuring accounting under ASC Subtopic 310-40 in certain circumstances (“section 4013”). To be eligible under section 4013, a loan modification must be (1) related to COVID-19; (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (A) 60 days after the date of termination of the National Emergency or (B) December 31, 2020. In response to this section of the CARES Act, the federal banking agencies issued a revised interagency statement on April 7, 2020 that, in consultation with the Financial Accounting Standards Board, confirmed that for loans not subject to section 4013, short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not troubled debt restructurings under ASC Subtopic 310-40.  In the six months ending June 30, 2020, 174 loans totaling $312.8 million were modified, related to COVID-19, which were not considered troubled debt restructurings.

44

---

Table of Contents

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, 2020 and December 31, 2019 were $894.2 million and $757.5 million, respectively. The following table sets forth deposit balances by certain categories as of the dates indicated and the percentage of each deposit category to total deposits.

					As of December 31,
					2019
		Percentage<br><br> <br>of<br><br> <br>Total			Amount		Percentage<br><br> <br>of<br><br> <br>Total
Noninterest-bearing demand	304,250		34.0	%	$	219,221		29.0	%
Interest-bearing:
NOW deposits	175,592		19.6			112,420		14.8
Money market	147,244		16.5			150,554		19.9
Savings deposits	55,758		6.3			72,750		9.6
Time deposits (more than 100,000)	183,564		20.8			173,898		22.9
Time deposits (100,000 or less)	27,823		2.8			28,640		3.8
Total interest-bearing	589,981		66.0			538,262		71.0
Total deposits	894,231		100.0	%	$	757,483		100.0	%

All values are in US Dollars.

The following table summarizes our average deposit balances and weighted average rates for the six-month period ending June 30, 2020 and year ended December 31, 2019:

	For the Six Months Ended<br><br> <br>June 30,					For the Year Ended<br><br> <br>December 31,
	2020					2019
	Average<br><br> <br>Balance		Weighted<br><br> <br>Average<br><br> <br>Rate			Average<br><br> <br>Balance		Weighted<br><br> <br>Average<br><br> <br>Rate
	(Dollars in thousands)
Noninterest-bearing demand	$	246,630		0.00	%	$	192,562		0.00	%
Interest-bearing:
NOW		145,857		1.02			95,694		1.83
Money market		149,346		0.93			132,265		1.83
Savings		62,963		0.73			67,617		1.30
Time		212,538		1.88			208,375		2.14
Total interest-bearing		570,704		1.29			503,951		1.89
Total deposits	$	817,334		0.90	%	$	696,513		1.37	%

45

---

Table of Contents

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

		Three to<br><br> <br>Six Months		Six to<br><br> <br>12 Months		After<br><br> <br>12 Months		Total
Time deposits (100,000 or less)	6,291	$	4,366	$	9,712	$	7,454	$	27,823
Time deposits (more than 100,000)	41,362		29,567		56,542		56,093		183,564
Total time deposits	47,653	$	33,933	$	66,254	$	63,547	$	211,387

All values are in US Dollars.

		Three to<br><br> <br>Six Months		Six to<br><br> <br>12 Months		After<br><br> <br>12 Months		Total
Time deposits (100,000 or less)	6,998	$	5,024	$	8,387	$	8,231	$	28,640
Time deposits (more than 100,000)	52,048		34,126		49,700		38,024		173,898
Total time deposits	59,046	$	39,150	$	58,087	$	46,255	$	202,538

All values are in US Dollars.

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 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, 2020, 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 $72.6 million as of June 30, 2020 and $71.7 million as of December 31, 2019.

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, 2020, 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, 2020 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, 2020 and December 31, 2019. 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, 2020, the Company and the Bank met all capital adequacy requirements under the Basel III Capital Rules.

46

---

Table of Contents

	Actual					With<br><br> <br>Capital Conservation<br><br> <br>Buffer					Minimum<br><br> <br>To be Considered<br><br> <br>“Well-Capitalized”
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
As of June 30, 2020:
Total capital to risk-weighted assets
Company	$	109,490		14.33	%	$	80,245		10.50	%		N/A		N/A
Bank		109,435		14.34			80,181		10.50			76,325		10.00	%
Tier 1 capital to risk-weighted assets
Company		99,933		13.08			64,960		8.50			N/A		N/A
Bank		99,891		13.09			64,876		8.50			61,060		8.00
CET 1 capital to risk-weighted assets
Company		99,933		13.08			53,497		7.00			N/A		N/A
Bank		99,891		13.09			53,427		7.00			49,611		6.50
Tier 1 leverage ratio
Company		99,933		10.31			N/A		N/A			N/A		N/A
Bank		99,891		10.30			N/A		N/A			48,502		5.00
	Actual					With<br><br> <br>Capital Conservation<br><br> <br>Buffer					Minimum<br><br> <br>To be Considered<br><br> <br>“Well-Capitalized”
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
As of December 31, 2019:
Total capital to risk-weighted assets
Company	$	105,137		15.25	%	$	72,393		10.50	%		N/A		N/A
Bank		106,148		15.42			72,287		10.50			68,845		10.00	%
Tier 1 capital to risk-weighted assets
Company		97,291		14.11			58,604		8.50			N/A		N/A
Bank		98,302		14.28			58,518		8.50			55,076		8.00
CET 1 capital to risk-weighted assets
Company		97,291		14.11			48,262		7.00			N/A		N/A
Bank		98,302		14.28			48,192		7.00			44,749		6.50
Tier 1 leverage ratio
Company		97,291		11.53			N/A		N/A			N/A		N/A
Bank		98,302		11.65			N/A		N/A			42,241		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 to $101.6 million as of June 30, 2020, compared to $100.1 million as of December 31, 2019. The increases were driven by retained capital from net income during the periods.

47

---

Table of Contents

Contractual Obligations

The following tables contain supplemental information regarding our total contractual obligations as of June 30, 2020, and December 31, 2019:

	Payments Due as of June 30, 2020
	Within<br><br> <br>One Year		One to<br><br> <br>Three Years		Three to<br><br> <br>Five Years		After<br><br> <br>Five Years		Total
	(Dollars in thousands)
Deposits without a stated maturity	$	682,844	$	—	$	—	$	—	$	682,844
Time deposits		147,840		62,728		819		—		211,387
Borrowings		—		—		—		—		—
Operating lease commitments		603		502		126		—		1,231
Total contractual obligations	$	831,287	$	63,230	$	945	$	—	$	895,462
	Payments Due as of December 31, 2019
---	---	---	---	---	---	---	---	---	---	---
	Within<br><br> <br>One Year		One to<br><br> <br>Three Years		Three to<br><br> <br>Five Years		After<br><br> <br>Five Years		Total
	(Dollars in thousands)
Deposits without a stated maturity	$	554,945	$	—	$	—	$	—	$	554,945
Time deposits		156,283		44,310		1,945		—		202,538
Borrowings		—		—		—		—		—
Operating lease commitments		623		845		49		—		1,517
Total contractual obligations	$	711,851	$	45,155	$	1,994	$	—	$	759,000

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<br><br> <br>June 30,<br><br> <br>2020		As of<br><br> <br>December 31,<br><br> <br>2019
	(Dollars in thousands)
Commitments to extend credit	$	177,804	$	191,459
Standby letters of credit		2,594		3,338
Total	$	180,398	$	194,797

48

---

Table of Contents

  Critical Accounting Policies and Estimates

Our accounting and reporting policies conform to GAAP and conform to general practices within the industry in which we operate. To prepare financial statements in conformity with GAAP, management makes estimates, assumptions and judgments based on available information. These estimates, assumptions and judgments affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the financial statements and, as this information changes, actual results could differ from the estimates, assumptions and judgments reflected in the financial statement. In particular, management has identified several accounting policies that, due to the estimates, assumptions and judgments inherent in those policies, are critical in understanding our financial statements.

The 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 consolidated unaudited financial statements as of June 30, 2020.

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

Goodwill from an acquisition is the value attributable to unidentifiable intangible elements acquired. At a minimum, annual evaluation of the value of goodwill is required. Management evaluated the carrying value of our goodwill as of June 30, 2020 and December 31, 2019.  During the period ended June 30, 2020, the economic stress and market volatility resulting from the COVID-19 pandemic resulted in a substantial decrease in our stock price and market capitalization. Management believed such decrease was a triggering indicator requiring an interim goodwill impairment qualitative analysis which resulted in no impairment charge for the period ended June 30, 2020. Refer to Note 1, Nature of Operations and Summary of Significant Accounting Policies, in the notes to our consolidated financial statements included elsewhere in this report for additional information.

An entity may assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Factors assessed include all relevant events and circumstances including macroeconomic conditions, industry and market conditions, cost factors that have a negative effect on earnings and cash flows, overall financial performance, other relevant entity or reporting unit specific events and, if applicable, a sustained decrease in share price.

If after assessing the totality of events or circumstances, such as those described above, an entity determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the entity is to perform a two-step impairment test.

The first step of the impairment test compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, the second step of the impairment test is to be performed to measure the amount of impairment loss, if any, when it is more likely than not that goodwill impairment exists.

49

---

Table of Contents

Other intangible assets consist of core deposit intangible assets and are amortized on a straight-line basis based on the 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.

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

There have been no significant changes in our disclosures regarding market risk since December 31, 2019, the date of our most recent annual report to shareholders.

ITEM 4.

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, 2020 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, 2020 that has materially affected, or is reasonably likely to materially affect, such controls.

PART II

ITEM 1.

Legal Proceedings

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.

50

---

Table of Contents

ITEM 1A.

Risk Factors

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, 2019 and the supplemental risk factor information disclosed on Form 10-Q for the period ended March 31, 2020.

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

The table below sets forth our market repurchases of Bank7 Corp. common stock and the Bank7 common shares retained in connection with net settlement of restricted stock awards during the six months ended June 30, 2020. On September 5, 2019, the Company’s Board of Directors approved a stock repurchase program 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 to the existing stock repurchase program, for a total of 1,000,000 shares authorized under the program. 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 programs 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 programs will be retired subsequent to acquisition. During the six months ended June 30, 2020, there were 831,254 shares purchased under the programs with 168,746 shares remaining under the Board-authorized stock repurchase program.

	Number of Shares<br><br> <br>Purchased		Average Price Paid<br><br> <br>Per Share		Number of Shares That<br><br> <br>May Yet be Purchased<br><br> <br>Under the Program
	(Dollars in thousands, except per share data)
January 1, 2020 to January 31, 2020		—		—		—
February 1, 2020 to February 29, 2020		—		—		—
March 1, 2020 to March 31, 2020		793,094	$	8.59		206,906
April 1, 2020 to April 30, 2020		28,395	$	7.28		178,511
May 1, 2020 to May 31, 2020		9,765	$	9.69		168,746
June 1, 2020 to June 30, 2020		—		—		168,746
For the Six Months Ended June 30, 2020		831,254	$	8.56		168,746

ITEM 6.

Exhibits

31.1	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
31.2	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
32.1*	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.

51

---

Table of Contents

SIGNATURES

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 14, 2020	By:	/s/ Thomas L. Travis
		Thomas L. Travis
		President and Chief Executive Officer
DATED:	August 14, 2020	By:	/s/ Kelly J. Harris
		Kelly J. Harris
		Senior Vice President and Chief Financial Officer

52

---

---

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

UNDER SECURITIES EXCHANGE ACT RULE 13a-14(a)

I, Thomas L. Travis, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Bank7 Corp.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such<br> statements were made, not misleading with respect to the period covered by this report;
---	---
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of<br> the registrant as of, and for, the periods presented in this report;
---	---
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control<br> over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
---	---
a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under  our supervision, to ensure that material information relating to the registrant, including<br> its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
---	---
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of<br> financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
---	---
c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of<br> the period covered by this report based on such evaluation; and
---	---
d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the<br> case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
---	---
5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the<br> registrant's board of directors (or persons performing the equivalent functions):
---	---
a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record,<br> process, summarize and report financial information; and
---	---
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
---	---
	/s/ Thomas L. Travis
---	---
Date: August 14, 2020	Thomas L. Travis
	President and Chief Executive Officer (Principal<br><br> <br>Executive Officer)

---

---

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

UNDER SECURITIES EXCHANGE ACT RULE 13a-14(a)

I, Kelly J. Harris, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Bank7 Corp.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such<br> statements were made, not misleading with respect to the period covered by this report;
---	---
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of<br> the registrant as of, and for, the periods presented in this report;
---	---
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control<br> over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
---	---
a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under  our supervision, to ensure that material information relating to the registrant, including<br> its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
---	---
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of<br> financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
---	---
c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of<br> the period covered by this report based on such evaluation; and
---	---
d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the<br> case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
---	---
5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the<br> registrant's board of directors (or persons performing the equivalent functions):
---	---
a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record,<br> process, summarize and report financial information; and
---	---
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
---	---
	/s/ Kelly J. Harris
---	---
Date: August 14, 2020	Kelly J. Harris
	Senior Vice President and Chief Financial Officer<br><br> <br>(Principal Financial Officer)

---

Exhibit 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER

UNDER 18 U.S.C. § 1350 FURNISHED PURSUANT TO SECURITIES EXCHANGE ACT RULE 13a-14(b)

In connection with the Quarterly Report of Bank7 Corp. (the “Company”) on Form 10-Q for the period ended on June 30, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned, in his respective capacities indicated below, hereby certifies, pursuant to 18 U.S.C. § 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge and belief, (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/s/ Thomas L. Travis
Date: August 14, 2020	Thomas L. Travis
	President and Chief Executive Officer (Principal<br><br> <br>Executive Officer)
/s/ Kelly J. Harris
---
Kelly J. Harris
Senior Vice President and Chief Financial Officer<br><br> <br>(Principal Financial Officer)

---